SPRING 2021 ECONOMIC UPDATE NIGER MAXIMIZING PUBLIC EXPENDITURE EFFICIENCY FOR REBUILDING BETTER 2 NIGER – 2021 APRIL ECONOMIC UPDATE © 2021 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org NIGER – 2021 APRIL ECONOMIC UPDATE 3 TABLE OF CONTENTS EXECUTIVE SUMMARY 5 ECONOMIC UPDATE 7 Niger context 7 Impact of Covid-19 and other shocks on the economy and poverty 8 Real Sector 8 Impact of COVID-19 on households 9 Prices, Monetary and Financial Sector 14 External Sector 16 Policy responses to the pandemic 17 Economic Outlook and Associated Risks 22 FISCAL REFORMS TO BALANCE DEBT SUSTAINABILITY AND ECONOMIC DEVELOPMENT 27 Fiscal trends and composition 27 Public Finance and Investment Management Reforms 32 Policy priorities to improve the effectiveness of fiscal policy 36 4 NIGER – 2021 APRIL ECONOMIC UPDATE FIGURES Figure 1. Contribution to GDP growth rate, demand side 9 Figure 2. Actual and projected poverty rates ($1.9/day PPP) 10 Figure 3. Proportion of households with children engaged in any learning/education activities since school closure 11 Figure 4. Reasons for not being able to access health service during the pandemic 11 Figure 5. Percentage of households which experienced decline 13 Figure 6. Household Food Security during the Pandemic 13 Figure 7. Inflation dynamic and sources, 2019m1 to 2021m1 15 Figure 8. Non-performing loans remain high, well above WAEMU average 16 Figure 9. Evolution of the current account balance and change in the prices of main commodity exports 17 Figure 10. Total public and publicly guaranteed debt (in percent of GDP) 19 Figure 11. Debt Transparency heatmap 20 Figure 12. Monetary and financial aggregates, 2019-2020 21 Figure 13. Real GDP per capita (thousands of CFAF) 22 Figure 14. Fiscal trends in Niger (2016-2023) 27 Figure 15. Tax Structure (% of GDP), Niger and Peers, 2018 28 Figure 16. Revenue Structure, Niger and Peers, 2018 29 Figure 17. Capital and Current Expenditures, Niger and Peers, 2016-2018 Average 30 Figure 18. Current Expenditure Structure, Niger and Peers, 2018 31 Figure 19. Niger’s wage bill, 2003-2019 33 Figure 20. Evolution in size of public sector staff, 2010-2020 33 Figure 21. Investment total, public and private, 2000-2018 35 Figure 22. Public investment 2000-2018 35 NIGER – 2021 APRIL ECONOMIC UPDATE 5 EXECUTIVE SUMMARY The ongoing health and security crisis have partly government provided critical agricultural inputs and food undermined the benefits from past years of strengthening aid to the most vulnerable, two months of free utilities, the economic growth. Sustaining an upward trend over the suspended on-site tax inspections and deferment of all recent years, real growth stood at 5.9 percent in 2019. tax payments. The BCEAO relaxed its monetary conditions However, it fell to 3.6 percent in 2020, as a result of the while preserving the regional monetary union’s external pandemic and increasingly violent terrorist attacks. position and competitiveness. Inflation increased to 3.4 percent in 2020, triggered by supply disruptions and speculative behaviors, combined Fiscal deficit indicators deteriorated as a consequence of with food shortages. The economy is projected to rebound the fall in growth and the need to protect the households in 2021, growing at 5.5 percent, with the reopening of the and firms. Fiscal deficit (commitment basis, including border with Nigeria and the resumption of large investment grants) increased from 3.6 percent of GDP in 2019 to 5.3 projects and a normalization of other supply chains. The percent in 2020 while public debt increased by more than large import content of these projects will cause the 3 percentage points of GDP, reaching 43.0 percent. The current account deficit to widen further while completion October 2020 joint IMF/World Bank Debt Sustainability of the main oil pipeline by 2023 should boost revenue and Analysis (DSA) assessed Niger’s risks of external and exports over the medium term. However, GDP per capita in overall debt distress as “moderate” with limited space 2021 will be only 1 percent higher than in 2019. to absorb shocks. Such fiscal stance also contributed to increase the trade deficit by 4.2 percentage point of GDP Recent gains in the fight against poverty have already in 2020. Higher remittances helped limit the deterioration been reversed. The stalled economy translated into a 0.2 of the current account deficit to 16.7 percent of GDP, which percent reduction in per capita income in 2020. Poverty was mainly financed by concessional loans and grants. increased by 0.1 percentage points, to 41.7 percent, drawing an additional 400,000 people into extreme poverty. The It is essential that the slowdown in income growth COVID-19 pandemic is negatively impacting Nigerien does not produce in permanent losses and jeopardize households through income losses due to job layoffs and the progress momentum. A swift recovery to pre-crisis lower remittances, and a deterioration of human capital trend growth rates is neither automatic nor sufficient to endowment; for example, due to school closure that are overcome the development lags accumulated over the expected to increase drop-out rates, especially for girls years, and even less so to address formidable challenges and the most vulnerable. The number of extreme poor is ahead. Some of the income lost in 2020 risks becoming expected to increase by an additional 200,000 people in permanent through scarring and hysteresis, for example 2021, due mainly to population growth. It is only towards as some children do not return to school or businesses end 2023 that the number of poor will go back to a level do not reopen. Furthermore, in the next 20 years Niger will close its pre-Covid-19 levels. have to: (i) adapt to the continuous deterioration of climate conditions that will increase its exposure to deeper shocks The authorities’ policy-mix in 2020 aimed at supporting for the population and the economy; (ii) learn to manage the economy while protecting internal and external the potential wealth coming from the increase in oil macroeconomic stability. Niger’s fiscal policy was production in a productive, transparent and accountable designed to actively address the effects of the crisis manner, avoiding the pitfalls of many other SSA countries; which, combined with the automatic economic stabilizers, and (iii) improve basic services delivery (health, education) sought to target spending on poor households and the and quality infrastructure to an amount of people equal to most affected small and medium-sized businesses. The the double of its current population. 6 NIGER – 2021 APRIL ECONOMIC UPDATE Against this background, the new government has to rate and high dropout and repetition rates. The efficiency seek a bold reforms plan, supported by the international loss costs the budget an estimated 0.4 percent of GDP partners, aimed at ensuring that Niger will exit from or the equivalent of 12.0 percent of the country’s annual the crisis in a better shape than it entered. In 2021 and expenditure on education. Another source of inefficiencies onwards, the challenge will be to combine continue is the underuse of teachers and low effective teaching supporting to the economy while dealing with more limited time that, if addressed, could yield savings of around 0.3 policy space and higher debt levels than prior to the percent of GDP. pandemic. In the short term, the priority should be given to health care spending, especially for the vaccines roll- Addressing inefficiencies in the health system could out, while maintaining a well-targeted fiscal support on also yield fiscal savings in the order of 0.2 percent of households and formal business affected the most by the GDP. The lack of a well-functioning supply chain and crisis. As conditions normalize, it is essential to preserve weak accountability, with frequent fragmentation of the sustainability of public finances by i) visibly increasing responsibilities also bears inefficiencies and has increased the mobilization of domestic resources, and ii) bolstering the risk of corruption in procurement and distribution. the efficiency of spending, particularly on capital and in Furthermore, the latest drug supply chain assessment sectors strategic for sustainable development (education, highlight critical drug availability issues and higher prices health, agriculture). Reducing gender differences should compared to the international prices. Another area of also remain a strategic objective. inefficiency constitutes the current fragmentation of health risk pooling schemes (management of gratuities A number of fiscal policy options could raise up to through government budget, community-based health 2 percent of GDP through spending efficiency gains insurance, and private insurance), which puts a strain on and support reform efforts. The lack of an integrated these schemes’ management. Human Resources Management system and strategic planning, as well as an obsolete performance based Addressing inefficient management of a universal HRM system contribute to inefficiencies in the payroll fertilizer subsidy program, could generate fiscal savings system. Reforms could include cleaning up the payroll of 0.15 percent of GDP. . Until September 2020 fertilizers database, with efficiency gains from the removal of ghost were sold by Central Agricultural Input and Equipment workers, redundant workers, and retired personnel on Supply Agency (CAIMA) and were on average half universally the payroll and could yield fiscal savings of 0.8 percent of subsidized without targeting specific farmers or crops. The GDP. Improving procurement processes in the education system was characterized by large inefficiencies, including and agriculture sectors, with a focus improving value for inefficient fertilizer acquisition cost, incapacity to meet money, could yield fiscal savings of 0.2 percent of GDP. the demand and rising operating expenses. After having removed the management of fertilizers from Caima’s Reducing dropouts and repetitions rates, together with mandate, it is important that the Government finalize the improved utilization of teachers and effective teaching ongoing work with development partners for a fertilizers time, could yield efficiency savings of 0.7 percent of reform that allows a better targeting the subsidies and GDP. For the amount that Niger spends on education, gives a greater role for the private sector in the fertilizers primary completion rates seem better than other African supply and distribution. countries, but the country registers high out-of-school NIGER – 2021 APRIL ECONOMIC UPDATE 7 ECONOMIC UPDATE NIGER CONTEXT (3.7 percent) which suggests an underestimation of the actual cases, combined with the structural weakness of the During the recent past years, Niger has improved its health sector. macroeconomic management amidst persistent adverse shocks. Growth had been solid over 2010-19, with a real While low testing capacities might explain part of the GDP average annual growth of 6.1 percent – about 2.1 low rate of infections, other factors may have well percent in per capita terms –. The growth performance contributed to limit the health effects of the pandemic was even significantly higher than in Sub-Saharan Africa in Niger. Structural conditions include the low population or the WAEMU. Current account is chronically in deficit, density and age structure (50 percent of its inhabitants are partially explained by the decline in uranium and oil prices younger than 15 and less than 3 percent of the population and financed by projects grants and other capital inflows. is 65 or older)2. Policy factors relate to the quick reaction However, strong economic performance in recent years of the government in adopting social distancing measures has not translated into unmitigated poverty and inequality at the beginning of the first wave in March 2020. However, reduction. The number of poor people in the country has a second wave of infections hit the country heavily, with increased, human capital and access and infrastructure around 3500 cases recorded between November and of quality remain low. Stark differences across genders in February 17th, accounting for 75 percent of the total accessing social and economic rights limit growth potential number of cases. The country is currently witnessing a by an amount estimated by the World Bank in around one decline in COVID-19 cases. quarter of GDP1. Violence is sharply increasing. The country has been Niger economy presents some structural conditions sharply impacted by the spillover effects of the security that could have contributed to shelter it from a wider crisis in Mali that began in 2012 and has now spread to fallout. Prevalently a rural economy engaged in low large parts of Burkina Faso and bordering areas in Niger. value-added productions, with a formal sector dominated Between 2009 and 2014 there were on average eight violent by the public sector and the extractive activities, Niger is events per year. Since 2015, this figure has grown to more insulated from the global value chains. Its level of trade than 100 per year, with civilians being the main casualties. openness (measured by the sum of export plus import In 2019 there were 717 fatalities, and there have been 1,046 as percentage of GDP) was just 26.7 percent of GDP in fatalities reported as of December 12, 2020. Niger is on a 2019. Remittances flows in terms of GDP are lower than path of escalating conflict risks in terms of aggravation in the average WAEMU countries, and the touristic sector of violence and civilian casualties in areas already is underdeveloped. Moreover, infection data shows that affected by conflict, as well as risk of contagion in areas COVID-19 impact are lower In Niger than in other countries that have so far been spared. In 2021, Niger experienced in the Sahel Region: as at April 14th, the registered ratio deadliest attacks against civilians when suspected Islamist of cases per million of habitant is 226, vis-a-vis 658 in insurgents killed as many as 300 unarmed civilians in Burkina, 629 in Mali, and 300 in Chad. However, Niger has several villages in the western region of Tillaberi and in the highest mortality rate of SSA among registered cases the Northern region of Tahoua. 