Documentof The World Bank FOR OFFICIAL USE ONLY ReportNo. 43443-NE INTERNATIONALDEVELOPMENTASSOCIATION COUNTRY ASSISTANCE STRATEGY FOR THE REPUBLICOFNIGER FOR THE PERIOD FYOS-FY11 May 2,2008 CountryDepartmentAFCFl Africa Region This document has a restricted distribution and maybeusedbyrecipients only inthe performance o f their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective March 2008) Currency Unit = CFA Francs (CFAF) CFAF 1,000 = US$2.37 US$1 = CFAF421 US$1.64663 = SDR 1 FISCAL YEAR January 1-December 31 ABBREVIATIONS AND ACROYNYMS AAP Africa Action Plan AfDB African Development Bank ARI Acute Respiratory Infection ARV Acute RespiratoryVirus CAFER CaisseAutonome de Financement de 1'EntretienRoutier (Independent RoadMaintenance Fund) CDMAP Capacity Development Management Action Plan CET Common External Tariff CGE Computable General Equilibrium CIF Cost, Insurance and Freight CPIA Country Policy and Institutional Assessment COMTRADE : Commodity Trade Statistics Database DHS Demographic and Health Survey D S A Debt Sustainability Analysis DSCN Direction Nationale de la Statistique (National Statistics Department) ECOWAS Economic Community o f West African States EDDP Educational Development Decennial Program EITI Extractive Industries Transparency Initiative ESAF Enhanced Structural Adjustment Facility FDI Foreign Direct Investment GDP Gross Domestic Product GER Gross Enrollment Ratio GPI Gender Parity Index GNI Gross National Income GNPPC Gross National Product Per Capita HAC Home Country Agreement HALC Haute Autoritd contre la Corruption (Anti-corruption HighAuthority) HIPC Heavily IndebtedPoor Country Initiative HIV-AIDS : Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome ICA Investment Climate Assessment ICT Information and Communication Technology IDA International Development Association ILO International Labour Organization IMF International Monetary Fund I N S (Institut National de la Statistique du Niger) National Institute of Statistics o fNiger LDCs Least Developed Countries LICS L o w Income Countries MAP Multi-Sector HIV/AIDS Program FOROFFICIAL USE ONLY MDGs MillenniumDevelopment Goals MDRI Multilateral Debt ReliefInitiative MEBA Ministzre de 1'Educationde base et de 1'Alphabe'tisme (Ministryo f Basic Education and Literacy) MIGA Multilateral Investment Guarantee Agency M S M E Micro, Small and Medium Enterprises MTA MinistryofTourismandHandicrafts NIGELEC Socie'te'Nige'rienne d 'Electricite' (Electricity Supply Company) NPV Net Present Value ODA Official Development Assistance OHADA Organisationpour 1'Harmonisation en Afrique du Droit des Affaires (Organization for the Harmonizationof Business Law inAfrica) PAC Programme d'Actions Communautaires (Community Action Program) PEMFAR Public Expenditure Management and Financial Accountability Review PETS Public Expenditure Tracking System PLWHA People Living with HIV/AIDS PRGF Poverty Reductionand Growth Facility PRODEM Multi-sector Demographic Program PRODEX Agro-pastoral Export Promotion Project PRS Poverty Reduction Strategy PRSP Poverty Reduction Strategy Paper R D S RuralDevelopment Strategy RSE Export Statistical Change SAC Structural Adjustment Credit SAF Structural Adjustment Facility S A M s Social Accounting Matrices SBA Stand-By Arrangement SEEN Socie'te'de Patrimoine de 1'Eau du Niger (National Water Holding Company) SIMA Statistical Information Management and Analysis SMEs Small and Medium Enterprises SONITEL Socidte' Nige'rienne des Te'le'communications(Nigerien Telecommunications Company) TB Tuberculosis TFP Total Factor Productivity TOT Terms o f Trade UEMOA Union Economique et Mone'taire OuestAfricaine (see WAEMU) UNDP UnitedNations Development Programme UNESCO UnitedNations Educational, Scientific and Cultural Organization WAEMU West African Economic and Monetary Union WDI World Development Indicator WHO World Health Organization WITS World Integrated Trade Solution WFP World FoodProgramme WTO World Trade Organization WorldBank Vice President: Obiageli KatrynEzekwesili Country Director: Madani M.Tall Task Team Leaders: Ousmane Diagana andJoelle Dehasse This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not b e otherwise disclosed without World Bank authorization. NIGER: COUNTRY ASSISTANCE STRATEGY N O S - F Y 1 1 CONTENTS ExecutiveSummary ........................................................................................................... i I CountryContext . ........................................................................................................... A. SocioeconomicBackground.................................................................................. 1 1 B Political Context.................................................................................................... . 1 D Progresstoward the MDGs................................................................................... 3 C. Poverty Context..................................................................................................... . 2 I1 EconomicDevelopmentsandOutlook . A. Historical Context ................................................................................................. ...................................................................... 5 5 B. Recent Performance.............................................................................................. C Medium-Term Prospects ....................................................................................... . 7 8 111. CountryDevelopmentProgramandIssues 9 A. Strategy to Accelerate Growth andPoverty Reduction(PRSP 11)........................ ............................................................ B. KeyDevelopment Challenges andOpportunities ............................................... 9 10 IV WorldBank Group Strategy . 16 A. Progress under the 2003 CAS ............................................................................. .................................................................................. 16 B. CAS Strategic Objectives andPrinciples............................................................ 17 18 D Delivering the Bank's Program........................................................................... C World BankProgram to Support CAS Outcomes............................................... .. E. Portfolio andFinancialManagement .................................................................. 27 28 V PartnershipsandParticipation . ................................................................................ A. Bank Group ......................................................................................................... 29 B.Partnerships andHarmonization .......................................................................... 29 30 C. CAS Consultations .............................................................................................. 30 VI MonitoringandEvaluatingCAS PerformanceandResults 31 VI1 RisksandMitigationMeasures .. ............................... ............................................................................. 31 Annexes Annex 1: Results Matrix FY08-11................................................................................... 33 Annex 2: Niger - Development Partners by Sector ......................................................... 41 Annex 3: CAS Completion Report .................................................................................. 42 Annex 4: Joint Fund-Bank Debt Sustainability Analysis ................................................ 77 Annex 5: Country At-A-Glance Tables ........................................................................... 89 Annex 6: KeyEconomic Indicators (CAS Annex B6) .................................................... 92 Annex 6: Key Economic Indicators (CAS Annex B6) continues .................................... 93 Annex 7: Key Exposure Indicators (CAS Annex B7) ..................................................... 94 Annex 8: Operations Portfolio (IBRD/IDA and Grants) (CAS Annex B8) .................... 95 Annex 9: Selected Indicators o f Bank Portfolio Performance and Management 96 Annex 10: IDA Program Summary (CAS Annex B3)..................................................... (CAS Annex B2)............................................................................................. 97 98 Annex 12: CAS Consultations .......................................................................................... Annex 11: Summary o fNon-lending Services (CAS Annex B4) ................................... 99 Tables Table 1: Niger's Progress Toward Education and Health MDGs...................................... 5 Table 2: Major or Severe Constraints to a Firm'sGrowth and Operations...................... 12 Table 3: Key Indicators, Doing Business inNiger .......................................................... 12 Table 4: ProposedIDA Assistance for FY08-11 andPRSP Pillars ................................ 26 Table 5: Proposed IDA Financing FY08-11.................................................................... 28 Table 6: Proposed Non-lending Program for FY08-11 ................................................... 28 Table 7: Net ODA flows to Niger 2000-2006 ................................................................. 30 Fipures Figure 1: Real GDP Growth(1960-2007) ......................................................................... 6 . Boxes Box 1: Progress inImplementing Selected Structural Reforms (2000-2007) ...................7 Box 2: Niger's Demographic Challenge.......................................................................... 24 MAP: IBRD33457 EXECUTIVE SUMMARY i. NigerisavastlandlockedSaheliancountrybridgingSub-Saharan andNorthAfrica, facing many new challenges and opportunities to create a better future for its children. The country i s endowed with important mineral resources, such as uranium, gold and possibly oil, which provide good prospects for creating national prosperity, if well-managed, but which are also at the heart o f recent conflicts. With some 80 percent o f its population living in the countryside, the most effective strategies for raising incomes and reducing poverty lie in rural development. Niger has great potential for irrigation and agricultural production and has extensive herds o f cattle and goats, all o f which represent a promising potential for increasing revenues if provided adequate support to grow and diversify. In this context, strengthening Niger's regional trade integration, and trade arrangements, i s a key element for unlockingthe country's growth potential. .. 11. At the same time, Niger faces many hardships that cannot be underestimated. The country i s confronted by a harsh climate, with nearly 90 percent o f the territory receiving less than 350 mm o f rain every year, resulting inregular droughts. The country also must adapt to the gradual advance o f the Sahara desert and manage locust invasions. Dueto a combination o f geography, weak policies and lack o f resources, one third o f the population i s in a situation o f chronic food insecurity. Increased food and oil prices are having significant impact on the poor and have created added difficulties for the country inthe short-term. iii. Despitebeinga sparsely populated country of 13 million, Niger's fertilityrates are relatively high and the population growth rate is one of the fastest in the world, around 3.3 percent, and this has created increased pressure on arable land, water resources and government services, particularly along the fertile southern border areas where the majority o f the population i s concentrated. Meanwhile, for many years economic growth has not kept up with population, and the government has become increasingly aware o f the need to accelerate economic growth and address demographic issues in order to have an impact on the country's development prospects and to reduce poverty. iv. Niger is still among the poorest countries in the world. Nevertheless, there are recent indications of improved access to basic education and better health outcomes, showing that government efforts, supported by development partners, are beginning to have results. Although Niger i s not expectedto meet the MDGs,this has helped to create a renewed impetus to achieve these goals. v. Against this backdrop, the Government in 2007 led the preparation of the country's Strategy for Accelerated Development and Poverty Reduction, or the second Poverty Reduction Strategy (PRSP 11). PRSP I1 was prepared in a participatory process and was endorsed by development partners at a Roundtable meeting inBrussels in October 2007. PRSP I1proposes that in order to reach the MDGs, Niger will need to sustain an average annual growth rate o f 7 percent over the medium-term. Achieving such a highgrowth rate for Niger will require significant investments in infrastructure and basic services, as well as improved capacity to implement reforms, administer basic services and attract private sector investments. PRSP I1provides only the broad thrust o f the priorities for achieving the MDGs. As such, the Government i s preparing an Accelerated Growth i Strategy that will provide more concrete details on how it will effectively support the drivers o f growth ("growth clusters") and the reforms it will implement. vi. The Bank's strategy to contribute to PRSP I1 objectives i s built around two strategic objectives, or pillars: Accelerating Sustained Growth that is Equitably Shared. Under this pillar, the Bank will increase its support to sectors where it has a comparative advantage in Niger, such as to support policies and investments to promote rural "growth clusters," such as agro-pastoral products and exports and mining; strengthen economic infrastructure services, including irrigation, transport, and municipal services; improve the business and investment climate; and strengthenregional integration; and Developing Human Capital through Equal Access to Quality Social Services. Under this pillar, the Bank will support social infrastructure, such as water and sanitation services, basic education, health services, including HW/AIDS prevention and treatment, decentralized financing mechanisms for basic services, and community driven development. The Bank will also continue to support Government response for emergencies, such as food insecurity, locust invasions and avian flu. To achieve greater strategic selectivity, the Bank will gradually reduce its direct support to some human development sectors where other donors are present and have a comparative advantage. vii. Two hndamental and cross-cutting issues on which the Bank will work closely with Niger in order to achieve results under the two CAS pillars are governance, with an emphasis on economic and financial management and capacity-building, and population growth. viii. The International Development Association's indicative annual allocation during IDA 15 is about SDR 57 million. InFY08, Niger received 50 percent o f its IDA allocation on grant terms and 50 percent on credit terms and this i s the expectation for FY09. The CAS proposes that any variations in the IDA allocation would be offset by adjusting the financing for budget support or new investment operations. T o leverage IDA support, the Bank will seek to design Bank projects with parallel or co-financing with donor andor private participation, especially in the sustainable development and human development sectors. ix. While the balance of risks is currently favorable, Niger faces potential downside risks of exogenous shocks including drought and terms o f trade. Vulnerability vis-a-vis climate variability and change, desertification, and terms o f trade shocks (notably fluctuations in the price o f uranium and oil), are perennial challenges to Niger's economy. x. The following questions are suggested for Board discussion: Does the proposed strategy adequately contribute to Niger's PRSP I1priority objectives? I s the selectivity o f the CAS appropriate for the Bank, inlight o f limited IDA resources? Are the risks properly identified and mitigated? .. 11 THE REPUBLIC OFNIGER COUNTRY ASSISTANCE STRATEGY 1. This Country Assistance Strategy (CAS) covers the four-year period from FY08 to FY11. It sets out planned lending and non-lending activities of the World Bank Group in support o f Niger's second Poverty Reduction Strategy (PRSP 11) to achieve the country's MillenniumDevelopment Goals (MDGs).Niger's PRSP I1was discussed at the Board on April 29,2008 and the previous CAS on January 14,2003. 2. The CAS considers Niger's central challenge o f accelerating and broadening economic growth so that it translates into reduced poverty. To this end, the CAS proposes a program focused on supporting the drivers o f growth in Niger; strengthening the management o f public finances and improving access to basic social services. Consequently, the CAS has two strategic objectives: 1) Accelerating sustainable economic growth that i s equitably shared; and 2) Developing human capital through equal access to quality social services. Supporting Niger's efforts to slow the rapid rate o f population growth, to allow economic growth to have an impact on poverty, is an essential element o f PRSP I1and i s treated as a cross cutting issue. Promoting good governance, to ensure that increased revenues from growth are efficiently spent and broadly shared, i s also a cross-cutting issue for the CAS. I.COUNTRYCONTEXT A. SocioeconomicBackground 3. Located on a vast landlocked territory o f 1.267 million sq km situated on the southern edge o f the Sahara, Niger has a long and rich history. Ancient towns such as Agadez were established in the 11th century, growing up under the Songhai Empire, Almoravid Empire o f Tombouctou, the Peul Empire o f Sokoto and the sultanate o f Bornu. The largest ethnicities today are the Hausa, the Djerma, and the Songhai, who are sedentary farmers living on the arable southern tier. Many o f Niger's inhabitants are nomadic or semi-nomadic livestock-raising peoples, including the Tuareg, the Fulani, or Peul andthe Kanouri-Manga. 4. Only 10percent o fNiger's territory, or 120,000 sq km, benefits from rain-fed agriculture. The rest o f the country, areas receiving less than 300 mmof rainfall, must be irrigated. Rain-fed crops such as millet, sorghum, niebe, yams, manioc, and rice, cultivated along the Niger River and in low-lying areas bordering Nigeria, are principal staples. Groundnuts and onions are important agricultural export commodities. Livestock include cattle, sheep, goats and camels. Cattle and sheep are exported mainly on the hoof to Nigeria, along with hides and leather. Uraniumhas been mined industrially since 1971and a gold mine opened in2007. Other deposits include coal, limestone, phosphates, tungsten and tin. Petroleum i s under exploration. B. PoliticalContext 5. Niger is a new democracywhich has begunto establish a track recordof democratic governance.Niger became independent from France in 1960, only to face single party rule for 1 the next thirty years until strong opposition pressure by students and trade unionists led to a "National Conference" (1991), the appointment o f a transitional government, and finally free elections. After another eight years o f instability and economic adjustment, free and fair presidential and legislative elections led to the election o f President Mamadou Tandja in 1999 and set the country on a more optimistic course o f development. Niger concluded a new three- year Poverty Reduction and Growth Facility agreement with the IMF just one year later and adopted a PRSP in2002, based on broadpopular consultation. President Tandja was re-elected in 2004. This new era o f stability paved the way for economic and financial reform and the strengthening o f health and education services in order to reach the Millennium Development Goals (MDGs). In2005, local elections were successfully held. C. PovertyContext 6. Despite progress in real GDPgrowth in recent years, the average per capita income in Niger has not improved and social indicators remain among the weakest in the world. Niger i s one o f the poorest countries inthe world, with the average annual per capita income estimated at US$260 (2006), and 62 percent o f the population estimated to be living below the poverty line. In rural areas, poverty is estimated at 66 percent, compared to 55 percent in urban areas (excludingNiamey). While there is no definitive evidence on the poverty trend, a one percent per year decline inGDP per capita between 2001 and 2004-followed bythe acute food crisis o f 2005-suggest that poverty may have increased during those years. The 2007/2008 Household Budget Survey is expected to update information on the poverty trend.' 7. An unfriendly environment for growth: Geography, climate, demographics and institutions. Niger's economic growth and its potential impact on poverty are constrained by a numbero ffactors: Agricultural productionis limited by climatic variability, inadequate irrigation andthe limiteduse ofmodern inputs. Dependence on a narrow economic base-agricultural and mineral commodity exports-leaves the economy vulnerable to price shocks. However, economic diversification is hampered by inadequate road and transport networks and the high cost o f doing business due to weak financing systems, poor judiciary and legal practices, weak private sector support institutions and a low-skilled workforce. Beinga landlocked country with no seacoast, Niger's exports and imports also face hightransport costs. Rapid population growth reduces the impact o f growth and creates increased demands for basic social services from institutions with weak capacity that are stretched to their limit. 8. Increasing desertipcation and drought, coupled with afast growing population, makes rural livelihoods precarious. Climatic variability and change has become more apparent in Niger, which has experienced more frequent drought years during the 1990s as compared to the average from 1961to 2001. The 2005 drought and locust infestation are a case inpoint: GDP fell by one percent and almost half the population lacked food due to the failure o f staple crops. Nigeriens' ability to adapt to climatic change and desertification is further compounded by unsustainable land management practices-overstocking o f livestock, ploughing erodible soils, poor or nonexistant rural infrastructure, and expansion o f agriculture into marginal regions-in an effort to meet the needs o f a fast growing population. Niger's population, estimated at 14 ISurvey of basic werfare indicators (QUIBB) WorldBank, 2005. 