Niger - First Structural Adjustment and Public Enterprise Sector Adjustment Program Projects

Document of The World Bank FOR OFFICIAL USE ONLY PERFORMANCE AUDIT REPORT REPUBLIC OF NIGER STRUCTURAL ADJUSTMENT PROGRAM (SAL I) (IDA CREDIT 1660-NIR AND AFRICAN FACILITY CREDIT A-012-NIR) AND PUBLIC ENTERPRISE SECTOR ADJUSTMENT PROGRAM (PESAP) (IDA CREDIT 1833-NIR AND AFRICAN FACILITY CREDIT A-031-NIR) JUNE 29, 1993 O~erationsEvaluation De~artment This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currencv Unit = CFA Franc (CFAF) 1986 US$100 = CFAF 346.30 1987 US$100 = CFAF 300.54 1988 US$100 = CFAF 297.85 1989 US$100 = CFAF 319.01 1990 US$100 = CFAF 272.26 1991 US$100 = CFAF 282.11 1992 US$100 = CFAF 264.69 ABBREVIATIONS AND ACRONYMS BCEAO Banque centrale des Etats de 1'Afrique de l'Ouest BDRN Banque de developpement de la Rbpublique du Niger CCCE Caisse centrale de cooperation bnomique CNCA Caisse nationale de credit agricole NIGELEC Societb nigerieme d'6lectricite OPT Offices des postes et t~l~communications OPVN Office des produits vivriers du Niger ORTN Office de radiodiffusion et tdlevision du Niger PAR Performance Audit Report PCR Program Completion Report PEIDP Public Enterprise Institutional Development Project PEs Public Enterprises PESA ' F Public Enterprise Sector Adjustment Program PFP Policy Framework Paper PIF' Public Investment Program PR President's Report RINI Riz du Niger SAL Structural Adjustment Operation SFA Special Facility for Africa SNE Societe nationale des eaux SNTN Societe nationale de transport du Niger SONARA Societe nigerieme d'arachides SONIBANK Societe nigerieme de banques SONICHAR Societe nigdrieme de charbon SONlFAME Societd nigerieme de fabrication metalliques STB Societe tunisieme de banques UMOA Union Moncbire Ouest Africaine (West African Monetary Fund) UNC Union nationale des cooperatives UNCC Union nigerieme de crddit et cooperation UNDP United Nations Development Programme FISCAL YEAR October 1 - September 30 January 1 - December 31 (effective January 1, 1991)  FOR OFFICIAL USE ONLY THE WORLD BANK Warhiogton. D.C. 20433 USA June 29, 1993 MORANDUM TO THE EXECUTNE DIRECTORS AND SUBJECT: Performance Audit Report on Republic of Niger - Structural Adjustment Program (SAL I) (IDA Credit 1660-NIR and African Facility Credit A012-NTR) and Public Enterprise Sector Adjustment Program (PESAP) (IDA Credit 1833-NIR a d African Facilitv Credit A431-NTR) Attached is the Performance Audit Report on Republic of Niger - Structural Adjusment Program (SAL I) (IDA Credit 1660-NIR and African Facility Credit A012-NIR) and Public Enterprise Sector Adjustment Program (PESAP) (IDA Credit 1833-NIR and African Facility Credit A031-NIR) prepared by the Operations Evaluation Department. The objectives of SAL I were to improve economic growth prospects, while restoring budgetary and external balances to sustainable levels, through reforms in public resource management, the parastatal sector and agricultural policy. The PESAP was an extension of these efforts, except for the agricultural policy component. The two operations are therefore reviewed jointly as a single program. Very few of the objectives of the program were achieved and the overall outcome was clearly unsatisfactory. Many of the conditions were fulfilled on paper only, and were not followed by substantive implementation. The program eventually derailed to the point that the final 10% of the PESAP credit was cancelled: the program's sustainability is therefore unlikely. Institutional development was negligible: the few changes introduced are not operating effectively. The two Program Completion Reports are candid and comprehensive in discussing progress made in program implementation. The Performance Audit Report provides a more methodical review of the underlying reasons for failure, especially the vagueness of the conditions, coupled with inadequate internalization and a lack of commitment, and Niger's dependence on neighboring countries especially Nigeria, which should have been factored in more explicitly in program design. These are important lessons deserving consideration in the context of future adjustment operations. Attachment e d& ~ o P l y h L h p e r l o r m ~ l l c e o f ~ o m d o l d u t i c sIls T h i s ~ e n t h s s a r e s b i d d ~ o t i o o d n u y b by . content) may nol otbcrwisc be d i d o w l without W o d Bnak autbOriLPti011.  FOR OFFICIAL USE ONLY PERFORMANCE AUDIT REPORT REPUBLIC OF NIGER FIRST STRUCTURAL ADJUSTMENT CREDIT (IDA CREDIT 1660-NIR AND AFRICAN FACILITY CREDIT A-OlZNIR) AND (IDA CREDIT 1833-NIR AND AFRICAN FACILITY CREDIT A-03 1-NIR) TABLE OF CONTENTS PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i BASIC DATA SHEETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii EVALUATIONSUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii I. BACKGROUND ....................................... 11. THE ADJUSTMENT PROGRAM AND POLICY DIALOGUE .......... A. Objectives, Content, and Design of the Program . . . . . . . . . . . . . . . . . B. Bank-Country Dialogue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111. IMPLEMENTATION AND O U T C O W ........................ A. Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. Results Achieved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. Other Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. SUSTAINABILITY AND LESSONS LEARNED ................... - 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.  PERFORMANCE AUDIT REPORT REPUBLIC, OF NIGER STRUCTURAL ADJUSTMENT PROGRAM (SAL I) (IDA CREDIT 1660-NIR AND AFRICAN FACILITY CREDIT A-012-NIR) AND PUBLIC ENERPRISE SECTOR ADJUSTMENT PROGRAM (PESAP) (IDA CREDIT 1833-NIR AND AFRICAN FACILITY CREDIT A-031-NIR) PREFACE This is a Performance Audit Report (PAR) on the Structural Adjustment Program. (SAL I) and the Public Enterprise Sector Adjustment Program (PESAP) for the Republic of Niger. SAL I, involving IDA Credit 1660-NIR (SDR 18.3 million) and African Facility Credit A-012-NIR ([SDR 36.6 million) for a total amount of USWI million equivalent, was approved on February 18, 1986, and closed on December 31, 1987, as scheduled. The credits were fully disbursed. The PESAP, involving IDA Credit 1833-NIR (SDR 46 million) and African Facility Credit A-031-NIR (SDR 15.4 million), for a total amount of US$80 million equivalent, was approved on June 25, 1987, and closed on September 30, 1990, one year behind schedule. The credits were not fully disbursed and SDR 5.8 million were cancelled on October 5, 1992. The PAR is based on the Program Completion Reports (PCRs) of the operations prepared by the Africa Regional Office and issued in 1992,l' the President's Reports, sector and economic reports, the credit documents, summaries of the Board discussions, study of the program files, and discussions with Bank staff. An OED mission visited Niger in August 1992 and discussed the effectiveness of the Bank's assistance with Government officials, the donors, and the business community. 'Their kind cooperation and invaluable assistance in the preparation of this report is gratefully acknowledged. The two PCRs are comprehensive in discussing progress made in program implementation; many of the details are not repeated in the PAR. Instead, the PAR provides a more methodical review of the underlying reasons for failure, including the vagueness of conditions coupled with a lack of commitment; Niger's dependence on neighboring countries, especially Nigeria, which should he factored in more explicitly in program design; and the growing informalization of the economy. The draft PAR was sent to the Borrower for comments, but none were received. ! n PCR, Republic of Nieer - Structural Adiustment Proeram (SAL (IDA Credit 1660-NJR and African Fac~lity Credit A-012-NIR], Report No. 10845, June 30, 1992; and PCR, Republic of Niner - Public Enterprise Sector Adjustment Program (PESAP) (IDA Credit 1833-NIR and African Facility Credit A-03 1-NIR), Report No. 11366, November 12, 1992.  PERFORMANCE AUDIT REPORT REPUBLIC O F NIGER STRUCTURAL ADJUSTMENT PROGRAM (SAL 1) (IDA CREDIT 1660-NIR AND AFRICAN FACILITY CREDIT A-012-NIR) BASIC DATA SHEET CREDIT POSITION (Amounts in US$ Mtllion) As of May 31. 1993 Credit Original Disbursed /a Cancelled Repaid Outstanding la IDA Cr. 1660-NIR 20.0 23.2 -- -- 26.0 SFA Cr. A-012-NIR 40.0 45.3 -- -- 51.9 CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS Appraisal Estimate (US$M) 40.0 Actual (US$M) 54.9 Actual as % of Appraisal (%) 137 % Date of Final Disbursement: January 5, 1988 PROGRAM DATES Ori~inal Actual Strategy Brief (in lieu of Initiating Memorandum) Negotiations Letter of Development Policy Board Approval Effectiveness Credit Closing Actual Completion STAFF INPUTS (staffweeks) FY84 - - FY86 - FY85 - FY87 - FY88 - FY89 - FY91 - FY90 - - FY92 TOTAL Preappraisal 1.0* 1.7* 19.5 22.2 Appraisal - 46.1 46.1 Negotiations - 18.3 18.3 Supervision - 15.1 43.2 5.7 1.2 - 0.3 8.9 74.4 Other - - 20.0 0.4 0.6 1 - - 21.0 Total 1.0* I?* 119.0 43.6 6.3 1.2 - 0.3 8.9 182.0 - /a Disbursed and outstanding amounts differ from the original amount o f the credits in terms o f USS becauseof changes in the USSISDR exchange rates. * Underestimates staff input; substantial input to this Lask during this period was probably recorded a s count~ylsector work for Niger.  