Niger - Structural Adjustment Program Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 10845 PROJECT COMPLETION REPORT REPUBLIC OF NIGER STRUCTURAL ADJUSTMENT PROGRAM (SAL I) (IDA CREDIT 1660-NIR AND AFRICAN FACILITY CREDIT A-012-NIR) JUNE 30, 1992 V- WA~~~~A Country Operations Division Sahel Department Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (annual averages) Currency Unit = CFA Franc (CFAF)* 1986 US$1.00 = CFAF 346.30 1987 US$ 1.00 = CFAF 300.54 1988 US$1.00 = CFAF 297.85 1989 US$ 1.00 = CFAF 319.01 1990 US$1.00 = CFAF 272.26 1991 US$1.00 - CFAF 282.1 i ABBREVIATIONS AND ACRONYMS BCEAO - Banque Centrale des Etats de I'Afrique de l'Ouest BRDN - Banque de D6veloppement de ia Republique du Niger CNCA - Caisse Nationale de Cr6dit Agricole OPVNI - Office des Produits Vivriers du Niger PCR - Program Completion Report PESAP - Public Enterprise Sector Adjustment Program PIP - Public Investment Program SAL - Structural Adjustment Loan (Credit) UMOA - Union Monetaire Ouest Africaine (West African Monetary Fund) UNDP - United Nations Development Programme FISCAL YEAR October I to September 30 *The CFAF is tied to the French Franc at the rate ot' FF I to CFA F 50.  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation June 30, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Program Completion Report on Niger - Structural Adjustment Program (SAL I) (IDA Credit 1660-NIR and African Facility Credit A-012-NIR) Attached, for information, is a copy of a report entitled "Program Completion Report on Niger - Structural Adjustment Program (SAL I) (IDA Credit 1660-NIR and African Facility Credit A-012- NIR)" prepared by the Africa Regional Office with Part 11 of the report contributed by the Borrower. No audit of this program has been made by the Operations Evaluadion Department at this time. Yves Rovani by H. Eberhard Kopp Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFICIAL USE ONLY PROGRAM COMPLETION REPORT REPUBLTC OF NTGER STRUCTURAL ADJUSTMENT PROGRAM (SAL 11 (IDA CREDIT 1660-NIR AND AFRICAN FACILITY CREDIT A-012-NIRt) TABLE OF CONTENTS Page No. PREFACE ....... ...................................... i EVALUATION SUMMARY ................................... iii PART 1: PROGRAM REVIEW FROM THE BANK'S PERSPECTIVE ........ I A. Program Identity ........................1.............. I B. Program Background .................................... I C. Program Experience .................................... 3 Preparation ......................................... 3 Objectives and Design .................................. 4 D. Implementation ....................................... 6 E. Major Program Results .................................. 7 Overview .......................................... 7 Macroeconomic Performance ....................e 8 Public Resource Management ...... ........................ 9 Parastatal Reform ..................................... 10 Agricultural Policy ........ ............................ 10 F. Performance ......................................... 11 Bank Performance ..................................... 11 Borrower Performance .................................. 12 Project Relationship .................................... 13 Procurement and Disbursement ............................. 13 G. Lessons Learned ....................................... 13 PART 11: PROGRAM REVIEW FROM THE BORROWER'S PERSPECTIVE ... 15 English Summary .............. .......................... 15 PART III: STATISTICAL INFORMATION ......................... 21 Basic Data Sheet ....................................... 21 Niger: Key Macroeconomic Indicators ......................... 22 Summary of Actions and Studies Completed ..................... 23 Staff Inputs ....... _ .... _. .. 24 Status of Policy Actions at Board Presentation and Mid-term Review, Plus Later Developments (Policy Matrix) ................. 25 ATTACHMENT: Government Comments on the PCR .................. 31 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  PROGRAM COMPLETION REPORT REPUBLIC OF NIGER STRUCTURAL ADJUSTMENT PROGRAM (SAL I) (1DA CREDIT 1660-NIR AND AFRICAN FACILITY CREDIT A-012-NIR) PREFACE This is the Program Completion Report (PCR) for the first Structural Adjuscment Program in Niger, for which IDA Credit 1660-NIR in the amount of SDR 18 million and Special Fund for Africa Credit No. A-012-NIR in the amount of SDR 36 million were approved on February 18, 1986. The credit was closed on December 31, 1987, as scheduled. It was fully disbursed, with the last disbursement request being received before December 31, 1987, and disbursed with a value date of January 5, 1988. The PCR was jointly prepared by the Country Operations Division of the Sahel DepartmenL, Africa Region (Preface, Evaluation Summary, Parts I and III), and the Borrower (Part II). Preparation of this PCR was based, inter alia, on the President's Report, the Credit Agreement and Letter of Development Policy, supervision reports, correspondence between the Bank and the Borrower, and internal Bank memoranda and reports.  - iii - PROGRAM COMPLETION REPORT REPUBLIC OF NIGER STRUCTURAL ADJUSTMENT PROGRAM (SAL I) (IDA CREDIT 1660-NIR AND AFRICAN FACILITY CREDIT A-012-NIR) EVALUATION SUMMARY Objectives 1. The objectives of structural adjustment in Niger are to improve economic growth prospects while reducing budgetary and external balan^es to sustainable levels. The SAL supported reforms in three areas: public resource management, parastatal reform, and agricultural policy, with the emphasis on areas where inefficiencies were most acute and improvements would have the greatest beneficial impact on the country's budgetary and balance of payments position. Key monitorahle actions included adoption of three-year recurrent expenditure budgets and investment programs in line with the restructuring objectives (in parallel with IMF-assisted expenditure budget reform), reduction in the number of products subject to price control, reduction of agricultural subsidies and price support, and completion of a number of studies preparatory to the next stage of reforms. Implementation Experience 2. A lengthy preparation period, between a May 1984 identification mission and January 1986 appraisal, was required to gather and analyze basic economic and financial data and work out a Government-IDA strategy and programs. During this period, Government continued to implement policy reforms launched in 1983, which SAL I supported and extended. The credits became effective in May 1986. Good performance in policy reform was reported at a March 1986 supervision mission and at the midterm review in November 1986. The only performance shortfalls noted at this time were in the area of agricultural reform, where progress in reforming grain marketing, agricultural credit, and agricultural research was slower than had been hoped, though these delays were not serious enough to delay disbursement of the second tranche, scheduled for early 1987. The credit was fully disbursed by the scheduled closing date. Results 3. The main result of joint efforts under SAL I was to stabilize deficits in the balance of payments and government budget by halting commercial borrowing, increasing concessional loans and reducing debt service payments. Other major policy achievements included liberalization of prices, abolition of monopolies and cutting losses in parastatal enterprises. In terms of short-term economic performance, Government efforts under SAL I contributed to improvement in Niger's economic performance over the 1984-87 period, covering the intensive preparation period and release of the two IDA/SFA credit tranches. External and government budget deficits declined substantially beginning in 1984, inflation fell and GDP grew nearly 8% in 1985, boosted by excellent rains. 4. However, despite sustained and continuing price and trade liberalization and public enterprise reform since completion of this SAL, budgetary and fiscal reform efforts lagged after 1987, and achieving sustained growtf with reasonable budgetary and external imbalances has remained an elusive goal. Niger has experienced a prolonged period of austerity during which GDP has fluctuated  - iv - essentially as a function of rainfall, as in the past. Because farm price liberalization coincided with record harvesFs, many farmers lost expected income in this period as the result of a policy intended to raise farm income. Terms of trade have continued to decline, and balance of payments viibility has again recently t n postponed to 1993 despite mergency debt relief and debt cancellation. 5. Some apparent gains proved superficial and failed to produce needed changes. Reforms in the preparation of investment program documents were not accompanied by reforms in budgetary structures or procedures, required to rationalize resource allocation and strengthen expenditure control. Stated budgetary targets to reduce the wage bill and increase operations and maintenance outlays and social sector expenditure have not been met. Investment programming is not adequately linked with the recurrent budget, nor do technical ministries coordinate their activities with the Planning Ministry. While new procedures and the shift in public investment financing from internal to external sources have resulted in a shift in sectoral composition which is in line with the objectives and strategies of the five- year development plan for 1987-90, the project implementation rate is still too low, primarily for institutional reasons. Stated reform of the cereals marketing agency's function did not lead to changes in internal policies and practices. Reorientation of agricultural research and its forward linkage to local exL.clsion services aid not come until recently (1990i91). Findings and Lessons Learned 6. Ir a country as severely constrained by climate and resources as Niger,; id where important dynamic elements of the economy are either not monetized or unreported, it is important to recognize, as the Government and the Bank did, that productive investment opportunities are difficult to identify and that structural reform is a long-term process. However, it is also necessary to translate this recognition into more modest expectations than were set for SAL I, so that visible gains can sustain long-term effort; to monitor more rigorously, so that progress is not only recorded in documents and indicators but bears real fruit; and to develop better knowledge of private sector constraints, so that private actors car, be both willing and able to provide investment and productive opportunities, once price and trade restrictions are relaxed. 7. Both parties have learned important lessons since the closing of SAL I four years ago. During SAL I, the Bank tended to assume that new private sector investment would fuel economic growth following liberalization measures. In fact, new private investment never materialized due to many disincentives, including failure of the national development bank (BDRN) and subsequent paralysis of the financial sector, the poor and declining competitive position of the economy, a lack of clear signals that Government had changed its traditionally negative stance towards the private sector. Provision was made under the follow-up credit for a Public Enterprise Sector Adjustment Program (PESAP, IDA Cr. 1833) as well as in industry and energy sector work, to identify constraints on private sector activity, and a better understanding of the non-monetized sector of the economy and of cross-border trade with N'geria, much of which goes unrecorded, should also emerge from the currer.c work program. 8. The expectations set for the SAL also underestimated the weakness of the institutions involved in SAL I implementation, the lack of coordination between ministries, and the depth of internal rivalries and entrenchment of interest groups. With the death of President Kountche in 1987 and beyond the SAL I implementation period, these factors sapped the momentum for sustained structural reform from within, while drought, the decline in terms of trade, and inability to respond by adjusting the exchange rate delivered the coup de grace from without. Strategy and policy papers prepared internally and jointly in 1990 and 1991 show a more realistic setting of goals and a renewed emphasis on building implementation capacity.  PROGRAM COMPLETION REPORT REPUBLIC OF NIGER STRUCTURAL ADJUSTMENT PROGRAM (SAL I) (IDA CREDIT 1660-NIR AND AFRICAN FACILITY CREDIT A-012-NIR) PART 1: PROGRAM REVIEW FROM THE BANK'S PERSPECTIVE A. Program Identity Program Name: Structural Adjustment Program Credit No.: IDA Credit 1660-NIR African Facility Credit A-012-NIR RVP Unit: Africa Country: Niger Sector: Non-Project Lending B. Program Background 1. NIiger is a landlocked country subject to desertification, with social indicators among the lowest in Sahelian countries and one of the poorest countries in the world. Since 1965, per capita incomes have declined by an average of 2% per annum. The main constraints to long-term development in Niger are its vulnerability to weather, low level of resources (poor soil, fragile and degrading ecology, low rainfall, low literacy -- 15% for adults), overdependence on a single export, uranium, a highly centralized political system which has impeded broad-based development and slowed development of the formal economy, and the shrinkage since 1984 of the modern, taxable sector. The last-mentioned trend is particularly disquieting, given that only a fraction of rural production is marketed in documented and monetized exchanges, and unrecorded cross-border transfers and international commerce, especially with Nigeria, are estimated to equal roughly half o. recorded total trade. 