2 million in 2008, i s growing at a rate o f 3.3 percent a year, among the fastest in the world, due primarily to declining mortality levels2 and high fertility rates3Ina context o f declining rainfall andcyclical droughts, communities overexploit natural resources inorder to maintain or increase their level o f production. The result i s soil depletion, loss o f fertility, lower yields, and environmental degradation, which has progressively led to an environment-poverty nexus that contributes to increasing food insecurity andpoverty. 9. Food insecurity and chronic poverty have become an endemic problem. Nearly 80 percent o f the population, mainly in rural areas, i s at risk o f food insecurity. The situation i s aggravated by the high incidence o f rural poverty, characterized by low household purchasing power, lack o f access to food for vulnerable groups, rampant malnutrition and a lack o f basic health services. With continued dependence on rain-fed staple crops, hunger and the specter o f famine loom large inthe lives o f Niger's poor. Inthis context, malnutrition affects 44 percent o f children under five and is associated with a loss o f human development and weak future earnings. As malnutrition perpetuates poverty and poverty perpetuates malnutrition, the loss of humandevelopment potential is often transferred from one generation to the next, as illustrated bythe very highmalnutrition rate amongwomen. 10. Poverty is exacerbated by inequality which affects girls, women and children disproportionately. The poorest quintile o f the population in Niger consumes only one-fifth o f what the top quintile does.4 Women bear an unequal and particularly heavy burden, especially young single mothers with no access to land or other resources. Marrying as early as fifteen, girls are most likely to drop out o f school to tend to the household and work inthe fields. D. Progress towardthe MDGs 11. Niger isfar behind in reaching the MDGs and will need more time, and donor support, to meet most goals. The country i s ranked 174thinthe 2007 UNHuman Development Index o f 177 countries. The country started from a very low base in 1990 when the MDGs were launched. Niger would have had to increase its primary education completion rate from 18 percent in 1990 to 100percent in2015, its gender parity index from 56 percent to 100 percent, and reduce under- five mortality rate from 322 per 1,000 to 109 per 1,000. Inthe 1990s, no sound strategy was in place to pursue the MDGs in any area, in large part because political instability made such planning and implementation difficult and resources were scarce. Public resources allocated to social services were very low, from 3.2 percent o f GDP in 1990 to 2.1 percent in 1999 for the education sector5with expenditures for health amounting to 1.6 percent o f GDP in 1 9 9 8 4 n e of the lowest levels inWest Africa. * Infantmortality has declined and for the first time may be under the threshold of 100 deaths per 1,000 live births. The under-five mortality rate has also decreased due to immunization. However, Niger has still the third highest under-five mortality rate (UNDP 2005 HumanDevelopment Report), despite an annual decrease of 1.5 percent a year. Malnutrition (50 percent o f under-fives) seems to be the main cause of mortality. With 7 childrenper woman, Niger's total fertility rate is among the highest inthe world. 4 'Niger has a Gini coefficient o f .44. QUIBB,World Bank, 2005. Niger Country Economic Memorandum: Accelerating Growth and Achieving the Millennium Development Goals: Diagnosis and the Policy Agenda, World Bank, September 2007. 3 12. However, a few notable achievements have been made in education and health indicators, as shown inTable 1.6While Niger i s not expected to reach the MDGsby 2015, these figures show progress in some sectors and the challenge will be to maintain and accelerate this momentum, which will require substantial technical and financial support from development partners. With the preparation o f the first PRSP inthe early 2000s, there was a renewed impetus to reach the MDGs, with education and health development plans prepared and eventually national strategies for other sectors, including the 2003 Rural Development Strategy. 13. Putting the economy on apath of higher growth and making adequateprogress toward the MDGs will require continuedprudent fiscal policies and reforms to address long-standing structural obstacles. Accelerating economic growth will require a rapid increase in agricultural productivity, a much more sustainable use o f natural resources, the mainstreaming o f climate risks and o f environmental management in all development sectors and a broad diversification o f the economic base. These, in turn, require higher public and private investment and a more favorable business environment. In this respect, effective implementation of the rural sector medium-term strategy which focuses on irrigation and the introduction of modem and sustainable farming techniques, combined with large donor assistance, will be critical to Niger's prospects for growth andpoverty reduction. 6 Inaddition, the Primary Gross Enrollment Rate more than doubled between 1990 and 2005-increasing from 25 percent in 1991to 42 percent in2001-02 to 54 percent in2005. The primary completion rate grew from 18 percent in1990to 26 percentin2001-02and40 percentin2005.Theinfant mortality rate has declinedfrom 126/1,000 live births to 81/1,000 in 2006; the under-five mortality rate has declined from 322/1,000 chldren under five to 198/1,000; and the maternalmortalityrate has declined from 700 per 100,000 to 650per 100,000. The immunization rate doubled, from 18 percent to 37 percent.Bucking the trend, the prevalenceof underweight children appearsto be on the rise afler a decade of steady but slight decline. 4 Table 1: Niger's Progress Toward Education and Health MDGs' MDGTarget 1 1990/93* 12005/06 2015 (baseline) 11 (goal) Halve the proportion o f people living under poverty threshold I I -7- ll_--_l Halve the prevalence o f underweight l-----.- 43% 44% 1 21% children under five I , 1 Ensure boys and girls everywhere able to , 18 complete full course o fprimary education I Eliminate gender disparity inprimary and secondary education (ratio o f girls to boys) 1 Reduce by two-thirds the under-5 mortality 1 rate (per 1,000) 'Reduce by three-fourths the maternal -- mortality rate (per 1,000) I Halt and begin toGe-ead o f Hfi--?-/- .T--" 0.7 ~ I Reduce by halfthe proportion o f population without access to potable water (measured , by %that have access) , Source: CEM, World Bank 2006; PRSP IIMDG indicators (based on QUIBB 2006) 11. ECONOMICDEVELOPMENTSOUTLOOK AND A. Historical Context 14. Since 1960, Niger's economy has essentially gone through four phases with periods o f highvolatility (Figure 1): From 1960 to 1974: The economy was dominated by rain-fed agriculture and livestock, which accounted for 60 percent o f GDP. Groundnuts accounted for 50 to 70 percent o f exports and served as a catalyst for industrial development (processing groundnut oil), transport infrastructure development and trade with Nigeria. Three years o f drought almost halted production in the mid 1970s and average GDP growth of 1.4 percent fell below the population growth rate. From 1975 to 1982: Uranium extraction, which started in 1971, gave a significant boost to the economy. Uranium prices increased five-fold as many countries turned to nuclear power duringthe international oil crisis. The boomwas short-lived, lastingjust over a decade, long enough to increase Government revenues from 6.1 percent o f GDP in 1974 to almost 15 percent by 1981. This led to excessive spending. The civil service expanded significantly (accounting inlarge part for today's highpublic sector wage bill) and government investedin 7See CASAnnex 5for complete MDG table. 5 a large number o f public enterprises, many operating with no comparative advantage in sub- sectors such as import substitution. Real GDP growth averaged 3.3 percent, slightly above population growth o f around 3 percent. From 1983-2000: The decline o f uranium prices and recurrent droughts, coupled with political and social instability by the earlier nineties, led to an economic downturn. Real economic growth was estimated at 0.9 percent on average, and real per capita growth at -2.2 percent. From 2001-2006: Structural reforms (Box 1) initiated in 2001 led to reduced economic volatility and increased contributions o f telecoms, transports and miningto economic growth. Average GDP growth reached 4.6 percent (1.3 percent above the population growth rate), but a severe drought and locust invasion ledto an economic contraction in2005, Figure 1: Real GDP Growth (1960-2007) 20 15 10 5 0 1+Real GDP Growth 1 -5 -10 -15 -20 15. Reforms introduced by the authorities in 2001 aimed at improving public expenditure management, enhancing domestic revenue mobilization, and strengthening the economy's supply reforms (Box 1). As a result, the formulation and execution o f the budget have improved; domestic revenue collection has increased, though starting from a low level; privatization and other reforms to promote private sector development have helped strengthen the performance o f the nonagricultural sector; and private investmenthas increased.* Inaddition, resources provided under the Heavily IndebtedPoor Country Initiative (HIPC) helped to increase pro-poor spending and reduce the debt b~rden.~ 8From6.2 percent in2002 to an estimated 14.4percent in2007 9Niger reachedthe completionpoint under the initiative in2004; debt relief, includingtopping-up, reducedthe NPV o f debt-to-exportsratio from 390 percent at end-2002 to about 150percent at end-2004.All creditors except for Algeria, Iraq, Libya, Taiwan Provinceof China, andthe UnitedArab Emirates,have signed agreementsto provide debt relief includingtopping-up. 6 Box 1: ProgressinImplementingSelected Structural Reforms(2000-2007) Customs and tax administration: (1) adoption o f monthly performance indicators for the main customs offices and consistently tracking compliance; (2) establishment o f an issue-oriented audit unit in the large and medium-size taxpayer office; (3) strengthening the large tax payers office; (4) instituting joint pre-shipment company-customs imports verification teams at several border offices; and (5) implementation o f an action plan to enhance the mobilization o f tax revenues. Public expendituremanagement: (1) adoption o f a new budgetary nomenclature, public accounts charter and a new procurement law; (2) introduction o f a FMIS, the setting up o f a Treasury-Budget computer interface, and computerization o f regional treasury offices; (3) a comprehensive assessment o f Niger's public fiiancial management systems through a PEMFAR, with assistance from the EU and the Bank, and adoption o f an action plan; (4) the preparation and incorporation into the budget o f medium-term expenditure frameworks for health and education; (5) adoption o f a unified list o f priority expenditure; (6) effective establishment of the new General Directorate for Public Procurement; (7) creation of the independent Audit Court, and (8) separation o f financial control, training o f agents and appointment o f staff to the new independent Audit Court. Despite these actions, a significant number of actions are needed to W h e r strengthen PEM. To t h ~ send, the action plan (2007-2009) has beenupdated. Financial sector reform, privatization, and the regulatory environment: (1) restructuring and recapitalization o f two partially state-owned banks, the restructuring o f the housing bank; (2) the telecommunication sector has been liberalized and a Multi-sector Regulatory Agency set up; (3) several state-owned enterprises were privatized including cement, textile, diary, and telecom companies; and (4) one-stop center for investment was created, new mining code was adopted, and steps were taken to streamline the business regulations. Despite the progress in financial sector reform, the sector remains relatively underdeveloped, access to credit by the private sector is still limited, and nonperfonning loans are relatively high.The cost o f doing business also remains high. Trade reforms: (1) in 2000 Niger adopted the WAEMU common external tariff, with four rates (0, 5, 10, and 20 percent); and (2) in2005 Niger removed duties o n imports (manufacturing, animal products and vegetables) from all Economic Community o f West African States (ECOWAS) members. B. Recent Performance 16. With an estimated real GDP growth rate of 5.2 percent in 2006 and 3.2 percent in 2007, the economy has recoveredfrom the impact of the 2004 drought and locust invasion. Good rains in the last three years have boosted agricultural production and improved food security. Investment in the mining, telecoms and construction has also supported economic activity. Inparticular, gold production has recorded an upturnwith the reopening o f the principal mine and a major investment program is in progress for uranium. Average inflation has averaged 1.8 percent during2002-2006 and in2007 i s estimated to be zero. Trends inthe balance o f payments in 2007 showed a strong increase in the value o f uranium exports, reflecting a 58 percent revaluation o f the export price. This has been accompanied by a strong increase in imports o f capital goods, both for the mining sector and for infrastructure projects, inaddition to the replenishment o f the stocks o fpetroleum and grain products. Thus, the current account deficit is estimated to have risen from 8.6 percent o f GDP in2006 to 7.7 percent o f GDP in2007. 17. Recent fiscal performance has also been favorable and implementation of the 2007 budget suggests continued fiscal prudence. From 2002 to 2006, the basic fiscal deficit has averaged 2.0 percent. In 2007, it is estimated at 0.9 percent o f GDP, comparing to an initial 7 projection o f 4.1 percent. Revenues o f 15.5 percent o f GDP exceeded expectations, largely due to the favorable performance o f the VAT and exceptionally high mining receipts." Expenditures, excluding externally funded investments, are estimated at 16.4 percent o f GDP. There has been some progress with plans to reduce the government's domestic arrears, including: (i) finalizing plans for cross-settlements with public utility companies to offset government debts and claims; (ii) initiating the settlement of arrears owed to private suppliers; and (iii) to plans reimburse depositors o f the former National Saving Bank when the new postal bank (FINAPOSTE) becomes operational in2008. C. Medium-TermProspects 18. Niger's medium-term macroeconomic outlook appears favorable due to increased fiscal space resultingfrom the HIPC and MDRI debt relief proceeds and increased investments inmining, infrastructure and agriculture. Based on the latest Bank and IMF assessments, annual real GDP growth i s projected to average about 5 percent over the 2008-2012 period, fostered mainly by increased public investments in infrastructure and social services and private investment inthe uranium miningsector. 19. The external current account deficit isprojected to increase to 16.7percent of GDP by 2012, reflecting a rise in capital and intermediate goods imported to sustain investments in mining and infrastructure. The overall fiscal deficit (commitment basis excluding grants) would increase to 9.8 percent due to public expenditures planned for social and infrastructure investments and associated recurrent outlays. Total expenditures would average about 23 percent o f GDP from 2008 to 2012. The total financing gap resulting from the base-case scenario would be around FCAF 1300 billions (or 10.1 percent o f GDP) and would be filled by bilateral and multilateral donor support to the budget. 20. Annual GDPgrowth is expected to be about 5percent of GDP afer the moderation of the uranium boom from 2017 onwards. Mining companies have confirmed investments estimated at US$1.6 billion in the uranium sector and production is project to double by 2012 and triple by 2017. The government plans to use increasing uranium revenues to diversify its economy by: (i) modernizing agriculture (irrigation) and livestock to mitigate the impact of recurrent droughts; (ii)investing in infrastructure (feeder roads, water management for agriculture production) to ease transport and public utility services; and (iii) accelerating reforms to improve the investment climate. Inflation would be contained within WAEMU convergence criteria (i.e., less than 3 percent). 21. According to the latest IMF-WBjoint Debt Sustainability Analysis (DSA) external debt indicators over the long run remain below the policy-based thresholds and the debt burden i s projected to increase only gradually over time (Annex 4). Niger remains at moderate risk o f debt distress, given the prospect of faster export growth and assuming that new borrowing continues to be on very concessional terms. 10 The Government set up a Priority Investment Fund to use mining revenues for expenditures in security, rural development, infrastructure, and development support. 8 111. COUNTRYDEVELOPMENT PROGRAMAND ISSUES A. Strategy to Accelerate Growth and Poverty Reduction (PRSP 11) 22. The Government's PRSP 11for 2008 to 2012 was prepared through a broad-based participatory process and endorsed by donors at a Roundtable meeting in Brussels in October 2007. The Government's strategy takes into account lessons learned from PRSP I,emphasizing the priority o f creating an enabling environment for accelerated economic growth, with strong support from the development partners, leading to equitable poverty reduction. As presented in the PRSP 11, the Government's strategy is to reach average annual growth rates o f 7 percent in order to reach the MDGs by 2015. The Government recognizes that this i s an ambitious goal and has prepared an equally ambitious program with the support o f donors. The base-case and intermediate case scenarios estimate growth at 4.2 percent and 5.7 percent, respectively, the latter being inline with Bank and IMFprojections. 23. To achieve growth rates that will allow Niger to reach the MDGs, the Government's PRSP I1i s articulated around seven pillars: (i)Pursuing strong, diversified, sustainable and equitable growth that createsjob. The strategy i s to promote sectors that are the engines o f growth, creating employment and enhancing incomes: rural development, the extractive industries, the agro-pastoral sector with the diversification o f products for export; tourism and local crafts through an enabling private sector, attractive to investment, bolstered by improved financial service and efficient public utilities. Sustaining macroeconomic stabilization through improved fiscal performance, together with prudent, better managed public expenditures and debt, will be key factors to success. The government will also pursue sustainable natural resources management and mainstreaming measures to mitigate climate risk under this pillar. (ii)Developinginfrastructure. Improvedeconomic infrastructure(irrigation works, roadand rail transport, transit facilities and telecommunications) i s fbndamental to the growth agenda. Government will promote the involvement o f the private sector and improve the regulatory framework. (iii)Creating equitable accesstoquality socialservices.The goalis universal access, with gender parity to social services, with the improvement o f health and education outcomes. Expansion and maintenance o f social infrastructure (health center, primary and lower secondary schools; water and sanitation) is a key component. (iv) Gender empowerment and socialprotection. This pillar has three main focuses: (a) the economic empowerment o f women through access to land and input, credit and technical advice, under the protection o f family law; (b) ensuring the protection o f children, youth and vulnerable groups such as the HIV/AIDS positive and PLWA, providing economic and social support programs and (c) programs to reduce vulnerabilities, mitigate the impact o f natural disasters, including climate change, notably by ensuringfood security. (v) Slowing population growth. Government will improve access to reproductive health services, promote delayed marriage for young girls and work toward greater social comprehension o f the linksbetweenpopulation and economic growth. 9 (vi) Promoting Good Governance' and Capacity-Building. This pillar covers political governance (elections, civil involvement, policy consultations); an anti-corruption program,; strengthening justice services; public administration and civil service. reform; and economic governance to strengthen public financal management. (vii) Efficient implementation of the PRSP. The Government will focus on strengthening the planning capacities o f sector ministries to ensure timely preparation o f sector strategies, sector programs and related-MTEFs. Government will also establish a results-based MonitoringandEvaluation system. B. Key DevelopmentChallengesandOpportunities 1. RegionalandGlobalIntegration 24. Accelerating Niger's integration into regional and global markets is key to achieving higher growth rates and reaching the MDGs, which the country cannot do by relying solely on country-level investments, debt relief, and structural reforms. Bound by seven countries (Algeria, Libya, Chad, Nigeria, Burkina Faso, Benin and Mali), Niger must rely on regional markets rather than its small national market for economies o f scale and scope in trade and infrastructure. 25. Nigeria and other countries in the region are Niger's main market for non-mineral exports, and offer great potential for expansion and diversification o f its products. Nigeria i s not only the main trading partner, but also the country that offers the greatest potential because o f its size and diversified economy. Africa's most important oil producer, Nigeria contributes significantly and increasingly to Niger's growth, through demands for exports, essentially agro- pastoral; but Nigeria also exports to Niger more than 90 percent o f its electricity needs under a state-to-state agreement in which prices are set below international prices. While this is beneficial to Niger, there i s no guarantee that such an agreement will last indefinitely. Niger should put in place an operational trade strategy with Nigeria over the next two years." In addition, a significant amount o f trade between the two countries i s informal and unofficial. 