Niger - Country assistance strategy

DOC==t of The World Bank FOR OFFICLAL USE ONLY Rqpf NOW12941-NIR MEMORANDUM OF TEE PRESIDENT OF THE INTERATIONAL DEVELOPENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE 'WORLD BANK GROUP FOR THE REPUBLIC OF NIGER MAY 9, 1994 Country Operations Division Sahel Department Africa Region rin documet has a rstricted disotbuto and may be wed by re*es oly in the perfoanc* of dheir offidal dutis Its contens may not otdhewise be dicosed without Wodd Bank autwrizao.  The last Countty Assistance Strategy for Niger was reviewed by the Executive Directors on April 21, 1992. CURREtCY EQJIVALENTS Cufrency Unit CFA fanc (CFAF) US$1.00 CFAF 592 (January 31, 1994) CFAF I million US$ 1,687 (January 31, 1994) SYSTEM OF WEIGHTS AND MEASURE: METRIC Metric U.S. Equivalent 1 meter (m) 3.28 feet (fi) 1 kilometer (Ian) 0.62 wiles (nii) 1 square kilometer (knm2) = 0.39 square mile (sq mi) 1 hectare (ha) 2.47 acres (a) 1 metric ton (t) 2.205 pounds (lb) 1 kilogram (kg) 2.2046 pounds (lb) FISCAL YEAR January 1-December 31 ABBREVIATIONS AND ACRONYMS BCEAO Banque Centrale des Etats de l'Afrique de rOuest (Central Bank) GON Government of Miger NIGETIP Public Works and Employment Project PESAP Public Enterprise Sector Adjustment Program PFP Policy Framework Paper SAL Structural Adjustment Program LEMOA Union Econonique et Monetaire Ouest Afiicaine (West Afican Economic and Monetary Union)  FOR OFFICIAL USE ONLY REPBLIC E NIGER COUNTRY ASSISTANCE STRATEGY Table of Contents Page No. A. Historical Perspective and Recent Performance 1 B. External Environment 5 C. Niger's Development Policies and Bank Assistance Program 7 D. Agenda for Board Discussion 17 Anns Annex I Selected Indicators of Bank Portfolio Performance and Management Annex 2 Bank Group Fact Sheet, FY92-97 1BRD/IDA Lending Program, FY94-97 Annex 3 Poverty and Social Development Indicators Annex 4 Key Economic Indicators Annex S Key Exposures Indicators Annex 6 The Status of Bank Operations in Niger Statement of IBRD Loans and IDA Credits (as of March 30, 1994) This document has a resticted distibutdon and may be used by reipient oy in the pefance ofthi otcial duties. Xts contents may not othenvise be disclosed withot World Bank authorizato  MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR THE REPUBILIC OF NIGER A. Historical Perspective and Recent Performance 1. Background and Introduction. Niger is one of the poorest countries in the world (per capita GDP of US$300 in 1993). Its rapidly growing population (8.5 million with a 3.3 % growth rate) is 80% rural. Most Nigeriens make a precarious living from subsistence agriculture, under difficult environmental conditions (70% of the land area is desert or semi-desert, and harvests reflect erratic rainfall). Long dominated by an inefficient public sector, the formal economy depends on uranium, a primary commodity with poor prospects. Developments in Nigeria, a large and powerful neighbor, have a strong impact on Niger's economy through active, and mostly informal, border trading. Since April 1993, Niger has a new democratically elected Government, operating in the context of new institutions and of an evolving, and still fragile, political and social situation. The Government has taken initial steps to improve economic management and to maintain a stable macro-economic framework, conducive to private sector activity. The policy framework takes full advantage of the devaluation of the CFA franc to restore competitiveness, provide a policy environment favorable to the private sector, and redirect public resources toward human resource development, infrastructure maintenance, and the provision of efficient services to support agriculture and preserve the fragile natural resource base. The last Country Assistance Strategy was reviewed by the Executive Directors on April 21, 1992, and the Fourth Year PFP was discussed by the Committee of the Whole on September 11, 1990. A mission is in the field to discuss a new PFP. 0 2. Economic Structure. Agriculture contributes about 32% of GDP, of which 13% for livestock, industry and construction 10%; and services 49%, of which about 14% by government. The formal sector (about 28% of GDP) comprises a relatively inefficient public sector and a small modem private sector in rapid decline, given a precipitous decrease in competitiveness over the years. The informal sector (about 135,000 micro and small enterprises and 72% of GDP) consists of the rural economy, small-scale artisanal and service activities, and influential traditional traders with close links to northern Nigeria. Uranium exports have accounted for 80% of Niger's export revenues during 1975-89 and 70% thereafter. Box 1 presents a country profile of Niger. 3. Adjustment and Economic Performance in the 1980s. A uranium price boom in the late 1970s caused rapid GDP growth and permitted heavy external borrowing to finance a major expansion of public enterprises and public sector investment in large and often economically inefficient projects. In the early 1980s, a dramatic fall in uranium export earnings and the failure of Government to curb public spending in a timely fashion left Niger with a budget deficit of 10% of GDP, a balance of payments deficit of 22% of GDP, a portfolio of uneconomic investments, and a rapidly rising debt service. In 1982, the Government launched a macroecononic stabilization and adjustment program supported by the IMF with a series of stand-by arrangements beginning in 1983, followed by a Structural Adjustment Facility (SAF)  in 1987 and an Enhanced Structural Adjustment Facility (ESAF) in 19881/. IDA supported the Niger: A Country rfile Govermment's efforts with a Structural Adjustment l 8.5 with nely So Credit (SAL) in 1986, a Public Enterprise X iVinga narow sip strching abo Sectoral Adjustment Credit (PESAP) in 1987, and 1,5prcnt from Niainy in the west to Zinder ia the an operation under the IDA debt reduction facility cm.. High growth ate (3.3%). in 1990. A narrow economic base: a modern sector 4. The stabilization and adjustment program dominated by mining (uranium.. which prvles focused on reducing internal and external nearly 70 peret of export ear ad a imbalances, improving public resource traditional rural sector wh employs about 80 management, restructuring the public enterprise pez:et of te labor fe. sector, and reducing excessive govenunent control in the economy. The public investment program The envlonnment: Nearly 70 percent of the lau was refocussed towards rehabilitation of existing surface is daiest or semi desefu. ndati assets and the social sectors. Performance under Niger's rural economy. Rapid population growth, these programs was mixed. In the public hinkng growng areas and degradation of arable enterprise sector, nineteen public enterprises were lard may culmint In. a crisis of umangeable liquidated or privatized, and the largest ones have proportions in agriculture. In sum, the natra been the subject of restructuring programs. resouce base is threatened by environm_enta Progress was made in reducing the sector's degradation, thus d ie liveliood of 80 demand for public resources such that the perct of Nigeres population. budgetary subsidies declined by 60% between 1981 and 1988. Progress towards economic HisOry of Bank Retos: There hav ben 43 liberalization was achieved by scrapping various Bank Group opeaos (42 DA Credits. I JFC state monopolies, easing or eliminating price Investment) Oit5lgtli TS$57.95 .7million. Ten controls and import restrictions, liberalizing operatons are n active im cereals marketing and abolishing export taxes on pmsetiy There were no it F93; agro-pastoral pr^x1ucts. disbursements totaUed US$26 milion with a net agro-pastoral products. tafr fU$0nfo.f n4 tranfer- of US$20 mutilo Thus far in VY94,~ comnitments have TZoed US$25 millon, 5. Despite those efforts, the economic disbmument stand at US$20 million. The situation did not show lasting improvement. undisbursed balance tands at US$107 miflion. Since 1985, the economic situation has deteriorated due to a 47% decline in uranium Gove:rment: From 1974 through 1991, Niger was earnings, drought, worsening terms of trade, and under a inilitaylsingle party govermt. At end- the effects of adjustment policies in Nigeria, 1990 polical parties were legalized, a Nationa especially the continual depreciation of the Naira Conference was held from July to November 1991, of Nigeria and other competitors countries vis-a- the longest in Africa to date, followed by a 17- vis the CFA and the resulting informal border monthtransition AeConstitutionwasrifiedi trade, smuggling, and fraud. GDP growth was Dember 19 and i FebatvlMa 193. lackluster and fluctuated widely during the period, Nigeriens elected a new Pariament following lacduser nd lucuatd ldey drmgthepend, peacefi and welleot d dem-c elections. A reflecting the variability of rainfall and the peaGoveand wel ede ot-aelections. A new Govermment., representing a generational shift, resulting volatility of rural sector production came to power. which grew on average 1.8% over 1985-91. The modern sector (including mining, manufacturing, and commerce) declined at an average annual rate of 2.8%, while services (principally government) increased by 7.5% per annum ih 1988-1990. Gross Domestic Investment declined from a high of 15.3% of GDP in 1985 to about 5.7% in 1993. Private I/ Nger's eligibility for the ESAF program lapsed in 1991.  3 investment fell from about 7.2% of GDP in 1985 to 1.9% in 1993. Foreign direct private investment has been negative since 1984 as foreign companies divested. 