2. Historically dependent on subsistence agriculture, livestock exports and cross-border trade with Nigeria, Niger's economy was transformed in the 1970s by uranium export receipts. Highly favorable market conditions for uranium in the late seventies fueled the development of the modern sector and propelled the public sector into a don.inant position in the economy, including the creation of a dozen new public enterprises and the rapid expansion of the civil service with increasingly favorable wages and benefits. Favorahle weather conditions during the same period accelerated rural sector production. Although outstanding debt more than trebled and budget and external deficits began to emerge, optimistic predictions for longer-term growth prospects suggested these were within sustainable limits. 3. Since the beginning of the eighties, however, Niger's economic performance deteriorated sharply, reflecting a weakened uranium market and renewed drought conditions. The modern private sector contracted sharply, dominated as it was by the uranium industry and service activities whose fortunes were highly dependent on conditions in the uranium industry and the size of the Government's construction program -- construction, trans,nort and commerce. Many public investment projects were undertaken without sufficient attention to their economic viabiiity, .he implementation capacity of government agencies or recurrent financing and maintenance needs. Expecting quick recovery of uranium prices, Government continued to implement ambitious development plans by increasing reliance on commercial foreign borrowings to finance investment projects. Initial budget cutbacks were mostly  -2 - in maintenance and materials expenditures, which led to a more rapid deterioration of capital stock and a fall in public service delivery levels at the most basic level. But the civil service wage bill and high- lovel health and education services continued to expand, along with the growing interest obligation of heavy foreign debt. Growing parastatal deficits were rinanced by public financial institutions, leading to near-bankruptcy of the banklng system. 4. Niger's membersh.p in the UMOA meant it could not respond via exchange rate adjustments to the declining terms of trade. Thus throughout this period and up to the present day, the onus of economic adjustment fell entirely on internal measures, leading to levels of austerity which proved politically unsustainable. Government first took drastic action in 1983: wages and salaries were to be frozen, supplies and invest.. --t expenditures cut back, and foreign borrowings tightly controild. These measures were the first steps in the Government's stabilization program, for which it sought support from the IMF and IDA. 5. During the 1983-85 period, Niger made considerable progress towards reducing domestic and external imbalances: the budget deficit and the deficit on external account u tre both reduced significantly by cutting infrastructure investment and imports, domestic credit was contained, and capit ! inflows and external debt relief were higher than initially proiected. Government's attempt to limit current expenditures was less successful and did not improve their structure, as operations and maintenance continued to be cut to protect the wage bill, and revenues declined in spite of new tax measures taken due to the downturn in economic activity. The performance of several parastatals did improve, however, and their financial position was strengthened. Furthermore, continued drought conditions resulted in a sharp decline in food crop production and loss of nearly half of the livestock herd in 1984, and the closure of the Nigerian border in early 1984 also had a negative impact. 6. The 1984 drought brought Niger its worst economic conditions in half a century. From this low point, Niger began a recov.ery in 1985. Donors responded to the drought by increasing the level of their assistance; then the drought broke, and the 1985 harvest was excellent, contributing to good GDP growth (para. 28). France made unprecedented purchases of uranium in 1986 and 1987, easing somewhat the Government's financial crisis, and several rounds of debt restructuring lifted the most important fiscal threat to government stability. Government's stabilization program during this period was supported by three IMF Standby arrangements, and by debt rescheduling agreements reached with the Paris and London Clubs. An IDA-funded Economic and Financial Management Improvement Project (Cr. 1493-NIR), designed to meet the immediate needs for short-term data and analytical requirements for a structural adjustment program, along with longer-term institutional issues in key economic ministries, became effective in November 1984. 7. It is against this background that the SAL was being prepared; in response to a September 1983 request from President Kountche to Bank President Clausen, an identification mission took place in May 1984, th~. program was appraised in November 1985, and it became effective in May 1986. A complementary Public Enterprise Sector Adjustment Program (PESAP), requiring lengthy analytical work on nearly 60 individual enterprises was being prepared at the same time. The PESAP was appraised in 1987 and became effective in 1988. A completion report for the PESAP will be prepared in the spring of 1992.  -3 - C. Program Experience Preparation 8. The heart of the structural adjustment program being evaluated heee was the long preparation process, based on the principle of government "ownership" of policies and reforms. Considerable care was taken to assure close association between work and mission schedules for agriculture, education, infrastructure and industry/energy sectors with the formulation of adjustment policies during SAL I preparation. Both the SAL and the resulting sectoral projects benefitted from this coordination. In the program's design, a deliberate effort was made to separate relatively easier and quicker structural changes included in SAL I, from more difficult problems, reserved for the PESAP and an expected SAL II, and from sectoral work (paras. 11-13). While the assecsment of Niger's economic situation and priorities carried out during SAL I preparation has stood the test of time, remaining the basis for current economic strategy, in retrospect many of the actual projections made during this early period proved overly optimistic. It also appears that the shift of focus to parastatal refoim under the follow-up credit supporting PESAP tended to divert attention, on the part of the Government, f'iom monitoring of macroeconomic reform issues, such as wage bill reduction and lack of international competitiveness. The design of the SAL was conceptually sound but it assumed Government commitment throughout the process. In the beginning, the commitment was there as evidenced by all the measures taken leading to the release of the tranches of the IDA credit. Much later adjustment appeared to have become more difficult as evidenced, for example, by the Government's inability to control the fiscal situation, and commitment eroded (para. 35). The death ot President Kountche in November 1987 and unfavorable external circumstances (uranium price drop, devaluation in Nigeria) further contributed to an erosion in commitment to reforms. 9. In undertaking this first structural adjustment effort, both Government and IDA were embarking on new territory in a number of respects, and the fact that a learning process was underway sets the scene for understanding the strengths and weaknesses of the program. Both sides were deeply committed and invested substantial energy. Only time could reveal the gap between sincere commitment and the limits of what it was possible to deliver. The Bank team was starting from scratch both in the sense of this being a first effort to tackle economy-wide structural issues in Niger, and that preparation was taking place in the early days of structural adjustment lending, before any feedback about the pitfalls was available (the first assessment of adjustment lending was published in late 1988). On the Nigerien side, the concepts of adjustment lending were difficult to grasp, especially given the relatively low level of IDA exposure in Niger compared to other countries even in the same region. Virtually all IDA projects prior to 1980 were in agriculture of roads. In addition, the autocratic structure of Government meant that ministry heads "generally f-:i they have little to say in policy formulation" (Res Rep to Sr. Loan Officer, April 1984). 10. Perhaps the most critical sense in which both sides started from scratch was the absence of basic economic data in general, and analysis of parastatals in particular. Another joint handicap in terms of speed of preparation was the need for macroeconomic analysis and assistance to be combined with parallel efforts in a number of major sectors. There ar- important gains to combining sectoral and macro missions and strategy formulation and this also requires more time. Within the Bank, besides sectoral and inacro teams, the newly formed Public Enterprise unit within the Bank was involved. President Kountche's request for a SAL came in the same September 1983 letter as that requesting the technical assistance project. Studies and assistance required to prepare the SAL could be financed under a technical assistance project, and indeed such a project, called the Economic and Financial Management Improvement Project (PAGEF), was appraised in March 1983, and quickly produced three studies  -4 - which fed into the SAL preparation: a diagnostic of public en.erprises, a study of measures to liberalize prices, and an inventory of cross-debts among public enterprises. Even with these, five heavily staffed missions were required between May 1984 and October 1985 to identify, prepare and appraise the SAL. Objectives and Design 11. President Kountche's September 1983 letter linked the need for quick parastatal reform to adjustment credit. The Bank's structural adjustment program objectives were to improve economic growth prospects while keeping budgetary and external balances at sustainable levels. The overall strategy, as first articulated in connection with the 1983 annual meetings, stressed the importance of re- establishing rational use of government resources, primarily by focussing on parastatal reform and public investment. Government seemed already to have taken proper steps to control current expenditures on its own. Fiscal reforms and cost recovery measures in education and health would increase government revenues. This wculd provide needed funds for current expenditures to forestall longer term problems, such as road maintenance, to provide basic health and education services to the bulk of the population, and funds for debt repayment. Revision of public investment in favor of economically viable projects would lay the foundation for future growth. 12. The structural adjustment program was designed to complement the Government's current stabilization efforts (para. 6). The stabilization program was setting the demand management targets for the economy while the structural reform program was expected to ensure that those targets were met through policies that maximized supply responses and, therefore, growth. This was to be achieved by: (i) increasing the efficiency of existing investments; (ii) improving policies for more efficient future investments; and (iii) establishing improved policies for strengthening the country's human and physical resources. Since the preparation and implementation of such a comprehensive adjustment program require several years, the Governrent opted for a phased approach, addressing the most urgent structural problems rapidly while reform measures in other areas were being developed. The first phase of the SAL (SAL I -- supported by IDA Credit 1660-NIR and SFA Credit A-012-NIR) thus focused on policy reforms in areas in which inefficiencies were most acute and where policy improvements would have the greatest beneficial impact on the country's balance of payments position. 