JWSSION DATA No. of No. of Staff Date of MonthIYtxg Weeks persons Weeks Rewrt Identification Preparation Preappraisal Appraisal Supervision I Supervision I1 Borrower/Executing Agency: Republic of Niger Follow-on Oueratioe: Operation : Public Enterprise Sector Adjustment Program (PESAP) Credit No.: IDA Credit 1833lAfrican Facility Credit A 4 3 1 Amount : US$60 million equivalent flDA)/US$20 million (African Facility) Board Date: June 25, 1987  PERFORMANCE AUDIT REPORT REPUBLIC OF NIGER PUBLIC ENTERPRISE SECTOR ADJUSTMENT PROGRAM (PESAP) (IDA CREDIT 1833-NIR AND AFRICAN FACILITY CREDIT A-03 1-NIR) BASIC DATA SHEET CREDIT POSITION (Amounts in US$ Million) As of May 3 1, 1993 - Credit Original Disbursed /a Cancelled /b Repaid Outstanding /a IDA Cr. 1833-NIR 60.0 54.6 6.65 -- 58.0 SFA Cr. A-031-NIR 20.0 19.8 0.97 -- 20.8 CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS Appraisal Estimate (US$M) 30.0 50.0 80.0 Actual (US$M) 46.6 52.6 74.4 Actual as % of Appraisal (%) 155 % 105 % 93 96 Date of Final Disbursement: May 2, 1990 PROGRAM DATES Original Actual Letter of Development Policy Negotiations Board Approval Signing Effectiveness Credit Closing STAFF INPUTS (staffweeks) FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 TOTAL Preappraisal 50.8 47.0 33.5 - 131.3 Appraisal - 13.5 13.5 Negotiations - 8.5 8.5 Su~ervision - 0.1 0.5 46.5 91.4 61.2 17.3 18.4 0.2 235.6 other Total - /a Disbursed and outsunding amounts differ from the original amount of the credits in terms of USS becauseof changes in the USSISDR exchange rates. - Ih The credits were not fully disbursed arid SDR 5.8 million were cancelled on October 5, 1992.  MISSION DATA No. of No. of Staff Weeks Persons Weeks Appraisal Supervision I Supervision I1 Supervision 111 Supervision IV Supervision V Supervision VI Supervision VII Supervision VIII Supervision IX Supervision X OTHER PROGRAM DATA Borrower/Executing Agency: Republic o f Niger Fol low-on %eration: None  PERFORMANCE AUDIT REPORT REPUBLIC O F NIGER STRUCTURAL ADJUSTMENT PROGRAM (SAL I) (IDA CREDIT 1660-NIR AND AFRICAN FACILITY CREDIT A-012-NIR) AND PUBLIC ENTERPRISE SECTOR ADJUSTMENT PROGRAM (PESAP) (IDA CREDIT 1833-NIR AND AFRICAN FACILITY CREDIT A-031-NIR) EVALUATION SUMMARY I. Background nomic merits. Second, the economy, tradition- ally vulnerable to erratic rainfall now also 1. With a per capita GNP estimated at became subject to the vagaries of the inter- US$300 in 1991, Niger is one of the poorest national uranium market. As it turned out, the countries in the world. Since independence in uranium boom was short-lived and ended 1960, real per capita incomes have declined by abruptly in the early 1980s as uranium prices an average of 2.0% p.a., the combined result of plunged. T o make matters worse, 1982 saw the a low 0.8% p.a. growth of GDP and a rapidly beginning of a prolonged drought. The Govern- rising population (2.9% p.a.). The country faces ment, expecting a recovery of uranium prices, formidable obstacles to long-term development: continued its ambitious public spending program, it is landlocked and remote from the sea, and has increasingly relying on external borrowing and a meager resource base, recurrent droughts, incurring a heavy external debt. In fact, the environmental degradation, heavy dependence on uranium sector never recovered. a single export -- uranium, and a very weak human resource base. 4. As the economic situation began to deteri- orate, the Government of President Kountche 2. Until the mid-1970s, Niger had the typical first introduced drastic austerity measures in its features of a resource-poor Sahelian country, 1982183 budget. The seriousness of the crisis, dependent on a limited number of subsistence however, suggested that external help was crops and livestock, both severely constrained by needed and, in early 1983, the Government poor soils and erratic climatic conditions. requested IMF and World Bank assistance for During the s e c ~ n dhalf of the 1970s, however, the preparation of a stabilization and a structural economic performance improved dramatically adjustment program. Over time, the stabilization partly because of favorable weather conditions program has been supported by several IMF and partly because of buoyant world demand for arrangements (para. 1.06). It was also supported uranium, deposits of which had been discovered by technical assistance and economic studies in northern Niger in the late 1960s. Uranium financed by the Bank under an economic and quickly became the principal foreign exchange financial management improvement project earner, by far, and a major source of govern- (PAGEF) in 1984 as well as by substantial Paris ment revenues. Real GDP grew at a average and London Clubs debt relief. rate of 7.5% p.a. during those years. 5. While the stabilization policies would help 3. The boom had two major consequences. maintain a sound overall financial framework, First, the public sector mushroomed, especially the structural adjustment program would focus the wage bill and investment spending, yet many on improvements in the use and allocation of of these new initiatives had questionable eco- resources. Given the magnitude of the obstacles to development in Niger, it was clear that finance, industry and trade, all areas which were preparation and implementation of a broad-based intended for longer-term reforms in the second adjustment program would take many years and, phase of the program. Quantitative medium-term therefore, that a phased approach was called for. objectives were set for major macro-economic The first phase, to be supported by a first SAL, indicators (para. 2.04). Short-term social costs would address the most urgent structural prob- were expected to be minimal and to be more lems where action could be taken relatively than offset by a gradual improvement in living easily and quickly, notably in the areas of public standards through restructuring of public ex- sector management, the parastatal sector and penditures in favor of lower-income groups, agriculture. During preparation of this phase , labor absorption by the modern private sector, it became clear from the extensive work done on and greater availability of products at reduced parapublic sector issues, that reform of the latter prices resulting from increased competition. would be complex and should therefore be Accordingly, neither the SAL nor the PESAP carried out in sequence, the easier structural inciuded a specific social dimension component. changes to be done under the SAL, and the more difiicult ones, such as rehabilitation of selected 8. The Bank's diagnosis of the immediate enterprises, under a second operation, which economic problems faced by Niger in the early became the Public Enterprise S s t o r Adjustment 1980s was sound. However, there were major Program (PESAP). In the end, the two opera- shortcomings in the design of the adjustment tions, the SAL ($60 million equivalent, 1986) program (para. 2.07): tranche conditionality was and the PESAP ($80 million equivalent,l987) vague and soft, generally requiring the adoption aimed at the same basic objectives: public sector of a measure but not its actual implementation; management and parastatal reform; agricultural the program was overloaded and especially the policy reforms were the only ones not repeated time-frame for parapublic sector reform was in the PESAP. In this audit report, the two unrealistic; the risks of failure were under- operations are therefore reviewed jointly as a estimated, including the Government's imple- single program. mentation difficulties; and, the importance of developments in neighboring Nigeria were not 11. The Adiustment Proeram and Poliu acknowledged. Dialomg 9. The Bank-Country dialogue was dominated 6. The determination with which the Govern- by the changing political situation. At first, ment had addressed the crisis of the early 1980s, during preparation of the program and imple- together with an intensive and frank dialogue mentation of the SAL (1983-87) the dialogue was surrounding the preparation of the program from frank and intense, which suggested genuine 1983 to 1985, were highly praised by the Bank, commitment on the part of the Government. thereby creating a climate of optimism and However, this exchange of views was carried out enthusiasm about the country's commitment to with a handful of high level officials under the reforms. This in turn influenced the program's guidance of President Kountche, a powerful scope and design. military leader who left little room for dissent. Following his death in late 1987, i.e. during 7. In essence, the program focussed on four implementation of the PESAP, the dialogue areas of policy and action (para. 2.03): public became gradually less focussed and eventually resource management (reduced and restructured derailed. spending, and increased resource mobilization); parapublic sector reform, including sector-wide 111. and Outcomg reforms as well as rehabilitation, privatization and liquidation of specific enterprises; agricul- 10. In step with the dialogue, there was a turd policy reform in a variety of areas; and, marked difference in implementation perfor- sectoral studies in energy, forestry, livestock, mance over time. Generally speaking, the soft conditionality built into the SAL was met, at mixed, and the privatization program essentially least on paper. Thus, e.g., "approved budgets" failed. fully complied with the objectives and require- ments of the program, but actual outcomes bore 13. About the only measures implemented as no resemblance to intentions. foreseen under the program were p,riceand trade liberalizationand the abolishment of monopolies. 