6. Export receipts declined significantly with uranium exports falling by almost 50% from 1980 to the present. Livestock and cowpeas, the other main exports, declined dramatically in 1984/85 due to extended drought, but by 1989 and 1990 had recovtred to early-80s levels. Imports, largely of capital goods, declined by 35% in real terms in the 1980s, reflecting the stagnation of economic activity and the loss of export earnings. As a result of failing imports, the current account deficit (excluding official transfers) declined from 15.2 % of GDP in 1988 to 7.5% in 1993. 7. Niger benefited from significant debt relief as a result of debt forgiveness by official creditors. In December 1990, Niger becamne the first country to use the IDA debt reduction facility in an amount of US$ 10 million. These funds, combined with co-financing from France and Switzerland, led to the elimination of about 95 % of Niger's total outstanding commercial debt. Niger's outstanding external debt totalled US$1,257 million in 1993, or 57.3% of GDP and 400% of total exports of goods and services. Debt service as a share of exports was 26.8% in 1993. Of this debt, about 36% is bilateral debt, of which about 66% is due to Paris Club creditors. With this high level of indebtedness, Niger's strategy is to contract new debt exclusively on highly concessional terms and to seek naximum debt relief. Niger rescheduled its external debt with the Paris Club every year between 1982 and 1986, and in 1988 and 1991, and with the London Club in 1983-85 and 1989. It has recently (March 1994) benefitted from a Paris Club rescheduling following the realignment of its currency and the stand-by arrangement with the IMF; this was the first multi-year rescheduling on enhanced concessional terms. 8. Recent Developments. 1990 was characterized by increasing pressure on uiie Government through strikes and anti-government demonstrations, particularly by labor unions, university student organizations, and nascent opposition parties demanding fundamental changes in the political system. In addition, the situation in the North of the country was difficult. At the end of 1990, the Government committed itself to the introduction of multi-party democracy and to holding a National Conference. Political tumnoil visibly slowed the adjustment program which finally halted in 1991 as both the Government and the country-at-large focussed their energies on preparing the National Conference. The National Conference, held between end-July and early November 1991, elected a transitional Prime Minister and an interim parliament ) govern for 15 months until national elections. The Conference transfixed Nigeriens and paralyzed national decision-makers (chiefly at the macro-economic level). Debate on the issues opened up -a major and positive development-- but when it ended, it left the Transitional Government with a virtually impossible madate: promises to keep and no resources to pay. Of particular concern for further stabilization and adjustment e.forts were the decisions to leave intact both the wage bill and the number of civil servants. Although the Conference also decreed that a National Solidarity Tax could be imposed to help cover the govermnent deficit, neither the sum nor the target for this tax was specified. The Transitional Government was blocked in its efforts to get the country moving again. The fragility of the situation was underlined in early March 1992 by a military mutiny, followed by various c,ivilian strikes. In spite of these difficulties, a new constitution was ratified in Decenber 1992, a new parliament was democratically elected, and a new government came to power in April 1993 (see Box 1). The new government has been tested by rebels in the north, religious militants in the south and west, violent student protests, and an army mutiny in late 1993. 9. The Emergency Economic and Financial Recovery Program (PREP) launched by the Transition Government in 1992 met with little success due to the lack of cooperation from key organized groups. The PREF did not reverse the worsening trend in tax revenues: they declined by 6.5% in 1992, after a 20% drop in 1991. The civil service wage bill increased by 7% and represented 80% of tax revenues. Cuts were made in operations and maintenance expenditures and in counterpart funds for externally  4 funded projects, slowing implementation of the public investment program and leading to a drop in imports which helped maintain the external current account deficit at around 7.5% of GDP over 1991- 1993. The Transition Government resorted to borrowing abroad, increasing the stock of debt substantially. The "informalization" of the economy, and the flood of fraudulent imports, paying no customs duties and compounding the revenue shortfall continued. Cheap inports also contributed to a shrinkage of the thin and inereasingly uncompetitive fonnal industrial sector. Overll economic results became increasingly dependn t on the performance of the agriculture sector, and ultimately on rainfall (good weather in 1991 and 1992 resulted in a 20% increase of agricultural production and in GDP growth of 2% and 1.5% respectively). The new Government which took office in April 1993 undertook more stringent reforms, including a 13% reduction in public sector wages and piecemeal measures against fraudulent imports. The program was adopted in August 1993 and its implementation began in September. The budget deficit (excluding grants) decreased from 4.7% of GDP in 1992 to 3.4% in 1993. Weak performance on revenue mobilization (total government revenues amounted to 7.6% of GDP in 1993) led to a large accumulation of internal and exterual arrears, including an averagc of 3.4 months of back pay due to public ,ector employees. Key economic indicators are presented in Annex 5. 10. While the 1993 measures did contribute to a modicum of stabilization, the extent of the appreciation of the real exchange rate and its adverse consequences had become so serious that these measures alone could not improve the competitivencss of Niger's economy and restore its financial viability. Thus, the Government of Niger, jointly with the t.,elve other member countries of the CFA zone, decided to strengthen its adjustment strategy by changing, as of January 12, i994, the parity of the CFA franc from 50 to 100 CFAF per FF. With the realignment of its currency, the Government of Niger has adopted of program of accompanyitg measures to (i) pass-through the benefits of the devaluation to rural producers of export crops, 'ii) adjust taxation and external tariffs and limit strictly wage increases, (iii) restore a viable public finance situation, (iv) minimize the negative impact of the devaluation on the most vulnerable groups through the adoption of a social safety net, and (v) accelerate the structural reforms necessary to support the supply responses. The IMF is supporting the program with a stand-by credit, France is providing assistance and IDA has also provided support, geared at counteracting negative effects due to the realignment of the currenzy, through an US$ 25 million Economic Recovery Credit (ERC) (report iTo. 6264-NIR, February 2, 1994). 11. The initial impact of the devaluation and of the measures taken in hs aftermath is encouraging. Salaries are paid on time, contributing to reduced social tensions and a gradual normalization of the day- to-day functioning of the Govermnent. The sccial measures accompanying the parity change have helped to prevent major social unrest, and wage settlement with public service unions are, thus far, within the program targets. Inflation is broadly on track. The direction of border trade with Nigeria is showing signs of reversal, and the demand for Niger's products is increasing (more domestic consumption of local cereals and textile products and increased exports of cow-peas, onions, and livestock.). And the financial situation of the uranium companies has improved. It is, however, still too early to draw definitive conclusions. Sustained adherence to the program remains essential, especially in view of increasing wage demands as price controls are progressively lifted and a fuller pass-through of the devaluation is taking place (utility rates, petroleum, etc.). 12. Social Development and Poverty Alleviation. Social indicators paint a uniformly grim piciure of Niger's poverty. At present, 80% of the population lives in rural areas where food security and nutritional status are closely linked to rainfall patterns. With declining per capita incomes, poverty and malnutrition have at best remained constant and are more likely to have worsened in the 1980s. Malnutrition is a serious problem for children and pregnant and lactating women: an estimated 25% of children aged 12-23 months, and 22% of children aged 24-25 months are chronically malnourished. The adult literacy rate in Niger is among the lowest in the world. The current primary enrollment rate at 29%  5 (and 120-130 childrer in some classes) is dismal by any standards. Women and girls hold relatively low status in society (despit, the existence of a Ministry of Women's Affairs and the fact that women's groups have been playing a very active role is the democratization process and hold many l:ey positions in the government). As a result, girls account for only about 36% of prinary school enrollment. Early evidence on the effects of past economic reform program on the rural poor suggests that there has been little discemible improvement at the household level. Clinatic factors (e.g. rainfall patterna) remain the critical variable for subsistence farming, while the agricultural services provided by the Government have not been able to keep up with increasing demand. The social effects of Niger's economic problems are also visible in urban areas, where population growt.h and a shrinking modem sector have caused rising unemployment (and social disturbances). The rapid growth of the informal sector is both a result and a mitigating factor in the process. Rapid population growth compounds these problems and poses a large environmental threat through deforestation and pressure on land. Poverty and Social Development Indicators are detailed in Annex 3 and Annex 4. 