26. Niger is a key member of important regional organizations covering economic, monetary, financial, and business regulations. As a member o f the WAEMU, Niger shares a common currency (the CFA franc), a common central bank (BCEAO) and common trade policies with seven other West African countries. The harmonization o f sector policies and legal and regulatory frameworks with a view to creating a larger, more open and competitive West African economic space, including intransport and transit, energy and telecoms sectors, i s being pursuedthrough both WAEMU and ECOWAS. It is also at the forefront o f the revitalization o f the Niger River organization that promotes coordination and cooperation between riparian countries inmanaging water resources inthe Niger River Basin " Niger: Modernizing Trade during a Mining Boom: Diagnostic Trade Integration Study for the Integrated Framework Program, World Bank,February2008. 10 2. Economic Infrastructure 27. Lack of economic infrastructure is a major constraint to growth. The potential for food crops, vital to food security, and for agricultural and livestock exports which could boost income for the poorest i s severely constrained by the lack o f infrastructure with regard to irrigation works, the transport corridors to markets (pistes rurales, primary and secondary roads), market infrastructure (conservation andprocessing facilities), compoundedby the absence o f the modem communication capacity required for the flow o f market information. Transport and communication infrastructure are also vital for the development o f the other potential growth sectors, miningand tourism. 3. Extractive Industries 28. Mining legal and institutionalframework needs to be adaptedfor rising demand: Niger is endowed with the world's largest deposits o f uranium and i s the world's 3`d largest exporter. Uranium and gold account for 40 percent o f Niger's export receipts. The country also has deposits o f oil, iron, phosphate, salt, copper and tin. There i s an artisanal mining sector which contributes less to tax revenues but has a more significant impact onjobs. Some measures should be taken to support artisanal miners considering the level o f poverty affecting them. The population living on gold mining is estimated at between 80,000 and 120,000. Renewed interest in nuclear energy has led to a sharp rise in uranium prices. Existing mines are expected to increase production and two new mines will enter production by 2012. The total value o f uranium exports could increase from CFAF 80 billion in2006 to CFAF 400-500 billion by 2014. Good management and use o f government revenues will become one o f the most important challenges for the Niger government inthe near future. 4. Rural Development 29. A key development challenge for Niger is to unlock the growth potential of the agricultural sector. Increasing agriculture productivity by one percent o f GDP would have a multiplier effect o f increasing GDP by 1.9 to 2.6 percent, helping to significantly reduce poverty." However, agricultural production is constrained by a number o f factors, including climate variability and change and the rudimentary nature o f agricultural techniques. The Government's 2003 Rural Development Strategy and 2006 Action Plan provide the framework for national efforts to increase production in the agriculture, livestock and forest and fisheries sectors, by: 1) providing support for livestock and their by-products (leather, meat); 2) supporting agricultural products, including investing in irrigation infrastructure, farming technologies research and TA; 3) strengthening production and conservation o f staple crops and export-competitive produce; 4) fighting desertification and degradation o f the environment; access to credit; and improving the flow o f market information; and 5) strengthening the management o f natural resources. These activities should integrate climate risk in their design andimplementation. '2Niger Country Economic Memorandum: Accelerating Growth and Achieving the Millennium Development Goals: Diagnosis and the Policy Agenda, World Bank, September 2007. 11 5. The InvestmentClimate 30. A perception of a weak investment climate: Niger suffers from a negative perception of its investment climate. Among the key issues identified by businesses are: corruption; the inconsistent application o f regulations; low efficiency o f the judiciary; a heavy tax burden; difficulties in getting financing, which i s expensive; competition from the informal sector; and weak infrastructure services. Inaddition, labor costs are highrelative to productivity. l3 Table 2: Major or Severe Constraintsto a Firm'sGrowthand Operations Constraints i Niger Benin Cambodia Mali Senegal Tanzania Uganda China Turkey Cost of financing 66.7 78.2 10.5 57.3 64.5 56.2 60.3 21.6 28.2 Tax rates j 68.4 87.7 18.6 36.4 50.4 72.1 48.3 34.1 38.1 Practicesof competitors in the informal sector j 61.5 71.7 33.7 42.2 48.6 23.9 31.1 17.6 22.7 Tax regulations I I 63.2 86.2 20.7 30.1 47.2 54.7 36.1 23.7 33.1 Corruption j 59.0 83.9 55.9 48.7 39.9 50.0 38.2 22.4 23.7 Customs and trade regulations 38.5 64.7 25.6 19.9 36.6 30.8 27.4 21.1 8.9 Transportation ii 35.9 42.1 7.8 20.1 36.1 22.5 22.9 19.4 8.4 Electricity 41.0 69.2 12.7 24.2 30.6 57.6 44.5 28.1 17.3 Access to land I 18.0 33.7 3.2 13.0 29.7 24.3 17.4 16.3 6.0 Inadequately educatedworkforce 1 41.0 25.6 6.6 20.1 17.3 24.6 30.8 26.7 12.8 Laborregulations 15.4 35.4 5.9 3.9 15.8 11.9 10.8 19.4 8.7 Telecommunications ij 28.2 40.7 3.2 14.3 3.5 11.6 5.2 16.5 10.9 NB:Manufacturingonly. Source: Enterprise Survey 2001-2006, Investment Climate Assessment, World Bank 2006 31. The 2007 Doing Business report ranks Niger as one o f the countries inwhich it is most difficult to engage in private activities-16Oth out o f 175. The report notes that while the high number o fprocedures anddelays contribute to this ranking, the excessive cost o f doing business probably constitutes an even greater barrier to entry and hinders the daily operation o f firms (Table 5). Table3: Key Indicators,DoingBusiness in Niger Indicators ~ ~~ ~~~ Value Overall Ranking 160 Enterprisecreation I Ranlung- 147 Cost as % of GNPPC 417 MinimumCapital as %of GNPPC 778 Licensing Ranking 126 Cost as % of GNPPC 2987 Property transfer As%ofvalue 14.0 Paymentof Taxes As % of gross profits 46.0 Contract enforcement Cost as % of claim 42.0 Border Trade Ranking 174 Cost of imtlorting a containerUS$ 3266 Source: Doing Business 2007 13 InvestmentClimate Assessment (ICA) for Niger, World Bank,June 2006 12 32. The Doing Business report has helped sensitize government and stakeholders inNiger to the importance o f reforming taxation and regulatory systems. With the notable exception o f the 2005 VAT reform and adoption in 2000 o f the common WAEMU external tariff, many o f the reforms remain ininitial stages o f formulation. 33. A shallow and expensive financial sector: Niger's financial sector is small, in part because o f the relatively small size o f the economy but also the dominance o f the informal sector. Besides the BCEAO, Niger's financial sector consists o f (i) ten banks14 and two quasi banks; (ii) four insurance companies and some insurance brokers; (iii)statutory bodies pension a scheme within the Treasury and a private sector pension institution ;(iv) some 116 microfinance institutions (MFI), mostly credit unions involved inmicro lending; and (v) a local branch o f the regional stock exchange and one broker. More than 50 percent o f enterprises surveyed for the 2006 I C A rated the cost o f financing as a major or severe problem, and more than 70 percent rated access to financing as a major business constraint. 6. Health, Water and Sanitation 34. Child mortality is one of the highest in the world. Malnutrition i s the most frequent underlying factor. Direct factors include malaria, pneumonia and diarrhea, as in most Sub- Saharan African countries. One o f the key bottlenecks to the improving child health is the lack o f a community health policy. 35. Maternal mortality is about 650per 100,000 live births, one of the highest rates in Sub- Saharan Africa. This reflects, among various factors, the high fertility rate, the lack o f skilled staff and low level o f prenatal and postnatal coverage. Only 19 percent o f births are attended by skilled staff. The prenatal and postnatal coverage are 46 percent and 24 percent, respectively. There are severe regional disparities in the availability o f trained health staff that are concentrated inthe towns, especially Niamey. Rural women are at greatest risk. Earlymarriage i s one o f the main factors in maternal mortality: 11.4 percent o f women between the ages o f 15 and49 hadtheir first childbefore 15. 36. Niger's HIV/AIDSprevalence rate is less than onepercent, one of the lowest in Africa. The incidence i s higher in certain urban areas such as Niamey (1.4 percent), Diffa (1.7 percent) and Agadez (1.6 percent). Niger plans to keep the prevalence rate low through preventive education in the schools, improved reproductive health services and by maintaining a high level o fpublic awareness. 37. Niger has made substantial progress in delivery of water and sanitation services in recent years, yet still faces major challenges for reaching MDG levels and quality o f service provision. The urbanwater sub-sector covers 51 urbancenters over the country. Inthese centers, about 70 percent o f the population is served through 92,000 private connections and 2,800 standpipes and the urbanwater demand is expected to grow by 30 percent over the next decade. Inrural areas, only 52 percent of households have a reasonable access to cleanwater through 6,300 boreholes and 10,500 open wells equipped with handpumps and 250 small piped systems. l4 Three of the banks, Banque Rdgionale de Solidaritd, Banque Atlantique Niger and SAHFI, were licensed in2004 and 2005 13 It is estimated that more than 30 percent o f rural water facilities are not operating properly; this rate may vary depending on the pace o f episodic rehabilitation programs which are carried out in lieu o f systematic maintenance. In sanitation, progress i s lagging. Only 35 percent o f urban households have access to latrines while in rural areas the record i s dismal, with just 5 percent with accessto latrines. These shortfalls have a major negativeimpact onpublic health. 7. Primary Education 38. Despite significant improvements, Niger continues to have one o f the lowest enrollment rates in primary education in the world - with substantial regional and gender disparities. The Primary Gross Enrollment Ratio (GER) increased form 37 in 2000/01 to 57 percent in 2006/07 andthe primarycompletion rate (PCR) grew up from 24 to 43 percent. Inurbanareas, 75 percent children start primary school against only 20 percent in rural areas, where 83 percent o f the school-aged population resides. Regional enrolment rates range from as low as 38 percent in Diffa to 99 percent in the capital. The gender gap is important, with girls representing only 42 percent o f total primary enrollment in 2007. Nevertheless, the rapid expansion o f primary education produces a growing number o f students which post-primary schools are not prepared to receive. 39. The drop-out rate is high-especially for girls. While progress has been made in getting children into school, factors such as low quality, early entry into the labor force and marriage work against children completing the primary program. Only about 25 percent o f an entering cohort completes primary school, representing a huge loss to productivity and GDP. Factors such as early entry into the labor force and marriage work against children completing the primary program. Moreover, only 18 percent o f sixth grade students met the targeted performance level in French, a serious impediment to the successful pursuit of secondary education in which mastery o f Frenchi s key to success, especially inscientific and technical subjects 8. Food Security and Social Protection 40. Government programs to respond tofood and nutrition crises need to be strengthened and new safety nets need to be developed. Niger's population suffers from chronic, seasonal and transitory food insecurity and the poor are the most affected. The review o f the 2005 food crisis in Niger shows that food aid i s not necessarily the most efficient means to address food insecurity. In fact, almost 2 million people are always food insecure every year; and the cereal marketperformance, which is highlyvariable and dependent on the climate, level o fproduction and trade conditions with neighboring countries, plays an important role in food security in the country. Therefore, in addition to the early warning systems, a balanced mix o f policies and programs are needed that simultaneously (i) the production and marketing constraints to address food availability and access, and (ii) provide safety nets to help those who are in a situation o f chronic food insecurity. 41. Although the social security system i s small in coverage (less than 3 percent o f the labor force), its cost and design are unsustainable and could burdenpublic finances. Boththe National Social Security (Caisse Nationale de Securitk Sociale, CNSS) and the National Retirement Fund (Fonds National de Retraite, FNR) are financially unsustainable, and paying future pensions would require government subsidies that would be considerably regressive. Overall, the current pension system faces many issues: (i)the high contribution rates (17 percent o f wage bill) may 14 increase cost o f labor and impede job creation in the formal sector; (ii) system i s not secure the andplanmembers face considerable uncertainty interms o f their pensions; and (iii) governance structures and administrative systems are outdated and compromise the quality o f services and the management o f assets ofplanmembers. 9. Gender Equalityandthe Empowermentof Women 42. Niger also compares unfavorably to other Sub-Saharan African countries in terms of gender parity in primary school and gender parity in literacy. Niger is still far from achieving gender parity inprimary education. The ratio o f girls to boys inprimary and secondary education is about 69 percent, among the lowest in the sub-region (World Development Indicators, 2006). Literacy rates are low in Niger, especially for young women (16 percent) compared to young males (28 percent), reflecting inequality inaccess to formal schooling. 10. EconomicGovernance 43. Public Finance Reform: The public finance reform program i s based on a comprehensive Public Expenditure Management and Financial Accountability Report (PEMFAR) prepared inconjunction with the Government, the European Union and the Afiican Development Bank. The report presented a reform agenda to improve public finance management and economic governance and was formally adopted by Decree in July 2005. The public finance changes focused on (i) budget preparation process; (ii) execution and the budget cash management procedures; and (iii) improved management o f domestic debt. Reforms in budget preparation included the elimination o f dual budget with the general and investment budget presented in the same document since 2001; identification o f core activities requiring protection from expenditure cuts; development o f multi-year budgeting, including preparation o f multi-sectoral and sector-specific Medium Term Expenditure Frameworks (MTEF); and the introduction o f program-budgeting starting with basic education and health in 2003. In budget execution, the Government introduced, among other measures, a Financial Management Information System (FMIS) which has led to a computerization o f budgetary processes, and revamped the cash management systems to protect priority allocations in favor o f the social sectors. 44. Implementation o f public finance reforms in 2006-07 included measures to fhther strengthen (i)the government's cash management system; (ii)the process o f budgetary allocations for priority sectors by, among others, adopting a code that identifies pro-poor expenditures in the budget, and (iii)the monitoring of expenditures in education, health and the rural sector which represented 51 percent o f the recurrent budget in 2006. The Government has also prepared a medium-term expenditure framework for the rural sector, and a program to modernize treasury operations i s being put in place. Measures are being taken to improve procedures and the transparency o f public procurement. The government in 2002 developed a new Procurement Code and created the Public Procurement Regulatory Agency and the General Directorate for Public Procurement (which i s not yet fully operational). However, there are no guidelines andno manual for the practical application o f the code. 45. Corruption. Niger was ranked 123'd out o f 179 countries by Transparency International according to their 2007 corruption perception index. As shown inTable 4, nearly 60 percent o f 15 Nigerien firms surveyed for the 2006 I C A Report ranked corruption as a "serious" problem, creating instability inthe business climate and additional costs. 46. The Government is eager to fight corruption and strengthen public financial management. Niger's leadership took unprecedented actions following revelations o f misused education funds in 2006, charging those responsible and ensuring that funds were filly reimbursed. The Government put inplace the High Authority to Fight Corruption (HALC), and appointed staff to combat corruption andpromote transparency inpublic financial management. 47. The Government in May 2007 created the Priority Investment Fund (FIP) for uranium receipts and integrated revenues in the revised 2007 and 2008 budget laws. To strengthen transparency and governance in the management o f miningrevenues, the Government has asked for Bank support in adhering to EITI to ensure that all financial flows are reported by operators and matched with budget inflows. The Bank would also build upon EITI to improve how the entire resource chain i s managed, from extraction to revenue expenditures (EITI ++). Iv. WORLDBANKGROUP STRATEGY A. Progressunder the 2003 CAS 48. Implementation of the 2003 Niger CAS offers valuable lessons to guide the Bank's strategy to support PRSP 11 implementation, as discussed in the CAS Completion Report (Annex 3). The CASCR concluded that there was progress in achieving the objectives o f the strategy. Macroeconomic and financial management improved and, on the fiscal front, progress was made incorrecting structural imbalances. Bank performance was mixedinthe social sectors and had few results in agriculture and rural development sectors that are the most critical to growth andpoverty reduction. Ineducation and health, the government prepared sector strategies and saw some improvements in outcomes, although quality o f education remains a concern and access to health services is still largely inadequate for most Nigeriens. Delays in project preparation, project effectiveness and disbursements have characterized the portfolio. However, on the positive side o f the ledger, certain projects are likely to lead to lasting positive change o f Niger's economic and social fabric, including the PRODEM, Community Action Program and Water and Sanitation Project. Lessons to highlight from the CASCR include: 49. A stable political climate and government commitment are key elements in macroeconomic stabilization. The presidential, legislative and local elections created a climate which was both propitious to economic decision-making and growth-friendly. For example, progress was made inrestructuring public enterprises and two banks, which would not have been possible in the period o f political "push back" against government by unions and students just a few years prior to elections. Government commitment to put in place a strong economic team, close collaboration and support from the Bank and the IMF were also factors in these positive results. 16 50. Failure to recognize and manage risks can be disastrous. Lack o f preparedness for major climatic changes stopped agricultural production dead and destabilized the rural population through food shortages which had lasting negative effects on general nutrition and child mortality (malnutrition i s the root cause, lowering the resistance o f the very young to infectious disease). The failure to spell out and carefilly monitor objectives and outcomes led to a decline inthe agricultural sector's capacity (Pillar 4), no doubt compounded by the emergency conditions o f 2005. 5 1. When government and developmentpartners work pro-actively as a team, backed by strong analytical work, there can be a high level of achievement. This was the case o f the Ten year Program (Programme Decennal) for Education and PRODEM, the demographic and reproductive project. In the latter, the convincing nature o f the analytical work led to a breakthrough in changed attitudes in government and the beginnings o f a broader cultural change. 52. The most important lesson is that CAS objectives must be specific and measurable. The 2003 CAS was not results-based and failed to spell out the capacity buildingobjectives for the PRSP as a whole and for specific programs and projects, makingthe assumption that capacity- buildingwas a "built-in" mandate. 53. The quality of M&E remained weak overall and was non-existentfor Pillar 4. The CAS will give special attention the development o f a robust M&E system, based on a manageable number o f input, process and outcome indicators by supporting capacity building in terms o f M&E staff, o f users in government to comprehend results and apply them to decision-making (the PRSP notes that data collection o f programs and projects has been weak and there i s no carry-over into decision-making). M&E results should also translate into public information, enabling the "clients" o f public services to exert positive pressure on government. The recent publication by the Bank's IGE (McKay 2007) provides a good operational guide. Donors supporting large-scale programs such as the Programme Decennal will likely condition their continuing support for user and client-friendly M&E. B. CAS Strategic Objectives and Principles 54. The CAS will cover the lastyear of IDA-14 (FY08) and thefull IDA-15period covering FY09-11. The Bank's strategy in Niger is built around two strategic objectives, or pillars: 1) Accelerating Sustained Growth that i s Equitably Shared; and 2) Developing Human Capital through Equal Access to Quality Social Services; and the cross-cutting themes o f governance (with an emphasis on economic and financial managementand capacity-building) andpopulation growth. This proposed platform aims to maximize synergies with the Government's PRSP, other development partner support, and the Bank's Africa Action Plan by drawing on the World Bank Group's comparative advantages. The CAS seeks continuity with the ongoing investment projects andreform programs, while gradually moving toward a more programmatic approach. 