13. Specific objectives were to: (i) improve public resource management. Budgetary stringency was to be combined with changes in the structure of budgetary outlays to increase the efficiency of existing and future investments, and to reallocate funds to strengthen the country's resource base. Reform measures included the restructuring of current expenditures, preparation of a three-year rolling investment program, increased domestic resource mobilization through cost recovery, improved debt management, and institutional reforms; (ii) reform the parastatal sector. Reforms of the parastatal sector were geared to improving its performance and reducing its burden on the government budget while simultaneously introducing appropriate incentives for private investment, in particular through pricing and marketing liberalization. Three key areas were targeted: revision of incentive policies to improve parastatal performance and stimulate private investment, reform of he institutional and legal framework for public enterprises, and restructuring of the sector through reha-.latation, privatization and liquidation programs; (iii) reform agricu:tural policy. Reforms concerned a reorientation of the sectoral investment program, liberalization of cereals marketing, reduction of input subsidies, improvement of the agricultural credit system, and reorientation of agricultural policy; and (iv) undertake studies to eventually extend the adjustment effort to such other areas as energy, forestry, livestock, industry and trade. This structural adjustment program was to be implemented by Government with continuing assistance from a number of sources. IDA's contribution would comprise a technical assistance project (Economic and Financial Management Improvement Project, Cr. 1493-NIR), a credit in support of the  SAL being reviewed here, a public enterprise sector adjustment operation (PESAP, Cr. 1833-NIR), an'i a public enterprise institutional development project (Cr. 1838-NIR, ongoing). 14. For a few months, the Bank attempted to work out with Government which of the 54 parn3tatals for which preliminary diagnostics had been prepared should be privatized, rehabilitated or liquidated. The decision to put public investment at the top of the agenda and split off the bulk of parastatal reform into a separate project came in late 1984. This change followed the views of the first head of the public enterprise unit within the Bank, who cautioned against trying to sort out the parastatal mess before establishing a healthy macroeconomic environment and a clear government policy regarding the role of parastatals and Government's obligation to them. The BDRN, crucial to the functioning of the financial system, would be the only parastatal to be rehabilitated under the SAL, and OPVN, the grain marketing parastatal, would be restructured. 15. Following a May 1984 identification mission, two preparation missions went to Niger in October and December. The first preparation mission, termed a public investment mission found that sectoral strategy papers and basic economic data which were to have been prepared would not be ready until the next spring. The economy was in deep recession and the financial crisis barely manageable. Even at this early date, the Bank's chief economist was concerned that debt relief would allow Government to defer politically and socially painful measures such as civil service reform, a concern which later turned out to be justified. But the critical state of external and budget deficits had created a strong sense of urgency: in 1982, debt service had risen to 52% of exports and the deficit on current account to US$ 175 million, about 10% of GDP. 16. Pre-appraisal took place in March of 1985. The period between pre-appraisal and appraisal was used to good effect to redirect and move reform efforts forward. Between March 1985 and the January 1986 appraisal, Government restructured its 1985/86-1987/88 recurrent expenditure program to reduce subsidies and increase maintenance and supplies expenditures, introduced cost recovery measures in health, education, water supply and irrigation, finalized proposals for reducing debt service for review at a donor's conference, drafted sectoral strategies and a three-year investment program for 1985/86-1987/88, and established a framework and instruments for expenditure programming. Likewise, in the area of parastatal reform, price and trade controls were liberalized, fiscal treatment of parastatals was equalized with that of private enterprises, a program for priority rehabilitation of ten parastatals was established, rehabilitation of BDRN was initiated, principles and a timetable for privatization/liquidationof other parastatals were established, and a study on cross-debts was completed. In the area of agricultural reform, subsidies had been reduced, imports liberalized, initial steps were taken to reform the agricultural credit system, and grain security stock, pricing, and marketing policy was reformed. 17. Two areas were flagged at pre-appraisal as requiring more time to be resolved: revision of the investment code, for which current GON texts did not incorporate earlier Bank comments, and revision of employment policies to contain the wage bill. The investment code revision was pursued under the PESAP, while civil service employment and wages policy were the subject of a study financed under the technical assistance project (PAGEF, Cr. 1493-NIR). Partially addressed in a second education project, civil service reform remains a politically explosive issue to this day (announcement of the end of automatic recruitment of university graduates into the civil service and other Bank-supported policy changes in early 1990 touched off bloody demonstrations in four major cities). The technical assistance project also financed two other studies whose completions were conditions for release of the SAL second tranche, one on cost recovery measures in health, livestock and education, and one to diagnose the agricultural credit bank. The SAL also included studies in three key areas requiring in-depth  -6- analysis in order to extend structural adjustment into other areas of the economy. These were industrial and trade policies, the financial sector, and policy issues in forestry and livestock, including land tenure, pricing and taxation policies. 18. Four areas of risk were detailed in the Staff Appraisal Report: timing of reform measures, responsiveness of the private sector, development of the rural resource base, and external factors (internationin economic conditions and weather). In fact, the targets set, which were more qualitative than quantitative in any case, were judged to have been met following the midterm review, and external factors proved largely favorable. However, the private sector was not in fact sufficient to provide an impetus to economic growth, and Government and donor efforts to strengthen the rural resource base of the economy made little progress during this credit's lifetime. In fact, the latter two risks should more appropriately be taken to, apply to the longer-term structural adjustment program as a whole rather than to the first phase being reviewed here. D. Implementation 19. The credit was to be disbursed in two tranches and was expected to be fully disbursed within 18 months of credit effectiveness. The first tranche of US$40 million equivalent (US$30 million from the African Facility and US$10 million from IDA) would be available upon credit effectiveness. Following Board approval of the SAL in February 1986, the credit was signed in March and became effective in May. A single supervision mission was fielded in March 1986, followed by a major midterm review mission in November 1986 and a Donors' meeting in December 1986. The second tranche was released following fulfillment of all conditions soon after the midterm review. The focus of the Bank's policy-based lending in Niger turned to preparation of the PESAP, ongoing since early 1985. The SAL closed in December 1987. 20. At the first supervision mission in March 1986, which coincided with the signing of the credit agreement, good performance in policy reform was reported, except in the area of cereals marketing and stocks. A concurrent IMF review mission also gave good marks: economic indicators showed that all the measures envisaged under the Standby program had been implemented and all the performance criteria through December 1985 observed. By the time of the mid-term review in October/November 1986, Government had adopted a budget showing it would reduce growth in personnel expenditures, increase provision for materials and supplies, including a major increase in allocations for road maintenance, reduced subsidy payments, and a shift within the investment program toward rural and human resource development. The initial diagnostic stage of a study to prepare civil service reform had been completed on schedule, and ILO had agreed to execute the second phase. Government had taken provisional measures to limit new hiring and to abstain from cost of living adjustments in public salaries. 21. A study of cost-recovery measures had been launched and would be completed later than expected, so its recommendations would first be acted on in the context of the 1987/88 budget. Government was adhering fully to the policy of prudent external debt management: it had contracted no new non-concessionary loans for a year and had formulated a comprehensive draft financing plan for 1987-91, with technical assistance from UNDP and IDA, which was discussed at a donor's meeting in late 1986. 22. Major price and trade liberalization measures had been put into effect, the import monopoly of the state grain marketing agency was abolished, standard charters for four types of parastatals in line with the new legal and institutional framework had been approved, a new personnel statute for public  enterprises had been adopted, and first steps had been taken to introduce a system of performance contracts between Government and individual public enterprises. Measures taken resulted in the privatization of 13 enterprises, rehabilitation efforts for 6 more, integration of two more into government agencies, and liquidation of one more; and nine of the most heavily subsidized enterprises had reduced their operating losses from CFAF 10 billion in 1983 to 1.5 billion in 1985. A program to settle outstanding cross-debt arrears among public enterprises and Government had been formulated. Settlement of arrears was begun during the 1986/87 fiscal year and continued under the PESAP. 23. The only performance shortfalls noted at this time were in the area of agricultural reform, and these were not serious enough to delay disbursement of the second tranche. On the positive side, agricultural subsidies were reduced, and a study on informal rural credit and an audit of the agricultural credit agency were completed. However, conversion of the cereals marketing and storage agency, OPVN, to a security grain stock management agency and reduction of grain stocks to no more than 80,000 tons were delayed because farm price decontrol coincided with record harvests, leading to a rapid decline in farmgate prices. This led OPVN at end 1985 to continue purchase operations, some of them at fixed producer prices. Further swollen by late arrivals of food aid, OPVN's cereal stocks had risen to about 160,000 tons, an all-time record. Measures were worked out during the mid-term review which were intended to reduce stocks to the required level and completely decontrol farm prices over the next year; in fact, these measures were implemented much more slowly. 24. A second deferment had to be accepted for agricultural credit reforms. The agricultural credit institution, CNCA, was not successful in recovering credits, not even after special action was taken by Government. Since study and audit results made it clear that there was no justification for a specialized agricultural credit institution, Government decided to develop a more appropriate system, and CNCA's future would be resolved in the context of the PESAP. Lastly, instead of a revised 1986-88 agricultural research program and budget, efforts remained at the level of a needs assessment with redefinition of the national agricultural research program expected by the end of 1987. E. Major Proeram Results Overview 25. The main result of joint efforts under SAL I was to stabilize deficits in the balance of payments and government budget by halting commercial borrowing, increasing concessional loans and reducing debt service payments. Other major policy achievements included liberalization of prices, abolition of monopolies and dismantling and cutting losses in parastatal enterprises. SAL I is also important because it established a foundation for structural adjustment work: a diagnosis and a set of priorities. On the other hand, in a larger context, and particularly with the benefit of longer hindsight that is usual for a PCR, the gains made can seem dwarfed by the enormous constraints to growth, both external - erratic rainfall, a non-competitive economy locked into a regionally fixed exchange rate, and border closings and devaluation in Nigeria -- and internal -- chronically low investment, a weak modern private sector, lack of answers for increasing agricultural production and for harnessing the highly dynamic informal sector, which is the greatest driving force in the economy. 26. In seeking to understand this apparent paradox, it may be helpful to contrast the need on both sides to see quick results, at least in some areas, with the deep-rootedness of the problems facing Niger, the low institutional capacity to implement agreed reforms, and the recognition that recovery is a long- term process. Apart from resource and environmental problems, political constraints included a lessening of control at the center following the death of President Kountche in 1987, the lack of  -8 - alternatives for influential and vocal groups once subsidized university education and guaranteed government jobs for university graduates were abolished, and, until recently, the exclusion from the political process of a large cross-section of the population, including powerful private sector interests. 