Niger - Public Finance Reform Credit Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-7262 NIR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED PUBLIC FINANCE REFORM CREDIT OF SDR 48.0 MILLION TO THE REPUBLIC OF NIGER September 18, 1998 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 (as of September 14, 1998) Currency Unit = CFA franc (CFAF) US$ 1.00 = CFAF 582.95 SDR 1.0 = US$ 1.35 ABBREVIATIONS AND ACRONYMS ABATTOIR Abattoir Frigorifique de Niamey (Slaughterhouse) ADV Attestation de verification (Verification Certificate) BCEAO Banque Centrale des Etats de l'Afrique de l'Ouest (Central Bank of West African States) CAS Country Assistance Strategy CDN Credit du Niger (Credit Agency) CPCT Caisse des Prets aux Collectivites Territoriales (Credit Agency) DENO Depenses engagees non ordonnanc&es (expenditure committed for which payments orders have not been issued) ENA Ecole Nationale d'Administration (National School of Administration) ESAF Enhanced Structural Adjustment Facility GDP Gross Domestic Product HIPC Heavily Indebted Poor Countries IFC International Finance Corporation INRAN Institut National de Recherches Agronomiques du Niger (Agricultural Research Institute) KfW Kreditanstalt fur Wiederaufbau (Germany's development agency) MIGA Multilateral Investment Guarantee Agency NIGELEC Societe Nig6rienne d'Electricite (Power Generation and Distribution Company) OLANI Office du Lait du Niger (Dairy Products Company) ONPE Office Nationale des Postes et de l'Epargne (National Postal and Savings Office) ONPPC Office National des Produits Pharmaceutiques et Chimiques du Niger (National Pharmaceutical Company) ORTN Office de Radiodiffusion et de Television du Niger (National Television Company) PER Public Expenditure Review PFP Policy Framework Paper PFRC Public Finance Reform Credit PPA Paiements par anticipation (advance expenditure payments) PSAC Public Sector Adjustment Credit RAP Restes a payer (unpaid arrears validated by the Treasury) SAC Structural Adjustment Credit SNC Societe Nigerienne de Cimenterie (Cement Company) SNE Societe Nationale des Eaux (National Water Company) SONIDEP Societe Nigerienne des Produits Petroliers (Petroleum Import and Distribution Company) SONITEL Societe Nigerienne des Telecommunications (Telecoms Company) UEMOA Union Economique et Monetaire Ouest Africaine (West African Economic and Monetary Union) FISCAL YEAR January I -December 31 Vice President Jean-Louis Sarbib Country Director Theodore 0. Ahlers Technical Manager Charles P. Humphreys Task Team Leader Antonella Bassani  FOR OFFICIAL USE ONLY REPUBLIC OF NIGER PUBLIC FINANCE REFORM CREDIT TABLE OF CONTENTS Credit and Program Summary ............................................................i l. Introduction ............................................................. II. Background .............................................................. A. The Country Context .............................................................1 B. Recent Economic and Political Developments .............................................................2 C. Medium-term prospects and financing requirements ............................................................. 4 ][II. Niger's Adjustment Program .............................................................,5 A. Restore credibility of public finances .............................................................7 B. Consolidate and reinforce the tax reform effort .............................................................9 C. Improve the efficiency and equity of public spending ............................................................ 10 IV. The Proposed Public Finance Reform Credit ..............................................................11 A. Credit Rationale and Components .............................................................11 B. Conditions of tranche release ............................................................ 12 C. Link to the CAS and Poverty Impact ............................................................ 13 D. Ownership of the Reform Program ............................................................ 14 E. Credit Amount, Disbursement Procedures and Implementation Arrangements ............................. 14 F. Benefits and Risks ............................................................ 15 V. Bank Group Operations ............................................................ 16 IFC and MIGA ............................................................ 16 I'l. Collaboration With IMF And Other Donors ............................................................ 16 VII. Recommendation ............................................................ 16 Annexes A. Social Indicators of Development B. Key Economic Indica.ors C. Extemal Financing Requirements D. Status of Bank Group Operations E. Supplemental Credit Data Sheet F Letter of Development Policy, Policy Matrix and Attachment I G. Key Performance Indicators 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.  REPUBLIC OF NIGER PUBLIC FINANCE REFORM CREDIT CREDIT AND PROGRAM SUMMARY Borrower: Republic of Niger Amount: SDR 48.0 million (US$ 64.0 million equivalent) Terims: Standard IDA terms with a maturity of 40 years Creidit Description: Following the encouraging progress made by the Nigerien Government in implementing the first phase of its economic reform program in 1996- 97, the proposed credit would help the Government sustain implementation of the program in 1998-99. The main focus of the program is to restore credibility of public finances by ensuring budgetary orthodoxy and the orderly clearing of domestic arrears. In addition, the program supports measures to consolidate and reinforce the tax reformn efforts implemented in 1996-97, and to launch a medium- term effort to improve the efficiency and equity of public spending. The Government's Letter of Development Policy and policy matrix are attached as Annex F. Risks: In light of Niger's short positive track record in implementing reform programs and its still fragile political situation, the proposed credit is of high risk. The two main risks are: (i) political and social instability which could undermine Government commitment to the economic reforn program; and (ii) weak Government implementation capacity. However, the resolve shown by the Government over the last year to maintain the program on track and its determination to broaden it by adopting a number of reform measures prior to presentation of the credit to the Board, provide assurance that the program will be implemented in its entirety. With the assistance of IDA, the Government has also effectively improved program coordination, strengthened its implementation capacity and developed a communication program to broaden public support for economic reforms. Benefits: Through its focus on budgetary orthodoxy and the orderly clearing of domestic arrears, the proposed operation will contribute to improving the environment for economic growth, increase private sector confidence, ease the financial gridlock on the economy caused by the large existing stock of domestic arrears and increase job opportunities. Improved expenditure management will increase the availability and efficient use of resources for essential public services, notably access to basic health and education services nationwide. In addition, through its focus on further widening the tax base, the proposed credit supports  ii Niger's efforts to mobilize revenues and harmonize customs and investment incentives within the UEMOA. Estimated Disbursement: The proposed credit will be disbursed in three tranches and will follow IDA's simplified disbursement procedures for structural adjustment operations. The first tranche of SDR 18.0 million (US$ 24.0 million equivalent) will be disbursed upon credit effectiveness. The second and third tranches, each of SDR 15.0 million (US$ 20.0 million equivalent), will be released upon compliance with tranche release conditions. Staff Appraisal Report: Not applicable Map: Not applicable  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED PUBLIC FINANCE REFORM CREDIT TO THE REPUBLIC OF NIGER I. INTRODUCTION 1. I submit for your approval the following report and recommendation on a proposed Public Finance Reform Credit (PFRC) to the Republic of Niger for SDR 48.0 million, the equivalent of US$ 64.0 million. The credit would be on standard IDA terms with 40 years maturity and a 10-year grace period. The African Development Bank (AfDB) and Germany (KfW) intend to provide parallel financing for the proposed credit. 2. The PFRC will help sustain the Government's economic reform program for 1998-99. The program's main focus is to restore credibility of public finances by ensuring budgetary orthodoxy and the orderly clearing of domestic arrears. In addition, the program includes measures to consolidate and reinforce the tax reform efforts implemented in 1996-97, and to launch a medium-term effort to improve the efficiency and equity of public spending. These actions, which are outlined in the attached Letter of Development Policy, build on past achievements in the area of macroeconomic stabilization and public sector adjustment, which were supported by a one-tranche IDA Public Sector Adjustment Credit (PSAC, Cr.29390-NIR) approved and fully disbursed in March 1997. Proceeds from the PFRC will go towards filling external financing gaps in 1998-99 which remain after identified and expected disbursements from aid donors. 3. The proposed credit is a key element of IDA's country assistance strategy (CAS) discussed at the Board in November 1997 and an integral part of the Government's overall reform program outlined in the medium-term Policy Framework Paper (1998-2001) distributed to the Executive Directors in August 1998. Niger's adjustment efforts are supported by the International Monetary Fund (IMF) through a three-year Enhanced Structural Adjustment Facility (ESAF) approved in June 1996 and whose third-year first tranche was approved in August 1998. Significant support for the country's macroeconomic program is also provided by Paris Club creditors, the European Union (EU), the AfDB and bilateral donors. II. BACKGROUND A. The Country Context 4. Poverty. Niger has a population of about 9.3 million, over half of whom live in poverty, with inadequate food and virtually no access to medical care, education and other social services. Niger's per capita income (US$200 in 1997) and development indicators are among the lowest in the world. The main source of livelihood for 80 percent of the population is agriculture which remains highly vulnerable to variable rainfall and increasing soil degradation. Population growth is 3.3 percent and shows no sign of slowing, the literacy rate is 14 percent, and only 27 percent of children enroll in school. A third of the population lacks food security and about one-quarter of children die before their fifth birthday. The burden of poverty falls disproportionately on  2 women whose access to land, credit, technology and social services remains limited. The female literacy rate is half the male rate, mother's age at first birth is falling and maternal mortality remains high. 5. Economic performance in 1983-1994. At the center of the country's poverty situation has been Niger's weak economic performance since the end of the uranium boom in the early 1980s. Amidst short cycles of recovery and downturns, real GDP declined by about one-half of one percent per annum during 1983-1993, largely as a result of a sharp decline in the international price and demand for uranium (Niger's main export), two prolonged droughts, a loss of competitiveness due to the real appreciation of the CFAF (until 1994) and severe weaknesses in public resource management. These conditions, coupled with rapid population growth and continued political instability, led to a significant poverty increase during this decade. 6. Between 1983 and 1993, IDA approved four operations (a SAC, a Public Enterprise Sector Adjustment Credit and two technical assistance projects) that focused on macroeconomic management and PE sector reform. OED evaluations of these operations show that the achievements were limited. Despite substantial progress in the 1980s in price and trade liberalization, the abolition of monopolies in agricultural trade and the adoption of some tax reform measures (including the introduction of a unified valued added tax), there were major shortfalls in addressing the causes of internal and external imbalances. Most noticeable was the lack of government detennination to contain the wage bill (at one point the wage bill exceeded revenue collection), restructure the civil service, strengthen the tax administration and privatize public enterprises. In addition, the frequent changes in governments and the emergence of strong vested interests during the country's unstable political transition since 1991 contributed to program slippage and reversal. 7. In early 1994, in conjunction with the CFAF devaluation, the Nigerien Government adopted a short-lived stabilization program supported by an IMF Stand-by and an IDA Economic Recovery Credit. Unfortunately, the program went off track in mid-1994 amidst continued political instability. By year end, and despite a real GDP growth of 4 percent, the revenue-to- GDP ratio had fallen to an all-time low of 6 percent, the nominal wage bill had increased by about 18 percent (to 91 percent of budgetary revenues), and the overall fiscal deficit (excluding official grants) had nearly doubled, reaching 12.5 percent of GDP. B. Recent Economic and Political Developments 8. In 1996, the Nigerien Government adopted an economic stabilization and public sector reform program which was supported by a one-tranche Public Sector Adjustment Credit (PSAC, Cr.2939-NIR) based on actions taken prior to credit approval. Demonstrating a new found commitment to addressing the country's persistent financial crisis, the program was executed satisfactorily. No action taken prior to credit approval has been reversed. Despite some delays encountered in the implementation of the program in the second and third quarter of 1997, in November 1997 the Government took a number of measures to accelerate and deepen program implementation (a detailed review of the PSAC implementation is provided in its Implementation Completion Report, distributed to the Executive Directors in August 1998). Significant achievements were obtained with respect to public finance management as the Government began to address long-standing problems--low revenue mobilization due, in large measure, to tax evasion, an unaffordable wage bill and public enterprise mismanagement. Thus,  3 in 1996 and 1997 the Government raised revenue collection by 16 and 15 percent, cut the wage bill by 11 percent in 1997 and launched a major privatization program, including for the public utilities. 9. The improved revenue collection was made possible by continued implementation of tax reform measures, focusing in particular on the simplification of the system of direct and indirect taxation and the strengthening of tax administration. Among the measures implemented were: (a) the simplification of the income tax system through the merging of the general income tax and the schedular tax on wages and income; (b) the reformn of informal sector taxation through the introduction of a single professional tax; (c) the simplification of the property tax structure and enforcement; (d) the rationalization of petroleum products taxation through a revision of the price structure; (e) a reduction in the maximum length of tax holidays for new investments from 15 to 5 years; and (f) the introduction of a pre-shipment import inspection agency to combat tax fraud. These measures were further supported by a strengthening of the tax and customs departments, both of which were severely understaffed and underequipped. 