55. The CAS will be guidedby the following principles: 0 Selectivity: During the CAS period, the Bank will shift its support to be more selective. Interventions will focus on select PRSP themes where the Bank has the greatest comparative 17 advantage, andwhere the Bank can complement or leverage efforts by donors. The portfolio and sector interventions will decrease in terms o f number o f new operations proposed and areas o f Bank presence. Results-based approach: The CAS proposes measurable and concrete results that are to be achieved during the 2008-2011 period with Bank support (Annex 1). This will allow the Bank's performance and investments to be evaluated and the strategy to be adjusted if necessary when the Progress Report i s prepared. Harmonization: As discussed in the section on partnerships, the Bank will continue to promote donor harmonization and aid effectiveness inthe spirit o fthe Paris Declaration. Regional synergies and integration: Accelerating growth in Niger i s closely linked to its ability to deepen regional integration, expand exports, improve the terms o f trade and the quality and value o f its export products, and to work jointly with neighboring countries to tackle shared development challenges and opportunities. The Bank's support for regional integration will be provided through bothnational and regional engagements. C. World BankProgramto SupportCAS Outcomes 56. The CAS originally proposed to include some operations and AAA that were dropped, following the first Review o f the Operations Committee, to keep the Bank's program more selective. This includes stand-alone lending operations in the social sectors and in mining and energy. Other partners are present to provide support in the social sectors where the Bank is reducing its direct support; and planned budget support and a proposed Sources o f Growth operation could cover, inter alia, mining and energy investments andor reforms. The proposed IDAallocation for the Agro-pastoral Export Promotionproject was increased to ensure sufficient resources to help Government respond to highfood price issues inthe medium-term. 1. CASPillar 1:AcceleratingSustainableGrowththat is EquitablyShared PRSPPillar 1:Achieve strong, diversijied andjob-creating growth 57. Under this CAS Pillar, the Bank will focus its assistance to Niger on supporting the key sectors that drive growth and have the greatest potential for creating jobs, while also supporting efforts to strengthen the business climate and regional and global commercial opportunities, through a mix o f development policy operations, investment instruments, technical assistance and non-financial services. Maintaining macroeconomic stability is a prerequisite for ensuring that growth i s equitably shared. 58. Outcome: Maintain macroeconomic stability. During the CAS period, the Bank will continue to support authorities in pursing and maintaining policies for a stable macroeconomic environment, including consolidating fiscal performance and establishing an adequate medium- term fiscal framework and the implementation o f the recommendations o f the PEMFAR. Policy actions under the DPL series and a possible first PRSC planned for 2010 will include reforms to further strengthen public financial management and procurement practices. 18 59. Regional synergies. Continued implementation o f macroeconomic stability policies in the context o f the WAEMU Convergence and Stability Pact will help reinforce credibility o f Niger's national policies and its overall macro-framework. 60. Outcome: Strengthen competitivenessof supply chains. The Bank will promote reforms andinvestmentto promotehighpotential growth opportunities identifiedby the PRSP, notably in the agro-pastoral and mining sectors, to expand and diversify the narrow economic base, reducing the economy's vulnerability to shocks. The Bank will also continue supporting implementation o f the Rural Development Strategy through investment and budget support. The Private Irrigation Project I1will be extended through 2008 and new operations will include an Agro-Pastoral Export Promotion and IrrigationProject, a Sources o f GrowthProject with a focus on private sector development, andDPL 3 for growth. 61. The DPL series and PRSC 1 will continue the support for medium-term policy reforms aimed at establishing an environment more conducive to investment and economic growth in rural development and the private sector, promoting public-private partnerships ininfrastructure; supporting agri-business opportunities, and deepeningthe financial sector, while completing the ongoing reforms inhuman development. 62. Regional synergies. Niger participates in the regional Niger Basin Water Resources Development project and the associated GEF-financed Reversing Land and Water Degradation Trends inthe Niger River Basin which are, respectively, strengthening the capacity o f the Niger River Basin Authority and supporting the implementation o f a joint framework for the sustainable development o f land and water resources o f the basin. The project i s increasing irrigated agriculture through rehabilitation and extension o f small irrigation schemes in the Tillaberi region and the rehabilitation o f the Aboka dam while also developing traditional fisheries. Depending on IDA availability, Niger could also participate inthe second phase of the West Africa Agriculture Productivity project promoting regional cooperation in agricultural research to improve farming technologies for crops such as onions where it has a comparative advantage and would also benefit from the research efforts undertakenby other countries (i.e Senegal on cereals, Mali on rice). 63. Agriculture and irrigation partnerships. The Bank is working closely and in a complementary manner with France, Germany, Denmark, EU, AfDB and the Islamic Development Bank to support the implementation o f Niger's Rural Development Strategy. Special attention i s paid to rural infrastructure, including irrigation, sustainable land and water resources management, market access and value chain development. 64. Outcome: Strengthen sustainable management of natural resources. The ongoing Community Action Program (PAC) supports sustainable natural resource management and access to services at the local level by financing development plans prepared by communities and local government. The project is building capacity for the decentralized management of funds for health, education, natural resources management, agricultural services, rural works, mainstreaming climate risks and monitoring the eco-system. A second phase o f the PAC (an APL) will be financed by IDA and GEF duringthe CAS. The PAC, GEF and the Carbon trust fund are also supporting micro-projects wherein local communities work to manage and conserve the eco-systems. A Japanese Trust Fund is financing community acacia nurseries. The 19 acacia tree not only helps reclaim degraded lands, sequester carbon and limits erosion but will also generate income through the sale o f gum and carbon credits. The Private Irrigation Promotion Project i s helping small farmers increase the production o f high-value irrigated crops, using low-cost technology. 65. Building on the work initiated by TerrAfrica, including a public expenditure review o f the rural sector with a focus on sustainable land management (2007)' and support to harmonize natural resources management plans under the Rural Development Strategy, the Bank will provide technical advisory services for a programmatic approach to scale-up sustainable land and water management in Niger. An impact evaluation o f investments made in sustainable land management is being prepared and will be delivered inearly FY09. Inaddition, a new analytical task looking at land management and productivity, vulnerabilities, and climate risk will be undertaken. 66. Regional synergies. The Reversing Land and Water Degradation Trends in the Niger River Basin Project, and the Niger Basin Water Resources Development and Sustainable Ecosystems Management Program also support these efforts. Infact, these two operations aim to help riparian countries collaborate in restoring and better managing watersheds and promoting sustainable fishingpractices. 67. Outcome: Strengthen the investment climate and support entrepreneurship. The Bank will support these outcomes through policy actions to be implemented inthe context o f DPL I11 for Growth, a Sources o f GrowtWPSD project and the first PRSC. The Bank will also continue to assist Niger in expanding and deepening the financial sector by reducing costs and increasing access to credit under the ongoing Financial Sector TA operation. The C E M and Investment Climate Assessments (ICAs) prepared in2006 have provided the analytical underpinning for the CAS priorities to strengthen the investment climate and support entrepreneurship. To hrther deepen the knowledge base on sources o f growth and support the design o f new operations, the Bank is preparing a trade diagnostic survey and an irrigation development study in 2008, a review o f the political economy o f the mining sector inFY09 and a skills development study in FY10. 68. Regional synergies. The ongoing TerrAfica support for sustainable landmanagement in Niger is part o f a broader regional effort directly linked to the NEPAD Agriculture and Environment programs. Niger will also benefit from the deepening o f the regional financial marketthat is supportedbythe WAEMU Capital Market Development Project. PRSP Pillar 5: Endow the country with economic infrastructure topromote growth and improve access to social services 69. Outcomes: Strengthen economic infrastructure to promote growth, access to services and regional integration. For investments in economic growth opportunities (agro-pastoral and miningexports) to bear hit, new investment ineconomic infrastructureis essential. A Transport Sector Program Support Project approved in FY08 will improve the road infrastructure which links Niger's market to the outside world and reduce transport costs, giving producers better 20 access to markets while creating jobs. Developing strong maintenance capacity i s also a project goal. 70. Regional synergies. The Government o f Niger i s eager to collaborate with neighboring countries to develop regional solutions to its infrastructures development challenges to maximize efficiency and effectiveness. The Niger Basin Water Resources Development and Sustainable Ecosystems Management Program i s supporting the rehabilitation o f Kainji and Jebba hydropower plants in Nigeria which will supply Niger with low cost energy. Another example would be if Niger participates in the WAEMU Capital Markets Development project, which would provide a line o f credit to improve the Niamey-Ouallam interstate road (contingent on IDA availability) to improve accessto the port o f Cotonou. 71. Infrastructure partnerships. The Bank support for transport sector includes several key financing partners:the EU, B O A D andArab Funds. 2. CAS Pillar 11: DevelopingHumanCapitalthroughEqualAccess to QualitySocial Services PRSPPillar 2: Equitable Access to Quality Social Services 72. Strengthening human capital is an integral part of any growth strategy, and Niger will require continued support in education and health services to improve outcomes and reach the MDGs. The Bank will continue to support access to basic education and improved quality o f teaching; expanded coverage o f basic health care and HIV/AIDS prevention and treatment; and provide technical input for better targeting o f social protection to the most vulnerable groups, through a mix o f financial and analytical support. 73. Outcome: Increased access to basic education and improved quality. The Bank will continue to support improved access to primary education through the on-going Basic Education Project (PADEB) and management o f the Education for All-Fast Track Initiative (Netherlands Trust Fund). These initiatives, which are aligned with the Government's ten year education program (2003-13), are helping to build more durable classrooms, provide instructional materials, and train teachers. Special emphasis i s placed on promoting girls' participation in school and parents and communities in children's education. During the CAS, the Bank's analytical work inthe education sector will consist o f a study on skills development to provide a comprehensive review o f education and skills needed to create jobs and promote the private sector. This analytical work would be followed by an Education Enhancement and Skills Development Project. 74. Regional synergies. Inthe past, Niger has hosted-and continues to host-a number o f regional schools in the areas o f meteorology, agricultural research, mining and geology. Niger i s also actively participating in the activities o f other regional schools in Senegal (livestock) or Burkina Faso (Water, Public Finance). In the context o f the study on skills development, the Bank will explore with the Government the development o f regional initiatives for prioritized skills at different locations inthe region. 21 75. Education partnerships. Inpartnership with France, Germany, USA, Denmark, Belgium, UK,EU, andUNICEF, the Bankwill help Niger formulate and implementa holistic education strategy with special emphasis on post primary in order to support skills development, competitiveness and employment. 76. Outcomes: Improved access of the rural population to basic health and nutrition services and improved coverage and use of HIVprevention services and treatment. The ongoing national health strategy aims at addressing current constraints on both the supply and demand sides as well as improving accessibility, effectiveness, efficiency, quality and sustainability o f health services, including in remote areas. These objectives have been fully taken into consideration into ongoing sector investment operations including the Institutional Strengthening and Health Sector Support Program (ISHSSP) and Multi-Sector HIV/AIDS Program (MAP).Similarly, in the context of limited resources, additional evidence o f adequate funding should be providedby the Government regardingthe decision ofremoving user fees for some reproductive and preventive services. More understanding is needed on how to enhance the effectiveness of the health system as one that i s geared towards changing the health indicators by means o f a community-based health and nutrition strategy that takes into account the implementation and management capacity o f all potential actors and its implications for the institutional arrangements and development. N o new investment operation inthe health sector i s planned during the CAS period. Given that the ISHSSP was recently approved (FY06) and is largelyundisbursed (nearly $30 million), it will be implementedover the CAS period, as will the MAP.Other donors are alsopresentinthe sector andtheBank will continueto support the sector through policy dialogue. 77. Health partnerships. The Bank has a long history o f involvement inthe health sector in Niger, and has coordinated closely with other development partners in the health sector. The ISHSSP is jointly supported by IDA and AFD. Along with the MAP, the sector will be assessed prior to and during the CAS mid-term review with a view to expanding the partnership and, if necessary, the financial support to the sector. 78. Outcome: Increased access to safe drinking water and sanitation. For over seven years, the Bank has been a prominent partner to Niger in the successful development o f the water and sanitation sector. The Bank will continue to support the sector with a second IDA-financed Water Sector Project inFY10. The project has significantly improved the overall management o f the urbanwater sector sub-sector on the quality of service delivery, efficiency o f operations and cost recovery. But there is still much work to be done to: (i) strengthen the fragile financial equilibrium o f the sub-sector; (ii) consolidate private sector participation arrangements for the management o f rural water facilities, and (iii) scale-up on-site sanitation programs based on lessons learned from the ending project. 79. Water sector partnerships: The African Development Bank, the European Investment Bank and the West African Development Bankwill provide possible co-financing to the Bank's planned support inthe sector. 80. Outcome: Increased access of urban residents to basic infrastructure services, particularly in disadvantaged areas. Urban roads, markets and transit depots are all key ingredients in getting agro-pastoral products to the local and international market. The Local 22 Urban Infrastructure Development Project being prepared in FY08 will finance urban infrastructure such as roads, water supply, drainage works, markets and truck and bus transit depots, contributing both to economic growth and to the quality o f urban life. The Project will help build the capacity o f local government and stakeholders to plan, deliver, maintain and oversee urbaninfrastructure and services, including the protection o f cultural assets. PRSP Pillar 4: Reduce Inequalities and Strengthen Social Protectionfor Vulnerable Groups 81. Outcomes: Gender inequity is reduced, as evidenced by improved girls' access to education and health services, and an effective food security and social protection strategy is in place. IDA health and education interventions discussed above include support to reduce gender inequity. Inaddition, IDA financing will focus on reducing vulnerability (particularly in the context o f food security and old age), helping groups who need special services (women, urban youth, PLWA) or lack basic service access and providing shelter from natural disasters. The Bank is preparing a Food Security and Social Safety Nets Study and a Review o f the Pension System. The former will review food and nutrition security policies and programs and outline an agenda for strengthening the existing system and developing a safety net system to reduce household vulnerabilities to food crises. The latter will examine current pension systems for both public andprivate sectors; propose a conceptual framework that could guide discussions about eventual reforms. 82. Outcome: Government and farmers are better prepared to deal with natural disasters. Inlending, the on-going Map, Africa Emergency Locust Project and additional financing ofthe PAC to Mitigate Avian Influenza will help institutions and communities be better prepared for these emergencies, mitigating eventual impact on the most vulnerable. Cross-CuttingChallengesandBank Support 3. AddressingDemographicIssues PRSPPillar 3: Slow downpopulation growth 83. Outcome: Increased awareness of and access tofamily planning. The government has committed itself to tackling the issue, with Bank and donor support. The Bank's Multi-sector Demographic Program (PRODEM), approved in June 2007, will provide financing to build the capacity o f the recently established Ministry o f Population and Social Reform to coordinate a nationwide multi-sector population program, raise women's awareness and adoption o f contraception, promote reproductive health and work for cultural change. Key Bank operations, including budget support and investment lending, will address the demographic dimension in their design and implementation. 23 Box 2: Niger's Demographic Challenge Niger's rapidpopulation growth i s due to a rapidly declining mortality rate for infants and chldren and a high fertility rate. Girlsmarry young and they have little choice inreproductive decisions. At today's rate, the population o f 14 million could double in21 years. Evenif fertility rates were to decline to 3.8 children per woman by around 2050, the population would reach 53 millionby 2050, accordingto the UN. The Government ofNiger is fully aware ofthe demographic challenge and created anew Ministry of Populationand Social Reformto coordinate a multi-sector approach to the issues. InFebruary 2007, Niger has also adopted a sound new population policy, the Declaration o f the Government on Population Policy (DGPP). An IDA grant was approved in2007 to finance a Multi-sector Demographic Project (PRODEM). The major challenges in this area are weak capacity and lack o f coordination across sector ministries, advocacy and public awareness. Some concrete results have already been obtained under the project, including the launching o f national public awareness campaigns and the convening o f a NationalForum on Population, Development, and Gender inFebruary 2008. 4. PromotingGoodGovernanceandFightingCorruption PRSP Pillar 6: Promoting high quality governance 84. Outcome. Strengthened economic governance and capacity to implement and monitor reforms. This agenda will include the following: 0 PEMFAR and Procurement. Support for continued implementation o f PEMFAR recommendations and preparation o f a PEWEMFAR I1 in FY09; and support for public procurement, including to ensure the staffing and operations o f the General Directorate; strengthen procurement capacity in the line ministries; and establish operational guidelines for the procurement code. Analytical support will take into account the UEMOA regional directives for harmonizing procurement procedures and guidelines in the sub-region. PEMFAR and procurement activities in Niger are monitored as part o f the Bank's Capacity Development Management Plan(CDMAP). 0 Corporate Financial Reporting. A Report on Observance o f Standards and Codes in Accounting and Auditing i s being prepared. The objective i s the adoption o f internationally recognized standards o f accounting and auditing. An Action Plan will be developed to address the most urgent deficiencies incorporate accounting. 