13. Efforts have been made to respond to the challenges of human resource development and poverty alleviation, but they remain inadequate. A public expenditure review, completed by the Bank in 1992 in nart to help support the Government's reorientation in the social sectors overall, focused on these issues. Because Niger ranks among the bottom five countries in the world for all social indicators, improving significantly the situation underlined by these indicators is a sine qaa non condition of development. Significant and sustained improvement is crucial for both long term growth within Niger and, in the absenc. of employment opportunities at home, to improve the chances for migrants to find gaifl employment in the coastal countries. The Govermnent's priorities in the development of human resources are: (i) to lower the growth rate of population from its current level; (b) to improve the coverage of primary health care; (c) to increase the level and quality of basic education; and (d) to consider gender issues in all these endeavors. 14. Environmental Issues. The Government has worked with United Nations Sahelian Office (UNSO) and other agencies on the specific problem of desertification and soil erosion. Other environmental issues, notably natural resources management, land and water management, are being addressed through other means. In order to ensure a sharp policy focus and to facilitate the links between environmental matters and broader development strategies, the Nigerien Government is worldng with IDA and other partners on a National Enviromnental Action Plan (NEAP). An IDA Country Environmental Strategy Paper, near completion, has also been helping the process. Briefly, much analysis and work has taken place on environmental issues in Niger, but this has yet to be set in the overall development framework and policy choices have yet to be clearly defined. Major avenues for action on the environment are agricultural services development, tightening research-extension links, and community-based natural resource management. The first part of a "Rural Code" has recently been prepared. The Code is designed to establish a legal and social framework for determining land use patterns and rights, and it should help improve conflict resolution between agriculturalists and pastoralists. Environmental education and specific te-niques to improve water harvesting, soil stabilization and natural fertilization need to be disseminated. Rapid urban growth calls for a more proactive effort to address basic issues like water, sewerage and housing, and to minimize the direct land destruction that rings out from the towns and cities at present. B. The External Environment 15. The vicissitudes of economic performance in the late 1980's and early 1990's amply demonstrate the degree to which Niger's economy remans vulnerable to exogenous factors. The most important are: (a) fluctuations in the world prices for uranium, its principal export; (b) international aid, given Niger's high aid dependence; (c) economic adjustment policies of its key trading partners (principally Nigeria);  6 and (d) climatic fluctuations, best addressed through drought preparedness and a careful strategy for the development of affordable private irrigation. 16. Although the role of the uranium sector has diminished during the 1980s, this sector remains of crucial imporwice to the economy as it accounts for about 8% of GDP, 70% of export proceeds, and some 15% of Government revenue. While the devaluation has had a positive impact on the financial situation of the industry, major efficiency gains and cost reductions are still needed. The cost of production, including the indirect subsidies paid by the two uranium ininffg companies to the public electricity and transport companies, is higher than the negotiated contract price, which itself is ahnost three times the spot market price. Costs can be cut in wages and salaries, electricity, transportation, hospital administration, and mining town management fees. Debt service can be reduced, consistent with Niger's overall debt management strategy. These cost savings will unavoidably have an impact on the Government budget and on several parastatals, and they need to be considered in the context of overall public resource management. 17. In tAay's environment of uncertain international aid flows, Niger's heavy dependence on aid (over 90% of the public investment program is externally fmanced) is a serious concern. During the difficult period of 1990 to 1993, ODA disbursements dropped sharply. This situation calls for careful aid coordination and mobilization strategies as well as long-term strategies to reduce aid dependence. In today's competitive aid climate, it also requires that Niger maintain a good level of performance to mobilize the aid required. 18. Net foreign private investment has been negative for several years. However, with an appropriate institutional and legal framework, foreign investment could play an important role in Niger's development, not only in opening up new sectors such as gold mining and new export markets (onions, high value crops), but also in providing non-debt financing. In order to seize these opportunities, Government would need to reexamine the legal framework, to develop fiscal incentives for exports, and to ensure transparency and equity in the treatment of all investors (domestic and foreign) alike. 19. Regional Integration. T'he proximity and size of Nigeria, together with long-standing traditions of informal border trading, are key external factors influencing the performance of the Nigerien economy. The management of this situation calls for a competitive environment in Niger, and the reactions -still preliminary- of traders to the recent devaluation indicate their sensitivity to price signals. In the formal sector, more competitive firms could take advantage of the large Nigerian market. Finally, Niger is an active participant in the on-going efforts to transform the UMOA (West African Monetary Union) into a full-fledged economic union, making it part of a larger economic entity. The seven Heads of State of the UMOA signed the treaty transforming the UMOA into an economic and monetary union (UEMOA) in Dakar on January 11, 1994. This imnproves the prospects for agricultural and manufacturing development in Niger, like in the six other UEMOA countries2/, by incrt 'g the potential for intra- regional trade on a market of nearly 60 million persons and permitting econoimes of scale. Moreover, the strengthening of the Union institutions and the proposed muchanisms to ensure the convergence of fiscal policies and the harmonization of economic and sectoral policies among the seven countries increase the likelihood for thern to maintain viable macroeconomic frameworks. 2/Benin, Bukina Faso, Cote d'lvoire, Mali, Senegal, and Togo.  7 C. Nigeres Development Policies aLd Bank Assistance Program Medium Term Policies and Outlook 20. Country's Potential. Niger's economy remains relatively undiversified and highly depem -_it upon rainfall patterns, and the price of uranium. In the face of such constraints and uncertainties, Niger's economic prospects will be enhanced by the Govenment's ability to maintain a viable and stable macro- economic framework, and to design and implemnte a reform progran capable of opening up potential new areas of growth and of molilizing donor and investor support. In the longer term, Niger's development will depend on the following factors: (if numaa resource development to build a skilled and productive labor force; (ii) well targeted investment in critical sectors, notably health and education, agriculture and natural resources management, and econiomic infrastructure; (iii) mobilizing domestic saving and improving the efficiency of resource use in the public and private sectors through policy reform; and (iv) a sustained improvement in the competitiveness of the economy through lower domestic production costs, and an enviromnent conducive to private investment, including well functioning factor markets. 21. Potential sources of growth, other than uraniuwr., irnclude: (a) in agriculture - cereals, export crops (such as cowpeas and onions), high value crops, livestock products, small scale artisanal products such as artifacts and agricultural implements; (b) in the private sector - small scale manufacturing for the domestic and regional market; construction: tourism and ancillary products and services; and mining. As mentioned earlier, the informal sector is highly integrated with the economy of Northern Nigeria. The magnitude of the informal sector activity in higer is imperfectly understood since most trade with Nigeria takes place umofficially. The formal private sector is relatively small but provides a disproportionate level of govermnent revenue. Policy constraints such as labor legislation have taken their toll. Appropriately designed incentives could also encourage the informal sector to enter the formal sector; and (c) in ?ublic invesmn - the last four years have witnessed a steep decline in public investment. An increase in the investment rate therefore would represent a major boost to growth. 