1 These significant economic gains would be generated by enabling women to have the same earnings as men and reducing fertility and thereby population growth. Investing in girls’ education and reducing child marriage are critical to achieve these objectives, as are investments to raise women’s participation in the labor force and their productivity at work. 2 Other factors often mentioned in the international literature to explain why Covid-19’s toll has been surprisingly low across much of Africa and Asia is that nursing homes — where Covid-19 has often spread from one resident to the next — are less common in African countries where older people often live in multigenerational households and people spend more time outdoors. Finally, according to epidemiologists there is circumstantial evidence that people’s immune systems there may be better prepared to fight Covid-19 in some countries where previous coronaviruses spread more widely. 8 NIGER – 2021 APRIL ECONOMIC UPDATE IMPACT OF COVID-19 AND OTHER SHOCKS ON essentially subsistence nature have contributed to the resilience of agriculture to the Covid-19 shock, which THE ECONOMY AND POVERTY accounts for 38% of GDP and provides a livelihood for over 70% of the population: cereal production has Real Sector increased by around 8 percent comparing to 2019, despite the huge losses and damages from the devastating The impact of the COVID-19 pandemic and aggravation floods in August and September (see Box 1) and from of insecurity pushed the economy into a standstill in the closure of borders with Nigeria, the main market 2020. Economic growth, still solid even if slowing down for agricultural products and livestock exports and in Q1 (2.2 percent y/y after 5.5 percent in 2019 Q3 and re-exports. While 2019 marked an exceptional year for 3.8 percent in Q4), turned negative in Q2 (-2.5 percent), growth in the industry sector, which increased in size the worst performance (with Senegal) recorded in the by 9%, growth in this sector was limited to 1.7% in 2020 WAEMU3. Restrictions to people movements and business as a result of measures related to the pandemic, which activities implemented from March to May, the stop to severely affected manufacturing and construction, and large infrastructure projects, the closure of the border the decrease in activity in the extractive industry sector. with Nigeria and the low demand for commodities have Uranium production was basically flat compared to 2019 heavily affected economic performance. Therefore, while oil production decreased by 6.5 percent. On the growth in 2020 is projected having reached 3.6 percent, other hand, electricity and gas production continued translating in a 0.3 percent reduction in per to grow at a rate of 6% as a result of reforms that have capita income. improved the level of service provision in this sector, due to the decline observed in the refined oil sector. T The The COVID-19 pandemic has put a hold on economic decline in the hotel and tourism sector, where increasing activity with important consequences on private sector insecurity is an additional factor, in addition to the dynamics. The immediate impact of the crisis was mainly restrictions related to the pandemic, which discourages reflected in reduced hours worked and monthly sales. travelers, has strongly affected all branches of the service As a result of the COVID-19 pandemic, 95.1 percent of sector, as was also reflected by the reduction in the firms experienced a decrease in weekly hours worked. number of hours worked. The small size of firms, the The decrease in the number of hours worked was mainly level of informality, and the limited options for working observed in Medium (100.0 percent) and large firms (96.4 from home for the majority of workers, have amplified percent). Also, services sector was the most affected the impact of the crisis. by the reduction in the number of hours worked (95.2 percent of firms). The adjustment in the total hours All domestic demand components gave a positive, worked per week mostly affected temporary workers in albeit low, contribution to economic growth. Public small firms and in the manufacturing sector. The opposite consumption, driven by two supplementary budgets, is true for medium and large firms. In addition, the decisively contributed to landing growth in positive survey shows that 94.7 percent of firms saw a decrease in territory in 2020. Held back by the high food prices, monthly sales. On average monthly sales declined by 56.0 private consumption grew at the lowest rate since 2014 percent, small and medium firms being the most affected. but still contributed for 2% to growth. After having In addition, the service sector recorded the highest increase at a rate of 16 percent on average in 2018-19, decline in monthly sales (56.4 percent) compared to the public investment (domestically financed) were flat in manufacturing sector (53.5 percent). nominal terms just below FCFA 400 millions, contrary to the sustained private investment growth due to a Industry and service sectors were most affected by resilient construction sector. the slowdown. The high level of informality and its 3 Source: BCEAO, Bulletin trimestriel des statistiques – Septembre 2020 NIGER – 2021 APRIL ECONOMIC UPDATE 9 Figure 1. Contribution to GDP growth rate, demand side 15.0 10.0 Percentage Points 6.6 7.2 5.7 5.0 5.9 5.0 3.6 4.4 0.0 -5.0 2014 2015 2016 2017 2018 2019 2020 Private Consumption Government Consumption Net Exports Government Investment Private Investment GDP Growth Source: Niger’s authorities and WB staff’s calculation. The contribution of net exports to growth remain with the reconstruction in the medium run can bring a negative due to Nigeria’s border closure and weak substantial boost to the economic through both demand external demand. Nigeria accounts for 30 percent of and supply channels. Multipliers effects will depend by Niger’s exports. Combined with the low diversification the improvement in the quality of the productive stocks of the exports base (with oil and uranium accounting and of the living conditions that contribute to higher for almost half of total export earnings), the border productivity, but they may be compounded by the import closure and the decline in world trade have created the content of the infrastructure projects and by the low conditions for a decline in export volumes above 20 effectiveness of the public investment management percent. Import growth have declined comparing to 2019, framework in Niger. mainly due to the suspension of investment projects and to the lower domestic demand for energy products but has still contributed negatively to growth by 1.9 percent. IMPACT OF COVID-19 ON HOUSEHOLDS AND POVERTY The economic consequences of the floods (Box 3) The economic recession created by the pandemic has will further weaken the economic performance in reversed recent progress in reducing poverty. The latest 2020. All else being equal, a prudent estimate from available poverty rate for Niger using the international the production side is that the growth rate in 2020 poverty lines was produced in 2014, using the nationally would have been higher than what is in the current representative 2014 Enquête Nationale sur les Conditions baseline by an interval comprised between 0.3 and 0.5 de Vie des Menages et l’Agriculture. Since then, updated percentage. The effect on growth will be felt also in numbers are obtained using micro-macro projection 2021. In the short run, the impact of the floods on GDP techniques. In this report, projected poverty numbers are growth through the demand channel is muted due to obtained by using annualized growth to poverty elasticity the low levels of economic development in some of between 2011 and 2014, with pass-through of one, and the affected areas, with the majority of the population GDP per capita in constant LCU. Between 2014 and 2019, engaged in subsistence agriculture. Moreover, due to the the country was able to substantially reduce extreme floods, several investments, reforms and major structural poverty headcount significantly every year during that projects undertaken by the in the transport sector period. However, due to the COVID-19, extreme poverty have been halted. The large investments associated 10 NIGER – 2021 APRIL ECONOMIC UPDATE Figure 2. Actual and projected poverty rates ($1.9/day PPP) 50.00 11,000,000 10,500,000 40.00 10,000,000 Percentage (%) Number of poor 30.00 9,500,000 9,000,000 20.00 8,500,000 8,000,000 10.00 7,500,000 0.00 7,000,000 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Poverty rate Number of poor Source: WB macro-poverty outlook, March 2021. rate increased in 2020, the first time in a decade that slowdown resulting from to the COVID-19 pandemic. such trend is observed (Figure 2). In the meantime, Findings from a high frequency survey confirm what The number of poor has being increasing (due to high we know from the literature in terms of transmission population growth). In 2020, the country registered 400 channels through which income is reduced: job losses, 000 new poor. This increasing trend of the number of reduced wage, reduced remittances, reduced agricultures poor will be maintained until at least 2022. production, increase market prices, reduced farm gate prices and increase health out of pocket spending. Macro-micro simulations suggest that another 200,000 people will be added to the extreme poor over 2021, The pandemic and associated economic slowdown are largely as a consequence of an economywide reduction affecting important non-monetary dimensions of well- of income. Extreme poverty is set to reduce slowly from being such as education, health, and food security. This 41,7% in 2020 to 41,0% in 2021, thus a reduction of 0.7 sub-section is based on the findings from the first round percentage point. But the number of extreme poor will of a nationally representative High Frequency Phone continue to increase a result of high population growth; Survey (HFPS) of households. economywide reduction of income due to the economic Box 1. A Households High Frequency Phone Survey (HFPS) to monitor the impact of the COVID-19 on households In order to monitor the impact of the Covid-19, the INS, launched a monthly phone survey. Data collection for the first round was conducted during November and December 2020. The HFPS sample is based on the 2018/19 Harmonized Living Conditions Household Survey (EHCVM) implemented in 2018 by the National Statistical Office (NSO) with technical and financial support from the World Bank. The HFPS was administered to a sample of 1,902 households. Data collection for the first round took place between August 25th and October 24th, 2020. Phone surveys were successfully completed for 