0 Supportfor Anti-Corruption efforts. The Bank's assistance to fight corruption in Niger includes: (i)building capable, transparent and accountable institutions and (ii) minimizing risks to Bank-fundedprojects by assessing corruption risks to projects upstream, actively investigating allegations o f fraud and corruption, and strengthening project oversight and supervision. 0 Improved governance and transparency in the management of the mining sector will help ensure that the sector contributes to growth andpoverty reduction. Miningissues needto be well managed as they are also at the center o f conflict and tensions. The Bank will build upon the support for EITI to help government address the upstream and downstream mining sector issues (under the EITI++ agenda) and will prepare a study on the political economy o f miningto strengthen the knowledge base and help define future support inthe sector. The Bank has already been supporting the EITI process in Niger since the adhesion o f the country to the EITI principles and criteria in March 2005. The Bank is assessing the possibility o f mobilizing an EITIgrant to Niger from the multi-donor EITItrust fundto support EITIimplementation. 0 Strengthening capacity for implementing reforms and programs. Faced with an important reform agenda, and based on the lessons from the past, Government must improve 24 implementation capacity across the board. The CAS proposes a Reform Management Technical Assistance Project focusing on staff and professional skills development, providing a comprehensive program o f professional upgrading o f all staff o f the ministry in charge o f economy and finance. The project will contribute to the CDMAP objective o f strengthening capacity for public services delivery. IDA operations also include capacity-building components for implementingentities. 0 Monitoring the PRSP. PRSP I1recognizes the urgency o f building capacity inM&E and the need to design robust indicators and improve quantitative and qualitative analysis to better inform key decision-makers and citizens on implementation progress. Government has taken important steps to reinforcethe capacity o f the statistical services. 85. Governance and capacity building partnerships. The PEMFAR is jointly supported by the Bank, IMF, UNDP EU, France, Germany, Denmark and Belgium. France and Germany are also supporting an initiative to strengthen Niger's natural resources management through EITI. 25 86. Table 4 presents the ongoing and proposed financial and non-financial IDA assistance proposedunder the CAS and how it relates to PRSP I1pillars. Table4: ProposedIDA Assistancefor FYOS-11 andPRSPPillars I PRSPillars CAS Pillars IDA ODerations AAA Pillar 1:Pursuing Pillar 1: Ongoing Ongoing strong, diversified, iccelerating DPL I1on Rural and Social Sector 0PER sustainable growth ustainable support Diagnostic Trade Int. Survey that createsjobs rowth that is 0Private IrrigationProject I1 IrrigationDevelopment Pillar 5: quitably shared 0Community Action Program Public Exp Tracking Survey Developing (PAC) 'roposed infrastructure 0Financial Sector TA Public Expenditure Pillar 6: 0Africa Emergency Locust Management and Financial Promoting good 0Niger BasinWater Resources Accountability Review I1 Development (PEMFAR 11) Proposed Political Economy o fMining 0DPL I11on Growth Multi-country PPIAF Study Transport Sector Support Program Supporting Sustainable Rural 0Agro-pastoral Export Promotion Growth (land management) and IrrigationProject Rural Finance Sources o f Growth/PSD 0DPL IV (PRSC I) West Africa Agricultural Productivitv ~~ ~~ Pillar 2: Equitable Pillar 2: Ongoing Ongoing access to quality ncreasing 0D P L I I Food Security and Social social services ccess to basic 0PRODEM Protection Pillar 4: Reducing ervices and 0Water Sector Support Program Proposed inequality and leveloping Basic Education Project Review of the Pension System strengthening iuman capital 0PAC Skills Development and social protection 01 0Inst.Strengthg HealthSect Suppori Growth vulnerable groups 0Multi-Sector HIVIAIDS Program 0 Avian Flusupplement to PAC Proposed 0 DPL I11 PAC 2"dPhase Local UrbanInfrastructure Dev Ed.Enhancement and Skills Dev Water Sector Support I1 Pillar 3. koss Cutting Ongoing Ongoing Controlling i. Slowing D P L I I Economic Monitoring PopulationGrowth ,opulation 0 0Report on observance of Pillar 6. Promotinj irowth PRODEM Standards and Codes- Good Governance Proposed Accounting and Auditing Pillar 7. DPL 111, DPL IVERSC 1, DPL 3. Promoting Proposed Implementing VERSC 2 :ood governancl PEMFARII PRSP 0 Capacity Building for Reform 0 Management TA 0Sector PERs 26 D. Deliveringthe Bank's Program 87. The Bank's ability to deliver theproposedfinancing assistance will depend on the level of available IDA resources. Determining factors are: (i) Country's performance as assessed annually by the Country Policy and Institutional Assessment (CPIA) and the Annual Report on Portfolio Performance; (ii) Country performance relative to other IDA countries; and (iii) the DA-15 replenishment amount and the number o f IDA-eligible countries. Since the IDA allocation process has not yet been completed, the indicative annual IDA envelope during the CAS period i s estimated at aroundUS$90million equivalent (SDR 57 million). This allocation i s based on FY08 IDA resources, net o f and on the 2007 D S A which suggests moderate risk o f debt distress, as in 2006. The FY 2009 and beyond IDA program presented in table 6 has been slightly increased, in anticipation that additional resources may become available in the context o f IDA1 15. If no additional resources are available in FY09, the country team will adjust the program accordingly. InFY08, Niger received 50 percent o f its IDA allocation on grant terms and50 percent on credit terms and this is the expectation for FY09. 88. Lending instruments. Inthe spirit o f harmonization and selectivity, the lending portfolio will increasingly move toward a programmatic approach, including through SWAPS and DPLsPRSCs. Three existing muti-donor program already form an important part o f the portfolio (education, health andwater). Inwater and urban infrastructures, two new coordinated programs havejust emerged. 89. The CASproposes that any reduction in the IDA allocation be offset by reducing the financing of budget support operations. By creating additional fiscal space, HIPC and MDRI debt relief help off-set any reductions in budget support. Alternatively, investment operations could be reduced in size or delayed. Incremental additional resources that may become available would be used to top up investment and regional operations or, ifwarranted, to alleviate external shocks. To leverage IDA lending, the Bank will seek to design Bank projects with parallel or co- financing with donor and/or private participation, especially in the sustainable development and human development sectors. The CAS also proposes to explore access to additional hnding through scaled-up initiatives in the Africa region, depending on financing needs and absorptive capacity. 90. Tables 5 and 6 present the proposed operations and financing under the CAS by year and the proposed analytical work to strengthenthe knowledge base. 27 Table 5: ProposedIDA FinancingFYOS-11 -- IDA 14 Financing(4.5) Transport Sector Support Program (30) LocalUrban InfrastructureDevelopment (30) Niger Water Basinand Sustainable Dev (15) IDA 15 Community Action ProgramI1(30) Agro Pastoral Export Promotion and Irrigation (30) Reform Management and TA (10) I Table 6: ProposedNon-lendingProgramfor FYOS-11 Diagnostic Trade Integrated Survey Reviewof Pension Systems Food Security and Social Safety Nets 0 PEWEMFAR11 Irrigation Development Political Economy of Mining PETS (health, education) [FYlO lEii----- Skills Development and Growth Other sector work (tbd) Rural Finance AAA Supporting Sustainable Rural Growth E. PortfolioandFinancialManagement 91. Portfolio Management and Fiduciary Issues. As o f April 10, 2008, the portfolio comprised eleven active projects, financed by IDA and GEF and representing commitments o f $325 million, with an undisbursedbalance of US$127 million. Of these active commitments, $157 million (49 percent) are IDA and GEF grants and $167 million (51 percent) are IDA credits. IDA has committed some $30 million of financing to Niger through regional projects, including the Africa Emergency Locust Project; ReversingLand and Water Degradation Trends in the Niger River Basin Project; and the Niger Basin Water Resources Development and Sustainable Ecosystems Management Program. 28 92. Financial management has been assessed as "overall satisfactory" for 82 percent of theportfolio, with the remaining 18 percent rated "moderately satisfactory." FY07 audit reports on both IDA and trust finds were satisfactory and full compliant with Bank prescribed auditing procedures. For the most part, line ministries are the implementing agencies for IDA financed projects and the Bank will work with line ministry departments responsible for financial management o f Bank operations to strengthen their capacity and ensure full compliance with fiduciary standards and fully satisfactory audit reports. The main implementing agencies for the second phase o f the Community Action Program are communes and related communities. The Institutional Strengthening and Health Sector Support Program, uses a sector wide approach (SWAP) with report-based disbursements associatedwith pooled donor finds. 93. Implementation of Financial Management simplification and modernization measures made to the Bank's FM operational policies and procedures will be encouraged to (i) enable design o f project FM arrangements that are simpler and more responsive to Niger's needs, (ii)facilitate capacity building, and (iii) costs for Niger and the Bank. The areas o f these reduce major changes are as follows: Interim Financial Reports (IFRs), Audit Reports, ExpendituresDisbursement Categories, Use o f Country FM systems, Portfolio-level FM activities, Readiness for Implementation and Conditions o f Effectiveness. v. PARTNERSHIPS AND PARTICIPATION A. BankGroup 94. The International Finance Corporation. IFC's operations in Niger mainly focus on: (i) improving and enhancing the business environment and investment climate; (ii) buildingup the capacity o f micro small and medium enterprises and expanding financing support to them; (iii) private provision for infrastructure projects; and (iv) developing proactively projects in the financial and key priority sectors. A high priority for IFC is to provide technical assistance support for the implementation o f reforms identified by FIAS and the 2006 ICA, with the involvement o fPEP Africa. 95. IFC's BoardinApril 2008 approved an investment inMarinaMarket Niger, as part of the financing o f the Marina Market Group. IFC is actively exploring other investment opportunities inNiger and has identified agriculture as a sector with promising prospects. IFC is seeking to actively support financial intermediaries sector with specific program to enhance small and mediumenterprise lendingas well as trade finance activity. 96. Niger has not completed the membership requirements for MIGA. Some 200 to 300 Nigeriens participate inWBI events each year through distance learning events. 29 B. PartnershipsandHarmonization 97. Official Development Assistance (ODA) to Niger is estimated at about US$400million in 2006 (Table 7),having steadily increased since 2000, but still well below the regional average. Table 7: NetODA flows to Niger 2000-2006 (Excludeshumanitarian aid) 2000 2001 2002 2003 2004 2005 2006 (millions of USDollars) Total net ODA, Niger 211 257 298 457 541 511 401 o/w: Multilateral 66 105 142 181 238 266 341 o/w: IDA 60 62 68 72 63 65 75 (USDollars) ODA per capita, Niger 18 21 24 35 40 37 28 ODA per capita, Sub- SaharanAfrica average 20 20 27 34 36 43 36 Source: OECD/DAC 98. Niger is a signatory o f the 2005 Paris Declaration on Aid Effectiveness and is keen to proceed with the deepening o f the harmonization process. It convened a meeting on aid coordination and donor harmonization in March 2006 and a workshop on improving efficiency o f external aid in September 2007. The Bank and UNDP co-chair the Development Assistance Group (DAG), the main forum for donor coordination in Niger, with the participation o f about 15 bilateral and multilateral agencies. Under the DAG, efforts are underway to make strong progress on the implementation o f commitments inthe ParisDeclaration 99. Much o f the collective effort i s focused on hrthering harmonizationthrough initiatives to promote dialogue or support programs in critical sectors for Niger development agenda. Key donors supported the preparation o f sector strategies in education, health, rural development and transport and co-financed the multi-year investmentprograms inhealth and education. C. CAS Consultations 100. As an input for the preparationof the CAS, the Bankvisited all the Regions o fNiger and met with various groups including the public administration, private sector, civil society, academicians, students and development partners to discuss the strategic directions o fthe CAS. 101, Annex 12 provides a summary o f the outcome o f consultations, which confirmed that the Bank's focus on growth and human capital development while treating governance, population dynamic, vulnerability and regional integration dimensions as transversal themes was appropriate and these interventions are in full alignment with the PRSP. In addition, approximately 600 stakeholders were invited to provide their opinion on the Bank's assistance to Niger byparticipating ina client surveyin2007. 30 VI. MONITORINGEVALUATING AND CASPERFORMANCEAND RESULTS 102. Managingfor Results. The Bank's objective i s to contribute to Niger's higher order goals as outlined in PRSP 11. However, the Bank's performance will be measured according to results obtainable during the CAS period, mostly influenced by on-going operations or those prepared within the first two years o f the CAS period. Annex 1provides the results matrix with the specific outcomes the Bank expects to influence through ongoing and plannedoperations and analytical work. 103. The Bank will apply its own M&E tool kit inNiger. Under the CAS, regular PERs, using infomation from PETS in key PRSP sectors, will provide feedback on the effectiveness o f targeted expenditures, identifyingany bottlenecks in the flow o f funds, including any eventual misappropriations. Country Portfolio Performance Reviews will provide a forum for raising policy and implementation issues to the attention o f the PRSP Steering Committee. The Bank's Implementation Supervision Reports are an important tool for M&E. Experienced sector specialists and task team leaders also provide important qualitative information for M&E. Finally, internationally recognized instruments such as the OECD-sponsored learning achievement tests-and similar objective instruments in the health sector-can provide important diagnostic feedback, enabling changes in strategy and practice. Finally, the CAS Results Framework will be used to track intermediate indicators and measure progress toward higher level outcomes. A CAS Progress Report will be prepared in FYlO and a CAS Completion Report inFY12. VII. RISKSAND MITIGATION MEASURES 104. Although Niger seems to have overcome past political instability and has made substantial progress in macroeconomic management, some risks remain for implementing the CAS program. This CAS incorporates measures to mitigate the following country and Bank program risks. 105. Conflict and security risks. Insecurity inthe northern region o f the country, linkedto the a rebel group demanding a greater share o f the region's mineral wealth, has impacted the local economy and delayed implementation o f Bank programs in affected areas. The Bank's support for EITI and EITI++ should contribute to reducing tensions in the medium-termby increasing transparency and accountability in the management o f mining resources while also buildingthe government's capacity to better manage abundant mineral resources. The Bank also seeks to mitigate risks associated with conflict over minerals by strengtheningknowledge o f the political economy o f mining. 106. Political risks. Municipal, legislative and presidential elections are planned in 2009, creating a risk o f reform paralysis during the campaigning and election cycle. The Bank will work closely with the authorities and development partners to support continued implementation o f the government's reform program during this period, particularly to stay on track with public expenditure management and to maintain close collaboration with government and the confidence o f donors. The Bank will also consult regularly with civil society and other 31 stakeholders to raise awareness o f reforms supported by the CAS. This will be important for ensuring continued support o f these reforms by a new government. 107. Exogenous shocks and commodity price risks. Mineral revenues can be volatile and destabilize the macroeconomic framework and implementation o f reforms supported by the Bank. Alternatively, continued high uraniumprices, if not managed properly, could result in Dutch Disease with negative effects on agriculture. Drought, locust infestation and other exogenous shocks could reduce staple food stocks, leading to food insecurity. The CAS supports diversification o f Niger's economy to reduce vulnerability to such shocks and the impact on Bankprograms. 108. Food security and inflation risks. Rises in international food prices and increased demandfor cereals inneighboring Nigeria, Burkina Faso, and Beninhave led to sharp increases infood prices inNiger. Foodprices increased by 15.5 percent inMarch 2008 compared to the previous year; of which cereals prices increased by about 25 percent. This could affect the portfolio as projects may be restructured to respond to the crisis or could delay the reform program supported by the Bank and other donors. There i s some flexibility inupcoming projects already focused on the agricultural sector as well as inplannedbudget support to help respond to such crises. IDA will also be working with the IMF to help Government design and implement fiscal reliefmeasures that do notjeopardize the macro-framework. 32 1 ?i I t f5 r 1 I 1 f 1t i sI i I t ii I & I i i I z! d e .9 m 8 Y m v, p! 3 0 d I saw AIH * * TT -rT* I * * * * * * * * * * * * * * * * * 3t * * 3 d * * * * * * * * * * * * * * * * * * * * * .-E0E 3 .-0 v) Q) E S E n 0 Q 8 Q, L L g z w ANNEX3: CASCOMPLETIONREPORT 2003 CAS COMPLETION REPORT Republicof Niger Country: Niger Date o f CAS: January 21,2003 Period Coveredbythe CAS Completion Report: FY03-FY05 CAS Completion Report Herminia Martinez Completed by: Vincent Turbat Date: December 1,2007 A. Introduction 1. This document reviews the experience implementing IDA'SCountry Assistance Strategy (CAS) for Niger, dated January 21, 2003 (Report No. 25203-NIR) which covered fiscal years 2003-2005. The draft o f this Report was completed in March 2006, and was updated in November 2007 to incorporate developments affecting CAS outcomes and Bank Group activities in FY06-07. Progress in achieving the goals o f the 2003 CAS i s summarized in Table 1. Tables 2 and 3 compare the lending and non- lendingsupport through FY07. 2. Niger is one o f the world's poorest countries, and its prospects are constrained by a lack o f natural resources, an economy susceptible to external shocks, principally weather-related, highpopulation growth, and low human and institutional capacity. After decades o f decline, GDP per capita stabilized at about US$200 after the 1994 devaluation o f the CFA franc. Niger did not benefit to the same extent as its neighbors from the devaluation because o f its isolation from world markets, although this isolation has shielded it from instability in neighboring Nigeria and Cote d'Ivoire, its main trading partners. Niger's prospects have also been affected by political instability and poor governance during the decade o f the nineties, including two successive coups d'etat in 1996 and 1999. In December 1999, the military junta governing the country handed power to a civilian government following presidential and legislative elections. The elected government began "first generation" structural reforms, and prepared the first PRSP which was translated into a medium-term reform program. Since 2000, two successive governments have reestablished confidence and improved governance. Presidential/ legislative elections inDecember 2004 led to the first peaceful government transition in more than a decade; local elections in July 2004 represented a step towards political decentralization. In October 2007, the Government approved a second PRSP covering the period 2008-2012. 42 3. During the CAS period, the Bank provided financial support amounting to US$219.7 million which i s slightly below the programmed amount o f US$238 million; carried out considerable economic and sector work while at the same time improving coordination with donors. In FY06-07, IDA provided financial support amounting to US$l55 million. In addition, an Investment Climate Assessment planned for the CAS period was completed and analytical work on sources o f growth and rural development was carried out. This report concludes that the FY03-05 CAS was relevant to the country's needs and an important element in advancing the Government's program, in some measure because stabilization which the Bank supported was a key element o f the program. The findings confirm that political stability and improvements in governance are closely linked to success in economic reforms. It also highlights the reality that given Niger's constraints, reforms need to be particularly ambitious and sustained, and require determination from its political leadership to overcome inertia andvested interests. B. L o w e r Term Stratepic Goals 4. The 2003 CAS aimed to support the Government's long term strategic goals, enunciated inits Poverty Reduction Strategy o f December 2001 (Report No. 23483-NIR). On the macroeconomic front, the Government's objectives included increasing annual GDP growth to 4 percent andother ambitious targets such as reducingpoverty headcount index from 65 to 59 percent. The PRS set forth a national development program centered on four pillars, but also aimed to address cross-cutting issues o f gender, governance and stakeholder participation. The four PRSP pillars were: Putting in place a macroeconomic framework which ensures economic and financial stability while promoting sustainable and robust growth; Developing the productive sectors, especially in rural areas, to mitigate vulnerability and stimulate income generation; Improving the access o f the poor to quality social services, and 0 Strengthening o f institutional and individual capacity within and outside government, at the central and local level. 