11. On paper, the conditions for release of the They contributed to product availability and price three tranches of PESAP were also met. How- stability, but had no impact in promoting or ever, as time passed, the dialogue deteriorated developing the formal private sector as had been and the program went off track. There was expected. On the contrary, the abolishment of increased quarreling between the Bank and trade monopolies, together with public enterprise Government about the precise meaning of the liquidation and the successive devaluations of the conditions, the Bank gradually became entangled Nigerian Naira, which undermined Niger's in negotiating details of public enterprise reform formal industrial sector, all accelerated the at the expense of focussing on the deteriorating informalization of the economy. budget, and, as a result, there were more and more delays. The Bank, thoroughly disappointed $S IV. with the lack of real progress repeatedly tried to give the formal conditionality for third tranche 14. It is superfluous to say that Niger's adjust- release more substance by insisting on concrete ment program is unsustainable, because the achievements in a number of specific areas but, foundations for reform, i.e. its internalization, in the end, given that all formal conditions had were never laid. Nevertheless, there are impor- been met, released the tranche; even so, even- tant lessons which emerge, especially those tually part of it had to be cancelled because of having to do with commitment and condition- glaring inaction in substantiveareas (paras. 3.03- ality. 3.06). 15. The statements issued and the actions taken 12. The implementation record of the SAL and by the Government during the early years of the PESAP suggests that, with few exceptions, there program were wrongly perceived by the Bank has been no adjustment. The overall economic and the donor community as true commitment: performance during the period covered by the they relied heavily on a handful of high level two operations was dismal. Per capita real GDP officials and disappeared soon after the continued on its long term decline of about 2% President's death, because many branches of p.a.. Internal and external imbalances did not Government and senior officials, who would improve: the budget deficit on a cash basis and have to implement the measures, ha,d never been the current account deficit net of grants both involved or consulted. As time went on, it averaged around 8% of GDP, against 2% became increasingly clear that teclhnical minis- projected under the program. The public sector tries did not coordinate their activities or cooper- wage bill got out of control, recurrent public ate with the planning ministry. expenditures were not redirected towards opera- tion and maintenance nor to priority sectors such 16. Resentment shown towards the structural as education and health; implementation of the adjustment process by many levels of Niger's public investment program reached record lows. society over the past three years :suggests that Achievements in the area of public enterprises this lack of commitment goes very deep indeed. were also disappointing: while the financial Niger's hostile natural environment and other performance of the sector as a whole improved exogenous forces, especially deteriorating terms from 1983 to 1987, mainly as a result of divesti- of trade, are formidable obstacles to long-term ture and liquidation, arrears and crossdebts development. These exogenous factors are recurred in 1988 and increased thereafter; ex- perceived by many as the root causes of Niger's perience with performance contracts was very predicament and as the justification1 for external program assistance; at the same time, important 19. Other lessons which can be drawn from the factors which are controllable by the policy- Niger experience are of a more general nature makers -- mismanagement of the economy, and concern the phasing of reforms and the need inefficiency and the protection of the few whose for realism in the diagnosis of problems and livelihood is guaranteed by the State -- are development of solutions. During implemen- downplayed. As long as these perceptions hold, tation of PESAP, the Government and the Bank's it is difficult to recognize the need for reform energy and effort were increasingly drawn into and to internalize an adjustment process, which the details of public enterprise restructuring at would by definition entail some redistribution of the expense of focussing on the "basics", 1.e. ' on income. Instead, delay and resistance to the a deteriorating fiscal situation, which should implementation of reform measures became the have been dealt with first. The program lacked rule. realism in many respects. First, Niger's economy is dependent not only on climatic 17. Given the record, it appears logical to conditions and international market prices but suggest that conditionality should have been also on developments in neighboring Nigeria, tight, precise and have real bite. However, this which should have been factored in more ex- would not have been strictly necessary had there plicitly. Second, the prerequisites for the been internalization. Of course, if the Bank had development of the formal private sector -- insisted on precise and strict conditions, there entrepreneurs, finance, technology, markets -- would have been no agreement on a structural are so inadequate that liberalization unaccom- adjustment program, at least not within the same panied by other measures is not likely to yield time frame. This would have been preferable as the hoped for results. Finally, the implemen- it would have triggered additional debate on the tation capacity of the Government and of the program. public enterprises was grossly overestimated. 18. Thus, the lesson which emerges is that under the prevailing political and social condi- tions in Niger, a structural adjustment program was unlikely to work and that a more rigorous approach to loan preparation and appraisal would have brought out this dilemma.  PERFORMANCE AUDIT REPORT REPUBLIC OF NIGER FIRST STRUCTURAL ADJUSTMENT CREDIT (IDA CREDIT 1660-NIR AND AFRICAN FACILITY CREDIT A-012-NI:R) AND PUBLIC ENTERPRISE SECTOR ADJUSTMENT CREDIT (IDA CREDIT 1833-NIR AND AFRICAN FACILITY CREDIT A-03 1-NIR) I. BACKGROUND 1.01 Niger is a vast landlocked country, roughly two and a half times the size of France, with a population of about 7.9 million. Ninety percent of the latter is concentrated along the soluthern border, in the 12% of the land area considered arable. With a per capita GDP estimated at US$300 in 1991, it is one of the poorest countries in the world. Since Independence in 1960, real per capita incomes have declined by an average of 2.0% p.a., the combined result of a low 0.8% p.a. growth of GDP and a rapidly rising population (2.9% p.a.). In 1991, the primary sector (agriculture, livestock, forestry, and fishing) accounted for 36% of GDP, the secondary sector (mining, manufacturing, utilities, and construction) for 15%, and services for 49%. Niger faces formidable obstacles to long-term development: the country's landlocked position, remoteness from the sea, meager resource base, recurrent droughts, environmental degradation, heavy dependence on a single export -- uranium, and a very weak human resource base: life expectancy is 46 years, adult literacy is 1446, and primary school enrollment 30%. 1.02 Until the mid-1970s, Niger had the typical features of a resource-poor Sahelian country, dependent on a limited number of subsistence crops (millet, sorghum) and livestock, both severely constrained by poor soils and erratic climatic conditions. Even so, except during drought years, the country was traditionally self-sufficient in food and a minor exporter of livestock and crops. During the first half of the 1970s, GDP had fallen sharply as a result of successive devastating droughts. Starting in 1975, however, economic performance improved dramatically partly because of the return of favorable weather conditions and partly because of buoyant world demand for uranium, deposits of which had been discovered in northern Niger in the late 1960s. Uranium quickly became the principal foreign exchange earner, by far, and a major source of government revenues. Real GI)P grew at an average rate of 7.5% per year over the second half of the decade and investment reached 28.0% of GDP by 1980. The structure of Niger's economy changed substantially during thos'e years, with modern sector growth far outpacing that of the traditional sector. The uranium sector alone rose from the equivalent of 6 % of GDP in 1975 to 13% in 1980. 