22. Macroeconomic Objectives and Policies. Following the preparation of macro-economic objectives and program (1994) which formed the basis for the stand-by agreement with the IMF and the Emergency Recovery Credit from IDA in the wake of the devaluation of the C;'A Franc, the Government is currently preparing a comprehensive program of structural reforms which will be outlined in the Fifth PEP (1994- 96) on which Bank and Fund missions initiated formal discussions at the beginning of May 1994. In the macroeconomic area, the main objectives are to achieve a real GDP growth rate of 3.9% in 1994, to be increased to 4.2% the following years; limit inflation to 37% in 1994, 7% the following year, and less than 3% by 1996, which would allow to achieve and maintain a real depreciation of some 40% in domestic currency terms; limit the worsening of the current account deficit of the balance of payments to 16% of GDP in 1994 (from 7.5% in 1993), and reduce it to some 12% by 1996. For the restored competitiveness of the economy to effectively lead to the resumption of self-sustained growth, the Government is deternined to accelerate essential strumcral reforms, concerning in particular the liberalization of the economic system, the functioning of factor markets, public enterprise reform and private sector promotion, public enterprise reform, public investment progranuning, and human resource development. 23. Poverty Reduction. Niger's overarching development objective is to reverse the trends of declining levels ot per cafita income and social welfare during the past years in the face of one of the poorest natural and human resource bases in Africa. Achieving this will take a long time (in view of GDP growth rates of about 4%-cited above--and population growth rates of 3.3%) and require sustained assistance from the international community, carefully conceived to address priority needs in sectors  8 which are crucial for growth. Because Niger ranks among the poorest countries in the world, it need- to focus on improving access to health, education, employment, and credit foi the large section of the population which is likely to fall below the "woverty line". In addition, a key determinant in the battle against poverty -food security- must play an important role in agricultural strategy. At pre.ent, efforts to alleviate poverty translate into an increased role for NGOs which work effectively at the community level, allowing for smallscale orivate sector projects (as in the Pilot Private Irrigation Project currently under preparation), promoting labor intensive projects (such as the Public Works and Employment Project - NIGETIP - being implemented with IDA and other donor support), increasing access to health care for vulnerable populations such as women and children, and increasing overa!l access to primary education. In light of the current fiscal crisis, the above measures imply a transfer of resources from the comparatively privileged civil service sector towards vital development sectors (health, education and agriculture). The fiscal crisis coupled with the declining economy may also suggest that short-term options to target the poor need to be explored. IDA's program of assistance is designed to support and complement government efforts to reduce poverty. An IDA Poverty Assessment, currently underway, and related work by the Govermnent are addressing these issues, as is a special study on Food Security. A recent IDA review of Gender Issues examined a broad range of economic, cultural and institutional issues constraining the frill participation of women in productive activities. The report concluded that the constraints were many and that a combination of legal remedies and specially-targeted 1rograms would help ameliorate the situation. These issues are being pursued in the course of our dialogue with the Government. 24. Public Resource Management. Enhancing tme efficency of resource use and directing resources towards priority sectors requires improved public resouirce management. Key issues are: improving domestic resource mobilization (Niger's tax ratio of 7.6% of GDP, is among the lowest in Africa due to a shrinking formal sector tax base); restructuring current expenditures and ensuring that operations and maintenance outlays are adequately funded; and improving public investment to increase the investment rate, which has been in decline since the 1980s, and ensure that investment is redirected towards the social sectors, the maintenance and rehabilitation of existing infrastructure in preference to new works, and labor intensive employment activities. 25. Public Enterorise Reform. As indicated in paragraph 4, significant progress was achi:ved in the period 1985-88 in privatizing, liquidating or restructuring public enterprises, eliminating state monopolies and improving the institutional framework and management of public enterprises. Poor management practices reappeared, however, and cross-debts and government subsidies increased again in recent years. There are still more than 30 public enterprises and offices and the Govermnent is preparing a program to liquidate or privatize most of them and streamline the sector. 26. Private Sector Develodment. Policy constraints, such as labor legislation, as well high a cost structure have made adjustment to a changing economic environment even more difficult for the formal private sector and have contributed to its contraction. The appreciation of the real exchange rate had led to an inflow of goods from neighboring countries (often fraudulently-i.e. non-payment of tariffs and taxes) against which Nigerien products could not compete. The contraction and collapse of the formal private sector in Niger had severe repercussions not just on employment but also on government revenue. The devai.ation of the CFAF provides an opportumity to restore competitiveness provided a strict discipline is maintained in wage policy. 27. A policy environment conducive to private sector growth would include: enabling the informal sector to participate more fully in the modem economy; promoting regional integration by increasing conmodity trade and factor movement with neighboring counries; reducing constraints (mainly administrative) to private sector activity; and addressing specific private sector concerns pragmatically.  9 Niger's adjustment efforts to date have included economic liberalization reforms, but further actions are needed in this area, including tailoring reform measures to Niger's very specific and unusual circumstances (landlocked; over 2,500 Km o. porous borders; and weak capacity to effectively monitor a wide-range G- concurrent actions). 28. Financial Sector. After restructuration of th financial sector, a small private banking sector is now i} relatively good health but serves a market restricted to the major cities and to short term credit. In the past, weak management and government interference led to poor financial performae and to the liquidation of the agricultural credit bank (CNCA) in 1988, to the bankruptcy of the housing finance institution (Credit du Niger), and to the liquidation of the Development Bank of Niger (BDRNI in 1990. BDRN was Niger's main commnercial bank: it held about 50% of total deposits and extended inore than 65% of short tern credit. The international banking collapse of BCCI in 1991 resulted in the closure of iez branch in Niger which represented one of the few remaining functioning and liq'xid banks in the country. The Government tried to have this bank reopened with the assistance of the African Development Bank and BCEAO, but the efforts have been inconclusive so far. Improving the performance of the financial sector and expanding the availability of credit will require: improving further UMOA-wide credit policies; pursuing the recovery of BDRN bad debts with vigor; and continuing efforts to ensure that the capital structure of the newly established bank (SONIBANK) is predominantly private. Reforms are also needed to encourage the development of private financial systems to make fnancial markets more competitive and responsive. The banking sector crisis has ieft the rural sector with little access to formal credit and savings. 29. Human Resources Development. Reversing the decline in per capita income will require slowing the rate of growth of population, which on present trends will rise to 11 and 31 million by 2000 and 2030 respectively from its current 8.5 million. Population pressures are evident both in urban areas and in arable rural areas where population densities have doubled in the last 25 yeara to as high as 44 inhabitants per Km2. Food production in Niger will be unable to keep pace with the growing population as cultivation expands into more and more marginal areas and as fallow cycles are further reduced. The rapid rate of population growth will also erode the delivery of services in education and %ealth unless increased resources are made available for these sectors. It is quite likely that women, who already suffer from less access to education, will bear a disproportionate burden of these pressures. Reducing fertility rates is also essential to improve the health and economic status of women. The Government is aware of the imFn3rtance of population efforts, and has prepared a Population Action Program with support from several multilateral agencies including IDA (Cr. 2360-NIR). Family planning is being given a major thrust through expanding public sector family planning delivery channels and developing alternative channels to service delivery using community-based distribution and encouraging private sector and N5O agents. 