1,268 households for a response rate of 66.7 percent. Sampling weights were adjusted to make sure that the surveyed sample remains nationally representative. The topics covered by the survey questionnaire varied across rounds and include knowledge of Covid-19 and social behavior, access to food and basic services, impact of the Covid-19 on economic activities and income sources, food security, shocks, safety net programs among others. In this report, the evidence provided will be based on the first round of the HFPS, because findings for other rounds are not yet available. NIGER – 2021 APRIL ECONOMIC UPDATE 11 During the pandemic, only 2 in 10 households reported in education outcomes as part of the direct negative that their children engaged in learning activities. impact of the covid-19. This could also lead to increase The Covid-19 seems to have impacted access to basic the drop-out of school and expose girls to child marriage, services. Indeed, less than two out of ten households reduce women empowerment and agency. with children attending school before the pandemic reported that their children engaged in a learning/ Health service delivery saw no disruption due to education activities during the school closure (Figure 10). COVID-19, but access remained a key constraint. This happens mostly for children living in urban areas Globally, the pandemic does not seem to have impacted (23 percent in Niamey and 32 percent in other cities) and households’ access to health services. Indeed almost also for children from non-poor household compared all the households were able to get access to medicine to their counterpart in poor households. These children when needed. The vast majority of those who needed relied on tutoring by household member (21 percent of services were able to get treatment, a sign that there was households) to continue learning while schools were no major disruption in the provision of health services. closed. The low rate of household with children engaged Affordability represents the biggest constraint to access in learning activities is indicative of the risk on decrease health services, especially for the poor (Figure 4). Figure 3. Proportion of households with children engaged in any learning/education activities since school closure 35.0 31.5 30.0 25.0 23.4 20.0 16.2 16.9 15.0 14.4 14.0 10.0 5.0 0.0 Poor Non-poor Niamey Other urban Rural Overall Poverty Status Strata Source: WB staffs using the high frequency phone survey. 89+2+9A Figure 4. Reasons for not being able to access health service during the pandemic Other No space available 9.0% 1.5% 89.5% Could not afford Source: WB staffs using the high frequency phone survey. 12 NIGER – 2021 APRIL ECONOMIC UPDATE Box 2. Effects of Schools’ Closure under COVID-19 The COVID-19 pandemic has caused extensive schools’ closure over the world, especially in Sahel countries (Burkina, Chad, Mali, and Niger). This policy of schools’ closure is among the social distancing policies undertaken by governments to mitigate the pandemic’s spread. Though it may have been effective in combating COVID-19, school closure, a shock to a country’s education system, will likely have undesirable effects on academic learning. Millions of students have been out of school as a result of schools’ closure. The impacts of such a situation can be measured, in particular, through schooling and income channels. The former comes from the learning that will not occur while schools are closed, and the latter captures income loss from school drop-out. The four Sahel countries have shown similar resilience concerning the effects of schools’ closure on academic learning and income. Figure 1b presents the results of simulations from two scenarios. The intermediate scenario assumes that 40% of the school year are affected by closures, while in the pessimistic scenario, the share of school year affected increases to 70%. According to the findings, school closures under COVID-19 could result in a loss of between 0.3 and 0.6 years of schooling adjusted for quality, as measured by the Learning Adjusted Years of Schooling (LAYS) indicator. Besides, students from the four Sahel countries, on average, could face a reduction of $123.1 and $212.1, depending on the scenario. In particular, for Niger, the effective years of basic education that students achieve during their lifetime could decrease from 2.6 to 2.1 years. And their income could fall from $4,098 to $3,937. Figure 1b: Effects of Schools’ Closure under COVID-19 in the Sahel LAYS 4.5 4.2 4.0 3.6 3.5 3.0 2.6 2.7 2.6 2.5 2.2 2.2 2.1 2.0 1.5 1.0 0.5 0.0 Burkina Chad Mali Niger Monetary Effect (US$) 7,000 6,460 6,143 6,000 5,450 5,238 5,000 4,057 4,098 3,899 3,937 4,000 3,000 2,000 1,000 - Burkina Chad Mali Niger Ligne de base Intermédiaire Pessimiste Source: Azevedo et al. (2020) Note: The Human Capital Index (HCI) 2017 database is used as baseline for the calculations, especially for LAYS. NIGER – 2021 APRIL ECONOMIC UPDATE 13 The outbreak has impacted Nigerien working conditions the sectors of mining, transport, personal services and as almost one out of ten Nigerien who were employed health. The Covid-19 crisis has negatively impacted before the pandemic stopped working with 45 percent household livelihood as four out of ten households of this due to Covid-19. Workers from poor households experienced decline in their family enterprise’s income have been more impacted by job loss with 14 percent of (Figure 5). Poor households seem to have been mostly them reporting having lose their jobs compared to 9.4 impacted (45 percent) compared to non-poor households percent of non-poor workers. While many reasons explain (39 percent). This is a concern for more than a half of job losses in the period of pandemic, many workers urban households compared to 38 percent of reported covid-19 as the main reason, particularly in rural households. Figure 5. Percentage of households which experienced decline 100% 2.3 0.3 3.1 3.2 2.0 2.3 90% 80% 40.5 44.5 38.8 53.8 53.3 38.4 70% 60% 50% 40% 43.2 42.9 43.3 41.9 37.6 43.9 30% 20% 10% 14.0 12.3 14.8 15.4 1.1 7.2 0% Poor Non-poor Niamey Other urban Rural Overall Poverty Status Strata Increased Stay the same Decreased No revenue Source: WB staffs using the high frequency phone survey. Figure 6. Household Food Security during the Pandemic 100% 10.9 90% 22.3 20.9 23.9 11.5 32.0 80% 38.5 10.7 13.9 38.4 70% 15.3 14.2 60% 17.9 18.6 17.8 15.3 18.0 50% 21.4 40% 19.8 19.0 15.3 30% 62.2 49.1 47.4 20% 29.6 27.2 24.9 44.0 10% 0% Niamey Other urban Rural Poor Non-poor EHCVM 2018 HFPS 2020 Strata Poverty Status Overall Food secure Mildly food insecure Moderately food insecure Severely food insecure Source: WB staffs using Round 2 of the high frequency phone survey. 14 NIGER – 2021 APRIL ECONOMIC UPDATE Despite improvement compared to the pre-Covid-19 improved access to liquidity. However, the proportion situation, food insecurity remains and important issue, of firms experiencing decreased liquidity or cash flow particularly for the most vulnerable. In general, Nigerien availability stood at 85.3 percent, reflecting financing households had physical access to food when needed constraints faced by small and medium size firms. Also, during the pandemic. Those which did not have access the 61.8 percent of firms delayed payments to suppliers, were constrained by the increase in market prices and landlords, or tax authorities because of the the closure of market. Market closure seems to have COVID-19 pandemic. mostly limited poor’s access to food compared to non- poor. The high-frequency phone survey included a Food Inflation returned to a positive territory in 2020 Insecurity Experience Scale (FIES) module, capturing reflecting the negative impact of COVID-19 on food households’ experiences over the previous month. production and availability. Inflation accelerated to 2.8 Households responses are used to categorize households percent in 2020 from -2.3 percent in 2019, supported by as being food secure or mildly, moderately, or severely higher food prices from lower than expected agriculture food insecure. About one in five households in the HFPS production and persisting disruption of the supply chain. were severely food insecure (Figure 6). Altogether, 38 Inflation gradually increased from 0.3 percent in February percent of households were food insecure (moderate or 2020 to reach a peak of 5.7 percent in August as the severe). These results suggest an improvement of the disruption of supply chain due to the implementation food security situation of Nigerien households compared of containment measures generated food shortage and to 2018. Still findings from HPFS reveals that in this speculative behaviors. Also, severe floods in contributed period of the Covid-19 pandemic, due in particular to the to heightened inflation pressures. At the end of the third reduction in income, many households are not able to quarter 2020, inflation in Niger was the highest in the make ends meet, in particular a large proportion can no WAEMU region, reaching 5.4 percent against 2.9 percent longer meet the dietary needs. Expanding and improving for the average of peer countries. Inflation followed the targeting of existing social safety nets would be a a downward trend in the second part of the year but good way to reduce the risk of a food crisis and its short, remained at 3.7 percent in February 2021. medium- and long-term consequences, especially on malnutrition and early childhood development. The competition in the financial sector remains low even though it is growing. There are 14 banks with 4 of them Prices, Monetary and Financial Sector holding two third of the deposits and 61 percent of total credit, and 39 microfinance institutions representing less Price, monetary and financial sector developments than 2 percent of the GDP. Pensions, insurance companies in 2020 were shaped by policy measures to moderate and capital markets remain very small. Despite the the human and economic impact of the COVID-19 multiplicity of actors in the financial sector, the pandemic. COVID-19-related factors drove inflation in competition is low. This is reflecting in banks high margin the first half of 2020, on the back of the partial lockdown and high interest rates. Average interest rate hovers and travel restrictions that negatively affected both around 8.9 percent in the third quarter 2020, higher than supply and demand. Despite a slight contraction in the the average rate in WAEMU countries (6.5 percent). The second quarter of 2020, money supply showed a positive high interest rate reflects the cautionary and risk adverse annual growth rate, supported by the Government’s approach of commercial banks. There is a growing gap in fiscal response and complementary policy measures terms of supply of financial services as the competition undertaken by the BCEAO. Credit to the private sector among banks focuses only on serving the upper hand of remained resilient while interest rates trended downward the market leaving rural and low-income in line with the easing of monetary policy stance and people under-served. NIGER – 2021 APRIL ECONOMIC UPDATE 15 Figure 7. Inflation dynamic and sources, 2019m1 to 2021m1 6.0 4.0 2.0 Percent 0.0 -2.0 -4.0 -6.0 2019m1 2019m2 2019m3 2019m4 2019m5 2019m6 2019m7 2019m8 2019m9 2019m10 2019m11 2019m12 2020m1 2020m2 2020m3 2020m4 2020m5 2020m6 2020m7 2020m8 2020m9 2020m10 2020m11 2020m12 2021m1 Headline inflation-WAEMU Headline inflation Core inflation 8.0 6.0 4.0 2.0 Percent 0.0 -2.0 -4.0 -6.0 2019m1 2019m2 2019m3 2019m4 2019m5 2019m6 2019m7 2019m8 2019m9 2019m10 2019m11 2019m12 2020m1 2020m2 2020m3 2020m4 2020m5 2020m6 2020m7 2020m8 2020m9 Food and non-alcoholic beverage Housing Others Communication Transport Headline inflation Source: BCEAO and WB staff’s calculation 16 NIGER – 2021 APRIL ECONOMIC UPDATE Figure 8. Non-performing loans remain high, well above WAEMU average 18 16 Percent of gross loans 14 12 10 8 6 4 2 0 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Non performing loans (% of total gross loans) Non performing loans - WAEMU average Source: BCEAO and WB staff’s calculation External Sector devastating flood which affected more than 3 thousand hectares of lands. Capital goods imports for public- and The current account deficit widened in 2020, due to private-sector infrastructure projects paused in 2020, as the deterioration of the balance of goods and services, part of public investment expenditures were reallocated mitigated by the secondary