10. To maintain effective control over the growth of personnel expenditure and increase public sector efficiency, the Government also initiated a reform of the civil service. In 1997, the authorities implemented a new civil service salary scale that reduced base salaries and related allowances, and eliminated distortions in the remuneration system. A civil service census was carried out in 1997 which led to the dismissal of 319 government employees (or about 1 percent of the civil service) whose status was found to be irregular. Personnel recruitment was kept broadly in line with retirements, with the priority for new hires going to education, health and the revenue collection agencies. As a result of these measures, the wage bill for 1997 remained in line with the program target. In addition, the authorities launched a personnel redeployment program in the health sector and tax collection agencies to improve the availability of staff in the counitry's under-served areas. 11. Progress was also made in 1997 in reallocating non-wage current expenditures toward the priority areas of primary education and basic health care which increased by 12 percent on average (on a commitment basis). In addition, in 1997 the domestic budgetary contribution to the public investment program was increased (from CFAF 3.6 billion or 9 percent of total public investment in 1996 to CFAF 5.7 billion or 11 percent), reflecting the Government's efforts to ensure the timely availability of counterpart funds for public investment projects. Scholarships for secondary and higher education were kept below program objectives (CFAF 3.2 billion versus CFAF 3.8 billion) and new eligibility criteria were adopted to ensure that only the most deserving students receive support. However, expenditure for road maintenance did not increase as planned (CFAF 1.1 billion in 1997 versus a target of CFAF 2.7 billion). As a result of the sharp reduction of expenditures--including wage and salary outlays--and improved revenue collection, the overall deficit (on a commitment basis and excluding grants) in 1997 was half percentage point of GDP lower than the program level of 8 percent of GDP. Notwithstanding these developments, the reduction in domestic and external payments arrears was less than programmed as a result of the shortfall in external assistance and difficulties in reaching rescheduling agreements with some multilateral and non-Paris Club bilateral creditors. 12. In 1997, real GDP growth was I percentage point short of the program target of 4.5 percent owing to the impact of a drought on agricultural production. It should be noted, however, that this is the first time since the 1977-80 uranium boom that Niger's GDP growth has been positive for more than five consecutive years. Despite the drought, the annual average  4 inflation rate was held slightly below 3 percent and the real effective exchange rate is estimated to have depreciated by 3 percent during the year. The external current account deficit (excluding official transfers) was I percentage point of GDP lower than programmed, reflecting higher- than-expected increases in uranium exports and moderate growth of imports. 13. During the period December 1997-June 1998, the Government introduced a number of new measures aimed at improving the management of public finances and accelerating the privatization program. On the revenue side, measures were introduced to recoup some of the revenue shortfall experienced in 1997 (despite the 15 percent increase over 1996, revenues in 1997 fell short of the program target by 11 percent). These include: accelerating the collection of tax arrears owed to the Government by major public enterprises and tax defaulters, the publication of a comprehensive list of tax defaulters in the press and their exclusion from participation in Government procurement contracts and efforts to improve cooperation with the imports verification agency. Several measures were also introduced to improve expenditure management, including the banning of expenditure payments outside normal budgetary procedures, the establishment of a national commission for good governance in public administration and of a Treasury Committee. 14. Next, the Government accelerated the implementation of the privatization program, as evidenced by the following measures: (i) OLANI (dairy products) and SNC (cement) were sold in March and April 1998, respectively, and a request for bids for the management of Abattoir (slaughterhouse) was issued in February 1998;' (ii) the Government signed a protocol to transfer the management of SONIDEP's petroleum storage facilities to the private sector in December 1997, eliminated SONIDEP's import monopoly and adopted a regulatory framework governing private sector's imports of petroleum products; and (iii) consortia of financial and regulatory advisers were recruited to assist the Government in preparing the requests for bids for the privatization of SNE (water), SONITEL (telecoms) and NIGELEC (electricity) and in revising these sectors' regulatory frameworks. 15. The progress made on economic management was recently accompanied by positive developments on the political front. An agreement was signed in July 1998 between the Government and the opposition to ensure transparent and orderly municipal elections in November 1998. The participation of the opposition in the coming elections would contribute to improving political stability and thus the sustainability of ongoing economic reforms, and would help address the political governance issues that have affected cooperation with some donors since the January 1996 coup. In addition, the security situation in the North has improved and the government is proceeding with the reinsertion of several thousand former guerrilla fighters into the Nigerien economy and/or their integration in the public administration. C. Medium-term prospects and financing requirements 16. Under the combined influence of the sustained implementation of the Government's adjustment program outlined in the PFP and the resumption of external aid, the Nigerien economy is expected to grow in real terms at an average of about 4.5 percent a year during 1998- 2001, thus allowing an increase of real per capita income on the order of I percent per annum. However, no private investor came forward and the Government is revising the request for bids in order to re-issue it in 1998.  5 Growth is expected to mostly come from the development of crop and livestock production and a modest increase in exports. This growth performance would be supported by an increase in gross domestic investment from about 1 I percent of GDP in 1997 to 14 percent in 2001. The growth in investment will be financed initially by resumed external assistance and then increasingly by domestic savings, which are projected to rise from approximately 3 percent of GDP in 1997 to about 7 percent in 2001. A targeted increase in public sector's savings by about 4 percentage points of GDP during this period, through enhanced revenue performance and tight expenditure control, will be key to achieving the required rise in domestic savings. The general improvement in the economic environment is also expected to enhance private savings performance. The prudent monetary policies pursued by the regional monetary authorities (BCEAO) should help minimize inflationary pressures and stabilize the inflation rate at the current 3 percent level. However, the balance of payments outlook is expected to remain difficult and will be sensitive to developments in the price of uranium and climatic conditions. The macroeconomic projections and requisite policies will continue to be revised annually during the update of the PFP, taking into account both the progress achieved in reducing imbalances and the availability of financing. 17. The authorities recognize the need to normalize relations with external creditors. In this context, they intend to: (i) reduce external payments arrears by US$34 million in 1998; (ii) continue to prepay obligations falling due to Paris Club creditors; and (iii) maintain a prudent debt policy by only contracting concessional loans. Preliminary debt sustainability analysis, based on data from the Bank's Debt Reporting System, indicates that Niger's public external debt at end-1996 was about US$1.6 billion. The net present value of external debt represents about 256 percent of exports. IDA represents about 28 percent of the net present value of existing external debt and its share is likely to increase during the FY98-00 period. Provided it continues to implement IMF- and IDA-supported programs, Niger could reach the HIPC Debt Initiative decision point in mid-1999. 18. Given the enormity of Niger's development needs relative to its actual and prospective resources (see para. 23) and despite the anticipated improvement in its economic and financial situation, Niger will continue to rely on concessional external assistance for many years. For the perio(d July 1998-June 1999, the gross financing requirement is projected to amount to CFAF 131.5 billion (US$219 million). These requirements are expected to be met by assistance from multilateral institutions (CFAF 53.5 billion, including the proposed IDA credit), bilateral donors and the European Union (CFAF 38 billion) and debt relief from non-Paris Club bilateral creditors and some regional multilateral creditors (CFAF 40 billion). The prospects for filling the financing gap for 1999-2000 depend, in addition to Niger's economic performance, on donors' assessment of progress on the political front. In this respect, a critical determinant of continued donor support will be fair and transparent municipal elections, scheduled for November 1998. III. NIGER'S ADJUSTMENT PROGRAM 19. As discussed in the Country Assistance Strategy, Niger's central development challenge is hovw to reverse the current trend of sluggish real GDP growth and declining per capita income in the face of one of the poorest natural and human resource bases in Africa. The Government's medium-term economic program seeks to: (i) pursue prudent fiscal and monetary policies and improve the efficiency of public spending, thus making it possible to maintain aggregate demand at a level compatible with available resources, preserve the competitiveness gains resulting from the CFA franc devaluation and improve the impact of public services; and (ii) accelerate sectoral  6 reforms to promote broad-based economic growth, notably by encouraging agricultural production, developing human resources, rehabilitating basic physical infrastructure, and privatizing public enterprises. A detailed description of the Government's macroeconomic and structural adjustment policies for 1998-2001 is provided in the Policy Framework Paper. 20. Despite the encouraging progress made in the last two years to reduce financial imbalances, Niger's macroeconomic situation remains fragile. In this respect, the authorities realize that substantive revenue gains rest with the inevitably gradual process of restoring growth and that much of the short-term fiscal effort will therefore need to focus on public expenditure control and adjustment. In this respect, strict control over the growth of public expenditures will be the key to maintaining financial stability. Unfortunately, institutions and procedures for public expenditure control and management have deteriorated in recent years. The large stock of internal arrears accumulated during the last decade has led to a loss of credibility in claims on the state and an escalation in the use of uncontrolled advance payment procedures (paiements par anticipation, PPAs). While decreasing the time necessary to effectuate payments, these procedures also circumvent the normal accounting and control systems--thus reducing transparency and accountability and contributing to budgetary overruns, further accumulation of expenditure arrears and, in several cases, abuses. 21. Furthermore, the existing stock of government internal arrears toward the private sector and public enterprises has impeded the normal functioning of the economy, weakened private sector confidence and resulted in an increase in the cost of government,contracts. In addition, the absence of ex-post reconciliation of actual expenditures with budgeted amounts and the lack of audited Government accounts (no audited account of past budgets has been prepared in more than a decade) makes it impossible to ensure budgetary discipline and transparency, regularly monitor the execution of the budget and use the results of past budgets to prepare future expenditure programs. The Government is determined to break this vicious cycle and restore confidence in public finances and control of public expenditure by ensuring budgetary orthodoxy and the orderly clearing of domestic arrears. In addition, in order to continue maintaining control over the wage bill, the authorities have decided that, apart from the integration into the civil service of members of the former armed rebellion, there will not be any new recruitment into the civil service. These measures, which are detailed in para. 25-30 below, are expected to help reduce current expenditures from 10 percent of GDP in 1997 to 9 percent in 2001, reduce the share of personnel expenditures to tax revenues from 57 percent in 1997 to 31 percent in 2001 and avoid the accumulation of new domestic arrears. 22. Despite the tax reform efforts implemented during 1996-97, Niger's revenue mobilization performance remains one of the lowest in sub-Saharan Africa (8.4 percent of GDP in 1997). Therefore, in 1998-99 the Government intends to consolidate and reinforce the tax reform efforts implemented in the last two years. The focus will be on further broadening the tax base and strengthening tax administration by: (i) reducing the number and scope of tax exonerations; and (ii) strengthening tax assessment and collection services. Through these measures, which are detailed in para. 31-33 below, the Government expects to raise revenue by about 4 percentage points of GDP in 1998-2001, from 8 percent in 1997 to 12 percent in 2001. 2 This results from projecting a very modest growth of current expenditure in 1998-2001 while the macro framework assumes 4.5 percent GDP growth. Similarly, the wage bill is projected to grow by only about I percent on average during this period while revenues would grow by about 18 percent.  