27. Program design in these early stages also fell victim to inexperience with structural adjustment operations, especially in terms of the proper sequencing of reforms and the Bank's optimism about private sector response and about the Government's ability to sustain the momentum of reform in the absence of any visible positive results from the citizens' point of view. Further adjustment efforts now being formulated will be more effective to the extent that both parties can face up to the political and social problems, as well as the severe economic limitations, and chart a course towards a shared vision of a Niger-to-be. Macroeconomic Performance 28. The objective of the program as a whole is to accelerate economic growth while keeping budgetary and external imbalances at sustainable levels, and the objective of SAL I was to address the most urgent structural problems rapidly while reform measures in other areas were being developed. In terms of short-term economic performance as well as meeting the specific requirements set for release of the second tranche of the IDA credit, SAL I can be seen as a success. It was felt in mid-1987 at the outset of the PESAP that Government's efforts under SAL I had contributed to improvement in Niger's economic performance over the 1984-87 period, covering the intensive preparation period and release of the two credit tranches of SAL 1. Current account and budget deficits declined substantially beginning in 1984, inflation fell from nearly 10% to less than 2%, and real GDP grew nearly 8% in 1985 and estimated at around 7% for 1986. (As suggested in para. 6, a number of factors such as good harvests -- in addition to efforts under the SAL -- contributed to this growth in GDP. It would have been interesting to have a breakdown in terms of contribution to growth by external factors and the SAL efforts but this is not available. It is thus assumed that all sources contributed.) GDP growth was projected at 2.3 % per annum for 1987-90, significantly above the zero percent growth trend in the decade before the uranium boom. These gains were generally in line with the expected macroeconomic impact as stated in the SAL President's Report: to halve the decline in GDP and allow an increase to about 2.9% per annum in the early 1990s. 29. However, the budget deficit has been the only indicator to show sustained progress since 1987, and even this steady decline has not been enough to meet agreed targets. While Government's overall fiscal deficit met program targets in 1988/89, the current budget deficit failed to mneet the target, amounting to CFAF 11.4 billion compared with a target of CFAF 8.2 billion (1.1 % of GDP). Despite increased donor assistance and a sharp rise in French uranium purchases in 1987, debt service rose to an unsustainable 50% of exports of goods and services in 1988 and emergency debt relief was required. And despite continuing price and trade liberalization, public enterprise reform and rehabilitation of the banking system in 1988 and 1989, sustained economic growth remains an elusive target. GDP has fluctuated in part as a function of rainfall, as in the past, falling again in 1987 and 1989 due to poor rains, and rising in 1988 with outstanding rains. 30. According to the 1990 Policy Framework Paper for Niger, the country continues to face considerable obstacles to growth, both natural -- its low level of resources -- and structural: the remaining weaknesses in public resource management, an excessively large civil service, a still sizable and inefficient public enterprise sector, and excessive government intervention in economic activity, which has limited the role of the private sector and discouraged savings and investment. A steadily declining export price for uranium combined with lower flows of external financial assistance than  9- originally envisaged, has changed Niger's medium-term prospects. Despite official debt cancellation, balance of payments viability, expected to be realized by 1992 is now likely to be delayed by about a year. 31. Structural reforms are to continue in the same areas covered by SAL I and the PESAP, with a shift in emphasis to implementation capacity and investment in human capital. In addition, substantial effort has been invested since the completion of this SAL in identifying the constraints on private sector growth. Over a dozen Government and donor studies were prepared in 1987, and the Planning Ministry undertook a survey of the informal sector, in anticipation of the June 1988 Private Sector Round Table. In August 1991 donors met to review a report proposing alternate institutional mechanisms and other requirements for channeling donor assistance in support of private sector initiatives (funds are available from the European Development Fund). In the meantime, Government has been revising the Investment Code, the single most important uarrier to private investment. The code as announced in February 1990 lifts restrictions on the transfer of revenues outside Niger, guarantees against expropriation and provides for tax relief, all significant concessions to the private sector. Public Resource Management 32. The goals of this component were to improve the composition of public expenditures, strengthen investment programming, increase the efficiency of the civil service, expand cost recovery, and strengthen external debt management. Budget and investment documents prepared since 1985/86 have reflected the agreements made under SAL I. Budgets adopted for 1985/86 and 1986/87 reflected new expenditure priorities; in the 1987/88 budget, growth in personnel expenditures was reduced and provisions for materials and supplies and road maintenance were increased. These budgets also reflected the reduction of subsidies and other measures to improve cost recovery in higher education, health, irrigation and water supply, including the abolition of most scholarships and reduced school construction costs. A major study was undertaken to prepare for civil service reform, aimed at containing th, wage bill over the long term and improving the efficiency of public services. 33. The institution of a three-year rolling investment program improved medium-term planning significantly, as demonstrated by the programs prepared in 1985 and 1986. In these programs, the emphasis shifted toward rural development and human resources. The revised investment program was based on sectoral strategies that were formulated as part of the adjustment program. Government received assistance in preparing the new investment program under the IDA-supported PAGEF (Cr. 1493-NIR), which improved significantly the quality of statistical data produced by the Ministry of Plan, assuring regular publication of general economic indicators and introduced the methodology to prepare the three-year rolling public investment program, thereby contributing to the centralization of formerly dispersed investment data. PAGEF support also resulted in computerization of fiscal and customs administrations, which simplified economic analysis, improved the effectiveness of tax adm.nistration and put in place an external debt management system. To improve the revenue base, Government adopted a number of tax reform measures with IMF assistance, including the introduction of a value-added tax in 1986. Government followed a policy of prudent debt management by soliciting more grant funding and by contracting loans only on concessional terms. 34. However, as reported in the PCR for Cr. 1493-NIR, these adopted plans were not accompanied by reforms in budgetary structures or procedures required to rationalize resource allocation and strengthen expenditure control. Investment programming is done with little regard to data reliability. The investment budget is not linked with the recurrent budget, technical ministries do not coordinate their activities with Ministry of Plan, nor do the economic indicators generated by Ministry of Plan  - 10 - form the basis of macroeconomic policy. While new procedures and the shift in public investment financing from internal to external sources have resulted in a shift in sectoral composition which is in line with the objectives and strategies of the Five-Year Development Plan for the 1987-90 period, the project implementation rate is still too low, due in part to institutional reasons. 35. As mentioned earlier, in the beginning of the SAL process and through the SAL I period, government commitment was there as evidenced by the measures taken that led to tranche releases. However, as adjustment became more difficult to sustain (e.g., continued control of the fiscal situation) following the SAL I period, commitment began to disappear. For example, when the results of the civil service and cost recovery studies became available in 1989, Government rejected them as a basis for policy reform. During joint discussions to prepare a 1990 Country Strategy Paper and the 1991 Public Expenditure Review, it was reported that stated targets to increase operations and maintenance outlays and social sector expenditure were not being met, and in fact priority had been given to paying the wage bill. Parastatal Reform 36. Government began its program of parastatal reform by abolishing all import monopolies and quasi-monopolies, with the exception of those for petroleum products. As an accompanying measure, consumer product prices were substantially liberalized. These measures have had a positive impact on both product availability and prices. Government also made good progress towards the stated goals of reducing the drain on its budget of subsidies to parastatals through privatization or liquidation. By mid- 1987, 16 enterprises were privatized, integrated into government agencies, or liquidated. These efforts showed the desired results. Between 1983 and 1987, the financial performance of public enterprises improved markedly. Of the 13 major enterprises which had accounted for most of the sector's losses, 9 reduced their operating losses from CFAF 10 billion in 1983 to 1.5 billion in 1985. Substantial progress was recorded in the rehabilitation programs of key enterprises that are to remain in the public sector (utilities). To consolidate these improvements, Government took the first steps to develop a new legislative framework governing its relationship with public enterprises. 37. Reform of two important parastatals, which it was felt could not wait for the launching of the PESAP, was less successful. These were the development bank, BDRN, and the cereals marketing agency, OPVN. While BDRN did improve its performance as far as new lending operations were concerned following the implementation of strict credit controls, the recovery of outstanding credits remained unsatisfactory, particularly from the private sector. Government therefore prepared a revised action program, including specific measures to strengthen loan recovery. As for OPVN, while its failure to reduce stocks could be attributed to external circumstances (para. 23), a performance audit conducted in late 1986 revealed that internal policies and practices had not changed to reflect the agreed change in the agency's role. Following the release of the second tranche of SAL I and start-up of the PESAP and the PE institutional development project, parastatal reform bogged down. Analysis of the reasons for this will be presented in the PESAP PCR scheduled for completion in the spring of 1992. Agricultural Policy 38. The most significant reform in agricultural policy was in grain marketing and storage. The official price regulation system was abolished and the price stabilization function of the cereals marketing agency (OPVN) was eliminated, leaving the agency only to manage a security stock. To reduce budgetary allocations, subsidies on agricultural implements were eliminated and subsidies on other inputs were reduced to 30% of the wholesale price by 1987. At least in the short run, however,  - I1 - the abolition of agricultural price regulation and input subsidies reduced rather than improved farm incomes. It had also been hoped that the liberalization of the cereals market would allow access by small private traders, thereby improving the overall efficiency of intermediation to the benefit of producers and consumers, but because OPVN did not change its procedures for selling grain surpluses, a few large wholesalers continued to dominate the grain market. Looking beyond the SAL I period, restructuring of OPVN continues on the basis of a performance contract concluded in 1990, and subsidies for agricultural inputs were reduced to a maximum of 15% of their wholesale price by the end of 1990. 