5. The PRSP was discussed by the Bank and IMF Boards in February 2002. The PRSP agenda was broad and imprecise in a number o f areas; this is understandable as it was prepared after a long period o f political difficulties when there was limited analytical work. Given the circumstances, the PRSP was viewed by the Bank and the Fund as a credible framework for implementation o f a poverty reduction strategy. The CAS was designed to support the implementationo f the PRSP. 6. The PRSP was broadly consistent with the Millennium Development Goals (MDGs) although its numerical targets were below the MDGs for 2015. The CAS noted that this was in line with the MDG concept, which recognizes that MDGs need to be adapted to country specific circumstances. The CAS noted that the shortfall was not a lack o f commitment in the part of the Government, but recognition o f the country's constraints. 43 C. CAS Outcomes 7. The CAS aimed to help Niger achieve its long term objectives by selectively supporting reforms and expenditure programs in key sectors under all pillars. The CAS noted that debt sustainability largely determined lending levels given the fragility o f Niger's external financing situation, even after HIPC delivery, and indicated correctly that Niger would require sustained high levels o f aid, mostly on grant terms, if it was to achieve its PRSP objectives. IDA financial support would be a blend o f credits and grants. The Bankprogram would be determined by the Bank's comparative advantage in some areas, and by the lending constraints imposed by the debt sustainability problem. Grants represented some 40 percent o f total assistance in FY03-05; 45 percent in FY06 and 100percent inFY07. 1. CAS Objectives 8. The CAS notedthat Bank assistancewould seek to enhance national ownership o f programs associated with the PRSP. The Strategy aimed to help the Government move progressively to programmatic lending which was viewed by the Government and the Bank as the best way o fmeetingPRSP objectives, as it allowed the scalingupo fpoverty- reducing programs. The CAS also aimed to buildthe government's capacity to plan and manage development programs and to foster collaboration among donors, which were keyelements inthe transitionto programmatic lending. 9. The Bank would support reforms incross-cutting policy themes highlighted inthe PRSP (gender, governance and stakeholder participation). The CAS did not present specific CAS objectives, and instead discussed the Bank program in support the four PRSP pillars and gave benchmarks to monitor progress. 10. Specifically, the Bank program would: a. Ensure economic/financial stability while promoting growth (PRSP Pillar 1) through: 0 Improvements in public financial and fiduciary management and fiduciary controls by addressing capacity shortages in planning and implementing programs. Benchmarks to measure progress in this area were (i) improved an primary fiscal balance to generate savings; (ii) government arrears to remain stable and (iii)improved debt service with the net present value (NPV) o f debt-to- export ratio below 200 percent. 0 Supporting privatizationof state-ownedenterprises, particularlythe utilities, and improving the environment for private sector investment. Benchmarks to monitor progress were (i)the privatization of the petroleum distribution (SONIDEP) and electricity (NIGELEC) companies, and (ii) establishment o f a the multisectoral regulatory agency. 0 Reforming and developingthe financial sector including restructuring o f state- owned banks, and strengthening financial institutions to expand SME financing. 44 Benchmarks measuring progress related to the restructuring, privatization andor liquidation o fremaining state-controlled banks. b. Develop the productive sectors, especially in rural areas, to mitigate vulnerability andstimulate income generation (PRSP Pillar 2) through: 0 Improvements in rural production and income-generating activity and addressing environmental degradation by, among others, expanding irrigated agriculture. Rapid environmental degradation was to be addressed through integration o fbest practices ina Community Development Program. Benchmarks measuringprogress inthis area were: (i) the development andimplementation o f a comprehensive rural development strategy; and (ii) increased access to irrigation. c. Improve access o fthe poor to'quality social services (PRSP Pillar 3) by: 0 Making primary education accessible to all. Progress benchmarks were: the (i) establishment of annual education program budgets, and (ii) building a multi- donor framework to finance programbudgets. 0 Makinghealth care accessible to the poor. Benchmarks were: (i) put inplace to performance-based management systems for decentralized health care provision and (ii) adoption o f a healthpolicy that facilitated accessto the poorest. the 0 Addressing population issues. The progress benchmark was to prepare a population policy to be reflected inPRSP I1 Intensifying the fight against HIV/ALDS. The progress benchmark was the establishment o f HIV/AIDS preventive and post-diagnosis services. 11. The CAS properly focused on debt sustainability and by so doing doubtlessly helped Niger obtain much-needed HIPC resources which expanded the fiscal space and enabled the Government to increase expenditures inthe social sectors. The CAS focus on the PRSP and its link with MDG encouraged other donors to align their programs to the government program, notably in the areas o f public finance, health and education. Even though CAS activities were expected to be selective, infact, the Bank program covered a wide range o f activities, probably reflecting the difficulties o f establishing priorities in a country with Niger's needs, and also the very broad scope o f the PRSP. 12. The CAS objectives and program reflect the relative strength o f the economic and sectoral work that informed the CAS. Strengthening public finance management was central to improved economic governance, a requirement for the budgetary support required by Niger, and the CAS objectives in the area o f public finance were clear. The importance o f privatization and financial sector reform on macroeconomic stability and inpoverty reductionwere not spelled out. A clearer rationale for IDAinvolvement inthis area might have helped advance the discussions with Government on the reform program. The objectives inthe socioeconomic pillar, focusing on education and health, were broad and ambitious, but clear. The objectives inthe productive sector pillar were generic: the reliance on agriculture growth and the underlying argument that agriculture has to grow because a large percentage o f the population lives in the rural areas i s not especially persuasive, and the CAS did not make the case that rapid productivity gains or the 45 expansion o f land under cultivation were possible. Environmental issues were not specifically addressed. 13. The CAS identified core monitoring benchmarks which were directly derived from the PRSP pillars (Table 9 in the CAS). Inaddition, it identified a number o f PRSP indicators which would be monitored during CAS implementation, and which were included in a Country Partnership Strategy Matrix attached to the CAS (base year 2000). Monitoring CAS progress is discussed in section A. 3 below. The CAS monitoring benchmarks and the Country Partnership Indicators are reproducedinTable 1. 14. The CAS recognized that implementation o f the reform program required a major capacity-building effort, but the CAS did not discuss how the Bank program was to strengthen capacities. In retrospect, the Bank program probably made important contributions in this area, as most projects included training and capacity building activities and non-lending activities were carried out with local participation which implicitly entailed substantial training. Nonetheless, an explicit program would contribute to a more effective effort. 2. Progresstowards`CASObjectives 15. Niger made progress towards its PRSP goals" and an important number o f CAS benchmarks were met, but performance over the past five years highlights the structural nature o f the constraints to social and economic progress. Progress towards the CAS objectives in each o f the CASPRSP pillars and the instruments used by the Bank are discussed inthe paragraphs that follow. PRSPPillar 1:Macroeconomic Stability and Growth 16. Progress. Macroeconomic performance improved substantially since 2000 and most macroeconomic stability and growth monitoring benchmarks set in the CAS were met. Real GDP grew at an average annual rate o f 4.3 percent in the 2001-2006, compared to the 4 percent projected in the CAS and PRSP. This was despite an unfavorable environment resulting from the recurrence o f domestic and regional socio- political tensions, difficulties inobtaining adequate external assistance and a drought and locust plague in 2004 that severely affected agricultural production. The generally positive performance since 2000 reflects mostly favorable weather conditions and the impact o f measures to promote growth, including improvements in fiscal management and increases in capital expenditures on infrastructure. This improved macroeconomic environment and increased investor and consumer confidence i s reflected in the increase l5Informationfor this section is drawn from the Public ExpenditureReformCreditProgramDocument; the ICR for the Second Public Expenditure Adjustment Program and for the projects that closed during the period; the Public Expenditure Management and Financial Accountability Review (PEMFAR); the Joint Staff Advisory Notes on the PRSP Progress Reports; Joint Bank-Fund Debt Sustainability Analysis; the Program Documents for the First and Second Rural and Social Reform Programs; the Project Appraisal Documents for the investment projects approved duringthe period; the ImplementationStatus Reportsof ongoingoperationsandinput from country team members. 46 inprivate investment: the share of private investment in GDP tripled duringthe period, from 4.8 percent o f GDP in2000-01 to 14.4 percent in2005-06. 17. In2004, the combination ofasevere drought andlocust attacks reduced GDP growth to -0.8 percent, highlightingthe vulnerability o f the economy to climatic changes. The drought caused a severe food shortage that affected a quarter o f the population. Spurredby favorable weather conditions andinvestment inthe mining, telecommunications andinfrastructure, growth rebounded in2005-07 averaging 6.1 percent duringthe period. 18. Inflation declined from an average annual rate o f 4.7 percent in 2000-01 to an average o f 2.7 percent in 2004-06, below the 3 percent target in the PRSP and the CAS. This was largely the result o f sound fiscal policies andbetter output growth performance and despite the increase in oil prices and the 2004 drought which led to a spike in agricultural prices. In2006, Niger was the only country within the Union West African Monetary Union(WAEMU) to meet all first order convergence criteria. 19. The implementation o f structural measures to strengthen public finance led to improvements in the macroeconomic framework, in line with CAS objectives. Revenue increased from 9.3 percent of GDP in 2001 to 11.4 percent in 2005-06 and government expenditures increased from an average o f about 17 percent o f GDP in 2000-01 to 19.7 percent in 2005-06. During the same period, current expenditures declined by 1.7 percentage points o f GDP to an average of 9.3 percent in 2005-06 while capital expenditures increased by about 3.4 percentage points, to an average 9.9 percent o f GDP in2005-06. The basic budget deficit l6stood at -2.8 of GDP in2005 and -0.3 in2006, down from an average of -3.2 percent o f GDP in2000-01, 20. Progress has been made in clearing domestic arrears, although the problem has not been resolved: by the end o f 1999, outstanding internal arrears were estimated at CFA.F 295.6 billion (24 percent of 1999 GDP) o f which CFA.F 100.5 billion was cleared by the end o f 2006. The stock of arrears in2006 (CFA.Fl95.2 billion) is equivalent to 10 percent o f GDP. MacroeconomicandPublicFinanceIndicatorsReflecting CAS Objectives (monitoring benchmarks) SP/CAS (2000) 1/ I CAS Completion(2005/06) I . ,. . . inCFA billion. NPV ofdebvexport ratioless than200 I 399 (end 1999) 136 (2005) 87 (2007) 1/ Baseyear datanotincludedinthe CAS is takenfromGovernmentdataavailable to the CountryTeam. l6Governmentrevenueexcludinggrantsminuspublicexpenditureexcludingforeign-financedinvestment, 47 21. Niger reached the completion point under the enhanced H P C Initiative in April 2004, which enabled it to benefit from debt relief estimated at US$1.2 billion innominal terms or US$520.6 inNPV terms, and an additional exceptional assistance o f US$142.5 million. The stock o f external debt increased slightly from US$1,758 million in 2002 (80.7 yercent o f GDP) to an estimated US$1,949 million in 2005 (58.6 percent o f GDP)' , The NPV o f debt to exports stood at 136 percent in 2005, which is below the HIPC target o f 150 and well below the CAS target o f 200. The NPV o f debt to exports in 2007 stood at 87 in 2007. Analytical work on debt sustainability carried out in 2007 suggests that despite debt relief, most recently in 2006 through the Multilateral Debt Relief Initiative, Niger remains at moderate risk o f debt distress in the medium to long- term. Niger has high external financing requirements and a narrow export base. Hence, even though it has acceptable levels o f public debt, export shocks, lower growth and less generous financing terms than assumed inprojections could plunge the country into debt distress. 22. The public finance reform program is based on a comprehensive Public Expenditure Management and Financial Accountability Report (PEMFAR) prepared in conjunction with the Government, the European Union and the African Development Bank. The report presented a reform agenda to improve public finance management and economic governance and was formally adopted by Decree in July 2005. The public finance changes focused on (i) the budget preparation process; (ii) execution and budget cash management procedures; and (iii)improved management o f domestic debt. Reforms in budget preparation included the elimination o f dual budget with the general and investment budgetpresented inthe same document since 2001; identification o f core activities requiring protection from expenditure cuts; development o f multi-year budgeting, including preparation o f multi-sectoral and sector-specific Medium Term Expenditure Frameworks (MTEF); and the introduction o f program-budgeting starting with basic education and health in 2003. In budget execution, the Government introduced, among other measures, a Financial Management Information System (FMIS) which has led to a computerization o f budgetary processes, and revamped the cash management systems to protect priority allocations infavor o fthe social sectors. 23. Implementation o f the public finance reform agenda continued in 2006-07, with measures to hrther strengthen (i)the government's cash management system; (ii)the process o f budgetary allocations for priority sectors by, among others, adopting a code that identifies pro-poor expenditures in the budget, and (iii)the monitoring o f expenditures in education, health and the rural sector which represented 51percent o f the recurrentbudget in2006. The Government has also prepared a mediumterm expenditure framework for the rural sector, and a program to modernize treasury operations i s being put inplace. Inaddition, measures are being taken to improve procedures and thus the transparency o f public procurement. All public finance measures are expected to tighten controls and improve economic governance. l7Based on an average exchange rate of CFA F 540 per US$in2005. 48 24. Progress was mixed in the second area o f CAS concentration under the macroeconomic/growth pillar, which focused on the privatization of the petroleum and electricity companies and the establishment of a multisectoral regulatory agency, measures which would have contributed to improving the environment for private sector operations. The CAS was prepared at a time when there was an expectation that the government divestiture program would move forward after reforms in the telecommunications and water sectors (supported by a Privatization and Regulatory Reform Project o f FY99 and a Water Sector Project o f FYO1). In telecommunications, three cellular operators were licensed andthe state company privatized. There has been a significant improvement in services since liberalization, primarily in the cellular operations and teledensity increased from 0.16 per 100 inhabitants in 1999 to 2.6 per 100 inhabitants in 2005, exceeding program targets. Performance o f the telecommunications company has been less than expected and it has not been able to meet its investment targets. The water company was also privatized in 2001 and is viewed as the most successful divestiture in the country (progress in the water sector is discussed in section on Pillar 3 below). 25. The CAS benchmark which called for the privatization o f SONIDEP (petroleum distribution) and NIGELEC (electricity) was not met. However, the two companies were brought to point o f sale, which i s the more typical requirement. When offered for sale, there were no interested investors due to the international climate and country prospects, problems which will need to be taken into account in designing the strategy for the energy sector. The strategy to improve services inelectricity andpetroleum distribution i s expected to be reviewed and revised. Inhindsight, the Government and the Bank could have moved more aggressively to redefine the sector strategy, when it became clear that one focused on the sale o f the two companies was not viable. The Multisectoral Regulation Agency, which was established in 1999, was fully staffed and operational (a CAS benchmark) by 2003. The Implementation Completion Report on the Privatization and Regulatory Reform Technical Assistance Project (Report No. ICR0000425), completed in FY07, notes that the Agency has gained credibility in the telecommunications sector where it has a clearly defined role in dispute resolution, frequency management and licensing. The Agency has begun recovering costs from fees for connections, and carried out studies on licensing andtelecommunications access. 26. On the financial sector, the third area o f CAS concentration under the macroeconomic/growth pillar, the CAS benchmarks relating to divestiture and restructuring o f state-owned banks has been largely met. BINCI, the Islamic Bank, was recapitalized without government participation and is now a private bank. Divestiture o f Credit du Niger (CDN), another state bank, was completed during the CAS period and the divestiture o f the HousingBank which was initiated during the CAS period should be completed in the coming months. Lastly, the financial and postal activities o f the Post Office have been split, and discussions are underway on ways to continue the financial services to small savers provided by the Post Office. 49 27. The Bank Program. The CAS program in support o f the macroeconomic stability/growth pole called for one quick-disbursing operation per year (two public expenditure adjustment credits and one in support o f the Poverty Reduction Strategy) and a technical assistance operation i s support o f financial sector reform. Two adjustment operations were approved, in FY03 and FY05 for a total o f US$lOS million, US$10 million under the amount originally programmed and 48 percent o f total lendingto Niger during the CAS period. Support for the macroeconomic stability/growth agenda continued in FY06-07 with the approval o f two Rural and Social Policy Reform operations for a total o f US$lOO million (the second in the form o f a grant) and accounting for 62 percent o f FY06-07 financing. 28. The CAS also included substantial non-lending services in support for the macroeconomic/growth pillar. Planned assistance included support in PRS reporting and to encourage donor coordination; a public expenditure management review; a country procurement assessment; a development policy review, and private sector (investment climate) and energy assessments. Work on the nonlending front was impressive. All programmed activities in support o f the macroeconomic stability pillar were carried out. Work in public finance, including the PEMFAR discussed above, was thorough and doubtlessly helped build capacity in the country, laid the foundation for improved governance which i s critical for budget support and helped coordinate donor support for public expenditure reform. The investment climate and energy assessments were not completed within the CAS period. The Investment Climate Assessment was completed in FY06 and is being used as an input in the discussions on the growth agenda. In recognition o f the difficulties faced inthe growth area, a non-programmed informal study on sources o f growth was carried out in2004. This was followed by A Country Economic Memorandum on Accelerating Growth and Achieving the Millennium Development Goals; Diagnosis and Policy Agenda, which was discussed with Government in FY07. The energy assessment planned for the 2003 CAS period is expected to be initiated in FY08 along with a mining sector review. PRSPPillar 2: Develop Productive Sectors 29. Progress. There was little progress inthe introduction o f measures to help expand productive activities during the CAS period, but as mentioned earlier, the focus o f the CAS was not in this pillar. Emphasis began to be placed on analytical work to support the productive sectors starting in FY05. The CAS benchmark relating to the preparation o f a sector strategy was met. The economy remains heavily reliant on an agriculture sector which is primarily subsistence and vulnerable to droughts and other natural disasters. In spite of impediments, food production kept track with population growth in the two decades ending in2003, andcash crop production increased following the CFAF devaluation. These increases were possible through an extension o f the area under cultivation, some o f which was unsuitable for cash crop production, and which led to a decline in yields. Close to a quarter o f the population faced a food crisis in 2004 and continues to rely on food relief. Expansion of irrigated areas has been modest, and the Bank's agriculture portfolio has not performed well. The contribution o f agriculture to GDPremained at 40 percent duringthe CAS implementationperiod. 