1.03 Probably the most significant consequence of the uranium boom of the late 1970s was its impact on public sector growth. Drawing on the increased foreign exchange earnings and budgetary resources, and supplemented by substantial government borrowing, public sector spending escalated. The civil service wage bill expanded rapidly, the public investment program mushroomed and several new public enterprises were established: by 1980, public current spending was equivalent to 9 % of GDP, public investment reached 19% of GDP and public enterprises accounted for 11 of GDP and %I half of modern sector employment. However, many of these new initiatives had questionable economic merits. 1.04 The growing role played by the uranium sector in Niger had another consequence: the economy, traditionally vulnerable to erratic rainfall now also became subject to the vagaries of the international uranium market. In fact, the uranium boom was short-lived and ended abruptly in the early 1980s as uranium prices plunged. To make matters worse, 1982 saw the beginning of a new prolonged drought. The Government, expecting a recovery of uranium prices, continued its ambitious public spending program, increasingly relying on external borrowing and incurring a heavy external debt. As it turned out, the uranium sector never recovered and its share in GDP declined to 8% in 1983 (and later to 5% of GDP by 1991). Both the budget deficit and the current account deficit in the balance of payments averaged an unsustainable 9% of GDP between 1981 and 1983. After stagnating for a couple of years, real GDP declined by 3 % in 1983 and by 16% in 1984, the year that marked the depth of the crisis. 1.05 As the economic situation began to deteriorate, the Government of President Kountche first introduced drastic austerity measures in its 1982183 budget. The seriousness of the crisis, however, suggested that the achievement of sustainable growth in Niger in conditions of financial stability would require more than undoing the distortions introduced as a result of the uranium boom. In particular, new sources of growth would have to be found. Thus, in early 1983, the Government recognized the need to complement its initial stabilization measures with more comprehensive programs and requested IMF and World Bank assistance for the preparation of a stabilization and a structural adjustment program. 1.06 The stabilization Dropram was supported by two IMF Compensatory Financing Facility arrangements (both in 1983) and two stand-by arrangements (1985 and 1986).L1 It was also supported by technical assistance and economic studies financed by the Bank under an economic and financial management improvement project (PAGEF) (IDA Credit 1493 for US$11.7 million approved in June 1984).g Support under PAGEF consisted in helping the Government define and implement a short- term consolidation program for the budget years 1983184 and 1984185 which was financially supported by the Fund.2' Stabilization efforts were further aided by substantial Paris and London Clubs debt relief. Implementation of those stabilization measures produced tangible results: both internal and external deficits declined to 5% of GDP during 1984 and 1985 (mostly as a result of sharp cuts in investment expenditures on infrastructure) and the financial position of some parastatals improved. 1.07 While the stabilization policies would help ensure the maintenance of a sound overall financial framework, the structural adiustment Drorrrarn would focus on improvements in the use and allocation of resources to help generate economic growth. This was to be achieved by increasing the efficiency 1' Subsequent stabilization efforts were backed by a three-year SAF arrangement approved in November 1987 and a three-year ESAF arrangement approved in December 1988. A second annual arrangement under the ESAF was approved in September 1990. Because of developments in the political situation thereafter, the Fund was not able to carry out the mid-term review under this arrangement nor to hold discussions regarding a third annual arrangement before the expiration of the three-year commitment period on December 1 1 , 1991. Thus, Niger's eligibility under tbe ESAF lapsed. 2' A Project Performance Audit Report (PPAR) on this project was issued by OED in June 1992 (Report No. 10835). 2' Bank-financed assistance for that component of the PAGEF covered essentially the establishment of data bases for the PLP, the debt, tbe balance of payments, a d the budget, as well as financial projections under different scenarios. of existing investments, improving policies for more efficient future investments and, creating a framework for strengthening the country's human and physical resources. Given the magnitude of the obstacles to development in Niger, it was clear that the preparation of a broad-based adjustment program as well as its implementation would take many years and, therefore, that a phased approach was called for. The first phase, to be supported by a first SAL, would address the most urgent structural problems where action could be taken relatively easily and quickly; it would also, through a series of studies, lay the groundwork for additional'reforms to be supported by future SALs andlor SECALs in a next phase. 1.08 Preparation of the first phase was carried out under the PAGEF. It built upon the results of the economic and financial studies undertaken for the consolidation program mentioned above. It also involved an extensive diagnostic study of the parapublic sector and rehabilitation studies for selected enterprises. Eventually, this first phase of the reforms focussed on three areas: (a) public sector management; (2) the parastatal sector; and (3) agricultural policy. During preparation of this phase, it became clear from the extensive work done on parapublic sector issues, that reform of the latter would be complex and therefore should be carried out in sequence, the easier and quicker structural changes to be done under the SAL, and the more difficult ones, such as rehabilitation of selected enterprises, under a second operation, which eventually became the Public Enterprise Sector Adjustment Program (PESAP). Preparation of the latter continued therefore in parallel with implementation of the SAL. This separation enabled the SAL, with its primary focus on improving public resource management, to be processed more rapidly than would have been possible otherwise. However, except for the agricultural component of the program, the SAL and PESAP aimed at the same basic objectives, especially the more efficient use of public resources. Thus, PESAP (i) extended the public resource management component of the SAL and (ii) deepened the reforms of the parapublic sector initiated under the SAL. In the present audit report, the two operations are therefore reviewed jointly as a single program. 1.09 The SAL in the amount of US$60 million equivalent (US$20 million IDA and US$40 million African Facility) was approved by the Bank Board on February 18, 1986. It was closed on December 31, 1987, and fully disbursed by January 1988. PESAP in the amount of US$80 million equivalent (US$60 million IDA and US$20 million African Facility) was approved by the Board on June 25, 1987. The PESAP was closed on September 30, 1990, with an undisbursed balance of SDR 5.8 million, which was cancelled on October 5, 1992. Implementation of the PESAP was supported by technical assistance under a public enterprise institutional development project (IDA Credit 1838 for US$5.5 million approved in July 1987), still ongoing. Finally, Niger's structural adjustment efforts were aided by an operation under the IDA debt reduction facility in 1990 in an amount of US$lO million, and as mentioned above, by several IMF programs. Several Policy Framework Papers (PFPs) were approved by the Boards of the Fund and the Bank during the adjustment years, the last one in 1990. 11. THE ADJUSTMENT PROGRAM AND POLICY DIA1.OGUE A. Obiectives. Content. and Desim of the P r o m 2.01 The determination with which the Government had addressed the crisis of the early 1980s, together with the intensive and frank dialogue surrounding the preparation of the program from 1983 to 1985, were highly praised by the Bank, thereby creating a climate of optimism and enthusiasm about the country's commitment to reforms. This in turn influenced the program's scope and design. 2.02 As indicated above, the first phase of the program aimed at addressing the most urgent structural problems, notably through (i) redressing the distortions created by the uranium boom; (ii) restoring a better balance between the public and private sectors; and (iii) laying the foundations for long-term growth. Thus, the program concentrated or; policy reforms in areas where inefficiencies in public resource use were most acute and where improvements were expected to have the greatest and quickest impact in restoring internal and external balance. 