30. In the health sector, the principal issues are to reduce infant and maternal mortality, red&ce the incidence of endemic diseases (such as malaria), improve infant and child nutrition levels which have been falling, and to better understwid the extent and magnitude of AIDS, a sleeping threat in the Sahelian countries. Safe motherhood programs, an integral part of IDA's health strategy, should result in increased life expectancy from the low level of 45 years (1993). Improvement in these areas will also help reduce fertility rates, and ultimately slow down population growth rates. Although stated government policy favors preventive medicine and primary health care cver higher cost curative medicine, actual expenditures in the health sector do not reflect these priorities. A key element in restructuring government expenditure will therefore be to redirect expenditures towards basic health care services. The Government has stated its support for increasing the resources devoted to health, but will need to restore its public finance before being able to satisfactorily meet this objective. Encouragement and support should also be given to private sector and non-government delivery of primary health care.  10 31. The education sector in Niger is in crisis. The crisis affects the quality, quantity, structure and financing of education. The overwhelming issue is to raise significantly the level of primary school enrollment in the face of constrained resources and a rapidly growing school age population. Both supply - i.e. physical access to primary schools, and demand -- family attitudes and preferences, contribute to the very low rate of female enrollment, especially in the rural areas. Increasing female enrollment is critical to improve equity, enhance the productivity of women, reduce fertility and mortality rates, and promote key development objectives in family welfare (e.g. nutrition). Expanding the primary education system must therefore go in parallel with specific efforts to promote female enrollment and encourage parents to sen girls to s^hool. The Government's strategy aims to increase primary school enrollment from 29% at present (of which girls account for only 36%) to 35% by the year 2000 (with girls enrollment increasing to 40%), with the ultimate goal of universal primary education. 32. Environment. Agriculture and Natural Resource Management. The key issues are: (i) natural resources management; (ii) food security; (iii) the incentive structure for farmers; and (iv) delivery of public services. Despite the reforms that have already been iritroduced to liberalize the cereals market, further reforms are needed to improve the incentive structure facing farmers and pastoralists. The continued existence of agricultural parastatals (e.g. RINI - rice milling and OPVN - food stock manager), the lack of adequate pricing information for farmers, and political interference in local structures (sluch as cooperatives) have slowed down the development of an enabling environment in the rural economy. Cooperative reform should focus on eliminating political and administrative interference and on management training. In the irrigated sector, continued efforts should be made to encourage the private and cooperative sectors by reducing the role of the state in managing irrigation schemes. Better dissemination of market and pricing information is needed, and official prices for cotton will need to continue to be adjusted to fluctuations in world market pr ,es. In addition, the development of autonomous rural associations, capable of channeling savings and extending loans for viable operations needs to be promoted and encouraged. 33. Government services need to be improved to be more responsive to the needs of farmers and livestock owners. With assistance from IDA, the national agricultural research system is being streiigthened to improve priority setting, programming, budgeting and financial management as well as staff planning and training. Research priorities should be directed towards farming systems and natural resource management, away from single crop productivity research. The link between research and extension services must be significantly improved for dissemination of research results. Agricultural services at certain regional and sub-regional levels are starved of resources and cannot provide even a basic level of service to farmers. 34. Institutional development. At the policy level, the scarcity of reliable data, poor coordination, and the absence of a proper policy-making process have in the past hindered the design, implementation, and monitoring of reform packages. For example, the budget is not used as a policy instrument, and sector ministries do not, generally, have the required planning and programming capabilities. Although national expertise is often available (university, research centers), it is rarely used systematically. Implementation performance under investment, economic management, and adjustment projects has been mixed. The recent emergence of a new democratically-based Government and of new actors in the policy dialogue has improved matters somewhat, but much remains to be done to improve their analytical capacity. In light of the foregoing, the Government has requested IDA assistance to support its efforts at developing a comprehensive long-term institutional development strategy which includes specific actions in capacity building and decentralization. The first area of concentration will be macro-economic management.  Ii IDA Strategy and Operational Program, 1994-97 35. IDA's strategy in Niger aims at reversing the downward trends in per capita incomes and at improving social indicators. Long-term poverty alleviation, htuman resource development, food security, improved nutritional status, capacity building, private sector development, reversal in environmental degradation, and maintenance/rehabilitation of infrastructure are major objectives. The low absolute levels of per capita income, coupled with the fact that the bulk of the population live by subsistence agriculture or livestock, mean that poverty alleviation will depend in large measure on broad-based growth and actions, the expansion of basic services and to a lesser degree on directed programs of assistance (the impact of broad-based programs on groups disproportionately at risk -- women, for instance - will, however, be carefully taken into account). IDA's strategy is based on four major buWding blocks: (i) addressing long-tern human capital (including poverty alleviation) and natural resource issues; (ii) building public and private sector institutions to promote private sector based growth; (iii) increasing efficiency of public resource management; and (iv) supporting actions to facilitate supply response in the wake of the devaluation of the CFAF. 36. Over the past four years, Niger was in "core" mode since in the absence of sustained actions on the adjustment front, including depreciation of the real exchange rate, the economiic prospects were poor. As a result, IDA lending had shifted from one that included quick disbursing operations to one that only included investment financing, with an emphasis on population and human resources, agriculture (including natural resources management), and capacity building. During this transition period, the Bank continued to dialogue with the country and to promote the role of the private sector. The Bank also made available technical and material assistance to help the Government put its financ-ial house in order (including mobilization of revenues). The opportuiity presented by the realignment of the CFAF, and the commitment of the new Government, justify planning a commensurate program of fuiancial support for macro and sectoral adjustment operations as an important component of our strategy for Niger in the coming years, all the while being cautious in the commitment of scarce IDA resources and linking them to successfil implementation of tht agreed program. Our plans include both quick disbursing adjustnent operations to provide the necessary financing in support of strong reform efforts, and investment operations aimed at developing human resources, employment creation, capacity building, agricultural development, infrastructure rehabilitation, finance/private sector development, and mineral resources (e.g. gold). IDA is striving to strengthen the role of direct beneficiaries and NGOs in the design, preparation and implementation of projects across a wide range of sectors. These are described in the paragraphs that follow. 37. Human Resources Development and Poverty Reduction. Niger's future will depend on how effectively and quickly it is able to advance the large human resource development and poverty reduction agenda. The challenges are clear: to boost enroilment rates at the primary school level sharply and to improve the quality and relevance of teaching; to pursue efforts to enhance vocational and professional training; to take aggressive steps to avert the scourge of AIDS in Niger; to take a leadership role in enhancing the status of girls and women, and translating that into effective targets and programs executed by line ministries and other technical agencies and NGOs; to expand health coverage and the effectivenebs of primary health care facilities, while achieving financial stability in the sector notably through boosting availabilty of generic drugs both in the public and private sectors and expansion of cost recovery. IDA's economic and sector work (ESW) (e.g. the WID Assessment) aim at focusing on these issues, and continuing reviews of public expenditures will serve as an important instrument for coliaborative efforts to continue to focus resources on these priority objectives.  