39. Progress on reform of the agricultural credit system and reorientation of agricultural research were not as significant as had been expected. A new agricultural research program was implemented only in mid-1990 (supported by IDA Credit 2122-NIR). These shortfalls were partly the result of inadequate information and analysis of the rural sector, and during SAL implementation, funding was obtained from IDA's Special Project Preparation Facility to assist Government in formulating future policy reforms and long-term investment strategies for the rural sector. On the basis of this and other agricultural policy studies and discussions with major donors, Government established an interministerial subcommittee to prepare a strategy for the development of the agricultural sector. By end-1990, Government was to have adopted temporary measures to address the most urgent rural land management problems, and by end-1991, a new rural code for rural land reform. F. Performance Bank Performar.e 40. The economic assessment made by Government and the Bank for this SAL managed to avoid some of the pitfalls of early structural adjustment lending such as excessively short-term or narrowly focussed measures, or failing to support investment in education, health and infrastructure maintenance. The SAL program itself strove mightily to address medium and long-term issues such as the recurrent budget and investment in human resources as well as the issues of the moment relating to external and internal deficits. However, the Bank did not perhaps go far or deep enough into its analysis of the institutional aspects of implementation. It rightly stated that structural reform of Niger's economy would be a long-term process, in particular because productive investment opportunities for the country are difficult to identify, but this recognition was not adequately reflected in its overly high expectations of SAL I nor in its insufficiently rigorous monitoring provisions. 41. While the underlying diagnosis of the economic situation has stood the test of time, the actual projections made of potential recovery scenarios seem unduly optimistic in retrospect (see 1991 Public Expenditure Review, Annex, Table III). Clearly unforeseen exogenous developments, including recurrent drought and deteriorating terms of trade have played a role; nonetheless, at the very least, the Bank seriously underestimated the weakness of and lack of communication among the institutions whose heads were directly involved in SAL I development and implementation, in particular with regard to current expenditure, the banking system, and public enterprise restructuring. Equally short-sighted seems the reluctance of the Bank to face the need to look at Niger within the context of regional and sub-regional trade, despite acknowledgement of its substantial trade -- recorded and unrecorded - with Nigeria, its main regional trading partner, and of the disastrous economic consequences of continuing deterioration in relative prices with Nigeria. As recently as the 1990 Policy Framework Paper, the small size of Niger's domestic market is cited as a natural impediment to its growth. It is the regional market, especially Nigeria, whici is relevant, as is abundantly documented in two recent internal reports  - 12 - (Corridors de transport en Afrique sahelienne: le cas du Niger, 8814-NIR, AFTIN, May 1990, and Niger: Private Sector Development, AF5IE, yellow cover, April 1989). 42. The overall impression remains that the Bank was in a hurry to show visible results in terms of economic indicators of success, and seemed to have been satisfied to focus on statistical indicators and budget documents, in the case of current expenditure; it took some time before it became aware that actual expenditure often bore little resemblance to written assurances or planned budgets and actions which were the basis for tranche releases. The need to deliver a success story over a three-year period in a development situation with 20-year problems distracted the Bank from acquiring or applying the necessary knowledge in what makes the country tick -- its poiitical economy in particular. 43. It is also important to remember the context within which Bank staff were operating: low supervision coefficients meant short, small and infrequent missions; with the start-up of the PESAP, the focus of staff and management attention shifted to the public enterprise sector, to the detriment of follow-up on public expenditure. The internal upheavals due to the reorganization of the Psank in 1987/88 would also have constituted a major distraction and energy drain for most Bank staff, uncertain of their future job security. Borrower Performance 44. There is every indication that Government was not only strongly committed during the initial phases of structural reform (para. 8) but had clear ideas about specific needed reforms, even if it was not able to implement them. It has also demonstrated very clear thinking concerning reforms it did not feel were appropriate or possible, in particular when national security issues were seen to override economic considerations, as in the case of the refusal to be pressured into liquidation of a bankrupt cement plant. While cheaper cement could be purchased from Nigeria, the possibility of border closures, currency fluctuations, and monopolisticprice increases made it politically unacceptable to close the plant, whose main customer is the uranium mine, source of most of Niger's foreign exchange. 45. However, when political constraints were involved, Government could have been more forthcoming and perhaps more inclined to set long-term goals when it felt uncomfortable with Bank- proposed short-term goals. There are two clear and critical examples: Government's position vis-a-vis the private sector, and civil service reform. In a March 1987 review of Government's industry policy paper, the Bank correctly detected Government's ambivalence on the role of the private sector: while stating it wished to give full initiative to the private sector (and actually took measures -- lifting price controls, removing import restrictions, privatizations, etc.), Government at the same time was attempting to increase state participation in major industrial projects. The Bank reviewer felt that Government intentions were not clear. 46. It is also clear that Government's implementation capacity fell shor. of what top-level, centralized decision-makers ordered to be done. At the managerial and staff level, an assessment made of OPVN in late 1986 might well apply to other agencies as well, that it operated from one day to the next, with at most a perspective of a few months rather than a few years. It is also important to recognize the handicap delivered to Government by the death of President Kountche in 1987. President Kountche appeared to have embodied Government commitment to the SAL. Upon his death, his successor succeeded in consolidating power and implementing needed constitutional reforms but lacked President Kountche's authority; particularly in the first few years after his death, internal conflict flourished and detracted from the adjustment effort. It is also unfortunate that weak Bank supervision  - 13 - of a major training program in key ministries under the PAGEF meant that needed job skills had not been acquired under that effort (see PAGEF PCR, August 1991). Project Relationship 47. The project relationship appears to have been strongest during the preparation period and up to the midterm review in late 1986. Indicative of the good levei of dialogue is the agreement to accept a higher level of grain stock than the Bank felt was justifiable on purely budgetary grounds, and a lower level than Government was really comfortable with in terms of per capita emergency requirements. Some friction developed over the Bank's insistence on a quick solution to the cement plant situation as a condition of second tranche release, but reason prevailed and the Bank agreed to allow more time for a final decision, given that the diagnostics had been done. Since the Bank had accepted Government's request for major assistance to parastatal reform and the thrust of its follow-on effort to SAL I was focussed in this area, a needed SAL I supplement for general budgetary support was wrapped into the PESAP. 48. Government and the Bank failed to agree on the design and composition of a second technical assistance project in 1989, and the dialogue between Government and the Bank tended to deteriorate. The negative effect of these factors on the structural adjustment effort could only be reinforced by the lack of concrete, visible results beyond the SAL I implementation period either in the Bank's terms -- economic indicators -- or Government's -- living conditions. Still, Government continued to express its commitment to adjustment and kept in place the key economic ministers of Finance and Plan during two Cabinet reshuffles. The structural adjustment dialogue has revived since the 1990 preparation of a Country Strategy Paper within the Bank, a Policy Framework Paper prepared jointly in 1990, and a Public Expenditure Review in 1991. Procurement and Disbursement 49. Disbursements were handled by BCEAO in Niamey, which had no trouble mastering the required procedures and did a meticulous job, according to the midterm review. Funds were disbursed on time and there were no cancellations. Lengthy and at times arbitrary Government procurement procedures created some delays in start-up of studies linked to SAL I (financed under the PAGEF). On more than one occasion, Bank documents indicate doubts that involved local staff and officials fully understood what was required under Bank rules, and in fact procurement guidelines were distributed anew in early 1987. Examples of difficulties include poorly qualified consultants on the short list for the industrial incentive study, and Government insistence on giving the cost recovery study to the second place bidder because the first place bidder had already won "too many" contracts. G. Lessons Learned 50. Sustaining a long-term adjustment process requires not only accurate diagnostics and priorities but also planning for visible gains over a realistic time period. The need for "ownership" goes beyond agreeing on overall diagnostics and needed measures; if the consequences of different courses of action are not worked through, then the process (as opposed to the principle) of adjustment is not internalized. Without full internalization of the adjustment process, implementation tends to become mechanistic, real structural change over the long haul is unlikely to occur or to be sustained. Working at a pace closer to what was politically acceptable in Niger would have considerably extended the time frame, but it might have led to more of the successes under the Program (Sections D and E) being sustained beyond the meeting of tranche release conditions.  - 14 - 51. The conceptual soundness of the design (para. 8) notwithstanding, this type of effort for SAL I in Niger would also have put heavier demands on the Bank team in terms of working through the consequences of theoretically necessary reforms. One example is in farm price and subsidy reform; while it would be surprising if it had not occurred to Bank staff that removing farm price supports and input subsidies could, in a good year, squeeze farmers' profits, it seems from the 1988 report on SAL I prepared by Government (see Part 11 of this PCR) that this result amounted to a major disappointment from the Borrower's point of view. Was Government naive in its trust that implementation of Bank recommended policies would lead to short-term (i.e., during SAL I implementation period - 1985/86- 1987) improvements? Did the Bank fail to clearly present alternative scenarios, or was it indifferent to the short-term penalties? 52. It could be said that the structural rigidities of the Bank itself during this period got in the way of successful structural adjustment lending in this case: an institutional preference for focussing on public sector activities and for an individual country perspective rather than a regional or subregional coordination given the influence on Niger's economy by its giant southern neighbor, Nigeria. Such incentives tend to operate particularly strongly during a period of major internal reorganization such as that experienced by the Bank in 1987-89. Even more serious is the Bank's underestimation of underlying constraints to structural adjustment, in particular, long-term implementation capacity and inadequate inter- and intra-governmental coordination. Diagnostics of the Planning and Finance Ministries for the PAGEF had already revealed how soft capabilities were below the top level in those two ministries, how compartmentalized the sectoral ministries, and how poor investment implementation capacity. One can only surmise that pressure to show success across the board for a range of economic indicators was as strong within the Bank environment as the need for speedy financial assistance was on the Borrower's side, and that these pressures overcaine any awareness of deeper and more difficult constraints. 53. The lack of rigorous monitoring measures, which allowed shortfalls in the reform of current expenditure and of BDRN to be masked by Government assurances, may have seemed appropriate at the time SAL I was being designed, since it was designed as an initial, quasi-emergency effort and the important thing was the list of qualitative, short-term measures established for second tranche release. 