2.03 The policy areas and action were focussed on: - improvements in public resource man- including: (i) restructuring of recurrent expenditures through increased allocations for operation and maintenance, freezing personnel expenditures in real terms, and reduced transfers to consumers; (ii) formulation of three-year rolling public investment programs (PIP) and redirecting their composition towards productive and human resource development sectors; (iii) increased resource mobilization through cost recovery measures and improvements in the efficiency of the tax system; (iv) improved external debt management by refraining from borrowing on non-concessional terms and controlling borrowing by parastatals; (v) preparation of revised sectoral investment strategies; and (vi) strengthening the economic and financial management capacity of core ministries. - m u b l i c sector reform, including: (i) revisions in incentive policies to improve and equalize the structure of incentives facing public and private enterprises through the dismantling of parastatal monopolies and price and trade liberalization; (ii) revisions in the legal and institutional framework within which parastatals operate; and (iii) a major sector reorganization involving rehabilitation of enterprises due to remain in the State portfolio, privatization, liquidation, and financial restructuring through liquidation of arrears and cross- debts. - a g r i c w ~olicv reform, including: (i) a reorientation of the investment program in favor of more flexible technical approaches (testing input packages under different local conditions) in rainfed agriculture, rehabilitation of existing irrigation schemes, and better adapted projects in the livestock and forestry subsectors: (ii) a redefinition of research priorities towards improving farm system technology; (iii) a reform of the cereals pricing, marketing and storage policies by liberalizing grain marketing, eliminating price stabilization stocks, and limiting the role of the grain marketing agency to maintaining only a security stock for emergencies; (iv) a reduction in input subsidies; and (vi) initial reforms of the agricultural credit system through an audit of the rural credit entity and a study of rural financial markets. - the preparation of reform measures through sector- in energy, forestry, livestock, the financial sector, and industry and trade, all areas which were intended for longer-term reforms in the second phase of the program. . . 2.04 The program was expected to lead to the following ~yantitative medium-term ob~ect~vesby the early 1990s: GDP growth at 2.9% p.a., investment at 12% of GDP, public investment at 10% of GDP, overall budget deficit and current account deficit net of grants at 2% of GDP, and a level of external debt at 40% of GDP. It was also expected to have an important redistributional impact in that the restructuring of public spending was to benefit a larger proportion of the population: recurrent public expenditures were to be restructured in favor of basic services, such as preventive health care and primary schooling, while public investment was to be reoriented towards rural development, human resources and social services. 2.05 Both the SAL and the PESAP acknowledged the likelihood of short-term social c o s ~ notably , in the form of layoffs in the parapublic sector, reduction in transfers and subsidies, higher user charges for selective public services, and initial surges in prices following price and trade liberalization. However, the program anticipated these short-term costs to be minimal and to be more than offset by a gradual improvement in living standards through restructuring of public expenditures in favor of lower-income groups, labor absorption by the modern private sector, and greater availability of products at reduced prices resulting from increased competition. Accordingly, neither the SAL nor the PESAP included a specific social dimension component. Similarly, neither discussed the potential environ- t the program. mental i m ~ a c of 2.06 Both the SAL (USS60 million) and the PESAP (USS80 million) had the objective of covering part of the projected bud~etarv for the budget years 1985186 to 1988189,. The SAL was expected to cover 25% of Niger's gross external capital requirements during the period July 1986-December 1987, and the PESAP 18% during the period October 1987-December 1988. At the time of presentation of the SAL and of the PESAP to the Board, there was, in principle, a financing plan agreed by donors covering most of the gross capital requirements of the country (the small remaining gap was expected to be covered by additional quickdisbursing non-project aid and debt relief) but the details provided in the President's Reports (PRs) are vague. In both cases, the IDA amounts were determined on the basis of the IDA allocations for Niger taking into account the priority needs for which IDA assistance had been requested. Use of the counterpart funds was not targeted. 2.07 The Bank's diagnosis of the immediate economic problems faced by Niger in the early 1980s was sound, and the phased approach of the program, noted earlier, made good sense, in principle, in the prevailing circumstances. However, the program's d e s i ~ n suffered from major shortcomings, which allowed the borrower to implement the program poorly or only in a formal sense. Shortcomings in design also prevented the parties from focussing on some key issues and priority areas. To a large extent these design problems can be traced to the early optimism and enthusiasm about the country's commitment. (i) excessive optimism encouraged the formulation of what proved to be very weak condition- ality for tranche release, in that the conditionality had no bite and provided only for the adoption of a measure but not for its actual implementation; this led to masking temporarily the lack of true achievements in critical areas, e.g., in public resource management. A typical example of these conditions was "adoption of the.. .budget acceptable to IDA," a condition which was easily met, while actual budget implementation bore no resemblance to budget intentions? It should be added, however, as discussed further below, that the inference that very precise and strict conditionality should have been built into the program ?' In the case of the SAL, e . g . , Government compliance with weak c o d i t i o d t y led the Bank to consider the operation as successful and to proceed promptly with the PESAP, which w u furtber supplemented with f d available d e r the African facility.. .as a reward for performance. Indeed, the tone of the Prasident's Report for PESAP reflects the view that reforms were moving along and that progress d e r the SAL was signrficant. This view, among others, seriously distorted the risk assessment in the President's Report for PESAP.  points to a more fundamental problem than design, i.e., it implies that there was no true Government commitment. (ii) optimism also led to overloading of the program (complex parastatal reforms, far-reaching agricultural policy changes), and distracted the Bank and the Government from concentrating on the key issues, namely the factors responsible for the rapid deterioration of the fiscal situation starting in 1988, i.e., the laxity in fiscal management and the resistance to civil service reform; (iii) the phasing of the program envisaged that the reorganization of the parapublic sector would be virtually complete during the first phase; while the liquidation of a number of public enterprises and some financial restructuring could theoretically have been completed within the time foreseen (assuming forceful and sustained implementation of the measures contemplated), it was not realistic to assume, given Niger's weak institutional context and extremely narrow private sector base, that the rehabilitation of enterprises remaining in the public portfolio and the successful privatization of others could be accomplished that quickly; (iv) although the associated with program implementation were identified,?' the program failed to assess correctly their probability of happening and did not include remedies commensurate with those risks if they were to happen. As it turned out, the four major risks identified in the PR for SAL I did indeed materialize. In a country like Niger, the odds against success are enormous. As pointed out repeatedly in this report, the obstacles to development faced by Niger are formidable: it would appear that the Bank did not sufficiently appreciate their magnitude and pervasiveness; and (v) last but not least, the program failed to recognize the critical importance of developments in Nigeria for Niger. Nowhere in the documentation submitted to the Board for the SAL and the PESAP is the impact of Nigeria and of Nigerian price and exchange rate policies discussed as a potential central issue or as a risk for the success of Niger's program. Developments in Nigeria have transformed the economy of Niger more than any other factor: between 1984 and 1990, the CFAINaira exchange rate dropped continuously from 570 CFA per Naira to 3 4 . Two examples may be cited to illustrate the impact on Niger's economy: it is estimattd that in 1991 50% of Niger's imports of petroleum products from Nigeria were not registered against 10 t~ 20% in the early 1980s leading to a drastic reduction in fiscal revenues; Niger's textile industry, which exported 50 to 60% of its production at the beginning of the decade, barely survives by supplying part of the domestic market which is now flooded with imports from Nigeria. 