12 38. In education, in addition to the Education Sector Hybrid which addresses public resource and policy issues linked to improving the efficiency of resource use in th : ector, IDA will support in FY97 a Vocational Training project aimed at increasing the availability of skills necessary for private sector-led growth. In the health sector, a Health Development Project in FY95 will follow up on the ongoing Health Project (Cr. 1668-NIR), complement the reforms already being implemented under the ongoing Population project (Cr. 2360-NIR), support actions to address gender issues and provide substantial support to addressing the issue of sexually transmitted diseases (STD) and AIDS. A Nutrition Project could follow in FY96. Efforts at reducing rural and urban poverty are incorporated into both operational and ESW (e.g. ongoing Poverty Assessment) programs. The Economic Recovery Credit includes a social safety na to mitigate the impact of the devaluation on the most vWnerable segments of the population. Gender issues are also being addressed in the ongoing education, population and agricultural services projects which include specific elements to improve female access to education, health facilities and agricultural services. Given that our information base on poverty issues needs to be broadened, our ESW seeks to address this issue. 39. Enviromnent, Agriculture and Natural Resources Management. A supplementary credit is planned in FY94 in support of the ongoing Small Rural Operations project (Cr. 1890-NI) and would be aimed at financing infrastructure needs in rural areas as well as supporting export promotion activities in those areas in the wake of the devaluation of the CFAF. A Pilot Private Irrigation project (FY94) would support recent government initiatives to promote smaller scale private ownership and management of irrigated agriculture, away from the larger public sector managed schemes. Project management and execution would be undertaken by an entity operating on private-sector principles. A Natural Resources Management project (FY95) is under preparation and would build on the experience of ongoing projects with important environmental components such as the Small Rural Operations and complement- the proposed Population project. IDA wouid also support further reforms in the agriculture sector including giving local communities autonomy to manage natural resources, improving land tenure in certain areas (grazing iand and bottomlands), and implementing the Rural Code. Institutional changes will be aimed at further improving government services (primarily research and extension) and cooperative development. A Second Agricultural Services Project (FY97) would follow-up on the ongoing project (Cr. 2355-NIR) and provide needed services to farmers at certain regional and sub-regional levels. A Food Security study has recently been completed and will be providing the basis for a Food Security Project in FY97 which will focus on, inter alia, early warning systems, vulnerable groups, and cereals and food aid policy. In the meantime and in parallel, food security issues are addressed through improving mrual productivity through research and extension services. 40. Inf cture ablitation and Maintenuce. In the wake of the devaluation of the CFAF and as part of efforts to cushion the negative effects of the devaluation, a supplementary credit is planned, in FY94, for the ongoing Public Works and Employment (NIGETIP) project (Cr. 2209-NIR) which has proven to be highly successful. The Infrastructure Rehabilitation project (FY95) aims: to tackle badly needed rehabilitation and maintenance of roads; strengthen institutional capacity and support policy changes at the local government level. Such policy and administrative reforms are needed to support the Government's stated policies of decentralization, and will involve clarifying financial relationships with the central government to give greater autonomy and greater proportion of available resources to local governments; and provide follow up financing for NIGETIP to be extended to secondary cities. The Infrastructure Rehabilitation Project would also support the provision of basic water supply service to the poorest segments of the population. It would also aim to tackde inefficiencies in the water supply system, improve the maintenance of existing water supply infrastructure, and contribute to slowing down the alarming spread of water-borne diseases.  13 NIGER: DEVELOPMENT OBJECTIVES AND COUNTRY ASSISTANCE STRATEGY Objectives Actions/Goals Itruments/Timing A. Restore order in public Improve tax and customs revenue Economic Recovery Credit (FY94) finames, deepen policy collection. Contain expenditures PFP (FY94) reforms and strengthen for wages and scholarships. lnstitutional Development Project competitiveness, capacity Restture the tax administration. (FY95) building and governance. Reform the civil service and SAL II (FY95) environment for business SAL HI (FY97) activities. B. Promote Hu Incrase enrollment rate in Education IU Secal (FY94) Resource Development, pnmary schooling up to 35% by NIGETIP Suppl. (FY94) employment creation, and 200fi. Reform higher education. SRO Suppl. (FY94) aleviate poverty. Increase coverage of health Nutrition (FY95) services and expand experinment Poverty Assessment (FY95) with cost recovery. Address STD Infrastructure Rehabilitation (FY95) issues. Implement activities for SAL II (FY95) employment creation. Health Development (FY95) Food Security (FY97) Vocational Training (FY97) C. Promote private sector Reform legal and institutional Pilot Irrigation (FY94) development, support framework for private business. ID Project (FY95) agriculture and Reform labor code. Promote Infrastructe Rehabilitation (FY95) infrastructure development, productivity through better Fin/Private Sector (FY97) development mineral agricultural services. Rehabilitate Mining (FY97) resources. and maintain main and feeder Ag. Services nI (FY97) roads. Reform mining code and develop capacity to mine resources such as gold. D. Environment Ensure that development is CESP (FY94) environmentally sustainable. NEAP (FY95) Natural Resources Mgt. (FY95) E. Accelerate Promote better Nigenen Consistent mid-term reviews implementation of ownership of operations. Involve CPPR on-going portfolio. Resident Mission more in Macro dialogue (PFP, SAL II) implementation. Institute monthly portfolio review meetings between Resident Mission and Project Units. Address generic issues such as counterpart funds at macro level. 41. Private Sector Development. A FinanciallPrivate Sector Project (FY97) would support reforms in the financial sector, help with the development of instnuments to mobilize savings, and provide institutional support for the private sector especially in the area of export promotion. A Mining project (FY97) would seek to support the development of other sources of growth for Niger. Gold deposits in  14 Niger, for example, are thought to be app.eciable, but investment by the private sector in its production is hampered by the absence of a conducive framework. Support is also needed to encourage and develop artisanal gold mining capacity. Petroleum development is another possibility with actions needed in such areas as determining with more accuracy the level of resources, and establishing a conducive atmosphere for private investments in the area. 42. Capacity Building, Economic Management ana Adjustment. An Institutional Development project (FY95) would eek to improve economic management and policy analysis capacity; to shore up the budget process; to support improvement in accounting, auditing and procurement; and to support reforms of the legal business environmen (para 52). Adjustment Programs supported by IDA and cofinanciers would follow up on the ERC and the PFP. A second Structural Adjustment Credit (SAL H--FY95) would focus on public resource management, further actions in human resource development, trade and private sector incentives (including labor market reform), and, if appropriate, efforts to restructure the uranium sector. During the design of SAL II, specific attention would be given to ensure that social concerns and human resource development are an integral part of the program design. SAL III (FY97) would aim at consolidating the gains of the ERC and SAL II. Portfolio Performance and Management 43. Past IDA Assistance. Since 1985, the principal objectives of IDA strategy for Niger lid ! been to support the Government's efforts to undertake macro-economic reforms, improve the management of public resources, liberalize economic activity, and strengthen the basis for long-term growth. IDA has supported the Government's reform program through adjustment and investment operations which focussed on sectoral expenditure programs and policy reform. IDA investment projects also supported long-term growth in priority areas (such as primary education, preventive health care, and agricultural research), and maintenance and rehabilitation of existing assets. Adjustment lending (SAL I and the Public Enterprise Sectoral Adjustment Program - PESAP, and the ERC) have represented about 45% of IDA commitments in Niger during FY8S6-94 (Table 2 below). The adjustment program supported by the PESAP, highlighted the difficulties in making significant changes. Reforms which affect powerful and vocal interests in the public and private sectors and/or result in social dislocations (e.g. unemployment resulting from liquidation of unprofitable enterprises, privatizations, restructuring, etc.) have met with considerable resistance and have not been implemented. This underlines the importance of communication to explain the reforms, and to build consensus for their implementation. 