income surplus. The positive to support the Government response to the fiscal stance also contributed to increase the trade COVID-19 crisis. deficit by 4.2 percentage point of GDP in 2020. Higher remittances helped limit the deterioration of the current The balance of services stabilized around 6.2 percent account deficit to 16.7 percent of GDP, which was mainly of GDP as the fall in imported services for investment financed by concessional loans and grants. projects was neutralized by the decline in export services. The latter reflecting a drop in income from Exports declined by 3.2 percent of GDP between 2019 transport as most airlines have curtailed flights leading and 2020, reflecting weaker demand in key trading to a sharp decline in passengers and freight. partners and the contraction in sales of agropastoral products caused by the closure of Nigeria’s borders. While portfolio investment remained positive, FDI Refined oil export decreased from 1.7 percent of GDP sharply decreased in 2020. FDI declined from 5.3 in 2019 to 1.2 percent of GDP in 2020 due to the border Percent of GDP in 2019 to 3.6 percent of GDP in 2020, closure which led to a sharp decline in sales in the last reflecting high uncertainty related to the duration of the quarter of 2019 and lower international prices in the first COVID-19 pandemic; the outcome of general elections half of the year. Imports increased by 1.1 percent of GDP and worsening insecurity. Portfolio inflows improved as in 2019-20, driven by significant increase in food imports, the Government issued additional debt securities in the in line with a lower agriculture production following a regional financial market to fund the fiscal deficit. NIGER – 2021 APRIL ECONOMIC UPDATE 17 Figure 9. Evolution of the current account balance and change in the prices of main commodity exports 180.0 2500.0 160.0 140.0 2000.0 120.0 1500.0 100.0 80.0 1000.0 60.0 40.0 500.0 20.0 0.0 0.0 2019m1 2019m2 2019m3 2019m4 2019m5 2019m6 2019m7 2019m8 2019m9 2019m10 2019m11 2019m12 2020m1 2020m2 2020m3 2020m4 2020m5 2020m6 2020m7 2020m8 2020m9 2020m10 2020m11 2020m12 2021m1 Crude oil Uranium Food Gold 5 0 Percent of GDP -5 -10 -15 -20 2018 2019 2020 Trade Balance Primary and Secondary Incomes Current Account Balance Source: BCEAO and WB staff’s calculation Policy responses to the pandemic of all tax payments. Banks were also incentivized to extend credit to eligible businesses under a CFAF 150 Despite a challenging external and domestic billion (2 percent of GDP) scheme, backed by government environment, the government has taken immediate guarantee funds deposited in banks. The June 2020 action to support the economy while preserving the supplementary budget authorized new spending of 1.6 sustainability of public finance. Key revenue and percent of GDP, allocating resources worth 0.7 percent expenditure measures were adopted to prevent a large of GDP for health care and social protection purposes. impact of the adverse shock on GDP. The government A second supplementary budget in September added provided critical agricultural inputs and food aid to another 0.6 percent of GDP in outlays, mainly for road the most vulnerable, two months of free utilities, the and water projects, as well as food security. suspension of on-site tax inspections and deferment 18 NIGER – 2021 APRIL ECONOMIC UPDATE Fiscal deficit (commitment basis, including grants) has The budget for 2021 aim at reducing the deficit while consequently increased, moving from 3.6 percent of continuing providing the needed support to the GDP in 2019 to 5.4 percent in 2020. The fiscal reaction economy. The budget keeps domestically financed combined letting economic stabilizers work (in particular expenditure, excluding the second installment for the on revenue side) and targeted spending measures. oil pipeline investment, broadly flat in nominal terms at Compensatory measures were also appropriately adopted their 2020 level. The spending ratio declines to the level to partly offset the budget effects of the emergency of 2019. After the high levels of investment in 2019 and measures, consistently with the limited fiscal space of 2020, capital expenditure will decline while spending on the country. Under the IMF program the government goods of services recover from its compressed level of committed not to authorize spending beyond the CFAF 2019, and subsidies and transfers keep rising on account 1,316 billion envelope for the overall domestically of continued support for schools and hospitals. These financed expenditure (including the investment in the actions are expected to bring down to 4.5 percent of crude oil export pipeline) this year unless budget grants GDP. The envelope could be adjusted in subsequent exceed the anticipated amount. supplementary budgets to the extent that budget grants deviate from the anticipated amount of CFAF 151 billion. Endemic low tax revenue was further compressed by On the revenue side, the government has refrained the economic slowdown and needed to be offset by from tax cuts and adopted the reduction in some tax higher external financing. Domestic revenue collection exemptions that should bring some marginal additional (excluding grants) is estimated at 9.6 percent of GDP, revenue (less than 0.1 percent of GDP). down by 0.8 percentage point compared to the previous year due to decreases in indirect tax revenue (0.8 pp less The increase in debt was justified by the need to limit than 2019) in first place, and customs duties collection, the impact of the crisis, but it has further eroded plus temporary tax deferrals or cancellations. Higher fiscal space. Fiscal policy has been appropriately social spending, unprecedented terrorist attacks and countercyclical in 2020, after a decade where public debt weather episodes contributed to spending pressures, has been on upward path, jumping from 14.8 percent boosting current expenditure from 9.6 to 10.3 percent of of GDP in 2011 to 43.0 percent in 2020 despite steady GDP. Domestically-financed capital spending remained rates of nominal growth. External debt dynamic explains globally stable at 5.0 percent of GDP, also because of the around 60 percent of this increase, as it moved from 12 reduction in the execution to avoid budget slippages percent of GDP in 2011 to 25.6 percent of GDP in 2020. Externally-financed capital spending preserved the Although external public debt is largely (85 percent) on upward trend experienced in the last years, with the concessional terms to multilateral creditors, in 2020 has increase in project grants more than offsetting the sensibly increased also in NPV terms, moving form 20.2 reduction in loans disbursement due to the suspension percent of GDP in 2019 to 20.1 percent of GDP in 2020. of several large projects due to the pandemic. The Therefore, the most recent Debt Sustainability Analysis additional financing requirements were covered mainly WB/IMF (DSA) in October 2020 rates the risks of external by concessional loans, doubling to 3 percent of GDP, so and overall debt distress as “moderate” but with limited that their share in total budget support moved from space to absorb shocks. 36 percent to 60 percent as budget grants decline to 2 percent. However, total grants remain at the same level of 2019 as they rotate towards capital projects. NIGER – 2021 APRIL ECONOMIC UPDATE 19 Figure 10. Total public and publicly guaranteed debt (in percent of GDP) 50.0 45.0 43.2 39.8 40.0 36.5 37.0 35.0 32.9 30.0 26.6 25.0 21.2 20.0 15.0 10.0 5.0 0.0 2014 2015 2016 2017 2018 2019 2020 External Debt Domestic Debt Current Account Balance Source: Niger’s authorities and WB staff’s calculation. The government has resorted to a mix of external and management of public debt, such as 1) the online budget loans and long-term issuance on the regional publication of the 2020 annual public debt report markets to finance the higher financing needs. Financing covering central government debt, major state-owned needs (net of grants) in 2020 have reached a level of enterprises and public administrative entities, and PPP around FCFA 400 billion, 1.5 times higher than in 2019. debt; and (2) publishing the annual borrowing plan and Most of the funding have been raised through external a three-year debt strategy online. Good transparency budget loans that have jumped from 1.5 to 3.6 percent and sound debt management are essential to making of GDP. Consequently, debt service has picked-up in sound borrowing decisions and ensuring long-term debt 2020 to FCFA 80.4 BN reaching 11 percent of tax revenues sustainability. Similarly, creditors need full information to despite the participation to the G20 DSSI initiative that assess the country’s debt and investment opportunities. has brought savings of FCFA 14 billion (see Box 2). The Transparency is also important for citizens so that they government has taken advantage of relatively good can hold the government accountable for the terms and financing conditions on the WAEMU markets. In 2020 purpose of the debt. outstanding bonds on regional markets have increased by 1.4 points percentage of GDP, reaching 8.9 percent The monetary policy stance reflects a right balance while reducing short term debt by roughly the same between supporting the economy and protecting the amount. On the other hand, increasing reliance on peg in the context of the COVID-19. Niger’s monetary and domestic financing brings the risk to crowd-out the exchange rate policies are managed by the Central Bank private sector. of West African States (BCEAO), which maintains a fixed peg between the CFA Franc and the Euro. Its reserves Strong efforts are needed to improve debt transparency. reached an estimated 5.5 months of imports in 2020 due The World Bank’s October 2020 debt report heat map to large donor support and reduced imports during the shows that Niger lags significantly behind its regional pandemic. Between March and October 2020, the REER peers in terms of transparency and public debt appreciated by 6.4 percent y/y, reflecting the nominal management. However during 2021 the government appreciation of the Euro against the USD. made encouraging efforts to improve transparency 20 NIGER – 2021 APRIL ECONOMIC UPDATE Figure 11. Debt Transparency heatmap Data Instrument Sectorial Info on lost Periodicity Time lag Debt Management Annual Contingent accessibility coverage coverage loans contracted Strategy borrowing plan liabilities Benin Burkina Faso Chad Mali Mauritania Niger Senegal Source : World Bank Debt Reporting Heat Map The BCEAO adopted an unprecedented accommodative driven by a faster pace of growth in Net Domestic Assets stance amidst inflationary pressure and to give some (NDA). Money supply expanded by 16.5 percent (y-on-y) buffer to the financial sector. The BCEAO has taken at end December 2020. Liquidity facilities supported steps to better satisfy banks’ demand for liquidity by credit expansion in both nominal and real terms and lowering the minimum monetary policy rate and relaxing helped cushion the impact of the COVID-19 on the private prudential measures. By adopting a fixed rate of 2.5 sector. Real Credit to the private sector grew 9.3 percent percent (the minimum monetary policy rate) the BCEAO end December 2020 while private investment remained allowed banks to satisfy their liquidity needs at a rate resilient, growing 7.6 percent in 2020 against 10 percent about 25 basis points lower than before the crisis. On in 2019. June 22, the policy rate was further cut by 50 basis points the ceiling and the floor of the monetary policy corridor, The swift intervention of the central bank helped to 4 and 2 percent respectively. Finally, the five-year mitigate the impact of COVID-19 on the quality of bank’s period initiated in 2018 for the transition to Basle II/III portfolio and contributed to strengthen the stability of bank prudential requirements was extended by one year. the Niger banking sector. Thanks to the BCEAO region- In particular, the regulatory capital adequacy ratio will wide payment deferral system, the impact of the COVID remain unchanged at end-2020 from its 2019 level of 9.5 crisis on the quality of the commercial banks’ portfolios percent, before gradually increasing to 11.5 percent by was limited. Gross NPLs, although high, declined at 2023 instead of 2022 initially planned. 