54. Awareness of some of the above issues, most of which point to questions of sustainability of reforms (admittedly difficult to anticipate especially in the present case where initially there was Government commitment to the Program), appears to be reflected in the 1990 Country Strategy Paper and Policy Framework Paper, the latter prepared jointly by Government, the Bank and the IMF and covering the 1990-93 period. While the basic overall strategy remains substantially the same, implementation capacity over the long-term becomes a major focus, current expenditure receives greater attention, the service sector is now seen as a potential source of growth rather than as a "non- productive" sector, and the importance of the private sector and regional trade issues is clearly reflected in the strategy and the Bank work program.  - 15 - PART II: PROGRAM REVIEW FROM THE BORROWER'S PERSPECTIVE REPORT ON THE IMPLEMENTATION OF THE STRUCTURAL ADJUSTMENT PROGRAM Prepared by:Republic of Niger, Supreme Military Council Ministry of National and Regional Planning Project Appraisal and Programming Department April 1988 ENGLISH SUMMARY [Translator's notes in brackets] Full report in French available from the Project File December 1991 Contents of Document Main Report (38 pages) Annexes (4 + 36 + 12 + 2 pp.) I. Introduction 1. Round Table Communique (Geneva, July 1, 1987) II. Program Objectives III. Budget Policy & Management 2. Report on PESAP (12/87) IV. Parastatal Reform 3. Sectoral Measures & Studies (Education II, Health, Energy II, V. Agricultural Policy Transport, PPODR, Agricultural subsidies) V". Studies 4. Minutes of Rural Sector Round Table (Niamey, December 19, 1986) VII. Program Impact List of Tables in Main Report 1. Government Income and Expenditure, 1985-1988, Forecast and Estimated 2. Public Investment, 1985-1988, Estimated and Actual  - 16 - Digest of Main Report Introduction 1. This document is the completion report which the Republic of Niger is required to submit within six months of the closing date in the Credit Agreement. It covers more than SAL I in the narrowest sense, since the annexes present complementary sectoral measures taken or studied during the 1986-88 period. Objectives 2. The objectives of SAL I are quoted from the Letter of Development Policy of December 30, 1985. Budget Policy and Management 3. Government revenues did not ii;.ease as rapidly as forecast over the 1985-88 period, despite substantial improvement in tax collection, because of general economic difficulties, especially in the modern sector. Overall income increased substantially due to the IDA/SFA credit and IMF drawdowns. The growth of personnel expenses was less than the rate of inflation. Supply expenses ("materiel"), after increasing substantially in 1985, decreased in real terms. Transport and housing expenses are more or less in line with SAL forecasts, as are the reductions in government scholarships and subsidies and the increase in road maintenance. [See Table 1; note that comparison is being made between "previsions" or forecasts, and "inscriptions budgetaires", which means budget estimates; if these were the actual figures, one would expect them to be called "comptes".] 4. A new three-year Public Investment Program (programme des investissements de l'etat) and a one year investment budget were created prior to SAL I in September 1984, covering financing and staffing for projects financed by Government budget, loans, and grants. Since then, four such PIP and BI were adopted following review with the Bank in August (PIP 1985/87 + BI 1985 through PIP 1988/90 + BI 1988); Government conducts an implementation review in March/April. The PIP have evolved in the sense of limiting loans and increasing grant financing while holding the level of Government budget constant in real terms despite financial difficulties, and also in terms of shifting staffing towards directly productive sectors and social sectors. [See Table 2, which compares "dotations" with "realisations", 1985-88.1 5. Resource mobilization objectives are summarized from the Letter of Development Policy and the main measures taken: introduction of the value added tax on January 1, 1986, lowering of the tax on domestic natural gas and simplification of export taxes in September 1986, lowering of import tariffs in May 1987, completion of the first phase of a study on cost recovery measures in August 1987, introduction of some health charges in October 1985, allocation of routine and periodic maintenance of village water supply to village and provincial authorities respectively, and initiation of a revision of the investment code in connection with preparation of the Round Table on the Private Sector [no date]. 6. Concerning external debt, Government took out no new commercial loans, increased the share of grant financing, and improved terms of debt with donors. Public debt management improved substantially due to better information based on a new computerized debt management system introduced with IMF and Bank assistance. The steps involved in preparing the Round Tables held in Geneva in  - 17 - June/July 1987 (medium-term development plan) and in Niamey in 1988 (rural, transport, and r-ivate sectors) are reviewed. The main results are the review of the 1987-1991 Economic and Social Development Plan and the associated Financing Plan, agreement on the sectoral round tables, and presentation of Government's request that donor coordination be formalized and reinforced, and that major donors be involved in preparation of IMF and Bank programs. Parastatal Reform 7. A list of 23 decrees (decrets, arretes, ordonnances) is given along with the dates of their enactments between 1983 and 1987. A reference is made to the progress report on the PAGEF (IDA Cr. 1493-NIR) given in Annex 2 to the document. Agricultural Policy 8. The main achievements in agricultural policy have been: price liberalization for millet, sorgho (no price control), peanuts and niebe (indicative prices), rice and cotton (price ceiling)- adoption of a bidding system for surplus millet and sorgo marketing; restriction of cereals marketing board to management of a grain security stock of 80,000 tons plus food aid; and abolition of all agricultural subsidies except on fertilizer. As a consequence of the latter, combined with lower farm income due to falling prices and liberalization of trade in farm products, there has been an immediate and sustained drop in the use of farm inputs (fertilizer, animal traction). The situation is characterized by the risk of lower quality products due to an increase in the sources offering them for sale, a lack of knowledge concerning actual supply and demand for farm inputs, and the inappropriateness of certain agricultural supplies to the bio-economic conditions of farming in Niger. 9. Concerning agricultural credit, the agricultural credit agency (CNCA) has suspended credit operations and concentrated on debt collections. The lack of credit has created concern in the rural sector. CNCA collection efforts have yielded little result and this is linked to the lack of new credit being offered. Two round tables have been held, one on rural credit in December 1986 and one on rural development in March 1988. Government has decided to liquidate CNCA and establish a new system of agricultural credit. 10. Concerning agricultural research, the Ministry of Plan coordinated a six-month study of agricultural research in Niger in which 70 Nigerien university and ministerial professionals participated, assisted by ISNAR and financed by the Bank. The stages of this work are described, culminating in a donor's meeting to review the diagnostic and proposed program in October 1987 and preparation of a final report in January 1988. [The report's contents are not indicated.] A first operational tranche of the new research program is set to begin during March 1988, following a joint FAO/ISNAR mission to establish program costs and financing requirements. A meeting will be organized with donors by the end of 1988 on the final program. Studies 11. Seven studies are listed as having been planned under the SAL, and seven others have also been started or are about to start.  - 18 - Planned studies Additional studies 1. Civil service reform 1. Agricultural strategy 2. Tax incentives for investment, 2. Obstacles to private sector development and trade restrictions 3. Restructuring of OPEN 3. Cost recovery measures 4. Mutual guarantee associations 4. Parastatal cross-debt arrears (societes de caution mutuelle) 5. New agricultural credit system 5. Development of entrepreneurial spirit 6. Banking system 6. Public sector contract administration 7. Supply and distribution of 7. Operating cost requirements petroleum products (besoins en depenses de fonctionnement) 12. Civil service reform: This study was to have started in February 1987 but has been delayed by the long and difficult negotiations between Niger arid ILO (letter of agreement signed July 1987) and by a series of negotiations between Niger and the World Bank concerning the composition of the national working group. The Bank preferred a group seconded to the Study Unit (Cellule d'Etude) while the Civil Service Minister preferred only the group's president to be permanently appointed. The solution adopted was a mixed group of permanent and non-permanent members. The first phase concerning job analysis (analyse des postes) began in October 1987. To date, all ministries except transport and tourism have been visited and the provinces of Niamey, Tahoua, Agadez and Dosso have received the questionnaire. The team is currently doing field work in Zinder-M *adi and Diffa. The four months allocated for this phase will be substantially exceeded given the magnitude of the task (22,000 civil servants to be covered plus teaching staff, the judiciary and the Republic Guard) and considering that the data will be required for later stages of the study. The timetable will need to be adjusted. [No proposed new timetable indicated.] 13. Industrial incentives: The request for bids was launched on January 1987, bids were opened May 19, 1987 and evaluated on June 2 and 9, 1987. They were forwarded to the CCM June 25 and the Prime Minister's letter of agreement is dated July 21, 1987. The file was forwarded to the World Bank, which rejected the bidding due to incorrect procedures in a letter dated September 21, 1987, and proposed a new timetable in a letter dated October 22, 1987. The Planning Minister reopened the MCI/T [?] on November 2, 1987, and Government and the Bank reached agreement on the short list and the invitation to bid during the PESAP review mission of January 25 - February 12, 1988. The request for bids was again launched on April 2, 1988, the study is expected to start in July 1988 and the final report is expected in December 1988. 14. Cost recovery: Government's comments were sent to the consultants for inclusion in the final report which is expected in April 1988, when Government and the Bank will examine the report and decide on next steps. 15. Cross-debts: This study was carried out in liaison with the World Bank and IMF and led to a settlement program included in the PESAP. The required amounts have been included in the 1988 budget. 16. Agricultural credit: See para. 10 above, Agricultural Policy. 17. Banking system: Government and the Bank agreed on a short, list and invitation to bid during the PESAP review mission January 25 - February 12, 1988. The reouest for bids was launched on April 14, 1988, the study should start May 16, and the final report be ready by November 16, 1988.  - 19 - 18. Petroleum product distribution: Finalization of the terms of reference involved several rounds during the second half of 1986. Invitation to bid was launched January 21, 1987, bids were opened April 21 and May 2'1, bids were forwarded to the CCM July 10, the Prime Minister gave his agreement August 17, and the Ministry of Trade and Industry contacted the Bank for start-up August 31, 1987. The Bank then requested all bids, which were forwarded September 23, 1987. In a telex of November 27, 1987, the Bank advised Government that it could not agree with our recommendation (BUNETI/BEICIP) and that bidding would need to be repeated. The Minister of Commerce agreed, submitting a revised list of consultants; the Bank removed all local consultants for reasons which are not shared by Government. lhe invitation was relaunched March 4, bids were reviewed April 27, and the final report is expected December 1988. 19. Other studies: The agricultural strategy report, second phase report was completed February 4, 1988 anu was distributed to donors prior to the Round Table on Rural Development of March 1988. Terms of reference for the private sector study were agreed on in a Niger-Bank meeting in March 1988 and the final report is expected for early June. The short list and invitation for the study for restructuring OPEN were agreed during the January/February 1988 PESAP review mission and the final report is expected end June 1988. The Bank contacted the Enterprise Development Institute at the University of Laval (Quebec) in January 1988 concerning its interest in participating in the studies on entrepreneurial spirit and mutual guarantee associations; a visit from EDI/ULQ is expected in April 1988 and the three-month study could begin in May 1988. Status of the public sector contract administration study is given in the attached report of MTEP/SE/SEM, point 111-3-6 page 3 [report not found]. The operating cost study, which covers all government services, is underway and a preliminary report is expected in mid-August 1988. Program Impact 20. The impacts of SAL I should be measured by comparing the results in the target areas with those anticipated in the President's Report and assessing what [part of these] can reasonably be attributed to SAL implementation. Five types of impacts are summarized: improvements in public and private investment, reduction of internal and external deficits, increased economic production, a halt in the fall of household consumption, and a risk of short-term social costs to be offset in the long run by a more efficient economy and accelerated growth. However, the President's Report is cautious in forecasting that the most positive SAL results will not be visible until the early 1990s, and in setting out four elements which could threaten these results: poor private sector response, lack of long-term development solutions for the rural sector, falling uranium prices, and poor rains. 