7 23. Niger's social and economic characteristics underlie the basic challenge confronting the Government with regard to its long-term development strategy, namely the enormity of the apparent needs relative to actual and prospective resources. The low level of development witnessed in many parts of Niger's economic and social fabric seemingly presents an overwhelming demand for public expenditure, yet the resource base and revenue potential is tied to subsistence or informal sector activities and a modem sector based on one major activity-- uranium--which is in recession. Given these parameters, there is an urgent need for the authorities both to launch a medium-term program to improve the efficiency and equity of public resources in line with the Government's macroeconomic framework and its stated development priorities, and to mobilize additional resources outside of the central government. A. Restore credibility of public finances 24. The main focus of the Government's economic reform program is to restore the credibility of public finances by ensuring budgetary discipline and the orderly clearing of domestic arrears. Strict enforcement of regular budgetary procedures and strengthened budget implementation and monitoring will be critical to the government's ability to maintain strict control over the growth of public expenditures, restructure them in favor of priority sectors and brealc the cycle of domestic arrears accumulation. Of equal importance is the clearing of domestic payments arrears which is essential to ease the financial gridlock that is impeding the norrnal functioning of the economy and rebuild private sector confidence. 25. Ensure budgetary discipline. The Government has already adopted a series of meassures to ensure budgetary discipline. First, it has eliminated advance expenditure payments (PPAks) which are made outside normal budgetary procedures. A national commission for good governance in public administration and a Treasury Committee have also been established. In addition, the "supplementary fiscal period" has been shortened from three to one month and is being properly accounted for; and finally, the deadline for closing expenditure commitments, presently set at two months prior to the end of each fiscal year, is being strictly enforced. 26. In August 1998, the authorities also launched a comprehensive audit of the Treasury by a team of experts under the guidance of a senior inspector from the French Treasury. One of the objectives of the audit is to review the Treasury accounts with the aim of reconciling, for the first time since 1981, ex-post actual expenditures with budgeted amounts for the period 1982-1997. The results of the audit will be presented to the Parliament in the first half of 1999. Audits of budgiet implementation for subsequent years will be produced on a regular basis. Next, the civil service database and payroll files have been integrated in order to link personnel management decisions directly to payroll execution. This will allow the Government to control the wage bill closely and to improve personnel management. The Government also adopted an implementation decree to keep expenditure commitments in line with actual budgetary receipts. Monitoring of budget implementation is being strengthened with the preparation of a computer- basecl public sector financial information system. No expenditure commitments will be possible outside of this system and computerized monthly information on budget implementation for each line rninistry (commitments, verifications of delivery, payments orders and effective payments) will be produced regularly and made available to all line ministries. Timely availability of such accoLints will ensure the transparency and accountability of public finance management and will make possible: (i) better management decisions regarding resource mobilization and allocation in terms of financial and economic programs; (ii) quick responses to discrepancies between  8 forecast and realized revenues and expenditures; and (iii) preparation of better budgets in later years. 27. Domestic Arrears Settlement Plan. The Government has prepared, with IDA assistance, a comprehensive inventory of domestic arrears and a plan for their orderly settlement during 1998-99. The plan defines the priorities and modalities for the settlement of these arrears, the attributions of the agency charged with the implementation of the plan, and the criteria for their verification and validation. Government domestic arrears totaled CFAF 118 billion (about 11 percent of 1997 GDP) as of March 31, 1998. These arrears are not all verified and it is expected that, after the planned verification process takes place, the definitive amount will be much lower than indicated above. Arrears owed to economic agents residing in Niger account for three quarters of this amount, while the remaining quarter is owed to non-resident operators (suppliers to embassies, foreign hospitals, etc.). Private enterprises account for 33 percent of total arrears (22 percent for resident enterprises and 11 percent for non-resident ones), the financial sector accounts for 24 percent, followed by the public and para-public sector for 18 percent, households (wages and scholarships) for 9 percent and miscellaneous for 16 percent (for details see Annex F, Attachment 1). 28. The settlement of arrears to the private sector and of salary arrears (the last month of 1996) is the Government's top priority. The commercial banking sector represents the second priority, in particular the settlement of loans and Treasury bonds. The arrears vis-a-vis public enterprises are identified but will not be settled in cash, with the exception of the ONPE (the National Postal and Savings Office) which requires an urgent injection of resources and of ONPPC (the National Pharmaceutical Company) in consultation with the European Union. The arrears to the other public enterprises will be settled in the context of their privatization (notably for the SNE, NIGELEC and SONITEL) or of their restructuring. The first phase of the settlement plan will concern the arrears validated by the Treasury (restes a payer, RAP, unpaid arrears) according to the priorities mentioned above. The second phase will cover, within the limit of resources available, additional claims that still require validation (depenses engagees non ordonnancees, DENO, expenditures committed for which payments orders have not been issued) according to the priorities described above. 29. An ad hoc Commission has been created to implement the settlement plan. The Commission is placed under the supervision of the Minister of Finance. Its tasks are to: (i) verify and validate the dossiers submitted to its review; (ii) proceed as needed to corrections, notably with respect to invoicing, tax obligations, competitive bidding procedures; and (iii) control and supervise the treatment of the dossiers that it verifies and validates. The activities of the Commission will be audited periodically by an international accounting firm according to internationally recognized norms. The settlement of eligible arrears will be done through cash payments. Given the financial constraints faced by Niger, the use of a discount procedure for the settlement of these arrears is necessary. A system of periodic auctions will be used in which the eligible private sector creditors (with arrears validated by the ad hoc Commission) who offer the highest discounts will be given priority. 30. Avoid a new build-up of domestic arrears. The Government's efforts to rehabilitate public finances will not be successful unless they are accompanied by concrete measures to avoid any new build-up of domestic arrears. First, it is necessary to adopt adequate procedures to avoid the accumulation of new arrears for water, electricity and consumption. In this respect, the Government has adopted the following measures: (i) increased in the revised 1998 budget  9 Law budget appropriations to cover actual water, electricity and telephone Government consumption by 78 percent (an adequate budget appropriation will also be made in the 1999 Budget Law to cover these services); (ii) adopted measures to reduce Government consumption of these services (see Annex F, footnote 2 for details); (iii) created a unit in charge of controlling Government consumption of these services and of ensuring the regular payment of its bills; and (iv) authorize the water, electricity and telephone public utilities to cut the provision of these services to the Government in case bills are not paid within one month. This rule will apply to all public administration agencies with the exception of a few operating in strategic activities and payment of whose bills will receive priority (see Annex F, footnote 3 for details). In 1998, these measures will be supplemented by: (i) a reduction in, and improved management of, expenditures for official travel and medical evacuations; (ii) improved management and redefinition of the criteria for awarding scholarships to students, as well as transfers and subsidies to the national television (ORTN), the university, the National School of Administration (ENA) and the agricultural research institute (INRAN), which together absorb over 50% of total subsidies; and (iii) measures to ensure strict application of the system of expenditure control and regulation. B. Consolidate and reinforce the tax reform effort 31. The focus of the government's efforts would be on further broadening the tax base and strengthening tax administration by: (i) reducing the number and scope of tax exonerations; and (ii) strengthening tax assessment and collection services. The use of tax exonerations has grown sharply in the last two years and the 1997 related revenue loss equals 16 percent of budgetary revenues. About half of exonerations are granted under the petroleum and mining code and under the tax regime for the uranium sector; the remaining exonerations are granted under the investment code, special conventions for the hotel and textile sectors, foreign-financed projects, and for commodities imported by embassies and NGOs. The largest part of exemptions concern the value added tax. In addition to the significant revenue loss from exemptions, tax evasion remaiins a serious problem in Niger, largely as a result of the share of the informal sector in the economy and severely understaffed and underequipped tax agencies. 32. The Government has adopted the following measures in order to strengthen its control of existing tax exonerations and sharply reduce their scope and number: (i) the elimination of all ad hoc exemptions; (ii) the nonrenewal of expiring exemptions granted under the investment code; (iii) withdrawing exonerations granted under the investment code when a company does not complete the investment program within a 12 month period; (iv) excluding all enterprises that will be privatized starting from September 1, 1998, from exemptions under the provision of the Investment Code (in anticipation of a new UEMOA regional investment framework); (v) eliminating exemptions from duties and taxes on all imports of lubricants and spare parts with a unit value under CFAF 100,000; (vi) improving imp]ementation of the system of Treasury checks as a means to monitor exemptions related to imports under foreign-financed government procurement contracts; and (vii) extending to NGOs the system of Treasury checks to pay import duties and other applicable indirect taxes. In 1999, the Government also intends to introduce a system of exemptions applicable to petroleum products based on the advance payment of customs duties and taxes and their reimbursement on the basis of delivery receipts. Given  10 existing legal provisions3 and a penalizing tax regime, elimination of existing exonerations granted under the petroleum and mining code and under the tax regime for the uranium sector will first require a comprehensive review of this sector's tax regime. The Government intends to implement this effort in 1998-99. In the meanwhile, the authorities have completed a review of existing procedures for exonerations granted under the petroleum and mining code and under the tax regime for the uranium sector and are implementing its recommendations in order to strengthen their monitoring and application. 33. In order to strengthen tax assessment and collection services, the authorities have implemented the following measures: (i) made fully operational the Large Taxpayer Unit in the tax administration office and provided it with adequate personnel and material to enhance its effectiveness; (ii) enhanced taxpayer compliance through well targeted value added tax (VAT) audits; (iii) introduced the single taxpayer identification number system to all revenue agencies to monitor taxpayers compliance; (iv) installed computerized value records for use by the Directorate General of Customs; and (v) improved cooperation between customs and the import verification agency (COTECNA), including by using documented discrepancies between the ADV of COTECNA and the customs declarations to improve revenue collection. In addition, in 1998 staff efficiency and capabilities of tax collection agencies will be reinforced through the recruitment of an additional 75 permanent staff and 30 fixed-term employees. 1998 budgetary allocations for equipment and supplies (CFAF I billion) will also allow tax collection agencies to improve their operations and pursue the decentralization of their activities. Finally, the Government will accelerate preparations for implementing the UEMOA common external tariff (CET). With assistance from IDA and the IMF, the authorities will assess the impact of the CET on government finances and, if needed, will develop offsetting measures. C. Improve the efficiency and equity of public spending 34. In concert with its efforts to re-establish the basis for sound macroeconomic management, the Government has also launched a medium-termn process to improve the efficiency and equity of public spending in line with its macroeconomic objectives and sectoral priorities. The key challenge is to reorient expenditures and reform the public sector in such a way as to achieve the highest impact on service delivery to rural communities and poverty reduction. In 1998, the Government launched a multi-year Public Expenditure Review (PER) with the assistance of the World Bank and other donors. Improving the management of public resources in Niger will require a sustained effort over time. The 1998 PER, which represents the first step in a multi-year undertaking, focuses on: (i) an in-depth analysis of expenditure issues in the health and education sectors; and (ii) budgetary procedures. This analysis will be extended to other priority sectors and issues over the next two years (e.g., rural development, transport and fiscal decentralization). 35. The ongoing PER has identified several problems with respect to the composition of public expenditure. First, despite recent Government efforts to reduce the wage bill (11 percent cut in 1997), personnel expenditure continue to absorb about 46 percent of non-interest current expenditures; in contrast, spending for materials and supplies represents only 39 percent of non- The Mining Law requires that a convention, valid for 30 years, be signed before issuance of exploration permits for mining companies. The legal provisions in both the Mining Code and the conventions are clear and comprehensive in their treatment of tax exonerations and do not allow any legal reversal of these fiscal arrangements.  