12.6 percent in December 2020 from a 16.1 percent in December 2019. Total term deposits to total liabilities The easing of the monetary policy stance supported ratio in Niger remains at 22 percent, lower than in most bank lending and helped mitigate the negative impact peers in the WAEMU region. Loan to deposits ratio was at of the COVID-19 on the activity. Growth in money supply 104.8 percent higher than the average of 74.3 percent (M2) increased significantly in December 2020, largely in SSA. NIGER – 2021 APRIL ECONOMIC UPDATE 21 Figure 12. Monetary and financial aggregates, 2019-2020 2000 1500 10000 CFA Billion 500 0 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 -500 Net foreign assets Credit to government sector (net) Credit to non government sector Money supply (M2) 1000 10.5 950 10 9.5 900 9 CFAF Billion Percent 850 8.5 800 8 750 7.5 700 7 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Lending interest rate (RHS) Credit to the private sector Source: BCEAO and WB staff’s calculation 22 NIGER – 2021 APRIL ECONOMIC UPDATE ECONOMIC OUTLOOK AND ASSOCIATED RISKS affected by the reduction in international gold prices. Inflation would revert to the long-term average of 2 Amid higher-than-usual uncertainty, the economy is percent unless weather shocks, oil prices and insecurity projected to grow by 5.5 percent in 2021. The recovery put pressure on domestic agriculture and import prices. will allow a resumption in GDP per capita growth, whose level will be nonetheless 2.1 percentage points below With security, humanitarian, and social challenges 2019. Growth will be driven by a gradual recovery in all persisting throughout the year, the fiscal deficit is sectors. Agriculture would benefit from the reopening of projected to remain elevated, at 4.5 percent of GDP, the border with Nigeria, industry by the recovery of the and public debt would peak at 44.7 percent of GDP in global demand for oil products while services activity 2021. Higher economic growth and custom receipts will should rise in line with the progressive relaxation of drive an increase in fiscal revenues while the 2021 budget the pandemic-related restrictions. On the demand has kept spending constant in nominal terms. Deficit side, private investment will grow steadily supported and debt reduction would progress gradually under a by infrastructure projects, provided that the internal no-policy change scenario where no further tax cuts or security conditions do not deteriorate further. Private new discretionary expenditures are assumed and no new consumption will also benefit from the increase activity virus outbreaks or security shocks create additional fiscal in construction and energy sectors, but is expected pressure, while the government start to repeal some of to grow slightly below pre-Covid-19 rhythm. With the the emergency related measures. full resumption of border operations with Nigeria and the import of equipment goods for the large Growth is expected to rise in the coming years. Growth infrastructure projects, the trade deficit is projected to will progressively increase, passing 10 percent in 2023, as further widen by 0.5 percent of GDP, reaching 21 percent the effects of pandemic fully dissipate at the local and of GDP. Prices for exports, including uranium and oil global levels and -more importantly- the oil production products, are projected to rise in 2021, supporting term comes to stream. However, under the forecast horizon of trades and increasing both export earnings and per capita income will remain lower than under the pre- government revenue. This positive effect on growth crisis scenario. The boost in oil exports will support a will be dampened somewhat by the closure in March strengthening of the external position, with the current 2021 of Akouta uranium mine, and the limited refining account deficit significantly narrowing to 8 percent in and transportation capacity. Terms of trade will also be 2023, compensating for the lower FDI inflows after the Figure 13. Real GDP per capita (thousands of CFAF) 390 370 350 330 310 290 270 250 2017 2018 2019 2020 2021 2022 2023 Current projections Pre Covid (Jan 2020) projections Source: World Bank Staff estimations NIGER – 2021 APRIL ECONOMIC UPDATE 23 completion of the pipeline. Additional revenues from from the Agadem oil basin is expected to substantially the energy sector will also facilitate fiscal consolidation, increase oil exports from Niger, from 20,000 barrels/ provided that spending is kept under control. day (b/d) to 97,000 b/d once construction is complete. At the same time, the pandemic has impeded China Poverty reduction is set to accelerate from 2021 on. With National Petroleum Corporation (CNPC), the state-owned the economy growing at an accelerated pace, the poverty Chinese company that is building the pipeline, from rate is expected to decline to 41% by , but number of completing the project, that is most likely to be delayed extremely poor people will further increase to 200,000 until the start of 2023. While this uncertainty impacts people in 2021 because of thedemographic pressure.The on the exact timing of the start of oil exports and thus number of poor is estimated to c declining in 2023 to on the growth prospects, hopes are fading that the a level close to the one registered in 2020. Despite the resource sector boom will be sufficient to boost Niger’s good performance in terms of monetary poverty, Covid-19 economic recovery and government revenue. Instead an could have adverse effects on non-monetary dimensions exacerbation of Niger’s economic overdependence on of well-being. For example, temporary school closures commodity exports would represent an additional source could increase dropout rates, especially for girls and the of risks that will hamper both long-term growth and most vulnerable. export earnings prospects. Overall risks to growth and poverty outlook remains It is essential that the slowdown in income growth tilted on the downside. The relative peaceful transfer of does not produce in permanent losses and jeopardize power in the recent presidential elections could increase the progress momentum. A swift recovery to the pre- the country’s attractiveness to investors, provided that crisis trend rate will not be automatic to overcome the authorities revive the reforms momentum and the development lags accumulated over the years nor the securities risks are considerably reduced both at sufficient to address the formidable challenges ahead. the domestic and regional level. On the other hand, A benign post COVID-19 outcomes will depend on the duration and depth of the COVID-19 outbreak and external circumstances i.e., the state of Niger’s principal availability of vaccines represent key short-term factors trading partners, especially for what concerns oil prices of uncertainty. Vaccines rollout is expected to begin in and demand for oil vs. non-combustible fuel, on the May 2021 and to reach a critical mass of the population success of the AfCFTA, on FDI and grants availability, on by end-year, clearing the way for a gradual recovery the availability of vaccines and the capacity to execute and improvement in economic and social indicators. At vaccinations to the majority of the population. As the same time, a new outbreak in 2021 could severely economies seek to recover from the crisis an increased affect economic activity and further put at risk poverty competition for private investment can be triggered, indicators and living standards. Other short-term risks affecting the level and the sectoral allocation of stem from the impact on agriculture production (and investment in Niger. Donor countries face increasingly food availability) of adverse weather conditions. In narrow fiscal space and thus are prioritizing domestic the medium-term, strong demographic pressures will spending to international aid, while elevating scrutiny on continue to pose a key challenge. Further, given the high the use of those resources. Finally, the pandemics may be dependence on (subsistence) agriculture and its low level leaving permanent scars behind: the perturbation of the of resilience to natural hazards, the country is strongly school system can further slowdown the accumulation exposed to the risk of natural disasters, including low of human capital, informal firms in the service sector can rainfall, floods, and locust invasions that contribute to permanently exit the market destroying thousands of low and variable productivity. jobs, rising public debt may become a burden in the future. The expected boom in oil export should not be taken as reason for complacency. The 2,000 km oil export Even returning to the previous pace of growth won’t pipeline to the port of Seme on the coast of Benin be sufficient to overcome the development lags 24 NIGER – 2021 APRIL ECONOMIC UPDATE accumulated over the years, and even less so to address normalize, it is essential to preserve the sustainability formidable rising challenges. In the next 20 years the of public finances by: 1) increasing domestic revenues country Niger will have to: (i) adapt to the continuous mobilization, starting by eliminating large and distortive deterioration of climate conditions that will increase tax exemptions; 2) improving technical and allocative its exposure to deeper shocks for the population current spending efficiency in key sectors and improving and the economy; (ii) learn to manage the potential public investment selection and monitoring, especially as wealth coming from the increase in oil production in they are increasingly financed by grants; 3) improve debt a productive, transparent and accountable manner, management capacity and its transparency, for instance avoiding the pitfalls of many other SSA countries; and by adopting a medium-term debt strategy and make it (iii) improve basic services delivery (health, education) available to the public. To resume poverty reduction and and quality infrastructure to an amount of people equal increase growth potential, consideration should be given to the double of its current population4, especially in the to 1) adopting more efficient (in term of coverage and areas (health, education) where large gender differences targeting) social safety nets and public service delivery, in terms of equality of access are present. including in conflict areas, to help those that have been the most affected by the economic and social effects Against this background, the challenge for the newly of the pandemic; 2) reducing the several economic appointed government is to adopt a bold reforms plan, dimensions of gender gap, starting by removing various supported by the international partners, aimed to prohibitions for women that undermine their decision- ensure that Niger will exit from the crisis in a better making ability and access to various types of work; 3) shape than it entered. In the short term, the priority putting in place policies and measures to attract the should be given to health care spending, especially for entry of new players in microfinance and Fintech to the vaccines roll-out, while maintaining a well-targeted strengthen the competition and encourage all players in fiscal support on households and formal business the financial sector to expand their outreach. affected the most by the crisis. As conditions 4 The economy needs to create enough jobs to accommodate a large mass of new entrants in the labor market, without being able to fully exploiting the benefits of the demographic transition as the age structure will remain almost the same in the near future, with the dependency ratio decreasing only slightly. PART NIGER – 20211APRIL RECENT ECONOMIC DEVELOPMENTS UPDATE 25 Box 3. Human and economic impacts of the summer 2020 floods Flooding is not a new phenomenon in Niger. Since the early 1990s, their increase has been observed throughout the country. Indeed, for nearly two decades, recurrent floods have affected almost all regions to varying degrees. These floods are usually observed between August and November. The effects of climate change, often unexpected, make it increasingly difficult to control a quantified planning of the consequences of floods or drought. Starting from July and continuing intermittently until through October 2020, Niger has experienced severe flooding caused by cumulative rainfall that is 150% above average. They have affected all regions of the country. From July to mid-September 2020, heavy rains, driven by the degradation of the environment, forest and agricultural land and the silting up of the Niger River and other rivers and streams, led to significant river flooding and, to a lesser extent, localized flash floods, particularly