21. In the case of some results, it is difficult to attribute them to SAL implementation, such as the good harvest of 1986 or the grain deficit of 1987. Among those results which may in effect be attributed to SAL implementation are improvements in the public investment program (increase in volume, shift towards productive sectors and infrastructure maintenance), improvements in information and control over public investment, reduction in parastatal operating expenditures, payment of overdue public arrears, arrears reduction in the state banking system, improved management and financial position of parastatals, and stabilization of external debt service. However, much remains to bu done to assure the acceptance of new information and control measures for public investment and to improve absorptive capacity for investment grants; the private sector has not responded, Government revenue has fallen and its budget deficit increased, balance of payments situation has worsened, and debt service remains at an unsustainable level. The current (1987-91 Financing Plan needs to be revised in this light.  - 20 - 22. It is not yet possible to quantify the impact of thc SAL on agricultural activity. However, a number of agricultural policy reforms have created problems and appear to contradict the expected results. Price liberalization was supposed to improve farm income by encouraging diversification, but such behavior, which is rational in a market economy, is less so in an economy which is still largely based on subsistence and where crop options are limited. The good harvests of 1985 and 1986 led to a sharp drop in grain prices and certainly did not lead to improved income for most rural residents. In addition, the sudden abolition of agricultural subsidies is incompatible with any desire to extend more intensive farming methods and improve yields. Low farm income, compounded by new cost recovery measures and lack of agricultural credit, have created setbacks to modernization. This has become virtually impossible, given that the price of most agricultural inputs has increased from 10% to 70% betweer .984 and 1986. 23. Austerity policies and low rural income have added to the difficulties of the industrial and commercial sector: demand is insufficient and markets limited. Valued added in the modern commercial sector dropped nearly 25% in real terms between 1985 and 1987, and in manufacturing output has stagnated. 24. Social costs during the SAL period have been substantial: a 5% drop in employment in the private modern sector in 1986, sustained fall in real salaries of civil servants, loss in monetary income in the rural sector, stagnation or fall in average income of informal entrepreneurs between 1982 and 1987, coupled with a rapid increase in the number of entrants. While new cost recovery measures are needed from a budgetary point of view, they may well lead to further deterioration in sanitation conditions and reduce access to education, given the fall in purchasing power. That current standards of living are very low is confirmed by a household consumption survey carried out in Niamey in 1987, which revealed that food absorbed about 54% of the total, while health and education shares were a mere 4% and 1% respectively. In rural areas, it is estimated that food absorbs 80-90% of total household consumption. 25. SAL measures have contributed to the improvement in the overall viability of Niger's economy, but despite Government's efforts to reduce the public sector's role and leave more initiative to [private] economic actors, the combined results of these measures and efforts have not been sufficient to assure real economic grovTh even in the medium term. Insufficient attention to the demand side made it possible to believe that fiscal, customs, and administrative reforms would be enough to revive private investment but this has not been the case. Likewise in the rural sector, liberalization measures were supposed to stimulate growth; it would have been more prudent to move more slowly until the micro- economic behavior of farmers is better understood.  - 21 - PART III: STATISTICAL INFORMATION BASIC DATA SHEET CREDIT DATA (Amounts in US$ millioins) As of 09/30/91 OriQinal Disbursed /a Canceled Repaid Outstanding /a IDA Cr. 1660-NIR 20.0 23.19 -- -- 24.89 SFA Cr. A-012-NIR 40.0 45.28 -- -- 49.79 Original Dates Actual Dates Strategy Brief (in lieu of Initiating Memorandum) 09/23/83 Letter of Development Policy 12/30/85 Negotiations 12/19/85 Board Approval 02/18/86 Effectiveness 05/22/86 Credit Closing 12/31/87 12/31/87 Actual Completion 06/30/88 06/30/88 CUMULATIVE CREDIT DISBURSEMENT FY 87 FY 88 (i) Planned 54.87 68.47 (ii) Actual 54.87 68.47 (iii) Actual as % 100 100 of Planned MISSION DATA No. of No. of Date of Month/Year Weeks Persons Report Identification 05/84 2 7 06/26/84 Preparation 1 10/84 3 20 11/19/84 Pre-appraisal 04/85 3 6 06/18/85 Appraisal 10/85 3 17 05/13/86 Supervision 1 03/86 4 5 05/13/86 Supervision 2 11/86 2 13 03/03/87 (midterm review) FOLLOW-ON ADJUSTMENT OPERATION Public Enterprise Sector Adjustment Credit (Cr. 1833-NIR/A-31-NIR), approved June 25, 1987 in the amount of US$60 million IDA, US$20 million Africa Facility. /a Disbursed amounts differ from the original amount of the credits in terms of US$ because of changes in the US$/SDR exchange rates.  - 22 - NIGER: KEY MACROECONOMIC INDICATORS Indicators 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 % GROWTH IN: GDP -0.8 -2.6 -16.1 7.8 3.7 -0.7 7.0 -3.3 3.1 3.1 GDP per capita -3.6 -5.4 -18.9 4.7 0.7 -3.6 3.9 -6.3 0.0 0.0 Private consumption per capita -12.9 7.5 -10.2 0.5 -2.1 -3.2 1.2 0.6 0.1 0.0 Exports -20.1 9.7 -7.9 -15.2 2.0 -7.8 -6.4 -11.1 -2.6 1.8 Imports 0.2 -5.1 -15.2 14.7 -20.0 5.7 -4.5 -1.6 3.7 0.8 Sources: 1987 PESAP PR, Annex I for 1982-84; 1990 Policy Framework Paper, Annex B, for 1985-91 RATIOS TO GDP: Gross Investment 26.9 11.4 -1.4 12.7 9.5 8.6 11.1 9.5 10.5 10.6 Revenue 11.3 10.2 11.4 11.1 11.0 11.3 10.5 11.0 11.3 11.5 Budget Deficit 7.1 6.6 5.2 -9.4 -9.2 -9.5 -10 -10.5 -11.6 -10.2 (excl. grants) Current account 9.7 4.6 1.7 4.0 2.1 3.7 2.7 4.3 3.6 2.7 deficit Debt service 9.9 7.5 9.5 9.8 9.6 8.8 7.5 7.4 6.0 5.8 Sources: 1987 PESAP PR, Annex I for 1982-84; 1990 Policy Framework Paper, Annex B, for 1985-91 DOLLAR/CFAF AMOUNTS: in billion 1987 CFAF GDP 745 731 607 626 666 650 682 658 678 n.a. Gross Dom. Investment 113 107 7 81 53 60 76 63 65 n.a. Private Consumption 616 587 552 536 575 544 542 514 n.a. n.a. Exports 147 156 141 127 121 121 125 124 124 n.a. Imports 202 194 164 189 151 151 138 124 125 n.a. Population (mnillions) 5.9 6.1 6.3 6.6 6.8 7.0 7.2 7.4 7.7 n.a. Exchange rate 329 381 437 449 300 297 319 300 300 300 (conversion factor) Source: Unified Survey, December 1991. in billion current CFAF Government Revenue 70 70 74 76 68 72 n.a. n.a. Budget Deficit -64 -59 -62 -64 -68 -64 n.a. n.a. Source: 1990 Country Strategy Paper, Annex B. in million US$ Current Account Deficit -220 -187 -222 -214 -226 -265 -263 Debt Service 142 178 191 174 153 142 145 Source: 1990 Poiicy Framework Paper, Annex B.  - 23 - NIGER: STRUCTURAL ADJUSTMENT PROGRAM (IDA Credit No. 1660-NIR) (SFA Credit No. A-012-NIR) SUMMARY OF ACTIONS AND STUDIES COMPLETED I. ACTIONS Actual Dates A. PITBLIC RESOURCE MANAGEMENT 1. Adoption of 1986/87 budget in line with restructuring objectives * September 1986 2. Adoption of 1986/87-1988/89 public investment program in line with restructuring objectives * September 1986 B. PARASTATAL REFORM 1. Reductions in the number of products subject to price control (from 250 to 64) * November 1986 2. Adoption of legislation by June 1986 to adjust organization of ministries PESAP affected by new system 3. Adoption of revised parastatal employment laws by June 1986 October 1986 4. Completion of preparation for rehabilitation programs for OPVN and OPT PESAP by March 1986 5. Final decision on Air Niger, CNCA, Soniceram by October 1986 PESAP 6. Initiate program to eliminate cross-debts PESAP C. AGRICULTURAL POLICY 1. Satisfactory progress in application of new grain security policies * November 1986 2. Complete CNCA audit and start-up action on program to improve debt collection * April 1986 3. Further reduction of subsidies for fertilizer on annual basis 1985/86 4. Revision of 1986-88 research program and budget 1989 * Required for second tranche release.  - 24 - II. STUDIES Actual Dates A. PUBLIC RESOURCE MANAGEMENT 1. First phase of study of civil service to be completed # September 1986 2. Completion of feasibility study of Irhazer irrigation project 3. Completion of study of cost recovery # PESAP (April 1988) B. PARASTATAL REFORM 1. Study on industrial incentives, study of financial sector, PESAP (December study of petroleum distribution 1988, June 1989) 2. Complete study on SNC (cement factory) by 10/86 October 1986 C. AGRICULTURAL POLICY 1. Complete study on CNCA (agric. credit) by 10/86 October 1986 # Financed under PAGEF. STAFF INPUTS (in staff weeks) Stage of Fiscal Years Project Cycle 1984 1985 1986 1987 1988 1989 1990 1991 1992 TOTAL Preparation 1.0* 1.7* 19.2 21.9* Appraisal 44.7 44.7 Negotiations 18.0 18.0 Supervision 13.5 42.7 4.8 0.7 0.1 143.5 PCR 6.0** 6.0** TOTAL 1.0* 1.7* 95.4 42.7 4.8 0.7 -- 0.1 6.0** 232.1 * Underestimates staff input; substantial input to this task during this period was probably recorded as country/sector work for Niger. ** Estimated.  POLICY AREA ACTION TAKEN BY MONITORABLE ACTION TO MIDTERM REVIEW STATUS LATER DEVELOPMENTS AND OBJECTIVES GOVERNMENT BE TAKEN (June 1987) (from 1990 CSP, 1991 PFP) (prior to Board pres., (* Condition for release of Feb. 1986) second tranche) A. PUBLIC RESOURCE MANAGEMENT 1. Improve efficien- Budget program for Adopt 1986-87 budget in line Budget adopted as required From being in balance in cy of existing 1985/86-1987/88 adopted with restructuring objectives* Sept. 1986. 1984, current budget showed investment to restructure recurrent deficit of 2% in 1988. Still, expenditure program: priority development needs - reduce subsidies cannot be satisfied and deficit is increasing. - improve ratio of Provisions for raterials and Targets to increase operations supplies/personnel supplies increased. Major and maintenance outlays by expenditures increase in allocation for road 10% per year, and to increase - increase maintenance maintenance. social sector expenditures have expenditures not been met. - contain wage bill First phase of study of civil Diagnostic phase of study Civil service wage bill un service system to be completed* completed Sept. 1986. ILO to increased by about 6-7% per carry out second phase. year in real terms during Growth in wage bill reduced. 1984-89. New recruitment Provisional measures to limit policies not enforced. Their new hiring of staff and to announcement in early 1990, abstain from cost-of-living along with reduction in adjustments in public salaries. university subsidies, led to l ________________ ____________________________ bloody riots. 2. Strengthen Public investment Adopt 1986/87-1988/89 Investment program adopted Public investment has development of program for 1985/86- investment program* Sept. 1986. Shift towards rural stagnated due to low resource base to 1987/88 adopted sector and human resource implementation levels. improve prospects development. Redirection of investment to for growth social sectors and infrastructure maintenance rather than new investment has held. However, investment implementation is very poor due to low institutional capacity (overly centralized, complicated procedures, lack of counterpart funds.).  POLICY AREA ACTION TAKEN BY MONITORABLE ACTION TO MIDTERM REVIEW STATUS LATER DEVELOPMENTS AND OBJECTIVES GOVERNMENT BE TAKEN (June 1987) (fiom 1990 CSP, 1991 PFP) (prior to Board pres., (* Condition for release of Feb. 1986) second tranche) Complete feasibility study of Study began end 1986. Irhazer project* Completion delayed because scope redefined. 3. Increase resource Measures taken to Complete study of further cost Study started Jan. 1987, to be Tax revenues declined from mobilization and expand cost recovery in recovery measures* completed mid-1988 and 10% of GDP in 1982 to less improve health, education, water reflected in 1987/88 budget. than 8% in 1989 due to efficiency in use supply and irrigation decline of modem sector and of public services inability or lack of political commitment to tax large-scalc informal sector. Measures taken to transfer maintenance of small infrastructure to beneficiaries 4. Improve external Medium-term borrowing Donors conference to be held Donors' conference held debt position strategy formulated to during 1986 to discuss multi-year reduce debt service financial plan No new loans in 1986/87. (JON prepared comprehensive draft financing plan for 1987-91 with TA from UNDP and IDA. UNDP Round Table scheduled for June 1987. 