44. Project lending has financed a full range of projects in infrastructure, education, health, agriculture (rainfed, irrigated, and livestock), industry and energy. As of the third quarter of FY94, there are ten ongoing projects (Annex 7) with undisbursed conmmitments of about US$117 million. In education, some progress has been made in supporting a redirection of public resources towards primary education, and establishing the basis for more rapid growth in primary school enrollment ratios. The proposed operation builds on these results and represents a significant breakthrough in removing some of the policy bottlenecks to increased enrollment (double-shift teaching, rational management of student subsidies, end of automatic recruitment of graduates, etc.). In infrastructure, implementation of physical investnent programs has been successful. Project implementation in most other sectors (agriculture, health, industrial finance) has been less satisfactory, in terms of physical progress and development of sustainable, replicable systems. The issues of poor implementation performance are discussed in paragraphs 47 below.  15 45. The composition of IDA Lending from FY86-94 (3rd Quarter) is shown in Table 1 below. Table 1: ComDOsition of IDA LendinR. FY86-94 (Otr. 3) US$ million 9 Agridlture 47.2 13.0 Human Resoures 63.8 17.6 (Education) (18.4) (5.1) (Health&pOpulation) (45.4) (12.5) Ener8Y 31.5 8.7 InfRastructUre 50.0 13.8 nmspont) (30.0) (8.3) (Public Works and Emplovtem) (20.O) (5.5) Adjusent Lending 165.0 45.4 (SAL) (60.0) (16.5) (PESAP) (80.0) (22.0) (ERC) (25.0) (6.9) Techweal Assistance 5.5 1.5 Total Commitments 363.0 100.0 46. In FY93, the overal portfolio rating deteriorated from 2.2 (FY92) to 2.5 (FY93) (Annex 1). Ratings remained unchanged for the portfolios in Human Resources (2.0) and Industry/ Energy (2.3). The Agriculture portfolio fell to 2.5 in FY93 from 1.8 in FY92. The project managed by Country Operations (PESAP) received an overall rating of 3.0 compared to 2.0 in FY92. In hfrastructure the FY93 overall rating fell to 2.5 compared to 2.0 in FY92 mainly for the reasons discussed in the following paragraph. Although average ratings for development objectives also worsened for three sectors, they were better than overal ratings: the development objectives rating for Agriculture deteriorated to 2.3 in FY93 from 1.8 in FY92; IndustVy and Energy to 2.0 from 1.7; and Country Operations to 3.0 from 2.0. The development objectives rating for Infrastructure was the same (1.5) in FY93 as in FY92. After several years of deteriorating implementation performance, there are now signs of improvement beginning n late 1993 when the new Government, with support from a number of donors, started addressing in earnest the key problems that have contributed to poor performance. At the end of the third quarter in FY94, a number of performance ratings have changed for the better (Annex 1). The number of problem projects has been reduced from five to one. An average of 14.4 staffweeks were spent on supervision for each project in the portfolio in FY93 compared to 13.1 staffweeks in FY92. Disbursements (all investment-related) also increased significantly to US$25.7 million in FY93 from US$17.1 million in FY92. Until recently, disbursements during FY94 have been slower than anticipated. But, these have now accelerated in part because problems with counterpart funds have been resolved (para 49) and in part because of the rapid disbursement of the Economic Recovery Credit. 47. Implementation issues which have been highlighted in recent ARPP exercises, PCRs and other performance assessments fall under three broad categories: (a) Genera Country/Political Situation: the difficult economic situation during the last few years, was compounded by political instability. These inevitably affected the implementation of projects in may ways: counterpart funds were not readily available; there were frequent changes in personnel and thus lack of continuity in project execution; deterioration in the security situation in the north of the country which led the army, for example, in need of equipment to fight the rebels, to seize 10 vehicles belonging to the Small Rural Operations Project (4 vehicles) and the Agricultural Services Project (6 vehicles). The Govermment eventually returned these vehicles to the projects but the lack of the vehicles during several months adversely affected the Project Management Units' abilities to monitor field operations. The coming to power of the new  16 Government has brought some measure of stability to the political situation and better attention to the issues affecting project implementation. The Government has shown more commitment to resolving implementation issues by undertaking its own supervision reviews and analysis of the portfolio resulting in specific time-bound action plans that it has adhered to (e.g. Snml Rural Operations Project). A monthly meeting of all project directors, chaired by the Secretary of State for Planning, is held to review and resolve problems. The Bank's Residene Mission is always invited to participate in the meetings. (b) Financial Management Issues: The fmancial constraints resulting from the crisis in public finance and from lower levels of external assistance throughout the last three years had a major impact on the availability of counterpart funds for some projects in the portfolio (Health, Public Works, Primary Education, Transport Sector). Recent donor assistance (The Netherlands, EEC) has provided some relief, but a long-term solution which includes clearer budgetary procedures is necessary. More generally, weak financial management has also been apparent in a variety of instances, including some mismanagement of funds. The Health Project was the most glaring example and it is to the Government's credit that the issue was addressed firmly and rapidly (a new project director was named and the missing funds returned to the project). (c) Weak mplementation capacity: This is primarily due to weak institutional capacity and frequent changes in project staff. The Bank is addressing these complex issues on a variety of fronts. Most operations now include capacity building components. Time bound action plans have now become the norm. The Resident Mission staff is playing a very active and expanded role in project monitoring (Annex 1), with direct task management responsibility for a number of projects and regular guidance to executing agencies in problem areas as well as generic issues such as accounting and auditing. 48. Bank Group Exposure. Niger's debt burden has been discussed. With the possible increase in exports of non-traditional products in response to the devaluation, the debt service ratio is expected to decline from 39.5% of export receipts in 1994 to 32.4% in 1996. Debt service to the Bank Group is estimated at about 5.6% of public debt service in 1994, increasing to 8.3% by 1996 (Annex 6 - Key Exposure Indicators). 49. IFC and MIGA activities. Given the present difficulties of the modem sector in Niger, there are limited opportunities for large scale IFC investment in the medium term. The single IFC investment (a Wheat Milling Company) is performing poorly and is currently being restructured. A lack of more extensive involvement by the IFC in Nigf r results from a combination of natural constraints and a lack of transparency in the functioning of the judicial system. However, initiatives such as the African Development Facility (APDF) and the Africa Enterprise Fund (AEF) for which four investment inquiries have been received from Niger, offer opportunities for the IFC to support the development of small and medium scale enterprises. IFC's strategy will also be to support large and medium scale projects as investment opportunities arise. A possibility lies in petroleum exploration and exploitation based on good prospects for oil in the Agadem Basin in north-eastern Niger. Investment would consist of drilling and the infrastructure necessary to export the oil to Nigeria. Nevertheless, prospects for IFC support depend, in a large measure, on a concrete demonstration of more neutral functioning of the judicial system, particularly as it relates to the enforcement of contracts where private foreign investment is concerned. 50. Collaboration with the IMF, Other Donors and NGOs. The PFP was the principal vehicle for IDA/IMF collaboration and provided the umbrella for donor assistance. But in view of the fact that the Fourth Year PFP went off-track at the beginning of FY92, IDA and the IMF have, since mid-FY92, collaborated through parallel missions to assist the Goverument reestablish financial order and in its  17 efforts at putting together its 'emergency program". More recently, IDA and the IMF have collaborated in putting together a package of support (IMF Stand-By and IDA ERC) in the wake of the devaluation of the CFAF. Informal collaboration continues through periodic exchange of views on specific reform measures. MDA will liaise closely with the IMF in monitoring the progress the Government is making in meeting its macro-financial targets in the context of its Stand-By agreement. Parallel IMF and Bank missions have launched discussions on a new PFP in early May 1994. IDA will continue to promote donor cooperation at both the overall macroeconomic level and the specific sector level. The lending program, which includes three adjustnent operations, is designed to provide cofinancing vehicles for the trnsfer of non-project resources under the Special Program of Assistance (SPA). IDA will take the lead in organizing donors' meetings in the context of the SPA to mobilize resources to support the adjustment programs and will work with the UNDP in preparing future Round Tables. Through Public Investment Reviews (PIRs), IDA will aim to ensure that projects submitted to other donors respect the criteria established under the adjustment program. 