Niger - Public Finance Reform Credit Project

Report No. PID6347 Project Name Niger-Public Finance Reform Credit Region Africa Sector Structural Adjustment Lending Project ID NEPE55186 Implementing Agency Government of Niger Ministry of Economy, Finance and Privatization Date PID Prepared April 29, 1998 Projected Appraisal Date May 1998 Projected Board Date July 1998 Country Background 1. After over a decade of profound and persistent financial crisis, in 1996 the Nigerien Government adopted an economic stabilization and public sector reform program. Public finance management was particularly encouraging as it began to address long-standing problems--low revenue mobilization due, in large measure, to tax evasion, an unaffordable wage bill (at one point the wage bill exceeded revenue collection), and public enterprise mismanagement. 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. Project Objectives 2. The Public Finance Reform Credit 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 would build on past achievements in the area of macroeconomic stabilization and public sector adjustment, which were supported by a one-tranche Public Sector Adjustment Credit (PSAC, CR.29390-NIR) approved and fully disbursed in March 1997. 3. The specific policy objectives of the Government of Niger, that would be supported by the proposed Credit, are as follows: - restore credibility of public finances and control of public expenditure by ensuring budgetary orthodoxy and the orderly clearing of domestic arrears. Already, the authorities have suppressed expenditure payments outside normal budgetary procedures, established a Treasury Committee and a national commission for good governance in public administration. Additional measures to be put in place in 1998 include: (i) implementation of a comprehensive settlement plan for domestic arrears accompanied by strict measures to avoid their future recurrence; (ii) creation of a single civil service database  (personnel and payroll); and (iii) measures to effectively control and monitor the implementation of budgetary allocations. - continue implementation of the tax and customs administration reform. The focus would be on further broadening the tax base and strengthening tax administration by: (i) reducing the number and scope of tax exonerations granted on commodities and to firms under the investment code and special conventions; and (ii) strengthening tax assessment and collection services by setting up a General Large Taxpayer Directorate, introducing the single taxpayer identification number system and computerized value records, providing the General Tax Directorate with needed staff and equipment to pursue the computerization and decentralization of its activities, and fine- tuning the implementation of tax reform measures already in place. - improve the impact of public services through better allocation and more efficient use of public resources. 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 on poverty reduction. A Public Expenditure Review (PER), currently being undertaken by the Government with IDA and other donors' assistance, will develop detailed recommendations and an action plan for their integration in the 1999 Budget Law by June 1998. 4. 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 West African Economic and Monetary Union (WAEMU). 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 both traditional projects and quick-disbursing adjustment credits. The speed with which such new instruments could be put in place would partially determine whether additional adjustment lending would be required after the proposed credit. Project Implementation 5. The reform program supported by the proposed credit is being implemented under the supervision of an Inter-ministerial Committee chaired by the Prime Minister. A government counterpart team (composed of senior staff at the level of secretary general or director) from various ministries is working with the Bank staff on the program design and implementation. The team is headed by the General Director of the Budget and is supported by a full-time technical team. Implementation of the agreed policy actions will be monitored on a regular basis by IDA Headquarters and Resident Mission staff and the - 2 -  Committee's monthly reports. Project Costs and Financing 6. A credit equivalent to US$60 million would be disbursed in 3 tranches of US$20 million each, following the Bank's simplified disbursement procedures for structural adjustment operations. Environmental Impact 7. No negative environmental impact is expected from the proposed credit. Poverty Category 8. The proposed credit will contribute to poverty reduction by supporting policies designed to accelerate broad-based income growth and increase the availability and quality of basic social services. The restructuring of public expenditures will contribute to improved access to preventive health care and primary education services nationwide. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending May 8, 1998. - 3 -