5. Improve Insthutional framework framework for and instruments for expenditure expenditure planning programming established, including formulation of sectoral l ___________________ strategies  POLICY AREA ACTION TAKEN BY MONITORABLE ACTION TO MIDTERM REVIEW STATUS LATER DEVELOPMENTS AND OBJECTIVES GOVERNMENT BE TAKEN (June 1987) (from 1990 CSP, 1991 PFP) (prior to Board pres., (* Condition for release of Feb. 1986) second tranche) B. PARASTATAL REFORM 1. Improve resource Measures taken to Further reduction in the number Number of products subject to Further pricing and trade allocation and liberalize price and trade of products subject to price fixed price margins reduced reforms are needed: abolition strengthen controls: control* from 250 to 64; all other price of remaining price controls potential for - list of controlled items controls removed. and administrative price supply responses has been reduced; setting, import quotas, simplification of tariff system. - import licensing and State marketing agency's import monopolies and quasi- monopoly abolished and monopolies have been performance improved. dismantled 2. Eliminate Fiscal treatment of Study on industrial and trade distortions parastatals has becn policies; study of funancial sector equalized with that of private enterprises 3. Increase Institutional framework Adopt legislation by June 1986 to New institutional framework efficiency of for parastatal sector has adjust organization of ministries has been developed under resource been strengthened: affected by new system PESAP, granting more allocation and - tasks of Ministry of autonomy to public enterprises use; reduce Tutelle redefined while increasing budgetary accountability. transfers Adopt revised parastatal New personnel statute, Oct. Public sector wage levels are employment laws by June 1986 1986. still too high (3-4 times those in Nigeria) due to remaining legal and administrative distortions. - legal framework for Standard charters approved, SVT/parastatal Sept. 1986. Individual relations established parastatals to bring statutes into conformity by March 1987. Preparation of performance contracts between GON and individual parastatals has begun.  ITORABLE ACTION TO MIDTERM REVIEW STATUS LATER DEVELOPMENTS AND OBJECTIVES GOVERNMENT BE TAKEN (June 1987) (from 1990 CSP, 1991 PFP) (prior to Board pres., (* Condition for release of Feb. 1986) secondtranche) Nine of 13 main parastatals Direct subsidies reduced from reduced operating losses from 25% to 7% of current budget CFAF 10 billion in 1983 to outlays between 1983 and CFAF 1.5 billion in 1985. 1989. But new arrears accumulated by some enterprises caused delay in release of PESAP 3rd tranche. Program for priority Complete preparation of OPVN rehabilitation to be OPVN performance improved rehabilitation of 10 rehabilitation programs for prepared by mid-1987 with in 1988/89. parastatals established; OPVN and OPT by March support from PESAP. 1986;* Complete studies on SNC and CNCA by Oct. 1986;* Final decision on Air Niger, Air Niger: GON is selling two Air Niger: Airplanes to be CNCA, SNC by Oct. 1986* last planes and then Air Niger sold by Sept. 1990. c will be liquidated. CNCA: Task Force on CNCA: Liquidated in 1988. agricultural credit formed (see also C below) SNC: Study completed Oct. SNC: To be liquidated by 1986. Discussions underway; to Sept. 1990. be resolved in context of PFSAP. BDRN rehabilitation BDRN action program shows Provisional restructuring action program initiated mixed results. New lending plan agreed in 1989 wl TA better, recovery of outstanding from BCEAO, France and WB credits unsatisfactory. A new and adopted June 1990. In action program is being meantime, BDRN bankruptcy prepared. is a main contributor to financial crises. Cumulative losses equivalent of 5% of GDP. Since late 1989, progress in establishing a new and healthy commercial bank which will ultimately replace BDRN, a first step in restructuring plan.  POLICY AREA ACTION TAKEN BY MONITORABLE ACTION TO MIDTERM REVIEW STATUS LATER DEVELOPMENTS AND OBJECTIVES GOVERNMENT BE TAKEN (June 1987) (from 1990 CSP, 1991 PFP) (prior to Board pres., (* Condition for release of Feb. 1986) second tranche) Principles and timetable To date, 13 parastatals have Under PESAP, 16 enterprises for privatization/ been privatized, 2 incorporated to be privatized of which 11 liquidation of parastatals into ministries, and I complete or underway by mid- established: liquidation liquidated. 1991, and 7 to be liquidated of and privatization in Underway: 6 major which 6 have been completed. progress rehabilitations, including 31 enterprises will stay in the utilities (water, electricity, public sector. telecoms); 5 privatizations. 2 liquidations. Study on cross-debts Initiate program to eliminate Two-stage program adopted: Inventory of all cross-debts completed cross-debts. CFAF 3 billion arrears will be and gov't arrears to be settled in 1986/87; remaining completed by end 1990. All CFAF 20 billion to be settled cross-debts and gov't arrears over next 2 years in context of to be settled by end 1991. PESAP. All cross-debts are to be eliminated by 1989. C. AGRICULTURAL POLICY 1. Increase Grain security stock, Satisfactory progress in OPVN role reduced to Reform in process to make efficiency of pricing, and marketing application of new policy* management of security stock. effective the new role of resource use and policy (role of OPVN) Accumulated stocks are to be OPVN in storing and reduce budgetary has been reformed sold off using tender procedure distributing food aid, based on transfers to reduce stock from 160,000 a 1991 performance contract. tons to agreed 80,000 tons. Cereal price regulation abolished including indicative l________.___________ prices. Subsidies for agricultural Further reduction of subsidies on Subsidies reduced: average rate Subsidies are to be reduced to implements have been annual basis (1986-88) of subsidies on agricultural 15% of wholesale price by end eliminated; inputs now less than 30% of 1990. Subsidies for fertilizer cost of commercial inputs. have been reduced, and l______________ imports liberalized  POLICY AREA ACTION TAKEN BY MONITORABLE ACTION TO MIDTERM REVIEW STATUS LATER DEVELOPMENTS AND OBJECTIVES GOVERNMENT BE TAKEN (June 1987) (from 1990 CSP, 1991 PFP) (prior to Board pres., (* Condition for release of Feb. 1986) second tranche) Initial steps taken to Complete study on rural credit in Rural credit study completed in Improved financial reform agricultural credit June 1986;* Oct. 1986. intermediation is needed in the system: Complete CNCA audit and start CNCA audit available April rural sector. - audit of CNCA action or. program to improve its 1986. Credit recovery record initiated debt collection* remains poor, no justification - provision of interim for specialized agricultural agricultural credit in credit institution. Task force development projects will work out a better only arrangement. CNCA fate to be decided under PESAP. 2. Lay the basis for Agricultural Research Revise 1986-88 research program Study of existing agricultural National ag research program improving Institute has been and budget* research system by ISNAR began in 1990 to enhance sectoral transferred to Ministry (CGIAR member) will be existing institute's capacity and growth prospects of Agriculture; completed in 1987 and program improve coordina'ion with Agricultural research to be redefined by end 1987. extension. Research structure policy is being redefined needs to be further with external assistance strengthened and priorities redirected toward farming systems and natural research management, and away from o single crop research. Link to extension requires significant improvement, since workers are unable to provide basic level of service due to lack of equipment and supplies.  - 31 - ATTACHMENT Page 1 of 3 Government Comments on the PCR THE REPUBLIC OF NIGER TRANSITIONAL GOVERNMENT MINISTRY OF ECONOMY AND FINANCE THE MINISTER OF ECONOMY AND FINANCE Ref. No. 0169/ME/F.DAEP/SRES Niamey, February 7, 1992 The Principal Country Officer Country Operations Division Sahelian Department Africa Region The World Bank Dear Sir, Ref: Your Letter of January 10. 1992 Subiect: Structural Adjustment Program (SAL I) Thank you for your Project Completion Report on the "Structural Adjustment Credit (Credits nos. 1660 and A-12 NTR)." By way of general comment, I wish to inform you of my satisfaction with the quality of the report as far as its balanced observations with respect to the results achieved by the project. In particular, I would like to stress the various conditions under which the project activities were implemented. It should be emphasized that the difficulties encountered were often linked to agro-climatic conditions and, especially, to the institutional environment prevailing at the time in Niger, as well as to the internal procedures of the World Bank itself. This being said, we consider the report an internal document of your institution. It does, however, call for the following specific comments from us: PART I 1. Structural adjustment was more difZicult to achieve than the World Bank's report suggests, because it was undertaken in the context of the shock engendered by developments in Nigeria (which were not taken into consideration when the SAL was being prepared). 2. Should there have been structural adjustment, then there should have been a recovery of growth in the international goods (exportable and importable goods) sector, thanks to an improvement in competitiveness of the economy of Niger; this was not the case during the period under examination in the World Bank's report. Such an improvement would have implied a fall in the real exchange rate, accompanied as far as possible by an increase in  - 32 - ATTACHMENT Page 2 of 3 competitiveness. Given the magnitude of Niger's trade with Nigeria. it is clear that a realistic calculation of the real effective exchange rate would have to take account of the evolution of the exchange rate between these two countries which was characterized by a serious decline in Niger's competitiveness vis-a-vis Nigeria. 3. Unequal Adjustment in the Modern and Informal Sectors: in order to understand genuinely the effect of such shocks and of the adjustment policy, one must be able to perceive the evolution that took place in the various sectors of the economy. The rural sector's value added during the adjustment period tended to fall in nominal terms and in percentage of GDP. As for the non-agricultural informal sector, it tended, compared with 1981, to increase in nominal value and in real value. The evolution of the non-primary modern trading sector was in distinct contrast with that of the non-agricultural informal sector, since its value added fell sharply in current francs between 1980 and 1987 (34.3 percent and 24 percent, respectively). One of the basic characteristics of Niger's economic evolution during the adjustment period was therefore the growing informalization of the non-agricultural economy, and this represents a reversal of earlier trends. 4. These contrasts in economic evolution reflect the capacity of the various sectors to respond to external shocks and to the economic policy measures adopted. Four reasons may be given by way of explanation: the unequal dependency of each sector in the face of declining internal demand, the uneven impact of exchange rate variations on the different sectors, the dissimilar flexibility of their costs, and their varying contributions to the fiscal effort during the period. 5. The above analysis has implications for the social consequences of the adjustment policy. First, adjustment was socially costly, since it was accompanied by a fall in GDP and, worse, in per capita GNP. Secondly, in so far as adjustment policy was implemented primarily through a decrease in public expenditures, it affected the various beneficiaries of such expenditures, doubtlessly in an unequal manner. 6. Budgetary policy cannot be pursued in the same manner as it has been in the past. Given the decline in income implied in the informalization of the economy, it is not possible to reduce public expenditures indefinitely without compromising the proper functioning of the State and, as a consequence, economic development. 7. In sum, we also share the view that the results of excessively liberal economic policies have not met with expectations. Such liberalization policies have led to: - At the economic level, precariousness of the competitiveness of our economy and its increasing informalization; - At the social level, impoverishment of the middle classes and especially of the least privileged.  - 33 - ATTACHMENT Page 3 of 3 PART II With respect to the second part of the report concerning the document of April 1988. it can still be considered valid. Indeed, it covers execution of the project already completed, and states that nothing new has since been undertaken, except for the PESAP which will, as agreed with you, be the subject of a specific evaluation. Sincerely yours, Signed/Laoual Chaffani