I1 interest current expenditures; subsidies and transfers represent a significant (13 percent) and growing share of non-interest current expenditure. Second, although the education and health sectors combined absorb more than 40 percent of domestically-financed expenditures (excluding interest payments), the distribution of public resources within these sectors is far from optimal. Publiic spending does not adequately target the provision of services which most benefit the poor; for example, a significant share of resources continues to be spent on urban curative, rather than rural preventive, health care and on secondary and higher education. Also, administration services absorb an inordinate proportion of available resources, particularly in tertiary health care and higher education. Third, the distribution of human and financial resources is not regionally balanced; for example, 55 percent of civil servants are located in Niamey, which represents 6 percent of the country's population. The underfinancing of materials and supplies, coupled with poor human and financial resource management, has led to an acute shortage of essential operating supplies, a rapid deterioration of physical facilities, equipment and service quality, all of which have resulted in an underutilization of services in public facilities, particularly in rural areas. The PER has also identified several weaknesses in expenditure programming and execution procedures, including inadequate preparation of annual budgets, weak monitoring of project execution and impact, poor budgetary and accounting nomenclature and weak linkages between the recurrent and investment budgets. 36. Through the PER, the Government is developing detailed recommendations to improve expenditure allocations in the education and health sectors and to enhance budget processes. The recomnmendations seek to ensure strategic expenditure prioritization, increase allocations for key programs and develop a system of ex-post evaluation of outcomes. The Government intends to include the 1998 PER recommendations in the 1999 Budget Law. Among these are: (i) the recruitment of volonteer teachers to increase primary enrollment rates; the volonteer teachers, whose cost is appreciably lower than that of paying teachers with government employee status, will be financed through the elimination of subsidies to private education and a cut of transfers to university and secondary school students; (ii) increase non-wage current expenditure for the health sector by 5 percent in real terms; (iii) increase the budget for educational materials and supplies by CFAF 215 million and for fuel and maintenance for vehicles used for primary school inspections by CFAF 40 million; (iv) ensure a more rational deployment of available health and education staff; and (v) privatize maintenance and repair services of the motor vehicle fleet of the Ministry of Public Health. Agreement on the 1999 draft budget acceptable to IDA and reflecting the PER recommendations would be a condition for second tranche release of the proposed credit. In this context, the Government will fully involve IDA and other interested donors in the preparation of the 1999 Budget, starting in May and until it is presented to the Parliament in November/December 1998. Following this credit, the elaboration and implementation of the medium-term policy agenda in public expenditure management will be further supported and monitored in conjunction with follow-up PERs and with ongoing investment projects in health, education, agriculture and transport. IV. THE PROPOSED PUBLIC FINANCE REFORM CREDIT A. Credit Rationale and Components 37. In 1996-97, the Government demonstrated its resolve to maintain the economic reform program on track--despite a difficult political environment and reduced foreign assistance. The implementation of this first phase of the program was supported by IDA through a single-tranche Public Sector Adjustment Credit, PSAC (SDR21.6 million or US$30 million equivalent)  12 disbursed in March 1997. Given the encouraging progress so far, the proposed credit would provide budgetary support to fill the financing gap for 1998-99, and would thus permit the Government to sustain implementation of the second phase of the reform program. 38. The main focus of the proposed credit is to restore credibility of public finances by ensuring budgetary orthodoxy and the orderly clearing of domestic arrears. In addition, the credit would support measures to consolidate and reinforce the tax reform efforts implemented in 1996-97, and to launch a medium-term effort to improve the efficiency and equity of public spending. The Country Assistance Strategy envisaged IDA budgetary support for 1998 and 1999 through two single-tranche SACs of US$30 million each. However, for internal efficiency reasons and to build a longer-term Government commitment to the country's reform agenda, we propose to replace the two SACs with a single, three-tranche adjustment operation of SDR 48.0 million (US$64.0 million equivalent). B. Conditions of tranche release 39. The proposed credit was designed with a focus on actions taken prior to Board presentation. In this regard, the Government has already implemented the following key measures: Budgetary Orthodoxy * completion of a comprehensive inventory of domestic arrears and adoption of a plan for their orderly settlement and of measures to avoid their future recurrence; * launch a comprehensive audit of the Treasury, including of its accounts to ensure reconciliation between actual expenditures and budgeted amounts for the 1982-97 period; * elimination of all expenditure payments outside normal budgetary procedures (PPAs); * adoption of implementation decree to keep expenditures strictly in line with resources mobilized; * following the completion of the civil service census in September 1997, removal from the payroll and civil service roaster of 319 employees whose status was found to be irregular; * integration of the civil service database and payroll files to ensure full control of the government wage bill; and * completion of a Public Expenditure Review with detailed recommendations and an action plan for their implementation, including through the 1999 Budget Law. Revenue Mobilization * make fully operational the large taxpayer unit in the tax administration office and provide it with adequate personnel and material to enhance its effectiveness; * introduction of the single taxpayer identification number system for all revenue agencies and introduction of computerized value records; * completion of a review of procedures for tax exonerations granted under the petroleum and mining code and under the tax regime for the uranium sector and implementation of their recommendations;  13 * elimination of all ad hoc exemptions and no granting of new exonerations under the investment code to enterprises that will be privatized starting from September 1, 1998; * provision to the General Tax Directorate of an additional 75 permanent staff and 30 fixed-term employees to accelerate revenue collection, and provision to tax agencies of CFAF I billion for equipment and supplies to strengthen their effectiveness; * effective implementation of the system of Treasury checks for the payment of import duties under externally-financed government procurement contracts; and * extend to NGOs the system of Treasury checks to pay import duties and other applicable indirect taxes. 40. The first tranche of SDR 18.0 million (US$ 24.0 million equivalent) will be released upon effectiveness of the proposed credit. Subject to continuing satisfactory performance on the macroeconomic front and implementation of the program outlined in the Letter of Development Policy, particularly with regard to the overall level of revenues and expenditure, a second tranche of SDR 15.0 million (US$ 20.0 million equivalent) would be released contingent upon: (i) presentation to the Parliament of a draft 1999 budget consistent with the program outlined in the Letter of Development Policy, and taking into account the recommendations and findings of the PER for 1999; (ii) settlement of domestic arrears in a net amount of at least US$ 20 million equivalent according to the priorities agreed upon in the domestic arrears payment plan; and (iii) completion of the verification and validation of all its internal arrears not yet verified and validated and presentation to IDA of a settlement plan satisfactory to IDA. A third tranche of SDR 15.0 million (US$ 20.0 million equivalent) would be released contingent upon: (i) presentation to the Parliament of the expenditure audit (Loi de Reglement) covering the execution of the budgets for each fiscal year from 1991 through 1997; and (ii) settlement of a second net amount of domestic arrears of at least US$ 20.0 million equivalent according to the priorities agreed upon in the domestic arrears payment plan. 41. A set of key performance indicators have been agreed with the Government during negotiations and are included in Annex G. C. Link to the CAS and Poverty Impact 42. The CAS discussed by the Executive Directors in November 1997 identifies human resource development, improvement in the management of water resources and promotion of economic flexibility and openness for private sector growth as the focus of IDA's involvement in Niger. Niger's expanded coverage of basic social services and private sector growth will require sound public finance management to assure the availability and efficient use of resources for essential state functions and to avoid the economic and social disruption of arrears on civil servant salaries and government supplies. The proposed credit supports the Government in achieving these goals and, thus, is fully consistent with the Niger's CAS. In addition, through its focus on further widening the tax base, notably through the reduction of tax exonerations and the strengthening of tax administration, the proposed credit supports Niger's efforts to mobilize revenues and harmonize customs and investment incentives within the UEMOA. Together with the expected positive impact on macroeconomic stability, the proposed credit would provide the foundations for future reforms and allow IDA lending to evolve increasingly toward programmed budget support to the health and education sectors, away from traditional projects and adjustment credits. The speed with which such new instruments could be put in place would  14 partially determine whether additional adjustment lending would be required after the proposed credit. D. Ownership of the Reform Program 43. Government ownership of the credit and the program it supports appears to be adequate in order to ensure its successful implementation. This is evidenced by: * full involvement of the Government in the design of the adjustment program. The Government provided the initial written framework for the credit including TORs for key components. * the Government has already put in place a number of key actions in the areas of revenue mobilization and public expenditure management. * a government counterpart team (composed of senior staff at the level of secretary general or director from various ministries) has been working with IDA staff on the program design and implementation. The team is headed by the Secretary General of the Ministry of Finance and is supported by a full-time technical team. 44. Finally, to help gain even broader ownership of the program, IDA will continue to encourage the authorities to broaden consensus outside of the Government on the economic reform agenda, including consultations with trade unions, the private sector and other stakeholders. In this respect, with IDA assistance the Government has develop a communication strategy to strengthen dialogue with civil society and broaden public support for economic reforms. In parallel, the Resident Mission, in close partnership with the Government, has initiated a series of consultations with different social groups (university, national assembly, trade unions and political parties) to help promote a better understanding of the reform program and the Government's development agenda. E. Credit Amount, Disbursement Procedures and Implementation Arrangements 45. The credit will be disbursed in three tranches in an amount equivalent to US$64 million. The AfDB and Germany (KfW) intend to provide parallel financing for the proposed credit. Procurement and disbursement arrangements will follow the simplified procedures for structural adjustment operations approved by the Board on February 1, 1996. Thus, disbursements will not be linked to specific purchases and there will be no procurement requirements. The Borrower will open an account in CFAF at the Central Bank. Upon IDA notification of tranche release, proceeds of the credit will be deposited (in CFAF) in this account at the request of the Borrower. The amount of the PPF granted to prepare this operation (PPF Q088-NIR) will be reimbursed from the proceeds of the credit's first tranche. In addition, the Government intends to allocate US$3 million out of the local currency counterpart generated by the proposed credit to finance the implementation of the measures detailed in para. 25-30 aimed at restoring budgetary discipline. If the proceeds of the credit are used for ineligible purposes (i.e., to finance items imported from non-member countries, or goods and services on the Bank's standard negative list), IDA will require the Borrower to either: (a) return that amount for use on eligible purchases; or (b) refund the amount directly to IDA, in which case IDA will cancel an equivalent undisbursed amount of the Credit. Although an audit of the use of credit funds will not be required, IDA reserves the right to require audits at any time. The credit's administration will be the responsibility of the Ministry of Finance, Economic Reforms and Privatization.  15 46. The reform program supported by the proposed credit is being implemented under the supervision of an Inter-ministerial Committee chaired by the Prime Minister. The government counterpart team described in para. 43 above will be responsible for coordinating the activities of all government agencies involved in the reform program and for monitoring program implementation (including the preparation of monthly reports for the Inter-ministerial Committee and IDA). Implementation of the agreed policy actions will be monitored on a regular basis by IDA Headquarters and Resident Mission staff and the Committee's monthly reports. IDA supervision activities will be closely coordinated with the IMF and other donors providing parallel financing. F. Benefits and Risks 47. In light of Niger's short track record in implementing reform programs and its fragile political situation, the proposed credit is of high risk. The two main risks are: (i) renewed political and social instability which could undermine government commitment to the reform program; and (ii) weak Government implementation capacity. 48. The largest risk associated with the proposed credit is a scaling back, or reversal, of the reform package as a result of political developments. In the face of renewed political and social instability, the Government's determination to restore the credibility of public finances by ensuring budgetary orthodoxy and the clearing of domestic arrears may be called into question. Faltering Government commitment to fight tax evasion would also result in significant shortfalls in revenue mobilization which, in turn, would jeopardize efforts to restore financial discipline. However, the resolve shown by the Government over the last year to maintain the economic reform program on track and its determination to broaden it by adopting a number of key reform measures prior to presentation of the credit to the Board (see para. 39), provide assurance that the program will be implemented in its entirety. As indicated in para. 44, the authorities have also developed a communication strategy to broaden public support for the reform program. Furthermore, to decrease the risk of policy reversal, the program was designed with a focus on actions taken prior to credit approval and a relatively short implementation period. 