2' Four risks were d e n t d i d in h e PR for the SAL: (i) the timely aod sustRined implementation of the program (I.<. couur~~tment and unplsmentdion capacity); (ii) tbe supply response of tbe pnvate sector; (iii) the success oi et11,r:. t,). the Government auJ the donor cumunity to strengthen the resource base, i.e., essentially the developmeo~of the mral sector; d (iv) exogewus factors. ' Ilte .!.;clrr,e was especially rapd during 1986 when the rate dropped from 378 CFA per Naira at the end of Dbcember 1985 to 97 CFA per Naira by the end of December 1986, several months before Board presentation of the PESAP. 2.08 The dialogue was dominated by the changing political situation during the decade covering the adjustment program (1983-92). Three periods may be distinguished. The first ran till the death of President Kountche in November 1987 and was characterized by intensive and frank exchanges of views between the Bank, the Government, and the aid community on the extremely difficult challenges facing Niger. As a result, during preparation and during most of the implementation period of the SAL (i.e., from 1983 to late 1987), the Government was perceived as strongly committed to reforms, giving rise to praise by the Bank and the international community. This perception, which explained the early optimism about the eventual success of the program, was due to three factors, all interrelated: (i) the strong personality and undisputed authority of President Kountche, a military leader, who had been in power for more than ten years and who was conducting the State's business with little room for dissent; (ii) the intensive dialogue which had surrounded program preparation over about three years; and (iii) the timely implementation of most of the SAL conditions, even if they had no bite. Because of the latter, however, it could be questioned whether, even at that time, the country shared the Bank's objective of bringing about genuine structural change or whether the country's objective was limited to negotiate conditions to obtain tranche releases. 2.09 After the death of President Kountche in November 1987 and until early 1990, the dialogue became not only more difficult but also less focused as the country no longer spoke with one voice. Two factors marked that period and combined to erase whatever ownership and commitment existed before: (i) President Kountche's successor (also a military man) lacked the authority necessary to lead the country in difficult times and therefore was not up to the task of carrying out and deepening the reforms after the first train of measures had been adopted; and (ii) a strong reaction against 15 years of autocratic rule emerged and had the effect of relaxing discipline and encouraging complacency among the leadership and the bureaucracy. As the technical ministries succeeded in recovering their independence and influence, the policy dialogue became dispersed and less coherent. 2.10 After student and labor unrest started in February 1990, internal conflicts and the nascent democratization process had the effect of distracting the country from the adjustment effort and eventually led the program to derail completely. 111. JMPLEMENTATION AND OUTCOME 3.01 In step with the dialogue, there was a marked difference in implementation performance between the period covering program preparation and the SAL (1983-87) and the period covering PESAP (1988-90), the turning point being President Kountche's death in November 1987. However, even before President Kountche's death, there were worrisome signals that revealed a lack of genuine internalization. Thus, there was resistance in areas where reforms were going K I hurt: this was the case for instance in agriculture where resistance to reforms had been underestimated, in the design and formulation of concrete rehabilitation plans and performance contracts of PEs, and in the launching of those studies which were expected to lead eventually to difficult decisions (e.g., studies of the financial sector, agricultural credit, and industrial and trade incentives). President Kountche's last years in power coincided almost exactly with implementation of the SAL. After his death, the lack of leadership and the jockeying for influence and power in the new Government led very rapidly to uncertainty and indecision, resistance to reforms built up, and substantial delays started affecting implementation of all program components. By mid-1988, implementation considerably slowed down and by end-1988, the program started derailing. Implementation performance under the SAL and PESAP is detailed below. 3.02 Generally speaking, the soft conditionality built into the SAL was met. This was the case for the public resource management and public enterprises components of the program. Difficulties were encountered, however, in the agricultural sector, largely because of resistance to some reforms. There were also delays in undertaking some of the studies in preparation for an eventual SAL 11. Nevertheless, implementation of the program was judged satisfactory by the Bank as specific conditions for tranche release were formally met, even though they could be referred to as "paper conditionality." As suggested above, this was typically the case for the critical components of budgets and PIPS, for which the tranche conditionality applied to "approved budgets or PIPS" rather than to their actual implementation or outcome. In any event, the SAL was judged to be on track, and tranche release and disbursements were only a couple of months behind schedule. 3.03 The weakness in leadership after President Kountche's death, together with several cabinet reshuffles, critically affected the way PESAP was implemented. As in the case of the SAL, implementation was largely limited to meeting "paper conditionality", with little or no substantive follow-up -- this was typically the case of the preparationlsigning of restructuring programs, action plans, or performance contracts for PEs, which were formulated or signed, but which were not implemented or whose implementation faced strong resistance, and which, in the end, produced little result. In addition, as time passed and as political leadership weakened, implementation: (i) took place in a climate which may be described as one of bargaining between the Bank and the country over what was exactly covered by the conditionality and what truly constituted fulfillment of the conditions. The Bank was increasingly troubled by the lack of substance in Niger's policy reforms, while the Government, in contrast, felt that it was in fact complying with the (rather vague) conditionality. Third tranche release conditions, e.g., included: "The Borrower has made progress in the preparation of an action program on civil service reform," or "The Borrower has made progress in the implementation of.. .." Such conditions, the Government felt, had been fully complied with. The situation came to a head in the course of 1989, with Bank staff being placed in the uncomfortable position of having to rephrase on two occasions the conditions for third tranche release in the form of concrete suggestions of "what precisely to do next. " (ii) increasingly became entangled in details relating to the nitty-gritty of program contracts for specific enterprises (micro-management), at the expense of concentrating on the level of public expenditures and their restructuring, notably the containment of the wage bill and the redirection of expenditures to operation and maintenance, the central themes and objectives of the first phase of the program; in the process, both the Bank and the borrower lost sight of the forest; and (iii) was increasingly subject to long delays, the borrower acting only under intense pressure from the Bank. 3.04 The release of the second tranche of PESAP in October 1988, one year after President Kountche's death, in the face of a serious loss of momentum and lack of leadership, was still partly justified as an encouragement to the new Govenunent then in place. The repercussions of a dramatic change in the management of the State's business probably warranted granting the new Government team the benefit of doubt. The second tranche was released 7 months behind schedule. 