50 30. The CAS progress benchmark in the productive sector pillar was the formulation and implementation o f a rural development strategy, and increased access to irrigation. The strategy was adopted in 2003, reaffirming the rural sector as the engine o f growth andsetting broad objectives (improve ruralpopulation's accessto economic opportunities /protect them against risks and improve food security; enhance capacities o f public/private institutions). 31. Duringthe CAS period and inthe years that preceded it, competencies o f public agencies dealing with the rural sector deteriorated, which impacted the Government's ability to put inplace the rural development strategy. It i s expected that this trend will be reversed as focus is increasingly placed on rural development with the Rural and Social Sector Programs supported by donors including the Bank in FY06 and FY07. In the context o f those programs, the Rural Sector Strategy was translated into an investment program and budgets, and a medium term expenditure program was prepared which combines activities o f the four ministries involved. The program i s being implemented and achievements monitored. In addition, administration o f services began to be decentralized with the installation of Regional LandManagement Administration Offices. 32. An Agro-Pastoral Export Promotion Project which was partly carried out during the CAS period and closed in October 2005 had serious design and management problems, and the Implementation Completion Report o f December 2006 rated the outcome unsatisfactory and sustainability unlikely. Under the Community Development Project, progress was made in establishing a framework for community based development which can be replicated and the program has been extended. The irrigation project had institutional and management problems for most o f its implementationperiod and was restructured in 2007. As o f the end o f 2006, some 26 thousand farmers had received matching grants designed to help them improve operations and adopt new technologies, and there had been measurable increases in some yields in the project intervention zones (50 percent for onions; 20 percent for tomatoes). 33. Bank Program. The CAS did not include lending for the productive sectors inthe FY03-05 period, possibly because three operations were being implemented. The Government received funding, not programmed, to help address the locust plague and support under a regional program on Water Degradation on the Niger River Basin under the Global Environment Facility. The CAS called for sector work on rural development but a formal report was not prepared; a planned rural roads strategy was prepared. A US$lO million supplemental credit for the Community Development Project was prepared duringthe CAS period and approved inFY06. 34. InFY06, analytical was started inconnectionwith the Rural and Social Sector budgetsupport operations approved FY06 andFY07. Work was also started inFY07 on a Rural Sector Public Expenditure Review which was completed inSeptember 2007. 51 PRSPPillar 3: Improve access ofpoor to quality social services 35. Progress. Clear gains have been made in access to education and some improvements in health service provision and the CAS benchmarks met. Progress in humandevelopment indicators was affectedby the rapid population growth and a major success o f the Bank program has been the impact o f analytical work on population problems, discussed below. 36. In education, the Government prepared a ten year education program (2003- 2013) and a program budget for 2005-07. Primary school enrollment rates increased from about 27 percent in 1999-2000 to 54 percent in2005-06, and unit costs o f education have fallen. The share of girls attending schools is also increasing, but the gap i s continuing to widen between boys and girls, a problem which the Government is trying to address. Improvements resulted from an ambitious program o f classroom construction (with funds made available through HIPC) and the recruitment o f some 2700 contractual teachers per year since 2001 whose unit costs are more than 50 percent lower than the cost o f civil service teachers. A study carried out in2004 '*shows that the recruitment o f these teachers did not lower the quality o f primary education. In addition, completion rates and survival rates, which reflect the system's internal efficiency, are improving. Completion rates went up from 27 percent in 1999/00 to 34 percent in 2005/06 and 43 percent in 2006-07. Work on curriculum reform and teacher training to improve the quality o f education i s ongoing, but these measures take time to show results. Education reforms have continued to be put in place in FY06-07, including improvements in the contractual teacher system under the Rural and Social reform Programs. A financial audit carried out in June 2006 revealed mismanagement o f finds which other donors had pulled to finance the education program; the Government took corrective action, including the dismissal o f incriminated staff; measures designed to strengthen financial controls in public sector agencies, which i s part o f the public finance agenda, are expected to help avoid similar problems inthe future. 37. Health coverage improved during the CAS period. The Government prepareda Development Plan for 2005-2009, and a two year program budget, which were benchmarks under the CAS. A performance-based management system for decentralized health care provision, a CAS benchmark, began to be developed during the CAS period andhas now beenput inplace. 38. Physical access to health care has expanded through construction and equipingof some 1000health centers (with resources freed by HIPC). After an unsuccesshl attempt in 2003, the Ministry o f Health began to recruit contract health workers in 2004. The salaries offered to the new recruits are equivalent to the base salaries o f civil servants at the beginning o f their career (less benefits), and as a result, the program will not reduce unit costs as dramatically as in the basic education sector. However, it is expected to ''The study was carried out by the Programme d 'Analyse des Systdmes Educatives de la Confe'rence des Ministres de I'Education des Pays ayant le Franqais en Partage. 52 address the shortage o f staff inthe poorest regions o f the country. The slow progress in health sector reforms during the CAS period reflects the complexity o f the sector, although in hindsight, the Bank could have been more forceful in advancing the reform agenda at the beginning o fthe period. 39. Starting in 2005, under the Rural and Social Policy Reform Programs, the Government adopted the policy o f filly subsidizing key maternal and child care services and included the expenses in the budget, increased the proportion o f the health budget allocated to basic health services in the regions and districts; and prepared a national healthmap to identify requirements. 40. The 2002 Poverty Reduction Strategy did not address population issues. The Government i s now more aware o f the problems posed by rapid population growth and the 2006 PRSP addresses more adequately the population issue (a CAS benchmark). The development o f population policies and programs accelerated during the CAS period, in some measure as a result o f analytical work carried out by the Bank, discussed below. In 2004, the Government established a new ministry charged with population and social issues and in May 2005, issued a policy statement which was adopted by Parliament emphasizing the need to address the problem o f population and reproductive health. In August 2006, the Government presented an action-oriented Declaration o f Population Policy (DGPP) covering the period 2007-2015 which updates the 1992 National Population Policy, and which includes the objective o f reducing annual population growth from 3.3 percent to 2.5 percent by 2015. A work plan is being prepared. A new law on reproductive health was passed in May 2006 and the Government has adopted legislation to provide free contraceptives inpublic health facilities. Implementation o f the program remains difficult, as there continues to be resistance to Government interventions in population and reproductive health and capacity remains an issue. In parallel with changes in policy, some progress has been made in improving HIV/AIDS services; the Africa-wide supported program has been changed to improve its effectiveness (a CAS benchmark was the establishment o f HIV/AIDpreventive and post- diagnosis services). Education and Health Indicators Reflecting CAS Objectives (percent) 41. In water and sanitation, progress was made towards meeting PRSP objectives included in the CAS o f improving the access and quality o f sanitation services (there were no specific CAS benchmarks). With assistance from IDA through the Privatization and Private Sector Reform Project o f FY99 and the Water Sector Project o f FYOl for which a supplemental credit was approved inFY06, the Government began an ambitious sector reform program. The program aims at ensuring management autonomy and a 53 rational sector organization; supporting improvements in commercial management/cost effectiveness and establishing a new tariff policy to help reach financial equilibrium. Under the program a state asset holding company, Socikte' de Patrimoine de Z'Eau du Niger (SEEN), was created, and its operations contracted out in June 2001 to a private operating company. Under a 10-year lease agreement, the private operator i s responsible for managing sector assets, planning and financing investments and for economic and quality o f service regulation. Significant progress has been made inimproving the quality o f service delivery, the efficiency o f operations and cost recovery. The volume o f drinking water available for the population has increased as a result o f the reduction unaccounted-for-water. It is expected that the volume o f available drinking water will increase by more than 40 percent and the number o f private connections and public standpipes will increase by 25 percent and 30 percent, respectively, by the end o f 2007. 42. By securing the production capacity and main distribution networks, the investment program will lay the ground for increased service coverage. The Government has been implementing agreed (2000-06) water tariff and annual tariff increases to achieve sector equilibrium. In the rural water sub-sector, a sustained investment effort led to the construction o f safe water supply facilities (about 10,400 open wells, 6,300 boreholes and 250 small piped systems), which serve about 52 percent o f the rural population. To improve performance the project i s supporting the Government's policy o f promoting private operators' participation for small piped systems and other reforms to help to restore sustainable services for 125,000 people inrural areas. 43. Bank Program. The CAS anticipated three operations in the social sectors, one each in health and education, and an HIV/AIDS prevention project for a total o f US$88 or about 38 percent of programmed lending. The education and HIV/AIDS project were approved for a total o f US$55 million or 25 percent o f total IDA financing during the CAS period. The education project was advanced to FY03 from FY04. In addition to expanding needed physical facilities, the education project has contributed to donor coordination and has helped obtain budgetary allocations for the sector. The HIV/Aids program, approved in April 2003, and part o f the region-wide AIDS program, was designed to help put in place schemes that help control AIDS. The project had a slow start, but it has been restructured and this i s expected to expedite implementation. The health investment operation which closed during the CAS implementation period was rated unsatisfactory in the achievement o f its development objectives. In addition to the budget support operations which focused on social sectors, in FY06-07 two investment operations were approved: an Institutional Strengthening and Health Sector Program for US$35 million (June 2006) and a US$lO.O million grant for Multi-Sector Demographic Project (June 2007). In addition, a US$lO.O million Supplemental Grant for the Water Sector Project was approved inFY07. 44. The CAS programmed analytical work on poverty; gender issues; higher education; a health strategy, population and urban transport. Of these, work was completed on higher education, poverty, population and urban transport, all o f which were discussed with Government. Background work on gender issues was undertaken with financing from an IDF grant. The health sector strategy was postponed because 54 Bank funds were not allocated to this activity although informal work was carried out in connectionwith the preparationo f the Health Sector Program approved inFY06. 45. A major analytical study on population was presented and discussed with the highest levels o f Government, and widely disseminated in the country. The study is thought to have led to a breakthroughinthe understanding o f the impact o f demography on the country's development prospects, and to political support. Policy and institutional measures taken since 2004 are based on the recommendations o f the report. PRSPPillar 4: Improved Capacities 46. The CAS did not discuss a specific agenda for improving capacities, although benchmark indicators (not quantified) on procurement, preparation o f the MTEF and decentralizationwere included, as were CAS objectives linked with the PRSP. Progress was made on CAS monitoring benchmarks relating to procurement and public finance (public finance activities are discussed under Pillar 1). With support from an IDF grant, a program to strengthen public procurement was prepared. The program included improving the legal and regulatory framework by modifying the procurement code; issuing standard bidding documents and the delineation o f hctions for a procurement supervisory body. There were difficulties with implementation o f the IDF grant, but procurement legislation was revised and the Procurement Regulatory Authority established. After approval, the legislation had to be adapted to that o f the West Africa Economic and Monetary Union (WAEMU) which issued regional directives at the end o f 2005. The revisions o f the legislationwere completed in2007. 3. CAS Contributionto PRSPGoals andMonitoring 47. The majority o f the CAS planned outcomes and monitoring benchmarks were achieved, andthere is evidence that the Bank assistance program contributed to the PRSP goals, particularly in the areas o f macroeconomic management, improved education services, and population policy reform. However, as i s often the case, evaluating Bank product contribution to specific country outcomes i s difficult. 48. The CAS noted that monitoring was to take place at the project level where the Bank would help strengthen project monitoring and evaluation (M&E) frameworks; and at the level o f the overall assistance program. The CAS included a large number o f indicators grouped as (a) CAS monitoring benchmarks and (b) indicators in a Country Partnership Strategy Matrix derivedfrom the PRSP indicators. Because o f the difficulties with the indicators these do not appear to have been used to monitor progress under the PRSP (PRSP progress reports do not refer back to them) or as a management tool during CAS implementation. With respect to monitoring, the CAS noted that at the mid-point o f the CAS period - in late FY04 - the Bank would review the indicators and targets to assess progress inimplementing the assistance program and adjust the Bank's strategy as necessary. A draft CAS progress report was prepared and discussed at the Regional level, but it was determined that a f i l l CAS would be prepared instead. Problems with the indicators included the following: 55 0 PRSP indicators inthe Country Partnership Matrix could not be followed up because there was insufficient data (e.g. social indicators); or the target was not included (e.g. increased agro-pastoral production). 0 CAS benchmarks were not quantified (e.g. improved fiscal balance). 0 The precise links between long-term goals enunciated inthe PRSP, the outcomes that could be achieved during the CAS period, and the mechanisms by which IDA aimed to help Niger meet those goals were not spelled out (e.g. preparation o f social and agricultural plans; divestiture). 49. The PRSP and CAS monitoring highlighted the need to improve the information base in the country. A National Statistical Office has been established, and a household survey has been carried out. In preparation for the second PRSP, the Government selected key parameters to be monitored. The country team has focused on monitoring, as discussed under Bank Performance below. In the CAS, the team intends to make indicators and their baseline data clearly accepted by all involved, the links to the interventions more explicit and to increasingly use the indicators as a management tool throughout CAS implementation. 4. Sustainability 50. The process that guided the preparation and implementation o f the PRSP and the release o f HIPC resources seems to have created a momentum for change that augurs well for the sustainability o f ongoing reforms and which has led to the deepening and extension o f the reform program. The December 2004, democratic elections consolidated the power o f the President who was reelected, and it can be considered a mandate to pursue reforms, started in 2000. Because the reform program i s very broad, understanding and appropriation o f the program at different levels o f government has been difficult. As implementation o f the reform continues, key departments in the Ministry of Economy and Finance and in line ministries have begun to recognize the potential benefits that could be derived from a more strategic approach to budget planning and management, and from improved monitoring of public expenditures and overall public finance performance. Reforms inplanning and budgetingprocesses at the finance and sector ministry levels will not be easily reversed. 51. In addition, the international community strongly supports the government's economic and financial recovery program, its poverty reduction strategy and the budget reform process. In this connection, support by all stakeholders to the conclusions and recommendations o f the PEMFARreport has helped inthe harmonizationo f government anddonor objectives andprogram activities. This is essential to improve coordination o f donor interventions inbudgetmanagement andpoverty reduction. 52. Inspite of the good prospects for sustainability, there are still significant risks associated with the magnitude o f investments needed to impact positively on poverty reduction. This is true both because o f the recent history o f Niger, and its limited resources and because o f the relatively low level o f international support (including 56 IDA), given requirements. Also, the limited capacity will impair the speed o f reforms. Lastly, despite the good performance made to date, the program ahead will require considerable political courage on the part o f the Government, and entrenched interests, including those o fpublic enterprises, could derail some reforms. 5. InstitutionalImpact 53. The CAS agenda did not have a specific capacity building program, but the operations put inplace have included capacity buildingactivities or components, and it i s probable that change has been substantial both at the higher levels o f government and also at the grass roots. Reforms in the health sector, a CAS priority, have been slower thanhadbeenhoped for. Institutional change has also beenmodest inthe electricity and petroleum companies, which continue to have high operating costs and impact the budget. The Bank has contributed to expanding public-private dialogue and begun the discussion o fprivate-public partnerships, although Niger presents particular challenges in attracting foreign investment and domestic invertors are few. 54. Given the limited competencies in the country, there is a need to develop a program o f capacity building and to pursue aggressive change in institutions. This approach i s in line with the recommendations o f the Operational Taskforce on Capacity Development in Africa (report o f April, 2005). Capacity building and institutional reform will likely require addressing issues associated with civil service reform. 6. ExogenousFactorsandUnintendedNegativeImpact 55. The exogenous factors which affected CAS outcomes were those that slowed the pace o f growth. The drought and locust infections affected agricultural output in 2004, and the increased oil prices adversely affected the balance o f payments. Because o f Niger's isolation, it appears that the political unrest in neighboring Nigeria and Ivory Coast didnot affect Niger. 56. CAS implementation did not have any unintended negative impacts that the country team is aware of. The budgetary limitations associated with the macroeconomic program were foreseen and every effort was made to orient government expenditures to priority activities. There was no unanticipated environmental damage from the irrigation program. D. BankPerformance 57. This section summarizes Bank performance which was satisfactory, particularly inkey areas such as the fiscal reform and education. Niger made progress towards the plannedCAS outcomes and IDAplayed a role inhelpingthe country achieve results. 