in the southern regions. These floods have had a significant impact on populations, agriculture, public infrastructure and businesses, concentrated in the southern region. The Prime Minister’s office reported that more than 557,800 people were affected, and 80 people were killed, including 26 in Zinder, 23 in Maradi, 19 in Tahoua, and 8 in Niamey. The most severely affected region appears to be Maradi with more than 173,000 people affected and about 20,000 houses and huts damaged, followed by Agadez with more than 75,000 people affected and more than 2,400 houses and huts damaged. The impact of the floods was particularly severe in the capital Niamey, affecting all neighborhoods along the Niger River, the country’s main public university, the university hospital center, and several neighborhoods on the outskirts of the city that were flooded. In Niamey, 10,039 households with 72,638 people affected and more than 4,800 houses and huts collapsed were recorded. It was also reported the destruction of 94 classrooms, 57 mosques, 1,003 granaries and 2,612 drinking water wells, as well as the flooding of 15,703 hectares of crops, aquaculture infrastructure, and losses on commercial infrastructure. A Damage and Loss Assessment prepared by the Government of Niger with technical Assistance from the World Bank estimates total damages and losses at US$261.7 million (US$153.7 million in direct damages and US$108 million in indirect losses) equivalent to just less than 2 percent of 2019 GDP. The largest damages and losses (82.5 percent) are concentrated in the agriculture and housing sectors, for a total of FCFA 129.5 billion (US$ 216 million). Damages and losses are almost equally distributed, with damages amounting to FCFA 68 billion, while losses are evaluated at FCFA 61 billion. Among the productive sectors, the hit taken by the large agriculture sector amounts to 44 percent of the total, with losses (FCFA 54 billion) prevailing on damages (FCFA 36 billion) and accounting for 48 percent of the overall losses. The reported damages and losses on the transport infrastructure are estimated at 5.6 billion, while the losses to trade and industry are just above FCFA 600 million (US$ 1 million). Damages and losses in agriculture amounted to 89.8 billion FCFA, US$ 149.7 million, close to 1.2 percent of the total GDP. The flood emergency has exacerbated conditions in Niger, particularly in areas already grappling with food insecurity and violence, as well as compound the adverse economic effects of measures to contain the COVID-19 pandemic. The government requested the World Bank activate the Immediate Response Mechanism (IRM) on September 29, 2020 to obtain immediate assistance with emergency shelters, livelihood support to the agriculture and livestock sector, hygiene and sanitation activities, and rehabilitation of critical services such as potable water and sanitation and urban drainage. The World Bank reallocated US$45 million from existing IDA projects to provide immediate support following the flooding disaster in the country following the activation of the IRM in September 2020. Contributions and pledges by development agencies and foreign governments stand at US$22.9 million to cover immediate food, shelter and other humanitarian requirements for the affected population. 26 NIGER – 2021 APRIL ECONOMIC UPDATE Box 4. G20 debt initiatives and Niger participation to DSSI and SDFP The Debt Service Suspension Initiative (DSSI) was launched in May 2020 at the initiative by Paris Club and G20 countries. Bilateral official creditors that agreed to, during a limited period, suspend debt service payments from the poorest countries (73 low- and lower middle-income countries) that request the suspension. It is a way to temporarily ease the financing constraints for these countries and free up scarce money that they can instead use to mitigate the human and economic impact of the COVID-19 crisis. The initiative has been extended a first time in October 2020 and for a second - and final -time in April 2021, until the end of the year. The DSSI helps address immediate liquidity needs but this does not mean that existing debt sustainability problems in some of these countries will be resolved. Before the onset of the COVID-19 crisis, debt vulnerabilities had become elevated in many IDA countries, with more than 50 percent being classified as either in or at high risk of debt distress. But DSSI does help by providing more time to properly assess and address debt sustainability on a country-by-country basis. As of mid-February 2021, more than 60 percent of the eligible countries have made requests for the debt service suspension. More than 50 percent of eligible countries have so far requested the extension of the debt suspension through June 2021. The DSSI requests received amounted to about US$5 billion in debt service suspended in 2020. For now, G20 bilateral official creditors have agreed to extend the initial debt service suspension by six months until end of June 2021. The G20 have agreed to examine the need for a further extension by the time of the IMF-World Bank Spring Meetings in April 2021 Niger has applied for the DSSI in Jun 2020. Given the high degree of concessionality and long maturities of Niger’s bilateral official debt, eligible amounts under the DSSI are relatively modest: US$24 million (0.17 percent of GDP) in 2020 and US$42 million (0.28 percent of GDP) in 2021. In addition to that, Niger has agreed with the World Bank to implement two Priority Policy Actions (PPAs) to address debt vulnerabilities and fully access the IDA19 allocation, as required by the Sustainable Development Finance Policy (SDFP): The PPAs have been agreed with government at the aim of strengthening fiscal and debt transparency and sustainability by: (1) Publishing the 2020 report on public debt covering central government debt, major SOEs and public administrative entities, and PPPs’ debt (expected to be institutionalized as an annual exercise); and (2) Publishing the Annual Borrowing Plan for 2021 and the Medium Term Debt Strategy for 2021- 23. The documents have been published in May 2021. In anticipation of the need for deeper debt relief in some cases, the G20 also agreed on a Common Framework for Debt Treatments beyond the DSSI. This should help facilitate debt restructuring on a case-by-case basis and burden sharing across creditors. Depending on the economic and debt situation of each country, this relief could be a deferral of a portion of debt service payments for a number of years (a reprofiling or rescheduling), or, where the situation is more difficult, a reduction in debt service payments in present value terms may be required. Debt treatments under the Common Framework are initiated at the request of a debtor country on a case-by- case basis. The framework is designed to ensure broad participation of creditors with fair burden sharing. Importantly, it includes not only members of the Paris Club but also G20 official bilateral creditors such as China, India, Turkey or Saudi Arabia that are not members of the Paris Club. NIGER – 2021 APRIL ECONOMIC UPDATE 27 FISCAL REFORMS TO BALANCE DEBT SUSTAINABILITY AND ECONOMIC DEVELOPMENT FISCAL TRENDS AND COMPOSITION Enhanced mobilization of domestic resources is necessary to ensure adequate, sustained funding of Despite the increase in the government deficit created public investments and services, as well as to meet by COVID 19 shock, the authorities remain committed to the WAEMU’s fiscal targets. The Economic and Social fiscal consolidation by exploring sources of additional Development Plan for 2017-2021 (PDES 2017-2021) calls for fiscal space in support of recovery. Fiscal structural FCFA 8 billion public investments in agriculture, energy, reforms to better mobilize domestic revenue and raise telecommunications and transport which Niger is unlikely spending efficiency are required for the consolidation to be able to make without significant external resources effort to meet WAEMU convergence criteria. However, the and improved domestic revenue collection, while at the medium-term outlook remains fragile and contingent same time resuming the convergence toward the deficit on the evolution of the COVID-19 crisis and sustained target. The preponderant role of agriculture in economy efforts to implement fiscal policy reforms, including also and extensive informality limit the country’s domestic further strengthening of debt management, reducing fiscal tax bases, and hence, its tax revenue potential. Although risks from SOEs and PPPs, and prioritizing concessional grants are likely to remain high in the medium term also borrowing. Improvements in fiscal transparency and PFM given country’s role in the fight against terrorism, the risk are especially needed to monitor the effective use of the from the high dependency on them is compounded by increasingly high level of resources devoted to address unpredictability of fund flows, with significant year-on-year security challenges. variations and low execution rates of capital projects. Figure 14. Fiscal trends in Niger (2016-2023) 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 2016 2017 2018 2019 2020 2021 2022 2023 Tax Revenue (% of GDP) Expenditure (% of GDP) General Government Debt (% of GDP) Source: Niger Ministry of Finance, National statical office and WB staff estimates. 28 NIGER – 2021 APRIL ECONOMIC UPDATE Tax revenue to GDP ratio is low and well below the (37 percent in 2019), and were a mix of budget support WAEMU target of 20 percent. The WAEMU revised its tax and project support.5 Project support (66 percent of revenue-to-GDP ratio target up to 20 percent by 2019 grant revenue over 2010-2019) was under-executed by (from 17 percent previously), nearly twice Niger’s 2019 27 percent on average over 2016-2019, with execution as ratio of 10.4 percent of GDP. Grants accounted for 29 low as 42 percent in 2016. Actual budget support has also percent of total revenue on average over 2010-2019 fallen well short of initial budget figures in recent years. Figure 15. Tax Structure (% of GDP), Niger and Peers, 2018 20 15 10 5 0 Afghanistan CAR Niger Mali Laos Rwanda Uzbekistan Senegal WAEMU Taxes on Goods and Services Income Taxes Taxes on International Trade Other Taxes Source: Niger Ministry of Finance, IMF Government Finance Statistics and IMF staff estimates. Figure 16. Revenue Structure, Niger and Peers, 2018 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Mali Laos CAR Uzbekistan Niger Senegal WAEMU Rwanda Afghanistan Non-tax Revenue Tax Revenue Grants Source: Niger Ministry of Finance, IMF Government Finance Statistics and IMF staff estimates. 