49. The second risk is that weak Government administrative capacity and coordination could lead to delays in the implementation of key measures. In this context, the new Government has effectively improved coordination of the economic reforn program and mobilized a full-time technical team to work on program design and implementation. IDA has also provided significant technical assistance through the Public Expenditure Review and a Project Preparation Facility (US$250,000), both of which were designed with a focus on ownership by the national administration. 50. In our assessment, the potential benefits of support to Niger in the form of the proposed credit outweigh the high level of risk. The key benefit of the reform program will be a major contribution, along with the IMF ESAF, to stabilizing public finances and improving the efl'iciency of public spending, both of which are preconditions for sustainable economic development in Niger. Following the encouraging progress made by the Government in implementing the first phase of the economic reform program in 1996-97, the proposed credit will permit the Government to sustain implementation of the program in 1998-99. Without the quick-disbursing financing provided by the credit, the country's prospects for sustainable development would be considerably weakened.  16 V. BANK GROUP OPERATIONS IFC and MIGA 51. IFC has no outstanding investments in Niger but has recently conducted missions to identify new investment opportunities. Possible areas for future involvement include enterprises in the process of being privatized, capital market development and small manufacturing enterprises. Niger has not yet completed its MIGA membership requirements and is thus not yet eligible for MIGA coverage. Given the potential importance of MIGA membership for private sector investment, the government will be encouraged to accelerate completion of the remaining requirements. VI. COLLABORATION WITH IMF AND OTHER DONORS 52. The reform program supported by the proposed credit is coordinated closely with the IMF ESAF program, with both programs aiming to promote discipline in public finances. Measures designed to improve the management of public expenditure through greater financial discipline and improved efficiency of public spending neatly complement the IMF's support for revenue mobilization and expenditure control. The expenditure targets to be adopted in the 1999 Budget will be kept consistent with the fiscal targets under IMF-supported programs and the PFP 1998-2001. IMF's structural policy benchmarks are developed in close consultation with IDA and stress the complementarity of programs being implemented by the two institutions. 53. IDA staff have also closely collaborated with Niger's major donors. Parallel IMF, IDA, African Development Bank and European Union missions are held regularly to review implementation of the economic reform program. Close coordination with donors on the reform program covered by the credit is also ensured by the collaboration established with France for the public finance rehabilitation and modernization components of the program and the participation of the EU and other donors in the Public Expenditure Review. VII. RECOMMENDATION 54. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve it. James D. Wolfensohn President by Sven Sandstrom Washington, D.C. September 18, 1998 Attachments  Annex A Page I of I Niger Social Indicators Latest single year Same regionfincome group Sub- Saharan Low- 1970-75 1980-85 1990-96 Africa income POPULATION Total population, mid-year (millions) 4.7 6.6 9.3 596.4 3,236.2 Growth rate (% annual average) 2.5 3.5 3.3 2.7 1.8 Urban population (% of population) 10.6 14.3 18.7 31.7 29.1 Total fertility rate (births per woman) 7.2 7.4 7.4 5.6 3.2 POVERTY (% of population) National hea.dcount index .. .. 63.0 Urban headcount index Rural headcount index INCOME GNP per capita (US$) 250 220 200 490 490 Consumer price index (1987=100) 39 111 131 266 275 Food price irdex (1987=100) .. 120 83 INCOME/CONSUMPTION DISTRIBUTION (% of income or consumption) Lowest quintile .. .. 7.5 Highest quintile .. .. 44.1 SOCIAL INDICATORS Public expenditure Health (% of GDP) . .. 1.6 .. 1.5 Education (% of GNP) . 3.1 3.1 5.3 3.6 Social security and welfare (% of GDP) . 0.3 Net primary school enrollment rate (% of age group) Total .. 25 25 Male .. 32 32 Female . 17 18 Access to safe water (% of population) Total 27 37 53 45 76 Urban 36 48 46 63 80 Rural 26 34 55 34 72 Immunization rate (% under 12 months) Measles .. 19 38 56 80 DPT .. 6 19 55 81 Child malnutbition (% under 5 years) .. 49 43 Life expectancy at birth (years) Total 39 40 47 52 63 Male 38 39 44 51 62 Female 41 42 49 54 64 Mortality Infant (per thousand live births) 166 139 118 91 68 Under 5 (per thousand live births) .. 300 321 147 94 Adult (15-59) Male (per 1,000 population) 611 562 510 448 231 Female (per 1,000 population) 490 453 401 376 206 Matemal (per 100,000 live births) .. 519 593 World Development Indicators 1998 CD-ROM, World Bank  Annex B Page I of 3 Niger - Key Economic Indicators Actual Estimat Projected Indicator 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 National accounts (as % GDP at current market prices) Gross domestic product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Agriculturea 38.8 38.5 40.8 40.2 38.9 38.0 37.8 37.7 37.5 37.3 Industrya 17.9 17.9 17.3 17.3 17.8 18.0 17.8 17.8 17.8 17.8 Servicesa 41.7 42.0 40.5 40.8 41.3 41.7 41.8 41.9 42.0 42.2 Import duties and taxesa 1.6 1.7 1.4 1.8 1.9 2.4 2.5 2.6 2.7 2.7 Total Consumption 95.6 96.7 100.0 99.6 96.9 96.7 95.5 95.4 94.0 92.6 Gross domestic fixed 5.8 6.1 8.9 7.2 9.4 10.5 11.1 11.7 12.7 13.8 investment Government investment 3.9 4.2 6.6 5.4 4.6 5.8 6.3 6.6 6.8 6.8 Private investment 1.5 1.5 3.8 2.1 5.0 5.0 5.1 5.3 6.2 7.3 (includes increase in stocks) Exports (GNFS)b 16.8 15.6 16.5 17.2 16.9 16.2 16.2 15.3 14.8 14.3 Imports (GNFS) 17.8 18.1 26.9 24.3 23.5 23.7 23.1 22.6 21.7 21.0 Gross domestic savings 4.4 3.3 0.0 0.4 3.1 3.3 4.5 4.6 6.0 7.4 Gross national savings' 2.8 3.0 -1.0 -2.6 2.6 3.0 2.7 2.7 5.1 6.7 Memorandum items Gross domestic product 2345 2195 1563 1881 1988 1859 1940 2114 2286 2473 (US$ million at current prices) Gross national product per 290.0 280.0 240.0 210.0 200.0 200.0 .. capita (US$, Atlas method) Real annual growth rates (%, calculated from 1987 prices) Gross domestic product at -6.5% 1.4% 4.0% 2.6% 3.3% 3.4% 4.4% 4.5% 4.5% 4.5% market prices Gross Domestic Income -3.9% 1.2% -0.1% 3.2% 2.8% 5.3% 4.4% 3.3% 4.7% 4.6% Real annual per capita growth rates (%, calculated from 1987 prices) Gross domestic product at -9.5% -1.9% 0.5% -0.7% -0.1% -0.1% 0.9% 1.1% 1.7% 1.7% market prices Total consumption -6.5% -1.2% -2.6% 0.4% -2.3% 0.3% 0.1% -0.1% 1.6% 1.8% Private consumption -9.3% 0.5% -3.1% 3.8% 0.5% -1.6% 1.1% 0.4% 2.3% 2.4%  Annex B Page 2 of 3 (Continued) Niger - Key Economic Indicators (Continued) Actual Estimat Projected Indicator 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Balance of Payments (USSm) Exports (GNFS)b 392.9 343.3 258.4 322.7 336.8 300.9 314.1 322.8 337.4 353.0 Merchandise FOB 343.8 297.2 225.5 286.4 301.6 270.0 279.2 284.5 296.7 310.2 Imports (GNFS)b 418.2 397.3 420.2 457.3 466.3 441.1 448.1 477.5 495.9 520.4 Merchandlise FOB 266.3 255.9 262.8 297.4 306.0 296.8 301.3 323.9 338.2 356.4 Resource balance -25.3 -54.0 -161.8 -134.6 -129.5 -140.1 -133.9 -154.7 -158.5 -167.4 Net currentlransfers -5.3 27.2 14.0 -4.2 17.8 19.4 -7.7 -12.6 4.2 8.5 (including official current transfers) Current account balance 33.6 33.7 -99.6 -88.1 -66.2 -74.3 -88.8 -110.2 -90.0 -92.6 (after official capital grants) Net private fbreign direct 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.1 11.9 11.9 investment Long-term loans (net) 10.6 -28.3 2.5 5.8 -0.6 38.9 5.1 16.2 10.9 16.5 Official 28.7 -10.8 5.8 -14.9 -6.1 40.5 5.3 1.8 -6.1 -4.8 Private -18.1 -17.5 -3.2 20.6 5.5 -1.5 -0.2 14.3 16.9 21.3 Other capita:l (net, including -53.9 0.4 37.9 98.0 53.8 22.4 .. errors and omissions) Change in reserves 9.7 -5.8 59.2 -15.7 13.0 13.0 .. Memorandum items Resource balznce (% of -1.1% -2.5% -10.3% -7.2% -6.5% -75% -6.9% -7.3% -6.9% -6.8% GDP at current market prices) Real annual growth rates (1987 prices) Merchandise exports 3.4% -4.7% 4.6% 14.2% 8.0% 1.9% 6.5% 0.7% 3.8% 4.1% (FOB) Merchandise imports -I 1.0% 3.9% 8.6% 1.7% 5.5% 10.4% 4.6% 6.2% 3.9% 4.9% (CIF) Public finance (as % of GDI' at current market prices) Current revenues 8.2 7.3 6.0 7.2 7.8 8.4 9.9 10.3 11.3 11.8 Current expenditures 12.6 12.8 12.5 10.9 8.5 10.4 9.6 9.3 9.2 9.1 (Continued)  Annex B Page 3 of 3 Niger - Key Economic Indicators (Continued) Actual Estimat Projected Indicator 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Current account surplus (+) -4.4 -5.5 -6.4 -3.6 -0.7 -2.0 0.3 1.0 2.2 2.8 or deficit (-) Capital expenditure and net lending 3.7 3.6 5.3 4.0 3.8 4.8 5.5 5.8 6.0 5.9 Foreign financing 4.4 2.7 16.2 2.5 6.8 6.4 4.4 3.6 2.6 2.6 NI-h-etary indicators M2/GDP(atcurrentmarket 19.5 19.2 14.9 14.3 12.3 11.2 11.4 11.4 11.4 11.4 prices) Growth of 12 (%o) -0.9 0.0 6.7 3.8 -6.6 -3.0 9.0 8.3 Private sector credit growth -180.8 133.8 -359.3 -51.5 33.1 14.6 41.5 604.2 49.5 total credit growth (%) Price indices( 1992=100) Merchandise export price 100.0 101.2 124.2 133.7 162.5 150.2 153.7 159.3 162.8 166.7 index Merchandise importprice 100.0 10.3 186.7 186.5 191.6 208.3 212.3 216.9 218.3 221.1 index Merchandise terns of trade 100.0 987.3 66.5 71.7 84.8 72.1 72.4 73.4 74.6 75.4 index Real exchange rate (1990 = 100) 84.8 82.8 55.1 61.1 63.1 61.2 .. (US$/LCU)d Interest rate (end of period) e 9.0% 8.5% 4.5% 4.5% 3.5% 3.5% .. Consumer price index -2.9% 1.0% 35.6% 10.9% 5.3% 2.9% 3.0% 3.0% 3.0% 3.0% (% growth rate) GDP deflator 1.1% -0.1% 32.7% 5.4% 4.8% 3.0% 3.0% 3.0% 3.0% 3.0% (% growth rate) a. GDP components, as percentages of the total, are taken with respect to GDP at market prices. b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation. e. Minimum rate, savings deposits.  Annex C Page I of I NJiger: External Financing Requirements and Sources, 1995-2001 (In millions of U.S. Dollars) Actual Est. Projections 1995 1996 1997 1998 1999 2000 2001 A. External financing requirements 201.2 255.3 217.6 278.0 296.4 235.3 233.4 1. Currenl: account deficit, excluding interest and official transfers 165.6 152.2 159.9 152.9 164.6 151.5 156.1 2. Interesl: 42.3 31.1 27.2 29.7 30.5 28.5 29.3 3. Debt arnortization 49.7 37.3 31.8 42.7 47.6 58.3 59.8 4. IMF repurchases and repayments 12.2 11.7 15.0 13.8 5.9 1.8 1.3 5. Changes in external payments arrears (increase -) -54.3 36.0 -3.3 34.2 37.6 15.4 0.0 6. Changes in net foreign assets (increase -)1 -12.4 -13.6 -9.3 4.7 10.1 -20.2 -13.1 7. Net counterpart to revaluation -2.0 0.6 -3.8 0.0 0.0 0.0 0.0 B. Resources 201.2 255.4 217.6 189.4 170.8 171.0 181.0 1. Official transfers (gross) 119.8 117.0 112.8 93.8 85.0 90.0 92.8 Budgetary 18.4 43.2 31.1 14.0 0.0 0.0 0.0 Investment 59.1 54.5 53.4 58.1 62.1 66.0 70.0 Other 42.3 19.3 28.3 21.7 22.9 24.0 22.8 2. Long-teirm public loan disbursements (gross)2 34.9 31.3 72.3 48.0 49.4 52.2 55.0 Budgetary 13.0 12.3 41.6 8.8 0.0 0.0 0.0 Project related 21.8 19.0 30.7 39.2 49.4 52.2 55.0 3. Short-term capital (net)3 43.3 6.5 -18.4 -0.2 14.3 16.9 21.3 4. Debt relief 3.2 86.6 24.3 21.8 11.9 0.0 0.0 5. Use of IMF resources 0.0 14.0 26.6 26.0 0.0 0.0 0.0 6. Long-term private capital 0.0 0.0 0.0 0.0 10.1 11.9 11.9 C. Remairing financing gap (A-B) 0.0 0.0 0.0 88.6 125.6 64.3 52.4 Memorandum item: Exchange! rate (CFAF per US$) 499.1 511.6 582.4 600.2 593.0 590.1 587.3 Exchange! rate (CFAF per SDR) 757.1 742.8 802.0 807.3 794.0 791.3 789.9 Sources: Nigerien authorities; and IDA staff estimates and projections. 1 Excluding the net position vis-a-vis the Fund. 2 Includes both existing and expected new commitments. 3 Includes errors and omissions.  Annex D Page 1 of 2 Status of Bank Group Operations in Niger IBRD Loans and IDA Credits in the Operations Portfolio (as of August 26, 1998) Difference Between Original Amount in USS Millions and actual Loan or Fiscal disbursements a/ Project ID Credit Year Borrower Purpose No. IBRD IDA Cancellations Undisbursed Orig Frm Rev'd Number of Closed Loaris/credits: 43 Active Loans NE-PE-35608 IDA30260 1998 GOVERNMENT TRANSP. INFRA. REHAB 0.00 28.00 0.00 26.20 .22 0.00 NE-PE-1999 IDA29150 1997 GOVERNMENT OF NIGER HEALTH II 0.00 40.00 0.00 32.42 2.43 0.00 NE-PE-49691 IDA29570 1997 GOVERNMENT URBAN INFRAS. REHAB. 0.00 20.00 0.00 17.43 -.38 -.92 NE-PE-1967 IDA27960 1996 GOVERNMENT OF NIGER NATURAL RES. MGMT 0.00 26.70 0.00 17.15 3.38 -.12 NE-PE-1994 IDA27070 1995 GOVERNMENT PILOT PRIVATE IRRIG 0.00 6.80 0.00 4.03 3.87 3.47 NE-PE-1980 IDA26180 1994 GOVT OF NIGER EDUCATION III - SECA 0.00 41.40 0.00 16.39 4.76 0.00 NE-PE-1968 IDA21220 1990 GOVERNMENT OF NIGER AGRIC. RESEARCH 0.00 19.90 0.00 4.24 3.16 3.24 Total 0.00 182.80 0.00 117.86 17.44 5.67 Active Loans Closed Loans Total Total Disbursed (IBRD and IDA): 57.53 597.84 655.37 of which has been repaid: 0.00 34.43 34.43 Total now held by IBRD and IDA: 182.80 531.14 713.94 Amount sold : 0.00 3.15 3.15 Of which repaid 0.00 3.15 3.15 Total Undisbursed : 117.86 2.28 120.14 a. Intended disbursements to date minus actual disbursements to date as projected at appraisal. b. Rating of 1-4: see OD 13.05. Annex D2. Preparation of Implementation Summary (Form 590). Following the FY94 Annual Review of Portfolio performance (ARPP), a letter based system will be used (HS = highly Satisfactory, S = satisfactory, U = unsatisfactory, HU = highly unsatisfactory) : see proposed Improvements in Project and Portfolio Performance Rating Methodology (SecM94-901), August 23, 1994. Note: Disbursement data is updated at the end of the first week of the month.  Annex D Page 2 of 2 Niger STATEMENT OF IFC's Committed and Disbursed Portfolio As of August 26, 1998 (In Millions of US Dollars) Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic Total Portfolio: 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Approvals Pending Commitment Loan Equity Quasi Partic Total Pending Commitment: 0.00 0.00 0.00 0.00  Annex E Page I of I NIGER PUBLIC FINANCE REFORM CREDIT SUPPLEMENTAL CREDIT DATA SHEET Timetable of Key Project Processing Events Time taken to prepare the project 8 months Project Prepared by: Government with the assistance of IDA staff Appraisal: May 1998 Negotiations: August 1998 Board Presentation: October 1998 Effectiveness Date: October 1998 Closing Date: June 30, 2000 This report is based on the findings of the World Bank mission which visited the Republic of Niger in May 1998 to assist the Govemment in the appraisal of the Public Finance Reform Credit. Mission members included: Messrs./Mmes Bassani (Task Manager); Ahlers (Director, AFC13), Brown (Resident Representative), Ibrahim (economist), Nignon (operations officer), Diallo (program officer) and Haemmerlin (consultant). Additional contributors include: Messrs./Mmes Abisourour and Crego (research analysts); Boulch (sr. public sector management specialist); Desclaux (disbursement officer); Moumal and Martinov (staff assistants), Schwartz (sr. education specialist), Wabnitz (counsel) and Waelde (economist). Messrs. Ahlers and Humphreys are the Director and the Sector Manager, respectively, for the operation.  