3.05 The release of the third tranche of PESAP is to be seen very differently, however. The Bank, thoroughly disappointed with the lack of progress (continued deterioration in macro performance, obvious reluctance and incapacity to take difficult decisions, protracted discussions surrounding the "micro-management" of PEs, unsatisfactory resolution of arrears and crossdebts settlements), first proposed to the authorities, in June 1989, a "work program" by which the Government would make concrete proposals for action on a minimum set of conditions for tranche release. The work program suggested by the Bank focused on a limited number of areas specific to the public enterprises sectorz' and did not address the broader issues under the public resource management component of the program. After the authorities had submitted proposals and after further discussions had been held in Washington in August of 1989, the conditions for tranche release were further "restricted" [sic] to four precise actions.!' The Government promised to act on the latter during the remainder of 1989, and the third tranche was released in December, 15 months behind schedule, on the assumption and the authorities's commitment that the 1989190 budget would provide the financial means to implement the agreed four actions. (Formal conditionality as contained in the Credit Agreement had been fulfilled.) 3.06 Soon after the tranche was released, civil unrest started in February 1990. A May 1990 supervision mission found that virtually none of the December 1989 commitments had been kept and the Bank advised the Government to refrain from submitting withdrawal applications so as to avoid the embarrassment of having to resort to suspending disbursements. Nevertheless, partly upon pressure from the Government and partly as a result of built-in institutional pressure within the Bank, in late 1990, a new attempt was made at resuming disbursements by once again redefining the conditions under which the balance of the third tranche could be disbursed. At that time, under no circumstances could these conditions be fulfilled and a balance of SDR 5.8 million remained undisbursed until it was cancelled on October 5, 1992. B. Results Achieved 3.07 The implementation record of the SAL and PESAP suggests that, except for a few measures which had limited impact, there was little or no adjustment at all either in terms of concrete actions or in terms of measurable economic performance, and therefore that it would be futile, on the basis of formal macro indicators, to try to separate results attributable to adjustment from those attributable to other, including exogenous, factors. 3.08 The ~verall economic ~erforrnana during the period covered by the SAL and PESAP was disappointing. Real GDP grew on average by 1.2% between 1985 and 1991, substantially below the results anticipated from the program, i.e., 2 to 2.3% p.a. between 1986-90 and 2.9% p.a. during 2' The areas suggested ware the following: (i) financial coberema between performance contracts as signed and their actual implementation; (ii) a program for the sstthg of new arream and of crossdebts; and (iii) specific actions reganling four public enterprises. ' The four program actions were: (i) an acceptable program ensuring the settlement of arrears and crossdebts between Government and public enterprises; (ii) satisfactory progress in tbe restructuring of tbe food security agency and agreement with donors on the coordination of food aid; (iii) recovery of bad debts owed to the development bank; atd (iv) privatization of the cowpea marketing agency before the end of Febnrary 1990, leading to its liquidation if unsuccessful.  1991-95.9' Real GDP per capita declined on average by 2.1% during the same period, 1985-9 1, thus continuing the long-term trend since Independence in 1960. These data suggest that, over the past 30 years, neither the uranium boom of the late 1970s nor the adjustment efforts of the late 1980s have had any impact in reversing or mitigating the long-term decline of Niger's economy. It would appear that the uranium boom was only a blip in what is otherwise a downward secular trend.Ei Internal and external imbalances did not improve: over the same period, 1985 to 1991, the budget deficit on a cash basis and the current account deficit net of grants averaged 7.9% and 9 % of GDP, respectively, against 2% projected under the program. The external public debt was on target, at just under 50% of GDP, as a result of successful restrictive borrowing policies under the program as well as of substantial rescheduling, cancellation under the Mitterand and Brady initiatives, and a debt reduction operation under the Debt Reduction Facility for IDA-Only Countries in 1990. 3.09 Results achieved under the policy areas where reforms were to be undertaken were weak at best. When judged against the immediate objectives stated in the program, they may be summarized as follows: (i) except for containing the debt burden, none of the key results anticipated from reforms in public resource managemen1 can be considered as having been achieved: the wage bill got out of control by the end of the decade crowding out other critically needed expenditures on public services;fil recurrent public expenditures were not redirected towards operation and maintenance nor to priority sectors such as education and health; implementation of the PIP reached record 1ows.l-Y On the contrary, it appears that SAL resources in fact helped maintain the rhythm of current expenditures and mask the lack of real budget restructuring over the period; (ii) in the area of public entemrisea, achievements were disappointing also: while an improved institutional and legal framework is now in place, it hardly led to improvements in the relationships between the State and the enterprises remaining in the public portfolio, in terms of efficiency in control, accountability, management autonomy or financial discipline; while the financial performance of the sector as a whole improved from 1983 to 1987, mainly as a result of divestiture and liquidation, arrears and crossdebts recurred in 1988 and increased thereafter; experience under performance contracts as management tools was mixed at best; the privatization program, while having had an initial impact on public finances, is generally considered a .'ailure in that the privatized companies either became rapidly bankrupt, never started operations, ceased operations, or are still in a legally unclear situation; 9' In this paragraph, program targets are taken from the PRs for the SAL and the PESAP, and actuals from IMF, Staff Remrt for the 1992 Article IV Consultation, June 4, 1992, the most recent document available. g' Tbe size of the mining sector as percentage of GDP was 5 % in 1991, compared to 6 % in 1975, at the beginning of the boom. G. Ibe wage bill absorbed an increasing proportion of tax reveoues, rising from 4 1.7% in 1985 to 83.9% in 1991. E v a if tbe cornpinson excludes 1991 as an abwnnal year because of the political aod social unrest, the percentage for 1990 stood at 6 8 . 6 % . 2' Tbe PIP was realized at 52% m 87/88, at 62% in 88/89, at 63% in 89/90 aod at 32% in 90191.  (iii) the incentive m e a s w , price and trade liberalization and the abolishment of monopolies, were about the only measures implemented as foreseen under the program, and contributed to product availability and price stability. However, they had no impact on the promotion and development of the formal private sector as had been expected. On the contrary, the dismantling of trade monopolies for instance is recognized as having greatly facilitated and accelerated the informalization of the economy. In addition, the informal economy proved to have had a much greater capacity to adjust than the formal one and therefore to flourish in a context of rapid price and trade liberalization; and (iv) in agriculture, the liberalization measures in grain marketing and storage and the reduction and/or abolition of input subsidies seem to have had neutral effects on production while rural incomes are reported to have declined; however, the abolition of the grain and groundnut price stabilization schemes and the reduction in subsidies had a beneficial impact on the budget. 3.10 The social co@ attributable to the adjustment program were probably limited to workers displaced as a result of the public enterprises' sector reform. It is estimated that, from 1983 to 1990, some 4,000 employees were laid off from the parapublic sector; although there was no monitoring system to follow up on displaced workers, it is assumed that most of them have joined the informal sector. Other alleged social costs (such as reduced income per capita, reduced rural incomes) should rather be attributed to the continued long-term decline of Niger's economy as indicated above. No information is available to pass judgment on the gnviro- of the program. With reference to the expectation at the time of formulation of the program, i.e., that it would be the catalyst for substantial e x t e r n a lin support of reforms, large shortfalls in assistance emerged starting in 1989 as a result of poor performance; these, however, were largely compensated by generous debt relief. 3.11 Internalization. The intensive dialogue and initial apparent positive results which characterized the early years of the program, 1983-87, were in fact associated with and almost solely dependent on the personality, stature, and political will of a single person, President Kountche. This very strength proved to be also a fatal weakness. It led the Bank - and the international community -- to grossly overestimate not only the country's real commitment and readiness but also its administrative and institutional capacity. Clearly, already during President Kountche's illness (1986-87). commitment and implementation began to falter and soon after his death, the program derailed.ul The Bank, carried away by the momentum generated at preparation, failed to perceive the risks associated with an autocratic and highly centralized regime, and more generally, the true intricacies of Niger's politics. 