5 HIPC revenue is included in domestic revenue in Niger and recorded as “exceptional domestic revenue”. NIGER – 2021 APRIL ECONOMIC UPDATE 29 Niger’s public revenues could improve its efficiency by products (FCFA 11.857 million) and mobile and other addressing several issues. The complex tax legislation, telephone services (9,460 million FCFA). Tax expenditures high tax rates, a narrow tax base (with high tax estimates are tricky to compare across countries but expenditures) and poor tax and customs administration estimates for WAEMU countries are significantly lower weaken domestic tax revenue mobilization and prevent -- Benin 3 percent of GDP (2016), Burkina Faso 1.4 percent a close alignment between revenue mobilization and of GDP (2016), Cote d’Ivoire 2.1 percent of GDP (forecast the underlying economic growth. Compared to WAEMU 2016); Togo 3.3 percent of GDP (2017) --, except for Senegal peers and based on structural tax gap assessments, room (3.9 percent of GDP in 2012).8 More than 90 percent of tax to improve revenues from income tax, value-added tax revenue is generated from tax instruments subject to the and trade tax intake seems apparent. Current design of WAEMU tax harmonization framework. consumption taxes tends to put a relatively heavy burden on lowest income deciles, and any enhanced revenue Direct tax revenue fell from 3.6 percent of GDP in 2014 mobilization on VAT should eventually seek a fairer to 2.5 percent of GDP in 2019, mostly on account of burden sharing, including protect the consumption of the protracted fall in prices of oil, uranium and other basic items for the poorest households. commodities. This is well below the WAEMU average of 4.3 percent of GDP in 2018. The tax buoyancy declined Revenue losses from numerous tax expenditure as well, indicating low responsiveness of income tax provisions are larger than most peers. Total foregone revenues to economic growth. As discussed below, tax tax revenue, as estimated by the DGI and the DGD varied incentives on investments are comprehensive in Niger, between 2.5 and 4.8 percent of GDP over 2013.6 More making the corporate income tax base narrow, and recent estimates7 use a benchmark tax system to provide hence, driving part of the poor revenue performance on for a more precise assessment. Tax expenditures are income taxes. At the same time high corporate income estimated at FCFA 231.85 billion (or 3.6 percent of GDP) tax rate may enhance the incentives to request tax in 2017, 88.5 percent of which were related to VAT on expenditures, or to stay into the informal sector. Niger’s domestic products and imports. The largest categories statutory standard corporate income tax rate (30 percent) of VAT expenditures included petroleum products is the highest in the WAEMU and the highest possible (FCFA 71.870 million), meat sales (FCFA 53.063 million), rate for countries in the Union. pharmaceutical products (FCFA 11.911 million), dairy Table 2. Tax exemptions (% of GDP), 2013-2016 2013 2014 2015 2016 Direct taxes 0.2 0.2 0.3 0.2 VAT on domestic products 0.7 1.1 0.8 0.5 VAT on imports 1.1 1.4 2.6 1.4 Customs duties 0.5 0.7 1.1 0.6 Total (incl. from all other taxes) 2.5 3.4 4.8 2.7 Source: DGD and DGI 6 Assessments of revenue loss due to tax expenditures should be interpreted cautiously as estimates may not be accurate or consistent over time and across countries. The country benchmark tax systems, used as baseline against which to measure tax expenditures, differ across countries. The tax authorities may not capture all tax expenditures. In Niger, the DGD and DGI estimates of forgone revenue only covered exemptions (not deductions, credits, preferential rates or deferrals), and were made before a benchmark tax system was defined. 7 Cowater-Sogema 2019, Tax expenditure evaluation report (for 2017) 8 Benin, Burkina Faso, Cote d´Ivoire and Togo 2019 World Bank Tax Policy reports and Senegal Ministry of Finance Tax Expenditure Assessment Report 2010 - 2012, Ministry of Finance Senegal 2013. 30 NIGER – 2021 APRIL ECONOMIC UPDATE The government is taking steps to strengthen the price valuation of imports backed by the newly adopted analysis of tax and customs exemptions. A hub within ASYCUDA World system and combating smuggling in the MoF has been tasked with the responsibility for the oil sector by using molecular marking of petroleum the systematic recording, monitoring, and analysis of products, and a revision of fiscal incentives in the discretionary tax exemptions, as well as the preparation investment code. However, weaknesses remain related of yearly tax expenditure reports. The unit will compile to the effectiveness of tools, systems, control, and audit a coherent and consolidated list by beneficiary of all functions, the fight against corruption, and discretionary exemptions granted since the beginning staff qualifications. of 2019, grouped by beneficiary and consolidating the information of the tax and customs administrations, and Public expenditure has increased over the past years an estimate of the likely associated revenue loss. Going in response to the needs to increase human capital, forward, exemptions and other fiscal expenditures needs reduce its large infrastructure gap and promote to be reported annually in the budget to improve fiscal inclusive growth. To cope with the increasing financing transparency. In October 2020, to strengthen its fiscal needs, total public expenditures rose from 15.4 percent base, the government signed and registered a contract of GDP in 2011 to 21.5 percent of GDP in 2019. Expenditure with a reputable provider to molecularly mark petroleum pressures remain however strong, including from products according to product type and destination, . heightened security risks. The country has been sharply impacted by the spillover effects of the security crisis Progress have been made in fighting tax fraud in Mali that began in 2012 and has now spread to large to increase revenue and improve tax neutrality. parts of Burkina Faso and bordering areas in Niger. In Government’s focus, supported by IMF and WB programs, the eastern region bordering Lake Chad and Nigeria, the has been on reducing reporting failures and improving Boko Haram insurgency that began in Northern Nigeria the efficiency of control procedures. Cash payments in 2008 has created a security threat and humanitarian to the largest customs offices and the large taxpayer crisis for Niger as well. Niger has also faced endogenous office have been discontinued. The implementation of crises and conflicts, including military coups, rebellions, the VAT credit refund mechanism has been revived. A and intra- and inter-community clashes. Security costs one-stop-shop for car imports was put in place. Other (particularly defense and related investments) have key innovations are the introduction of transaction- hence escalated. Figure 17. Capital and Current Expenditures, Niger and Peers, 2016-2018 Average 30 1.2 Capital to recurrent ratio 25 1.0 Percent of GDP 20 0.8 15 0.6 10 0.4 5 0.2 0 0.0 CAR Chad Niger Laos Mali Senegal WAEMU Uzbekistan Afghanistan Rwanda Current Capital Capital to recurrent ratio Source: Niger Ministry of Finance, IMF Government Finance Statistics and IMF staff estimates. NIGER – 2021 APRIL ECONOMIC UPDATE 31 Figure 18. Current Expenditure Structure, Niger and Peers, 2018 14 12 10 8 6 4 2 0 Wages and salaries Goods and services Transfers and subsidies Interest Niger Rwanda Mali CAR Senegal Uzbekistan Chad Laos Afghanistan Source: Niger Ministry of Finance, IMF Government Finance Statistics and IMF staff estimates. More than half of expenditures account for expenditures reaching 5.9 percent in 2016, and accounting for one sixth on “general and financial administration”; “education”; of government expenditures. Compared to its peers, Niger and “defense, order and security”. The distribution ranks just below the WAEMU average. The number of of spending has varied little overtime, with these top public sector staff has increased by more than two thirds three categories consistently absorbing around 53 to 66 from approximately 85,239 in 2010 to 144,735 in 2020 and percent of total outlays between 2010 and 2017. Niger they are disproportionally placed in Niamey. The public spent 20 percent of total spending on education, which sector is the main employer in the formal sector. is close to three as much as on health (7 percent), and 14 percent on defense, order and security on average over The composition of public investment shows that not the same period. Starting the decade at around 2 percent all expenditure is investment-related or responds to of GDP, security spending has broadly doubled, peaking security needs, which results in an actual smaller public at 5.2 percent in 2015, and averaged 2.2 percent of GDP investment envelope, also subject to inefficiencies. thereafter (IMF, 2019). This spending is aligned to the G5 Almost half of investments go to “other infrastructure” Sahel average and relatively low compared to selected (public services, security and public order and the countries ranging from stability to conflict. The increase environment). In contrast, SSA devotes on average the has been largely geared toward defense and related bulk of its investments to “economic infrastructure” investment. Military spending increased from 1 percent (transportation, energy, industry, etc.). Security-related of GDP in 2009 to 1.8 percent of GDP in 2019, below the investments account on average for 11 percent of average of G5 Sahel countries of 2.4 percent of GDP. investment expenditures, within the scope of spending of peer countries. Main productive expenditures are Despite a steady increase since 2003, compared to its composed of public works (13 percent), agriculture (10 peers wage bill ranks in the mid-range both as a share percent), and water (6 percent), while around 11 percent of GDP and of domestic revenues. Public spending on of all investment combined goes to the education and the wage bill more than doubled in real terms over the health sectors. In terms of access to school, electrical, past 13 years. In terms of GDP, it has gradually increased, highway, and sanitation and water infrastructure, Niger 32 NIGER – 2021 APRIL ECONOMIC UPDATE is behind comparators (SSA and WAEMU). Moreover, being strengthened with the implementation of the according to PIMA 2019 report, the stochastic frontier Treasury Single Account (TSA) and the dematerialization analysis shows that the physical border and efficiency of payments. Progress has been also made on the gap indicator is the lowest of all comparators. implementation of a National Integrated Monitoring and Evaluation System (SNISE) that aims to improve the The analysis above shows how a considerable pool of management of public investment programs. Key reforms resources, on both revenue and spending side, can be in the tax and custom administrations have focused mobilized to improve development outcomes while on the digitalization of services and organizational improving fiscal balances. While achieving efficiency strengthening of both administrations. gains is even more critical during these uncertain times, there are several measures that can be adopted in the However, weaknesses in budget preparation, credibility, short to medium time to scale-up resources that can execution, and control are major challenges that be used both to supporting government fiscal targets hamper government efforts to reform its PFM system. (WAEMU convergence criteria for example) and to Continued efforts are required to finalize ongoing reform strengthening long-term growth impact of fiscal policy. programs, such as the multi-year dimension of budget While savings from the improved allocation and efficiency management, results-based management, budget across and within sectors can be used for maximizing decentralization at ministerial level, financial supervision, growth opportunities and social welfare (for instance, by and internal and external risk control and preparation providing national financing to a core social safety net of financial statements compliant with IPSAS standards. built on the emergency spending related to the Covid-19 The provisions of the WAEMU directives have been only crisis), consideration should be given to use fiscal gains partially implemented. Despite progress in the availability from improved technical efficiency (from PFM and PIMA of budget information, transparency score is 17 compared reforms), and gains from the reduction of tax exemptions to the global average of 45 in the Open Budget Survey can contribute to avoid that the increased deficit – indicating Niger does not yet publish enough material becomes entrenched and instead ensuring a steadfast to support informed public debate on the budget. convergence to the 3 percent WAEMU target. Challenges also persist in the operationalization of program budgeting. Moreover, the effectiveness of public PUBLIC FINANCE AND INVESTMENT procurement system is undermined by the absence of an automated procurement system, weaknesses in planning MANAGEMENT REFORMS and control, and insufficient capacities. In addition, the systematic use of a priori as opposed to risk-based The Government has made substantial progress in control has resulted in a severe lag of procurement public financial management (PFM) reforms in recent control time and thus lengthy procurement processes. years. Since 2018, Niger has transitioned to program- budgeting, with a first iteration of performance reports As part of its commitment to transparency and good on the budget programs prepared in 2019. The country governance, Niger is taking additional steps to ensure continues to make progress in the adoption of the texts that COVID-19 funds are spent efficiently on their transposing the six WAEMU directives into its national intended purpose. In this context, the Court of Audit legal and regulatory framework. Important advances will conduct an independent audit of the use of the have also been made in budget transparency in terms committed funds. This audit will be published online of publishing budget documents, with Niger now ahead by the Court of Audit in its general public report by of peer countries (WAEMU, LICs, FCF). The Multiyear September 2021. Furthermore, the government will Budget and Economic Programming (DPBEP) and the publish the procurement documents and contracts of Multiyear Expenditure Programming Document (DPPD) large projects related to the pandemic, together with the discussed during LOLF examination are then submitted names of companies awarded and their to the National Assembly. Treasury management is beneficial owners. NIGER – 2021 APRIL ECONOMIC UPDATE 33 With public spending on the wage bill more than managed by two separate systems. The electoral register doubled in real terms over the past 13 years, the lack of the National Professional Electoral Commission of an integrated and performance based HRM system (CONEP) reported a total of 137,188 individuals registered has contributed to inefficiencies in the payroll system. as public sector staff in February 2020 while the FIS Data on Niger’s public sector staff is unreliable and register showed 156,205 public sector staff on the public not integrated as a single system. This absence of an payroll. The effectiveness of Niger’s HRM planning is integrated database contributes to the rise in “ghost undermined by the absence of multi-year HR plans based workers” and payroll-related fraud (staff benefiting on projections of future needs in terms of recruitment, from hardship premiums while no longer being in the promotion, training, indexation, or compensation related post). At present, public sector staff data is embedded in a sustainable budget setting. Figure 19. Niger’s wage bill, 2003-2019 300 5 5 250 4 200 4 As a % of GDP in billion CFAF 3 150 3 2 100 2 50 1 1 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Actual Budget Wage bill (left axis) Wage bill (right axis) Source: BOOST DATA, Niger Ministry of Finance. 