Annex F Page 1 of 20 REPUBLIC OF NIGER Niamey, September 10, 1998 OFFICE OF THE MINISTER OF FINANCE, ECONOMIC REFORMS AND PRIVATIZATION The Minister of Finance to No. 5028/MFRE/P/DGE/R Mr. James D. Wolfensohn President of the World Bank 1818 H Street, N.W. Washington, D.C. 20433 Dear Mr. President, I am pleased to transmit herewith the Government of the Republic of Niger's Letter of DevelopmentPolicy. This letter, together with its policy matrix and attachment, summarizes the goals, strategies and policies which the Nigerien authorities intend to pursue to correct the main existing financial imbalances and to place the Nigerien economy on the path to sustained and durable growth with both bilateral and multilateral external financial assistance. The different elements of this letter have been the subject of in-depth discussions w]ith your staff and have made it possible, on September 4, 1998, to conclude the negotiation in Niamey of a Public Finance Reform Credit of SDR 48.0 million. Yours truly, Is/ Dr. Ide Gnandou [Seal of Office]  Annex F Page 2 of 20 PUBLIC FINANCE REFORM CREDIT LETTER OF DEVELOPMENT POLICY 1. The Government's economic program is based on the broad guidelines set forth in the Policy Framework Paper prepared by the Nigerien authorities. This document was agreed upon with the international lending agencies in June 1996 and has since been updated to take into account the results of program implementation during 1997 and 1998. I. BACKGROUND 2. Since 1989, Niger has undergone a series of political upheavals. The resulting government instability made it difficult to pursue financial stabilization that had been undertaken since 1983, as well as structural adjustment efforts undertaken as early as 1985 to mitigate the impact of a sharp decline in export earnings caused by the drop in uranium prices. 3. After a National Sovereign Conference was convened to address political issues, this was followed by a transition period characterized by numerous financial and social difficulties. During this time, Niger also experienced institutional bottlenecks that delayed completion of the programs launched by successive governments. 4. Further complicating the country's challenges was the increasing irregularity of climatic conditions that accelerated environmental degradation making agricultural and livestock production more unreliable, just as population pressures were increasing the demand for foodstuffs. 5. In addition, up until 1994, the CFAF appreciation, particularly in relation to the Nigerian naira, seriously undermined the competitiveness of an economy already vulnerable as a result of the extremely low level of national savings and investment, inadequate economic management and inappropriate policies resulting in a substantial growth of the informal sector. 6. Finally, Niger's development policy for the 1980s had been designed with the expectation of continued high earnings from uranium exports. Major investment programs had been undertaken on the basis of this assumption. The indebtedness incurred for this purpose and the associated recurrent costs created a serious drain on public finances at a time when revenue from the uranium sector was steadily declining, the largely untaxed informal sector was expanding and investment was dropping. 7. The combined impact of all these factors during the period 1983-93 was a decline in real GDP averaging 0.5 percent a year, accompanied by a substantial increase in poverty. It is estimated that more than 60 percent of the population now live below the poverty line and lack access to basic water, education and health services. 8. The CFAF devaluation on January 12, 1994 was intended to create a climate of greater competitiveness and provide the Nigerian economy with a new beginning, based on a program supported by a stand-by arrangement with IMF and a World Bank Economic Recovery Credit.  Annex F Page 3 of 20 9 Despite a 4 percent increase in real GDP in 1994, the results of the program proved unsatisfactory largely due to the deteriorating condition of public finances as evidenced by declining tax revenues. After having already declined from 11 percent of GDP in 1987 to 7 percent in 1993, revenues reached an all-time low of 6 percent in 1994. I1). In 1995, a series of corrective measures, both administrative and technical, were taken in an effort to stabilize the economic and financial situation and, in particular, increase tax revenue. These included: a simplification of the tax system, strengthening of tax administration and a broadening of the tax base. These measures resulted in an increase in the ratio of budgetary revenues to GDP from 6 percent in 1994 to 7 percent in 1995, as well as a decline in the ratio of the wage bill to tax revenue, from 102 percent in 1994 to 80 percent in 1995. Meanwhile, in 1995 GDP grew by about 3 percent. However, the pressure on prices remained considerable, with annual inflation running at 11 percent. Finally, the reduction in the external current account deficit was mainly a reflection of overall slow economic activity and a persistently low level of imports. IL. In early 1996, even before talks had concluded on an Enhanced Structural Adjustment Facility (ESAF) arrangement, the Government undertook to expand and strengthen actions taken earlier in the area of public finances for the purpose of increasing tax revenues, bringing the wage bill under control and gradually reducing domestic and external payments arrears. In 1996, the Government also initiated a program to privatize 12 key public enterprises, liquidate three non-viable ones and restructure eight others. This public sector adjustment program was supported by a single-tranche credit financed by the World Bank in 1997. 12. The overall program was implemented satisfactorily in 1996-97, which confirmed the Government's commitment to stabilize the macroeconomic environment and give a new impetus to structural reforms. Public finance management was particularly encouraging because it began to address long-standing structural problems, namely low revenue mobilization largely due to tax evasion, an excessively high wage bill in relation to available resources and poor management of public enterprises. In 1996, budgetary revenues met the program target of 8 percent of GDP. In acldition, current expenditures were cut by about 16 percent (from 11 percent of GDP in 1995 to 9 percent in 1996), with the wage bill scaled back to 49 percent of tax revenue,I domestic payments arrears reduced by CFAF 18 billion and external arrears by CFAF 18.5 billion. The overall budget deficit (excluding grants) declined from 8 percent of GDP in 1995 to 7 percent in 1996 because of a sharp reduction in expenditures, including the wage bill, and enhanced revenue mobilization. This deficit reduction, and the improved competitiveness of the economy following the CFAF devaluation, contributed to a reduction in the external current account deficit (excluding official transfers) from about 11 percent of GDP in 1995 to 9 percent in 1996. During the same period, GDP grew by an estimated 3 percent while inflation fell to 5 percent. 13;. Some of the results obtained in 1997 were less favorable than expected, despite substantial progress in other areas. Real GDP increased by only 3.4 percent, compared with the projected 4.5 percent, largely the result of a drought, which caused a reduction in agricultural oUtput and roughly a 10 percent shortfall in cereal production. However, this shortfall had no effect on prices because of the distribution of food aid in the affected areas. Thus, inflation As a result of improved revenue mobilization, but also of the wage bill cut resulting from the one-time agreement between the Government and the trade unions concerning salary payments every 42 days.  Annex F Page 4 of 20 continued to decline, falling to 3 percent. The real effective exchange rate, based on the consumer price index in Niamey, depreciated by 3 percent in 1997, reflecting an improvement in Niger's competitiveness. Despite this, it is estimated that the external current account deficit (excluding official transfers) increased by nearly one percentage point of GDP to 10 percent, primarily due to the fact that the drought contributed to a decline in agricultural exports and an increase in imports of foodstuffs. 14. Budgetary revenues in 1997 rose by 15 percent over 1996, although they were still 11 percent below target. This result can be largely attributed to: (i) delays in implementing certain administrative measures designed to strengthen tax collection (because the timeframe and conditions for preparing and implementing the measures were underestimated); (ii) a lack of cooperation between customs and the imports verification agency; and (iii) regional strikes in the transportation sector, which slowed trade flows to Niger and the collection of related customs revenues. 15. Total expenditures and net lending were lower than programmed, primarily because of: (i) a low execution rate of the public investment program resulting from shortfalls in external financing; and (ii) efforts to keep current expenditure, notably the wage bill, in line with program targets. 16. The most important measure taken by the Government in this area was to reduce the wage bill (excluding the contribution to the FNR, the National Pension Fund) by 11 percent, from CFAF 50 billion in 1995 to CFAF 44 billion in 1997. This was mainly achieved by adopting a new salary scale in February 1997 that reduced base salaries and housing allowances. 17. Keeping the wage bill consistent with resource mobilization also required maintaining strict control over staff numbers and streamlining the management of the civil service and the payroll. In 1997, the Government limited the new recruitment of civil servants, including those for the social sectors, to match those of departures (other than voluntary departures). In addition, a civil service census was carried out in 1997; this resulted in the dismissal of 319 civil servants whose status was found to be irregular. Savings were also achieved in the area of university scholarships. 18. Reductions in the wage bill made it possible to reallocate public resources to the priority social sectors. Thus, in 1997, non-wage current expenditures for the education and health sectors increased by 12 percent on average in nominal terms, in line with a program target of 10 percent in real terms. Budgetary allocations for non-wage current expenditure to these sectors were increased by 14 percent from 1997 to 1998. Similarly, the tax agencies were provided with additional logistical equipment and personnel, which was redeployed after an appropriate training. Lastly, the Public Investment Program for 1997-99 focuses on the priority areas of rural development, the social sectors and labor-intensive activities. 19. In late 1997 and early 1998, the Government also took measures to accelerate the privatization program: (i) OLANI (dairy products) and SNC (cement) were sold; (ii) a regulatory framework for private sector importation of petroleum products was adopted and a protocol was signed with private operators to create a new, privately managed storage company; (iii) invitations to bid for the recruitment of consortia to implement the privatization of SNE, SONITEL and NIGELEC were issued and the recruitment process was finalized; and (iv) a  Annex F Page 5 of 20 communication plan concerning the economic reform program, notably privatization, was prepared and will be implemented starting from end July 1998. II. DEVELOPMENT OBJECTIVES AND PROSPECTS A. Niger's potential 20. Niger undoubtedly faces severe natural and human handicaps linked to increasing ar.idity, a fast growing population and low levels of human development. It is also a landlocked country, which translates into higher costs for imported consumer goods and inputs and which penalizes the export of heavy products. 21. On the other hand, Niger almost certainly possesses important mineral resources which, apart from uranium, have not yet been fully identified. This is true of both gold and petroleum, for which exploration is under way and that could reveal a potential for commercial development. 22. There are also substantial underground water resources in much of the country. To some extent, these compensate for the fact that surface water is located in limited areas. The development of groundwater resources could substantially increase agricultural and livestock production. 23. Livestock has traditionally been a key component of the national economy and its products are the country's second most important export. Like farming, animal husbandry has suffered the effects of periodic droughts. Yet, restructuring this sector could considerably increase its productivity and help to offset climatic risks. 24. Lastly, though landlocked, Niger's geographic location could become a significant advantage as trans-Saharan links are developed and trade expands between the Maghreb and Nilgeria. Similarly, the country should benefit from its natural role as a link between Nigeria and an UEMOA that is likely to be strengthened by economic integration. B. Growth and poverty reduction objectives 25. The Government intends to intensify a series of economic policy reforms, already under way and that are designed to produce the following results: * rehabilitate public finances; * intensify and accelerate structural reforms to promote private sector activity; and * implement policies to improve access to basic social services, particularly primary education and basic health care, for the most vulnerable segments of the population. C. Medium-term quantitative targets 26. To consolidate the progress already made in stabilizing the economy, promote the development of an environment conducive to sustainable economic growth and reduce poverty, the Government's key macroeconomic objective, as set forth in the Policy Framework Paper 1998-2000, is to raise the annual real GDP growth rate to 4.5% in the medium-term and thereby increase real per capita incomes.  Annex F Page 6 of 20 27. This increase will need to be achieved while simultaneously containing inflationary pressures and consolidating the competitiveness gains generated by the devaluation. Accordingly, the annual inflation rate target is 3 percent during the period 1998-2000. 28. Finally, the external current account deficit (excluding official transfers) will be reduced from 10 percent of GDP in 1997 to 8 percent in 2000. 29. Achieving the real GDP growth target will require a sharp increase in the investment to GDP ratio, financed by a sustained increase in domestic savings. This ratio is expected to increase from 11 percent of GDP in 1997 to 13 percent in 2000. Growth in investment will increasingly be financed by domestic savings, which will rise from 3 percent of GDP in 1997 to 6 percent in 2000. D. Monetary and credit policy 30. Niger's monetary policy will continue to be consistent with that defined at the regional level by the UEMOA authorities. It will also rely on indirect instruments implemented by the BCEAO, in particular flexible modulation of interest rates (determined by the market) and the system of obligatory reserves, while simultaneously attempting to promote the development of the money and the interbank market. 