51. The role and impact of Non-Government Organizations (NGOs) in Niger has been more limited than in many sub-Saharan countries. This was the result of the past military/one party Governments' control and the political nature of many organizations (e.g., the cooperatives, the Samariya-youth organizations-, Women's Association of Niger). This slowed down the creation of grassroots domestic NGOs. The democratization process has, however, given rise to the creation of many genuinely independent local NGOs covering such important areas as the enviromnent. In number, international NGOs are now well represented (about forty). IDA is actively seeking to cooperate more fully with NGOs particularly in the design of sub-projects under the Small Rural Operations project and the Population Project. In other critical areas, such as family planning activities and primary health care, the role of NGOs is an explicit element in the IDA dialogue. D. Agenda for Board Discssion 52. Niger has embarked on an ambitious macro-economic program, with tight links to sector adjustment and development programs in human resources, agriculture, and private and public sectors. This program aims to reap the full benefits expected from the recent devaluation of the CFAF which provides new opportunities for Niger to renew with economic growth. Niger's economy is still in the doldrums, with medium-term prospects constrained by limited natural and human resource bases, a high degree of vulnerability to exogenous factors, and a relatively heavy debt service burden. Niger's progress in achieving sustainable growth, would depend on its ability to manage its public finances in a disciplined manner, the sustained implementation of the medium-term macro-economic program currently under preparation, and timely implementation of structural reforms, particularly on factor markets and in the social sectors. Niger's development agenda, which also takes into account lessons from past reform efforts, reflects a broad consensus among the Government, IDA and other development partners on key priorities in the areas of: (a) human resources development (including poverty alleviation) and natural resources management; (b) public and private sector institutions to promote private sector-based growth; (c) economic management and institutional development; (d) actions (including necessary infrastructure) to facilitate the supply response. To make progress in these areas, a sharply focused strategy, effective aid coordination and creative solutions are needed.  18 53. IDA intends to be responsive to Niger's efforts through all available means: lending, ESW and donor coordination. The proposed strategy is fully consistent with the Government's development objectives. The Bank strategy will consist of a base case lending scenario which aims at mobiliazing the resources needed to support fully the post-devaluation reforms. This would constitute a marked increase over the amounts lent to Niger over the past three years. The actual implementation of the base scenario would be triggered by agreement on the Fifth year PFP and proper implementation of the measures agreed there. 54. While Bank staff are encouraged by recent progress on some issues (e.g. implementation) and see the devaluation as an opportunity, they nevertheless see the Govermient's ability to take the difficult measures still required and instituional capacity as linge".ilg concerns. Progress in these areas would be manifest in rapid implementation of the full range of undertakings outlined in the Economic Recovery Credit and of the measures to be agreed in the Fifth Year PFP, and in continuing improvement in project implementation. Bank staff will closely monitor progress in the following areas: (i) measurable progress in human resource and poverty issues, measured by significant imnprovement in basic social indicators, including enrollment in primary school, in line with agreed targets (indicators of performance will include mnmber of teachers and health workers, resource allocation and use for non-wage expenditures, and related public finance data); (ii) economic management, as measured by success in meeting the agreed macro-economic and fmancial targets; (iii) full implementation of structural reforms and changes in the regulatory framework as specified in the PFP; and (iv) sustained improvement in project implementation, measured by project ratings in the ARPP exercise. The PFP and eventually the SAL I would be key vehicles for monitoring progress on macro-reform measures. If implementation of the macro-program goes off track, the lending program will revert to a "core mode" of essential operations in education, health, and natural resource management. The policy dialogue would continue, however, to provide advice on the corrective action needed to put the program back on track. In a word, we will gradually increase the commitment of IDA resources to accompany and respond to the progress made by Government in implementing the reform measures to be agreed in the PFP. 55. Risks. As mentioned above, the strategy is based on a full program which is now feasible in light of devaluation of CFAF, but weak implementationj capacity could slow down implementation. Also, the strategy assumes that structural adjustment, hotly contested in the past, will be accepted by organized interest groups. Many of these (e.g. trade unions) are allies of the current Government coalition, but they have never hesitated in challenging the Government on matters of adjustment. Evidence has started coming in as to the benefits of the devaluation to Niger vis-a-vis its major trading partner Nigeria. However, Nigeria's policy regarding its currency could change with a new round of depreciation of the exchange rate of the naira. The greatest protection to counter these risks will be strong and steadfast commitment from the Government to the reform program it adopts and the support of the donor community. Lewis T. Preston President Attachments Washington, D.C. May 9, 1994  Anna I NIGER - Selected Indicators of Bank Portfolio Perfonnance and Management Indcators FY91 FY92 FY93 FY94 Portfolio Perfonrance Number ofPmjets under i emenio 18"8 13 13 11 Average Implementation period (years) 5.5 4.3 5.4 5.2 Averag Ratigs Development Objectives 2.1 1.8 2.2 1.8 Overall Status 2.1 2.2 2.5 2.0 Percent (%) of Projects rated 3 or 4 Development Objectives 33.3 15.4 30.8 9.0 Overall Status 33.3 3C.8 46.2 9.0 Cancled during FY - - - - Investment Disbursement factor (%) 27.4 20.66 25.37 13 Disbursement lag (% overal avg.) -12.1 -6.8 -16.4 Memorandum item: % completed projec rated unsaisfactoiy 21 14 8 Portfolio Management Supervision resources (total sw)2' 162.8 170.7 187.1 154.4 Average supervision (sw/projects)31 9.0 13.1 14.4 14.0 Supervision resources by locatiou (in %/e) Percent headquarters 72.5 77.0 80.8 71.5 Percent Resident Mission 27.5 23.0 19.2 28.5 Supervision resources by rating category (avg. swk) Projects rated 1 or 2 8.3 10.4 13.7 17.1 Projectsrated3or4 11.1 19.3 15.2 7.8 Memorandum item: date of last/nxt CPPR (Planned for FY95) Source: ARPP Reports (MIS) data 1/ Includes 16 projects and 2 sup. credits (Cr. A018-Twsport Sector, and Cr. A031-PESAP) 2/ Figures exclude tme spent on PCRs. 3/ Figwes include staffweeb for ARPP projects only (inudcg local staff tune).  Annex- 2 Page I of '2 NIGER - Bank Group Fact Sheet, FY92 - 97 IBRDI1DA Lending Program, FY94-97 1/ Past Current Planned Category FY91 FY92A FY93A FY94 FY.95-FY97 Commitments (USSm) 86.2 35.6 - 73.1 100.0 - 240.021 Sector (%) Agriculture 34 51 - 9 16 Public Enterprise 6 - - Industry, Finance & Private Sector Dev. 37 - - - 18 Infrastut & Urban Development 23 - - -3 Human Resources & Capacity Building - 49 - 57 14 Multi Sector/SAL - - 34 19 TOTAL 100 100 - 100 100 Lending Instrument (%) Adjustment Credits - - - 91 36 Specific Investment Credits & others 100 100 - 9 64 TOTAL 100 100 - 100 100 Disbursements (USSni) 212.4 17.1 257 29.8 100.0 Adjustment Credits 88.0 - - 20.0 40.0 Specific Investment Credits and others 124.4 17.1 25.7 9.8 60.0 Repayments (USSm) 4.5 L7 2.0 2.2 8.5 Interest (USSm) 11.3 33 4.0 4.7 16.0 Source: Lending Pogram & Disbursement Reports (4/27/94)-MIS data 1/ Excludes Reserve Projects. 2/ The range of planned IDA Comitunents has been detemind to rflect the scenaios developed in the Country Assistance Strategy and vill be reviewed and trvised as necessay in view of actual peformance and the overal availability of IDA resourcaL  Annex 2 Page 2 of 2 NIGER - IFC and MIGA Program, FY982-93 Past Categorv FY82 FY92 FY93 IFC approvals (US$m) 2. i Equity (US$m) 0.2 TOTAL1/ 2.3 Sector (%) Agribusiness -- Capital markets Chemicals/fertilizers Infrastructure - Manufacturing (Food processing) 100.0 Oi/mining -- TOTAL 100.0 Investment Instrument (%) Loans 91.3 Equity 8.7 Quasi equity 2/ TOTAL 100.0 MIGA guarantees (US$m) - MIGA commitments (US$m) 1/ Total loans and equity have been written off. 2/ includes quasi-equity types of both loan and equity instuments.  AntiunI Page 1 of 2 Poverty and Social Development Indicators NIGER: Priority Poverty Indicators 2$40 1s-l MM - Unk of YON" D ma Sak~ LA- na. POVERTY Upp c7"