2010-2013 is based on estimates related to contractual workers 2017-2019 is based on estimates related to auxiliaries, civil servants and contractual workers working in sector ministries other the ministry of primary and secondary education. Figure 20. Evolution in size of public sector staff, 2010-2020 Total Public Sector Staff 170,000 150,000 130,000 110,000 as a % of GDP 90,000 70,000 50,000 30,000 10,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: BOOST DATA, Niger Ministry of Finance. 2010-2013 is based on estimates related to contractual workers 2017-2019 is based on estimates related to auxiliaries, civil servants and contractual workers working in sector ministries other the ministry of primary and secondary education. 34 NIGER – 2021 APRIL ECONOMIC UPDATE Despite important progress in the use of competitive budget fluctuates, but on average stands at less than 60 procurement methods in recent years, real percent over the observed period (Figure 2.24). This is improvements in competition still lags while contract mainly due to the low execution rate of the share of the execution is weak. With the support of the IMF, all externally-funded budget, which averages 45 percent, domestic payment arrears, including those to public while the execution rate of the domestically-financed utilities, were cleared at the end of 2019. Like all budget was around 74 percent over the period 2010-2016 WAEMU member countries, the country reports annually (Figure 2.25). The sizeable underspending of external aid statistics covering the share of open tender and other may be attributed to complexities in managing multiple procurement methods. Niger has made commendable donor requirements for project management and limited progress in the use of open tenders, the default use of country systems coupled with lengthy review and procurement method. Since 2017, the share of open non-objection processes between the Government and tenders has increased substantially, from 48 percent to development partners. 63 percent in 2019, but still far away from the 95 percent target recommended by WAEMU. Unfortunately, progress Finally, efficiency gains of the order of 1 percent of in the use of competitive methods has not translated GDP can be generated by sector-specific reforms in into greater competition or in a larger base of bidders. education (0.7 percent pf GDP), health (0.2 percent Supervision of contract execution is not carried out in pf GDP) and agriculture (0.2). Niger has high dropout a rigorous or coherent manner. Contracting authorities and repetition rates, which impact the efficiency of cannot demand that suppliers and service providers fully the educational process in producing graduates and honor their commitments when they themselves are at the efficiency loss costs the GON nearly 0.4 percent fault and rarely pay in time. In fact, delays in payment is of GDP. Another source of inefficiencies is underuse the greatest challenge for Niger’s public procurement. of its teachers and low effective teaching time that, While this problem is well-known, it is not captured if addressed, could result in efficiency savings of 0.3 by the information system nor is it monitored through percent of GDP. Based on a stochastic frontier model performance indicators. for UHC service coverage index, the size of potential efficiency gains may be estimated at around 13 percent Public investment has grown rapidly during the past of current total public expenditures on health, or 0.23 decade, surpassing the rest of the WAEMU region. percent of GDP. Realizing these gains would be equivalent Public investment management enjoys a relatively strong to bringing Niger to the level of Burkina Faso, Guinea- institutional framework, but implementation remains Bissau, or Mauritania in terms of efficient performance weak. As Niger was one of the first countries in the of essential health service. Addressing inefficient region to transpose the WAEMU’s PFM directives, it now management of a universal fertilizer subsidy program, possesses several modern instruments that contribute could generate fiscal savings of 0.15 percent of GDP. These to a strong institutional PIM framework. In contrast, inefficiencies include low rate of debt recovering, rising the country is far behind its WAEMU and SSA peers operating expenses, inefficient fertilizer acquisition cost, with regards to the effective management of its public and incapacity to meet the demand. Fertilizers sold by investments. According to the 2019 PIMA, key areas of Central Agricultural Input and Equipment Supply Agency concern are: (i) coordination between central government (CAIMA) are on average half universally subsidized and local government entities; (ii) project evaluation; without targeting specific farmers or crops. Due to (iii) the management of PPPs and public enterprises; (iv) budget constraint, CAIMA has a marginal capacity in awarding procedures of public contracts; and (vi) the meeting demand for fertilizers in Niger and because of availability of funding. its operational inefficiencies the subsidized fertilizers are often not delivered on time to the regions. Compared to Large deviations between planned and actual spending peers such as Burkina Faso and Mali, costs of acquisition on investment projects indicate that there is substantial of subsidized fertilizer are inefficient and CAIMA’s room for getting a higher return on public investments. equipment costs are high. The execution performance of the approved and revised NIGER – 2021 APRIL ECONOMIC UPDATE 35 Figure 21. Investment total, public and private, 2000-2018 20 15 as a % of GDP 10 5 0 2010 2011 2012 2013 2014 2015 2016 2017 Actual Budget Finance & Economy Public Works Security Agriculture Presidency Education Source: WDI Figure 22. Public investment 2000-2018 14 12 10 in percent of GDP 8 6 4 2 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Niger WAEMU Source: WDI 36 NIGER – 2021 APRIL ECONOMIC UPDATE POLICY PRIORITIES TO IMPROVE THE EFFECTIVENESS OF FISCAL POLICY: POLICY ACTIONS REFORM LINKAGES - TIMELINE Improving Allocation and Efficiency in Spending Across and Within Sectors Reprioritization across policy sectors. The government should Short to medium term: The indicated reallocate resources away from general administration toward social reallocations and quality enhancements services and infrastructure, maximizing growth opportunities and within sectors are contingent on the fiscal social welfare. space established by the PFM reforms, in particular savings on wage bill and Education. Enhanced spending quality and efficiency, together procurement reforms. Program budgeting with within-sector reallocation. Reallocating of resources to basic and other PFM improvements are core as education; improve quality, i.e., regular refreshing-training for well, together with enhanced tax revenues, teachers in service, and repetition and dropout rates addressed to seek a deepened domestic financing of through improvement of teaching method, effective learning time the budget. at school and parental awareness-raising campaigns. Efficiency gains achieved through implementation of integrated and clean-up of personnel database and strengthened budget management and performance surveillance of education activities. Potential fiscal gain: 0.7 percent of GDP Health. Within sector re-allocation, efficiency in spending and improved equity in financing of services. An estimated efficiency gap of 13 percent and budget re-prioritizations applied towards: The primary care level, shifting health expenditure away from curative tertiary care towards more primary care goods and services. Increasing the share of pooled funding to significantly reduce the share of out-of-pocket payments. Efficiency gains through economies of scale in the administration of pooled schemes, including strategic purchasing, and enhanced use of results-based financing mechanisms. Stronger PFM capacity in health facilities. Potential fiscal gain: 0.23 percent of GDP Agriculture. Sector reallocations and higher efficiency in spending. Establish the fertilizer privatization plan to better meet farmers’ demand and reallocating CAIMA’s resources toward priority areas. Reform the agriculture sector to embrace performance-based management with clear targets and strong accountability mechanism for all sector players and strengthen the implementation capacity of decentralized entities. Improved procurement processes. Potential fiscal gain: 0.15 percent of GDP NIGER – 2021 APRIL ECONOMIC UPDATE 37 POLICY ACTIONS REFORM LINKAGES - TIMELINE Improving technical efficiency in spending of public resources. Institutional options Efficiency gains through cleaning up public sector wage bill. With Short-term. TA to identify additional the 2020 biometric census completed, payroll database need to inefficiency and areas of improvement. be cleaned up, staffing forecasting implemented to improve fiscal management of wage bill size and composition; and implement strategic reallocation of staff resources in alignment with the LOLF and staff re-deployment plans to improve wage bill efficiency. Potential fiscal gain: 0.8 percent of GDP Enhanced quality, efficiency and transparency of public investments. Short- to medium-term. TA will be in need. Reinforce investment project preparation and appraisal. Publish all PIM related documentation, including sector strategies and impact assessment reports in the annual budget annex. Strengthen PIM budgeting and implementation, including technical capacity support to sector ministries and on ex-post evaluation of projects. Improved Procurement to enhance effectiveness and bidding Short-term. competition. Reduce average payment time to 60 days, including monitor average payment delays. Remove redundant controls, combining risk-based ex-ante control for the procurement process, standard ex-post control. Speed up the full implementation of SIGMAP 2 and connect it to SIGFIP. Potential fiscal gain: 0.2 percent of GDP Fiscal Gains and Enhanced Efficiency through addressing fiscal risks. Short-term. On-going reform measures Implementation of the action plan based on the (SOEF) assessment suggested completed as a matter of focus on: Financial oversight and the management of fiscal risk priority improvements, including integration of PPPs, extra-budgetary funds and local government into the public investment program. Revision of the PPP law to ensure better regulation and transparency. Proactive fiscal risk-mitigating, including specification of ceilings in the use of PPPs financed from public funds; mandating multi-annual commitment authorizations and recording the PPP liabilities in the general government balance sheet. Potential fiscal gains: N/A Source: World Bank, Niger Public Expenditure Review. 2020 38 NIGER – 2021 APRIL ECONOMIC UPDATE