3.12 Exoeenous factors. Even if adjustment had taken place as envisaged under the program, it is doubtful that it would have had more than a marginal and mitigating impact on the country's economic performance, given the importance of the exogenous factors at play. To illustrate this point, over the period covering the program, i.e., 1985 to 1991, cereal production fluctuated widely according 2' As mentioned in para. 3.01 above, it is still debatable whether Presidemt Kcnmtcbe was really committed to tnu, reforms or simply to implementing formal measures to secure eodorsemeot from the Bank Md the Fund Md therefore from the aid community. to rains (by as much as 50% to 60% From year to year), the terms of trade deteriorated by 25% under the influence of continued reduced demand for uranium and a sharp drop in uranium prices since 1988, and the competitiveness of Niger was drastically eroded by the devaluation of the Nigerian Naira. Those private interests and political groups in Niger, which have complained since 1990 about declining standards of living and reduced public services, have wrongly attributed this to structural adjustment. The long-term decline of Niger's economy together with negative exogenous factors dominated the scenario during the decade. 3.13 &er as an informal economy. It is not possible to quantify precisely the importance of the informal sector in Niger, but it is estimated to represent 70 to 80% of the economy. All observers recognize that the past decade was accompanied by a considerable reduction in the size of the modem sector (with as major consequence a shrinking tax base) and a corresponding increase in informalization of the economy. Two main factors contributed to that trend: (i) as already indicated, the dismantling of State monopolies, the price and trade liberalization measures, and the restructuring of the parapublic enterprises sector failed to lead to successful activities in the formal private sector as anticipated; instead they encouraged the informal sector and made it more dynamic; and (ii) the drastic deterioration in relative prices with Nigeria had the effect of accelerating this trend by making Niger's modern manufacturing sector no longer competitive and by exercising a powerful attraction towards the Nigerian economy in the form of increasingly integrated activities and unrecorded cross-border trade. Two observations must be made when considering the growing informalization of the economy: (i) the modern sector (public and private) is becoming increasingly disconnected From the real economic base of the country with the political, economic, and social consequences this may entail; and (ii) the informal sector has adapted to the changing circumstances and has adjusted itself de facto in whatever way it found possib1e.Z IV. SUSTAINABILITY AND LESSONS LEARNED 4.01 It is superfluous to say that Niger's adjustment program is unsustainable, because the foundations for reform, such as internalization, were never laid. Nevertheless, there are important lessons which emerge, especially those having to do with commitment and conditionality. 4.02 The statements issued and the actions taken by the Government during the early years of the program were wrongly perceived by the Bank and the donor community as true commitment: they relied heavily on a handful of high level officials and disappeared soon after the President's death, because many branches of Government and senior officials, who would have to implement the measures, had never been involved or consulted. As time went on, it became increasingly clear, e.g., that technical ministries did not coordinate their activities or cooperate with the planning ministry. 4.03 Resentment shown towards the structural adjustment process by many levels of Niger's society over the past three years suggests that this lack of commitment goes very deep indeed. Niger's hostile natural environment and other exogenous forces, such as deteriorating terms of trade, are formidable obstacles to long-term development. These exogenous factors are perceived by many as the root causes of Niger's predicament and as the justification for external program assistance; at the same ' For a discussion of the growing informalization of Niger's economy, see Guillaumont, Patrick a d Sylviane, m *b'uste e ine ', Editions L'Hannattan, Paris, 1991. time, important factors which are controllable by the policymakers -- mismanagement of the economy, -- inefficiency and the protection of the few whose livelihood is guaranteed by the State are neglected. As long as these perceptions hold, it is difficult to recognize the need for reform and to internalize an adjustment process, which would by definition entail some redistribution of income. Instead, delay and resistance to the implementation of reform measures became the rule. Thus, e.g., all efforts to redirect education spending from higher levels to primary schools, to refocus health expenditures, to eliminate arrears, or to reduce the size of the public administration, eventually failed. 4.04 Given the record, it appears logical to suggest that conditionality should have been tight, precise and have real bite. This would have tested the extent of internalization; i.e. if the Bank had insisted on precise and strict conditions, there would have been no agreement on a structural adjustment program on the same schedule. This would have been preferable as it would have led to additional debate on the design of the program. 4.05 The lesson which emerges is that under the prevailing political and social conditions in Niger, a structural adjustment program was unlikely to work and that a more rigorous approach by the Bank would have brought this out. 4.06 Other lessons which can be drawn from the Niger experience are of a more general nature and concern the phasing of reforms and the need for realism in the diagnosis of problems and development of solutions. 4.07 Phasing of the reforms. The Niger experience highlights the potential conflicts in attempting to implement simultaneously different components of a program, especially when the program is overloaded. The prime example concerns the fate bestowed on the principal focus of the reforms, i.e., the improvement in public resource management: during implementation of the PESAP, the Government's and the Bank's energy and effon were increasingly drawn into the "micro-management" of PE restructuring at the expense of focusing on the causes of the deterioration in the fiscal situation. Clearly, redressing the latter was a prerequisite for sustainable improvement in the parapublic sextor. 4.08 Niger's program lacked realism in several respects: (i) External Factors. In poor countries where, for numerous reasons, Governments have limited control over their economy, borders, trade, and exchange rate, adjustment cannot take place in isolation of determining external factors. Niger's economy is dependent not only on climatic conditions and international market prices but also on developments in neighboring countries, hence the need to initiate a dialogue at the regional or sub-regional level. Under present circumstances, this is especially true for the formulation of programs in countries bordering Nigeria, because of its flexible exchange rate policy and the s u e of its economy. Clearly, Nigeria should be part of the dialogue. (ii) Liberalization and the informal sector. While Niger may be the epitome of the informali- zation of an economy, its experience confirms the observation made for many of the poorest countries, i.e., that a policy of price and trade liberalization, a standard feature of adjustment programs, is a necessary but not sufficient condition for the emergence. promotion, or development of the private sector. Documentation submitted to the Board invariably presents such a component as a key determinant for achieving a private sector response, without specifying which private sector, although generally the private modern sector is implied. Also invariably, documentation submitted to the Board for a second or third SAL recognizes,  typically with regret and disappointment that, despite a successful introduction of liberalization policies under a prior operation, no private sector response was noticeable. In the poorest countries, the numerous prerequisites for the development of the formal sector are so inadequate that any swift liberalization unaccompanied by other measures leads inevitably to an expansion of the informal sector. Simultaneous measures to promote formal private sector development through, e.g., investment operations, and to integrate the informal sector into the rest of the economy are necessary. .- (iii) The implementation capacity of the Government and of the public enterprises was grossly overestimated, both in terms of working institutions and procedures and administrative and managerial capabilities.