31. While adhering to regional guidelines, this policy will be aimed at achieving the national objectives of growth, low inflation and balance of payments equilibrium. 32. As the overall condition of public finances gradually improves, credit policy will strive to reduce Government indebtedness to the banking system in order to redirect financial resources to the private sector. 33. The Government will also intensify efforts to rehabilitate existing financial institutions by continuing the restructuring of Credit du Niger and Caisse de Pret aux Collectivites Territoriales and by increasing the liquidity of ONPE (the National Postal and Savings Office). In this context, the Government has indicated its interest to prepare a financial sector adjustment program. III. THE PROGRAM OF PROPOSED ECONOMIC REFORMS 34. The country's program of proposed reforms for the medium-term revolves around the following objectives: * continue and accelerate the rehabilitation of public finances in order to restore the Government's financial credibility and consolidate the foundations for sustainable economic growth; * concentrate public expenditures on development-related activities, notably poverty alleviation initiatives; * complete the efforts to create an environment conducive to private sector growth by pursuing the public enterprise privatization and restructuring program and by restructuring the rural development and transport sectors; and  Annex F Page 7 of 20 * complete the process of regional integration, culminating in the creation of a regional common market (regional investment code, implementation of UEMOA common external tariff and harmonization of tax policies). 35. In the short term, the program of reforms defined by the Government aims to break with existing practices for managing public finances in three important respects: * first, by preventing the build-up of domestic arrears, specifically by keeping expenditures strictly in line with available resources. Government domestic arrears totaled CFAF 118 billion as of March 31, 1998 (about 11 percent of 1997 GDP and 130 percent of 1997 budgetary revenues). This amount reflects the extent of financial stress weighing on the economy and impedes efforts to restore the private sector's confidence in the Government. For both reasons, it is essential that these arrears be cleared. But it is just as important to simultaneously prevent the build-up of new domestic arrears. The Government's resolve to avoid such a build-up is a key element in restoring budgetary discipline and reducing budget deficits; * second, by eliminating the use of the advance expenditure payments procedure (PPA), a source of constant confusion in financial management. Total advance payments in 1997 amounted to CFAF 17.3 billion, or about 34 percent of non-wage, non-interest current expenditures. This procedure, initially reserved for special circumstances, had thus become a common practice. Eliminating its use is considered an important factor in returning to budgetary orthodoxy; and * third, by controlling and substantially reducing tax exonerations, a major source of tax evasion and disorder in the functioning of the economy. For 1997, the amount of duties and taxes on exempt products was estimated at CFAF 14 billion, equivalent to 33 percent of customs revenue (CFAF 43 billion). During the period 1993-97, exonerated customs duties and taxes were equivalent to 40 percent of all customs revenue collected. The policy of clarification and greater control that the Government has begun to implement in this area will have a considerable impact not only on revenue but also on the behavior of economic operators. Specific measures are being implemented to restrict the scope of tax exonerations and to ensure that tax-exempt merchandise is not diverted from their approved destinations (see para. 59). 36. In this context, during 1998 the economic reform program will focus on achieving the following objectives, each of them essential to the rehabilitation and consolidation of public finances, which in turn constitute a cornerstone of the country's development: (i) restoring the credibility of public finances; (ii) consolidating and strengthening efforts to mobilize internal revenue and reduce tax exonerations; and (iii) increasing the effectiveness of public expenditures. A. Restoring the Credibility of Public Finances 37. The management of public finances is characterized by an increasing difficulty in monitoring and controlling a chronic budget deficit; this has led to persistent liquidity problems and an accumulation of payment arrears that, in turn, have made it impossible to successfully carry out any reforms.  Annex F Page 8 of 20 38. To arrest this cumulative process, the Government believes that putting public finances quickly in order is a key element for the success of any medium-term development program. Efforts will therefore concentrate on: (i) a return to financial orthodoxy and budgetary discipline; (ii) effective management of the wage bill and the civil service; and (iii) the development and implementation of a domestic arrears settlement plan. 39. A return to financial orthodoxy and budgetary discipline. In anticipation of the results of the program outlined below in para. 40, since late 1997 the Government has taken various steps to strengthen the management of public expenditures: * the adoption and implementation of a quarterly financial program which determines the amount of funds to be committed for (i) obligatory expenditures (wages, scholarships, debt, and water, electricity and telephone consumption) and (ii) all other expenditures, broken down by ministry; * the preparation of specific measures to contain and control certain types of expenditures that are sources of exceptions or slippages in budget implementation: government water, electricity and telephone consumption, medical evacuations, official travel, embassies, subsidies; and * institutional measures designed to strengthen the outreach, coordination and monitoring capacities of the Ministry of Finance, Economic Reforms and Privatization by: (i) creating two general directorates (the Budget General Directorate and the Economy and Economic Reforms General Directorate); (ii) focusing financial control activities on compliance with proper expenditure procedures and implementation of the above-mentioned financial program and specific measures; and (iii) by strengthening the Structural Adjustment Program Monitoring Unit. 40. In addition, the Government has developed a comprehensive program to rehabilitate and modernize the management of public finances, which was prepared and implemented with assistance from IDA and France. This program is the cornerstone of a return to financial orthodoxy and budgetary discipline. The principal measures implemented in 1998 are as follows: * reactivation of regulations to eliminate all exceptional procedures, particularly advance expenditure payments (PPA) and advance tax payments (RPA). With respect to the PPA, their elimination was effective on March 31, 1998; * improvements in cash management by formalizing the framework for developing cash forecasts, strengthening the role of the Treasury Committee and setting up a mechanism for keeping expenditures strictly in line with resources mobilized; * reactivation of, and strict adherence to, proper expenditure procedures; * launching a program to rehabilitate the Treasury, specifically involving: (i) a financial audit of the Treasury; (ii) preparing Treasury accounts for 1988 to 1996 and year-end expenditure audits (lois de reglement) for 1982 to 1997, followed by the presentation of the latter to the Parliament during the first half of 1999; (iii) the reorganization of Treasury records; and (iv) structural reform of the Treasury and consolidation of its network; and * efforts to ensure the consistency of statutes and regulations, accompanied by dissemination efforts, and training and outreach for users.  Annex F Page 9 of 20 41. During 1998, an even broader reform will be prepared for the year 2000, with the following objectives: reform expenditure procedures; reform public accounting procedures; o rehabilitate financial control units; modernize the Treasury network; upgrade the management of the civil service; reform information management, including record-keeping and documentation; set up an integrated computer system. 42. Effective management of the wage bill and the civil service. Civil service reforn will continue. In the medium term, the goal of keeping the wage bill in line with resources mobilized will be achieved by maintaining strict control over the size of the civil service and by streamlining the management of the civil service and the payroll. 43. For the year 1998, the Government decided that, apart from integrating members of the former arned rebellion, there would be no net recruitment of civil servants; all new hires, including those for priority sectors (health, education, tax administration) must be offset by departures, other than voluntary departures. Additional measures will be implemented in 1998- 99 to maintain the wage bill within the program target (CFAF 45 billion in 1999). These are: (a) an acceleration in the departure program for civil servants; (b) the extension of the new salary grid to certain categories of civil servants (correspondents of the Treasury) in the first quarter of 1999; and (c) early retirement for civil servants close to the retirement age. 44. Once the modalities of wage payments and promotions have been reformed, managemnent of the civil service and the payroll will be streamlined by: (i) setting up an integrated civil service database and payroll files and defining specific procedures for staff evaluations and promotions; and (ii) improving the procedures for staff assignments and for their redeployment in the education and health sectors and in the tax administration. 45. As of June 30, 1998, the following actions had been accomplished: (i) a comprehensive census of civil servants was conducted in July-September 1997; the results are being utilized and have already led to the dismissal of 319 civil servants whose status was found to be irregular; (ii) the results of the census were compared and reconciled with the civil service database and the payroll files; and (iii) new staff rolls were developed in preparation for the decentralization of budgetary positions that is expected to take place by the end of 1998. 46. Development and implementation of the domestic arrears settlement plan. The settlement of arrears is an essential element of the effort to rehabilitate public finances and is a top priority for the Government. There is a synergetic relationship between this effort and the return to financial orthodoxy and budgetary discipline. Domestic arrears 47. Government domestic arrears totaled CFAF 118 billion (about 11 percent of 1997 GDP) as of March 31, 1998. These arrears are not all verified and it is expected that, after the planned verification process takes place, the definitive amount will be much lower than indicated above.  Annex F Page 10 of 20 Arrears owed to economic agents residing in Niger account for three quarters of this amount, while the remaining quarter is owed to non-resident operators (suppliers to embassies, foreign hospitals, etc.). Private enterprises account for 33 percent of total arrears (22 percent for resident enterprises and II percent for non-resident ones), the financial sector accounts for 24 percent, followed by the public and para-public sector for 18 percent, households (wages and scholarships) for 9 percent and miscellaneous for 16 percent (see table in Attachment 1). 48. The Government has developed a domestic arrears settlement plan with IDA assistance. The plan defines the priorities and modalities for the settlement of these arrears, the attributions of the agency charged with the implementation of the plan, and the criteria for their verification and validation. Priorities and modalities for the settlement of domestic arrears 49. The settlement of arrears to the private sector and of salary arrears (the last month of 1996) is the Government's top priority. The commercial resident banking sector represents the second priority, in particular the settlement of loans and Treasury bonds. The arrears vis-a-vis public enterprises are identified but will not be settled in cash, with the exception of the ONPE (the National Postal and Savings Office) which requires an urgent injection of resources and of ONPPC (National Pharmaceutical Company) in consultation with the European Union. The arrears to the other public enterprises will be settled in the context of their privatization (notably for the SNE, NIGELEC and SONITEL) or of their restructuring. The arrears to inter- governmental organizations are recognized as being part of domestic debt but are not included in the settlement plan and will be dealt with in the context of the budget. 50. The first phase of the settlement plan will concern the arrears validated by the Treasury (restes a payer, RAP, unpaid arrears) according to the priorities mentioned above. The second phase will cover, within the limit of resources available, additional claims that still require validation (depenses engagees non ordonnancees, DENO, expenditures committed for which payments orders have not been issued) according to the priorities described above. The latter, like the RAP, will be verified and validated by an ad hoc Commission (see para. 52). 51. The settlement of eligible arrears will be done through cash payments after strict application of all the measures included in the Tax Collection Code. Given the financial constraints faced by Niger, the use of a discount procedure for the settlement of these arrears is necessary. A system of periodic auctions will be used in which the eligible private sector creditors (with arrears validated by the ad hoc Commission) who offer the highest discounts will be given priority. A minimum discount will be determined below which no offer will be accepted. The Government does not envisage in the short-term to issue bonds for the settlement of arrears. However, if following the first phase of the plan, it is appropriate to use this settlement modality, it will only issue bonds that will be fully backed up and that, by their duration and/or interest rate, will be financially equivalent to the average' discount used for the cash settlement. Attributions of the agency charged with the implementation of the settlement plan 52. An ad hoc Commission was created to implement the settlement plan (Decree N.98- 230/PRN/MFRE/P of September 1, 1998). The Commission is placed under the supervision of the Minister of Finance. Its tasks are to: (i) verify and validate the dossiers submitted to its  Annex F Page 11 of 20 review; (ii) proceed as needed to corrections, notably with respect to invoicing, tax obligations, competitive bidding procedures; and (iii) control and supervise the treatment of the dossiers that it verifies and validates. The Government will see that the Commission operates with full autonorny and transparency, and in adherence to the settlement plan defined by the authorities and the rules of public accounting. The activities of the Commission will be evaluated by a Committee under the supervision of the Presidency and will be audited periodically by an international accounting firm according to internationally recognized norms. Criteric for the verification and validation of domestic arrears 53. The verification and validation activities of the Commission will be based on the criteria defined in the Decree N. 93.045 concerning public accounting norms, Order N. 409/MF/P of December 12, 1994 dealing with the nomenclature for expenditure records and Decree N. 87- 088/PCMS regarding bidding procedures. The settlement of arrears will take place only after their validation by the Commission. Corrections will be made when irregularities are found (notably with respect to bidding procedures, tax obligations, over-invoicing, etc.). The arrears which can not be validated (because of double counting, payment already made, or lack of supporting evidence) will be rejected and their claim on the State eliminated. Procedures to avoid a new build-up of domestic arrears 54. The Government's efforts to rehabilitate public finances will not be successfull unless they are accompanied by concrete measures to avoid any new build-up of domestic arrears. First, it is necessary to adopt adequate procedures to avoid the accumulation of new arrears for water, electricity and consumption. In this respect, the Government has adopted the following measures: (i) provide adequate budget appropriations in the revised 1998 budget Law to cover actual water, electricity and telephone Government consumption (an adequate budget appropriation will also be provided in the 1999 Budget Law to cover these services); (ii) implement by October 1998 measures to reduce Government consumption of these services;2 (iii) create a unit in charge of controlling rigorously and regularly Government consumption of water, electricity and telephone and of ensuring the regular payment of bills (the unit was created through Order N. 00350/MF/RE/P/CAB of August 28, 1998 and it is operational); and (iv) authorize the water, electricity and telephone public utilities to cut the provision of these services in case bills are not paid within one month. This rule will apply to all public administration agencies with the exception of a few ones operating in strategic activities and whose payment of bills will receive priority.3 2 These measures include: capping utility consumption by high-level government officials through a system of budgetary allowances in lieu of the open-ended system presently in place; cutting illegal installations and connections; optimizing water and electricity consumption through the installation of improveid meters, water diaphrams and condensator batteries for electricity; repair of water leaks; cutting telephone connections in residences linked to offices, restrictions on the use of inter-urban and international telephone communications and transfer to the budget of some administrative units (notably the collectivities) their telephone consumption currently under the charge of the central budget. 3 Notably: (i) health care services (hospitals, departmental and integrated health centers, maternities); (ii) public media (radio, television, written and filmed press, the Nigerien press agency); (iii) air traffic control services; (iv) tax administration; (v) public transport; (vi) prisons; and (vii) military camps and barracks.  Annex F Page 12 of 20 55. In 1998, these measures will be supplemented by: (i) a reduction in, and reinforced management of, expenditures for official travel and medical evacuations; (ii) improved management and redefinition of the criteria for awarding scholarships to students, as well as transfers and subsidies to the national television (ORTN), the university, the National School of Administration (ENA) and the agricultural research institute (INRAN), which together absorb over 50% of total subsidies; and (iii) measures to ensure strict application of the system of expenditure control and regulation. External arrears 56. External payments arrears were also inventoried as of March 31, 1998 and the total amount came to CFAF 55.8 billion. The Government has signed bilateral rescheduling agreements with all the Paris Club creditors. Niger is regularly making all payments into the Special Account at the Banque de France. However, negotiations with some bilateral non-Paris Club creditors have not been concluded yet. This has often been due to the difficulties the Government faces in coming up with the down payments required by these creditors as a pre- requisite for debt-restructuring or debt-refinancing agreements. The same difficulties have been experienced with respect to some multilateral creditors. B. Consolidating and Strengthening Efforts to Mobilize Internal Revenue and Reduce Tax Exonerations 57. Since 1994, the Government has adopted a series of measures designed to simplify the tax system, broaden the tax base and improve the effectiveness of tax administration: the unification of the three value-added tax (VAT) rates at 17 percent; the merging of the general income tax and the schedular tax on wages and income into a single tax on wages and salaries; consolidation of customs duties and taxes; taxation of the informal sector by introducing a single professional tax (patente synthetique); simplification of the property tax and transfer of responsibility for its collection from the Treasury to the General Tax Directorate; introduction of a pre-shipment import inspection system; a reduction in the maximum length of tax holidays for new investments from 15 years to 5 years and a restriction in the number of investment activities eligible for such exonerations. 58. In 1998, the Government has continued its efforts to improve revenue mobilization, specifically by implementing a series of measures to strengthen tax administration: (i) setting up the Large Taxpayer Unit; (ii) introducing the single taxpayer identification number system to all revenue agencies; (iii) launching the activities of the VAT monitoring unit; (iv) using statements of reconciliation between the ADVs of COTECNA (the import verification agency) and the customs declarations to improve revenue collection; (v) introducing Niamey/road and Niamey/right bank pilot revenue offices; (vi) installing value records for use by the General Customs Directorate; (vii) providing the tax agencies with a budgetary allocation of CFAF I billion for logistical equipment; and (viii) stepping up efforts related to tax auditing. 59. The Government has taken a series of actions in 1998 to better control and reduce tax exonerations. These include: (i) conducting a review of existing procedures for tax exonerations granted under the petroleum and mining code as well as under the provisions of the tax regime for the uranium sector and whose recommendations are being implemented; (ii) establishing a system of Treasury checks as a means to monitor exemptions related to imports under foreign- financed government procurement contracts; (iii) eliminating all ad hoc exemptions; (iv)  Annex F Page 13 of 20 eliminating exemptions from duties and taxes on all imports of lubricants and spare parts with a unit value under CFAF 100,000; (v) the non-renewal of current tax exonerations granted under the Investment Code; (vi) the decision to exclude all enterprises, that will be privatized starting from September 1, 1998, from exemptions under the provision of the Investment Code; and (vi) extending to projects and NGOs the terms that apply to externally financed Government contracts (see point ii). 60. New measures will be implemented during 1998-99 in the following areas: (i) tax exonerations sb introduce a system of exemptions applicable to petroleum products based on the advance payment of customs duties and taxes and their reimbursement on the basis of delivery receipts. (ii) strengthening of tax administration MAeasures concerning all tax agencies: * reactivate and modernize the decentralized tax administration agencies, a key objective given the low level of revenue mobilized by this network to date (less than 10% of internal revenue); * intensify the collaboration between tax agencies and local government; * carry out a plan to redeploy personnel in tax collection agencies so as to bring the tax administration closer to taxpayers; and o conduct a comparative study on internal revenues of Niger, Burkina Faso and Mali. Measures to strengthen the General Tax Directorate and, in particular, improve the collection of property taxes and the monitoring of tax exonerations: * open three new tax offices in Niamey; and * intensify and improve the effectiveness of actions targeting the informal sector in order to expand the tax base. Measures specific to the General Customs Directorate: * monitor the volume of imports more closely by expanding the monitoring program to offices outside Niamey; * strengthen the monitoring mechanism by improving agency efficiency and setting up customs revenue offices; * rigorously monitor all re-exported products; and * raise the awareness of customs rules and procedures in order to restore trust between the customs administration and economic operators. (iii) tax collection Efforts to strengthen tax collection are as follows:  Annex F Page 14 of 20 * provisions for the immediate collection of amounts assessed during the tax audit of November 1997; and * intensification of monitoring and collection efforts. 61. The above-mentioned measures will translate into an increase in the ratio of revenues to GDP from 8 percent in 1998 to I I percent in 2000. 62. In addition, efforts to harmonize import duties and incentive policies at the UEMOA level will continue. 63. The Nigerien authorities realize, however, that substantive revenue gains depend on the inevitably gradual process of restoring growth, and must be accompanied by measures to better control public expenditures and improve their efficiency. The measures are described above in Section A and below in Section C. C. Improving the Efficiency of Public Expenditures 64. Government policy on public expenditures aims to: (i) contain the growth in overall expenditures; (ii) emphasize priority expenditures in the education, health, road maintenance and tax administration sectors; and (iii) strengthen the impact of these expenditures on the living conditions of the most underprivileged segments of the population. The Government will also adhere to the UEMOA budget convergence criteria. The Government has initiated a comprehensive review of public expenditures (PER) which, in 1997-98, focused on the education and health sectors, as well as on expenditure programming and execution procedures. At this stage of the review, the following priorities have been identified. 65. First, given existing budgetary constraints, it is imperative that available resources be utilized more effectively, specifically through a more judicious allocation of resources to priority activities, expenditures and objectives (operations versus administration services, basic health care and primary education, technical equipment and maintenance, disadvantaged regions and populations, etc.). Second, there is a need to implement a rational human resources management policy in the social sectors (redeployment, decentralization of budgetary positions, recruitment, etc.). Third, innovative approaches must be developed to address major needs in the education and health sectors and to mobilize additional resources, by encouraging the private sector and by mobilizing resources from territorial collectivities, NGOs and donors. 66. The Government is determined to utilize the budgetary allocations for road maintenance (CFAF 2.7 billion) for this purpose, and to closely monitor implementation of the road maintenance program. 67. The effort undertaken in 1997 to strengthen tax collection agencies has continued during 1998 with an allocation of CFAF 1 billion for upgrading the equipment, infrastructure and human resources of these agencies. 68. In addition, reforms will be introduced to upgrade procedures for expenditure programming, execution and control in order to bring expenditure programming and implementation more in line with the social sector development priorities. These reforms include: revising the budgetary nomenclature; designing and implementing the program-budget approach for preparing and implementing the 1999 and successive budgets; improving budget  Annex F Page 15 of 20 procedures and techniques (including norms for type of expenditures and activities, estimates of the recurTent costs of public investments, internal and external revenue projections); simplifying execution procedures, including procurement; and revising accounting procedures and the system of internal controls. 69. In preparing the 1999 and 2000 budgets, the Government of Niger intends to incorporate the recommendations identified during the review of public expenditures. In this regard, the Government will consult regularly with the World Bank during all phases of preparing the 1999 and 2000 budgets, up to their presentation to the Parliament. The Government will inform the Bank regularly of the status of executions of these budgets. IV. FINANCIAL ASPECTS AND PROGRAM MANAGEMENT A. External financing requirements 70. D)espite its improved financial situation, Niger will still need substantial external financial assistance during the period 1998-2000. The residual external financing requirements for this period are estimated at CFAF 166 billion, including CFAF 131 billion for the period July 1998-June 1999. The requirements for the latter period could be met by funding from multilateral institutions in the amount of CFAF 53 billion. Bilateral partners plan to provide funding in the amount of CFAF 38 billion, of which CFAF 9 billion would come from the European Union. Debt relief expected from non-Paris Club bilateral creditors is estimated at CFAF 40 billion. The Government continues to seek treatment from these latter creditors comparable to the Paris Club creditors. It recognizes the importance of making every effort to normalize its financial relations with all the lending agencies by addressing, through all appropriate mechanisms, the problem of external payments arrears stemming from the recent financial difficulties. B. Program management 71. P'rogram implementation falls under the authority of the Minister of Finance, with responsibility for implementation vested in the Budget, Customs and Tax Directorates, the Treasury and the ad hoc Commission charged with settling domestic arrears, as defined in the Policy Matrix. 72. The monitoring of program implementation will take place at three levels: (1) the Inter- ministerial Committee, where policies are approved; the composition and role of this committee are defined by Decree No. 019/PM of February 19, 1998; (ii) the Technical Committee, which falls under the Minister of Finance and which is charged with preparing and monitoring the economic and financial programs; and (iii) the Structural Adjustment Program (SAP) Monitoring Unit, responsible for preparing quarterly program progress reports. These reports are presented to the 1'echnical Committee for validation before being submitted to the Interministerial Committee, then to the World Bank.  Annex F Page 16 of 20 Public Finance Reformn Credit Policy Matrix Oblectlnets Measures Status of Execution Performance Indicators Responibe authority Tasks rnmaining to be completed and timetable RESTORE CREDIBIUTY OF PUBUC E FINANCEs Economjc Refonns FINANCES and Privatizalion~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~adPdaizto (MF) 1