57 1. Quality of Products and Services 58. The quality o f IDA'Sproducts and services were generally satisfactory. The economic work was well received and groundbreaking in the case o f public finance and population. Outcomes in the area o f public finance and education and the population analytical work, with which the Bank has been associated, have been impressive, particularly given the country's history and resources. Continuity o f staff and the deptho f involvement contributed to the overall performance on the macroeconomic front. Because the reform agenda i s broad, and the government competencies limited, it i s important that the Bank provide consistent support to specific activities untilthe national competencies have been built.Portfolio monitoring has been adequate. Internal reporting notes that the portfolio faces problems (see below). ISRs show that the team has made substantial progress in setting parameters to measure project outcomes, particularly in FY06-07. This reflects better understanding o f measurement tools by the Bank and the Government as well as the availability o f information gathered duringthe CAS period. 59. The team prepared ICRs for six projects which closed during FY02-05, and the development outcome o f all o f them was rated satisfactory in the ICRs. All ICRs were reviewed by the Operations Evaluation Department (OED), which rated the development outcome "unsatisfactory" for two o f these projects. The resulting "dis~onnect"'~figure o f 33 percent i s about double that for Africa as a whole during the same period (about 17 percent). Both projects rated unsatisfactory by OED were investment operations, reflecting the implementation problems o f the portfolio. One project, the Agro-Pastoral Export Promotion project was subjected to a Quality o f Supervision Analysis by the Bank's Quality Assurance Group (QAG). The supervision effort was rated moderately satisfactory, inpart because the review team viewed the project ratings as unrealistic. A Quality at Entry Review o f the Financial Sector Project rated it moderately satisfactory (project complexity and regulatory issues associated with the with microfinance component were highlighted as reasons). 60. The team prepared ICRs for three operations that closed during FY06-07. The ICR for the Second Public Expenditure Adjustment Credit rated the outcome o f the operation as satisfactory with likely sustainability, reflecting the advances made in the public finance agenda. The development outcome for the two investment operations which focused on growth, the Privatization and Regulatory Reform Technical Assistance Project and the Ago-Pastoral Export Promotion Project were rated marginally unsatisfactory and unsatisfactory, respectively. The FY06-07 program drew lessons from the experience with the two operations, which pointed to the need for more in depth analytical work on the rural sector and the importance o f addressing divestiture issues in the context o f a broader agenda. Work on the investment climate and rural sector carried out inFY06-07 should inform Government policies andprograms and the design o f Bank interventions, andwill be discussed inthe new country strategy. 19 Differenceinbetween ICR and OED rating. 58 2. Portfolio Assessment 61. The 2003 CAS described improvements in the projects under implementation in the preceding CAS period. Data on portfolio performance in FY03-07 suggests that the portfolio continued to have problems. As o f June 30, 2007, the portfolio included eight operations,20 compared to nine operations at the end o f the CAS period in2005. Of the eight projects rated, three were rated satisfactory for the development objectives and one was rated highly satisfactory. All but one o f the eight operations was rated moderately satisfactory for implementation progress. Of the eight operations in the portfolio three were rated problem projects (37 percent), which is higher than the regional average o f 11 percent. At the end o f the CAS period in 2005, only one project was rated as a problem project, but the increase in problem projects over the past two years may reflect more realistic ratings rather than deterioration in the portfolio. The introduction o f new classification criteria probably contributed to the downgrading o f some operations. One project, irrigation, had been in problem status for one year. Reflecting the improved assessment of the portfolio, no projects were in potential problem status (100 percent realism index over the Africa average o f 83 percent). This i s an improvement from the end o f the CAS period, when three projects were potential problem projects. All projects carry "risk" flags for country risk and country macroeconomic management. 62. Implementation data during the CAS period and for FY06-07 shows that projects that have supported private activities report least progress (Regulatory Reform, Irrigation and Ago-Pastoral projects) reflecting the obstacles that Niger faces in increasing and diversifying economic activity. Given the weight attributed to the expansion o f irrigated lands in agriculture sector policy, the outcome o f the irrigation project, one o f the three problem projects, is especially important. The dispersion o f Bank efforts in supporting private activity and the absence o f analytical work to inform program design could also have contributed to the slow progress in Bank programs in this area. The disbursement ratio 21 averaged 24 percent during the CAS implementation period (FY03-05), which i s about the same as that for Africa as a whole. The disbursement ratio during FY06-07 increased to 33 percent, higher than the Africa average o f 25 percent, reflecting the weight o f the budget support operations inthose years 63. Portfolio problems were outlined inthe draft Concept Note for the CAS Progress Report prepared in February 2005. Responsibility for portfolio management was assigned to the Country Manager in2005, and the Country Office team worked with the Government on portfolio issues; two CPPRs were conducted during the CAS implementationperiod. The 2004 CPPR developed a three year action planto address key constraints identified -- project timing and design; weak project management; slow decision-making o f the Government and the Bank; shortage o f counterpart funds; an inadequate monitoring and evaluation. Task management has been transferred to the country office for the HIV/AIDS, health and education projects. During CAS 2oIn addition, there were two operations which were not yet effective (Rural Development and Social Policy ReformProgramI1and the Multi-Sector Demograpbc Project) 21Disbursements during the fiscal yeadundisbursed balances at the beginning o fthe fiscal year. 59 implementation the two agricultural projects in the portfolio were also managed in the country office. The QSA on the Agro-Pastoral Project (closed in October 2005) noted that "...field-based supervision has enabled the team to be heavily engaged with the Borrower, On the other hand, it wasn't clear that some o f the local staff were fully prepared to examine subprojects critically or to raise sensitive issues, until late in the period under review." The task manager for the water project i s assigned to the Senegal Office, which should contribute to enhanced supervision. The Agro PastoralProject, the Private and Regulatory Reform and the HIV/Aidsprojects were rated "problem" projects during the CAS implementation period; the three were on problem status for less than a year, which partly reflected efforts by the Government and the Bank to resolve problems, but also optimism on the part of the Bank about progress, as suggested by the QSA for the Ago-Pastoral project. Niger complied with the audit requirements o f all operations inFY03 andFY04; one audit was late andone overdue inFY05 (out of seven due), and one audit was received late in FY06 (out o f seven due). A procurement audit was conducted in 2005 on five projects. The audit showed a high percentage on non- compliant procedures in two of the five projects reviewed. The November 2005 CPPR focused on determining bottlenecks to project implementation andpriority actions. 3. Lending 64. The 2003 CAS proposeda base case lendingprogram o f US$238million for eight operations in FY03-FY05, including both program and investment lending. The high case was only 9 percent higher than the base case, reflecting debt sustainability considerations. In FY03-05, IDA provided financing o f US$219.4 million, of which US$84.38 million were in grants (Table 2). Program support was provided through two operations for US$lOS, compared to the planned three operations for US$115 million. The drop in the number o f operations resulted from delays in implementation o f the reform program. All but the health investment operationwere delivered either as planned or in the case o f the Education Project, ahead o f schedule. The health project was delivered in the first half o f FY06. In addition, one investment operation, an emergency credit to assist with the locust plague was approved in FY04 as was a Regional GEF program for the Niger River Basin. In FY06-07, financial assistance to Niger totaled US$l55 million o f which US$70.0 million or 45 percent were grants. In FY06-07, 65 percent o fthe Bank financial support to Niger was inthe form o f grants. 4. Non-lending 65. The CAS noted that past administrative budget constraints limited the Bank's non-lending services and the availability o f core economic work to inform the CAS. In the two years that preceded the CAS, non-lending services were focused on supporting the preparation o f the PRSP. The CAS included an ambitious program o f non-lending activities, all but one o f which was carried out (Table 3). IDA made good use o f analytical and advisory work during the CAS period. Analytical work was particularly effective in the area o f public finance and population. The analytical work on public finance was carried out jointly by the Government, the EC, and IDA, with the French aid agency providing support. The report and associated action program is being used as a 60 common framework for public expenditure management reform by all partners. Work on debt has underpinned Niger's access to significant HIPC debt relief. On procurement, IDA prepared a CPAR and some o f its recommendations are being implemented. IDA has broken new ground in critical social issues. The population study illustrates the implications o f continued rapid population growth on attaining the MDGs and helped create a consensus on the needfor an integrated population policy addressing supply and demand factors. The rural development sector work scheduled for FY03 and the Social Protection Strategy Note scheduled for FY05 were postponed. Sector work on Rural Development and a Rural Sector Public Expenditure Review were carried out in FY07. A programmed Investment Climate Assessment was completed in FY06 rather than in Y05. An Energy Assessment, also programmed for FY05 is expected to be started in FY08. A Country Economic Memorandum, which was not programmed (Accelerating Growth and Achieving the Millennium Development Goals: Diagnosis and Policy Agenda) was started inFY06 and the draft report issued inSeptember 2007. 5. Country Dialogue and Donor Harmonization 66. The CAS noted that coordination o f donor interventions had been weak, largely because o f unstable conditions of the 1990's. With stability, there has been increased donor coordination, and major partners participated actively in the elaboration o f the sector analysis which set the foundation for the PRSP and the second PRSP. The PRSP was the result o f an extensive consultative process which involved stakeholders and the donor community. 67. The CAS assumed that strong donor coordination would be required for the proposed increase in programmatic lending. CAS implementation did lead to a strengthening o f relationships among donors and stakeholders, and stakeholder involvement was pivotal in advancing the discussions on population policy. The implementation o f the public finance and education programs and the design o f the health program have also had considerable donor and stakeholder involvement. On the other hand, it is likely that the lack o f understanding and consensus on key issues stymied reforms inthe electricity and petroleum sectors. Donor consultation has improved during the CAS period as follows: 0 Key donors have supported the preparation o f sector strategies and investment programs in education, health, and rural development and a sector strategy in transport. 0 Donor programs are increasingly aligned with the PRSP, and the PRSP to the budget cycle; IDA supported the PRSP Secretariat and UNDP in the alignment effort. IDA collaborated with other donors to harmonize criteria for the release o fbudget support. IDA cooperationwith the IMFhas beenvery good. Fundconditionality blendedwell with that o fIDA, andthe IMFprogram was inlinewith the PRSP. 61 Leadership in multi-donor coalitions has been shared. IDA i s playing a lead role in public finance and community development. Other donors have taken the lead in education and rural development (France), health (Belgium), water (Switzerland), food security (FAO), and HIVIAIDS (UNAIDS). Funds from key donors have been pooled to fbnd the education sector investment program. The largest donors (IMF, the Bank the EU and France) meet regularly to coordinate activities. Key sector work, such as the Public Expenditure Review was carried out jointly with the EU, andwas usedby the IMF. E. Lessons for Subsequent CAS Desim The best results were achieved when IDA was able to exploit synergies between analytical work and adjustment lending. The chosen blend o f policy based lending and investment lending worked well particularly inthe area o fpublic finance. On the other hand, the PRSP focus on rural development, which did not seem to have been based on country-specific analytical work, yielded limitedresults. The Country Team recognized the issue during CAS implementation and this led to the analytical work on growth carried out startinginFY05 and the current focus on diversification. Ina country such as Niger where the Bank is influential, there is some merit to the CAS having a broad agenda supporting the PRSP, although expectations should be modest on what will be accomplished outside a core program. The CAS agenda was very broad which probably helped keep donors and the Government focus on the PRSP agenda, but the work program and the budgetary allocations were directed to public finance and social sectors, where in fact, there were results. The Country Team expects to narrow the focus o f the next CAS, which will concentrate on accelerating economic growth and addressing demographic issues and selectivity will guide IDA interventions indifferent sectors. Assigning responsibility for portfolio management to the Country Manager in the country office helped focus on portfolio problems. The Country Manager and the country office staff are close to the projects and their counterparts. For that reason, and because they work exclusively on Niger, they should be able to focus on the portfolio, remove obstacles and anticipate problems. Local staff should interact with international staff to ensure that international best practice i s brought to bear on portfolio problems, and that local staff receive adequate traininghupport on Bank practices andprocedures. The root o fpast problems with the rural portfolio will need to be addressed, given the importance o f increasing production. To help accelerate growth and increase the impact on poverty, the Bank will strengthen investments in infrastructure and the productive sectors andhelp the Government reigninpopulation growth. 62 0 The CAS outcome indicators need to be linked clearly to IDA interventions and, given the CAS timeframe, will be more modest and measurable. IDA will track indicators that show linkage of IDA interventions to higher level objectives. Capacity issues continue to be a constraint to implementation of development programs in Niger. The Country Team will consider how to best to address the problem, including the nature of civil service reforms that can be advanced. 63 a s 0 Y n . n m 0 0 W c\1 n 6 W 0 0 0 0 N W W c\1 3 00 3 6 .. .. UW Y W 2 E 3 0 P 0 e 't: & 8 Y I ed Y Qee c;' M a 8 .B E .d a 3 n a n 3 3 0 B e . 4 0 b B 3 b P a, Table2 A. LendingFYO3-05 LendingProgram(base case) andActualDeliveriesCAS PeriodFYO3-FY05 FY Project IDA Status IDA GEF US$ M US$ M JS$ M 2003 Public Expenditure 35.00 SecondPublicExpenditureAdjustment 65.OO Adjustment CreditI1 Credit Community ActionProgram 25.00 CommunityActionProgram 35.00* 2.90 HIV/AIDSPreventionand 30.00 Multisectoral STI/HIV/AIDSSupport 25.00* Care Project Project Basic EducationProject 5.62 24.38* Subtotal FY03 90.00 hbtotal FY03 155.00 2.90 ~~ 2004 PublicExpenditure 35.00 Adjustment CreditI11 FinancialSector Reform 15.00 FinancialSector TA Project 14.80 Program Basic EducationProject 30.00 EmergencyLocust 9.90 ReversingLandandWater Degradation 6.00 inNigerhver Basin Subtotal FY04 80.00 Subtotal FY04 24.70 6.00 2005 PovertyReduction Support 40.00 CreditI HealthProjectI11 28.00 PublicExpenditureReform 40.00 Subtotal FY05 68.00 Subtotal FY05 40.0 TOTAL FY03-05 238.00 219.7 8.90 Ofwhich grants 84.38* * IDAGrant 73 Table 2 B. LendingFYO6-07 FY Project IDA Status IDA GEF US$ M US$ M US$ M 2006 Institutional Strengthening and Health Sector Support Project 35.0 Water Sector Project Supplemental 10.0* Rural and Social Policy ReformProgram 50.0 Subtotal FY06 95.0 Of which grants 45.0 I 2007 Multi-Sector Demographic Project 10.0* Rural and Social Policy ReformGrant I1 50.0* SubtotalFY07 60.0* Of which grants 60.0 * IDAGrant 74 Table 3 A. Non-LendingServices FYO3-05 PlannedNon-lendingServices andActualDeliveries CAS PeriodFYO3-05 CAS PLANS (01/21/03) COMPLETION REPORT -Support to PRSP ProgressReport -0rganizedfinanced three information fora; and Donors' Forum. Closely monitored PRSP - Joint Staff participatedinvarious committees 1/. Assessment of 2002; 2003 and 2005 (23483; 27155; 31496). HIPC report, 2003 and CompletionPoint Report, 2004 (28536). -Stocktaking on Decentralization. -Report (worlung draft) completed in2003. -Rural Development Sector Work. -Postponed -Population Sector Work. -Providing all Nigeriens with Food, Education& Health Care: A Demographic Perspective (34219) 2005. -Public ExpenditureManagement -Public ExpenditureManagement and ReviewfCFAA. Financial Accountability inNiger (29752). -Poverty Analysis -SantC et PauvretCau Niger -Vers les Objectives duMillhaire pour le DCveloppement (29095). Other work -Gender Legal Status. ongoing. Postponed 21. -CPAR. Marches - Niger (33491) -Rapport Analytique sur la Passationdes -Transport/Urban Strategy. -Urban Sector Development Strategy (29409) -Higher Education Study. - LaDynamique des Scolarisations auNiger. WP (328905). HigherEducation Study carried out inFY05. -DPR. -CEM expected to be completed inFY06 -Health/Social Protection Strategy -Postponed. Analytical work carried out in Note. context of Health Sector Project preparation. -Private Sector Assessment. -Investment Climate Assessment completed inFY06 and finalized inFY07. -Energy Assessment. -Expected to be initiated inFY08 -Niger Post Primary Education: Current Issues, Future Challenges andPolicy Options (32649'1. Report numbers, if available, inparenthesis. 1/ the committees were (i)Government-donors; (ii) Dialogue and Joint Action (Government and Domestic NGOsprincipally), andthematic groups. 2/ Background studies were carried out under an IDFGrant, as follows: Ministtredudeveloppement social, de lapopulation, de la promotionde la femme et de laprotectionde l'enfant, 2003 :(i) sur le statut Etude juridique de la femme et la loiau Niger, (ii) Rapport de l'enqu&te16ger sur l'option des nigeriens en matikre de statut personnel et des droits de la famille. 75 CAS PLANS (01/21/03) ACTUAL 2006 2007 -Niger : UneEvaluationduClimatdes Investissements(36924) -Country Economic Memorandum RuralSectorPublicExpenditureReview 76 ANNEX4: JOINT FUND-BANK DEBTSUSTAINABILITY ANALYSIS Niger remains at moderate risk of debt distress. Despite low debt ratiosfollowing debt relieJj most recently in 2006 under the MDH,Niger has high externalJinancing needs and a narrow export base. Although thepublic debt remains at acceptable levels under most stress tests, external debt breaches onepolicy-dependent debt distress threshold under scenarios incorporating export shocks, lower growth, and less generousJinancing terms. Background 1. This joint IMF-World Bank debt sustainability analysis evaluates boththe external andthe total public debt profile ofNiger based on end-2006 data, using the standarddebt dynamics templates for low income countries.22 2. Niger's debt ratioshavebeensignificantlyreducedby debt relief,most recently under the MDRI.Niger reached completion point of the HIPC Initiative inApril 2004 and subsequently benefited from MDRIassistance from the IMF, IDA, and the African Development Bank in2006. Nominal external debt has thus fallen from over 90 percent o f GDP at end-2000 to less than 15percent o f GDP at end-2006. By end-2006, debt to AfDB, IDAandthe IMF accounted for 8,23 and 5 percent o fexternaldebt, respectively, while the remainder was constitutedby borrowing from other multilateral lenders. UnderlyingDSAAssumptions 3. The result o f the current exercise differs from the 2006 DSA mainly because of: (i) an expected acceleration o f exports and GDP resultingfrom a substantial increase inuranium prices and the ongoing expansion o f uranium production capacity; and (ii) a modestly lower grant element for concessional loans that reflects more accurately the terms for project financing available to Niger from multilateral agencies.23Box 1describes the main macroeconomic assumptions usedfor the baseline debt burdenratio calculations. The faster exports growth projected (12 percent per year in2007-16) represents a break from the past (5.5 percent per year in 1997-2006) when miningexports were stagnant, reflecting low uraniumprices.24 ExternalDSA 4. Underthe baselinescenario, all externaldebt ratiosremainbelowtheir policy- dependentindicativethresholdsthroughoutthe projectionperiod(2007-27) (Text Table). The present value (NPV) o f debt-to-GDP ratio rises gradually and stabilizes below 25 percent by 2027, while the NPV o f debt-to-exports ratio levels off at about 116percent (Table lb and Figure 1). The gradual rise inthese indicators results from Niger's high 22The DSA was producedjointly by staff o f the IMF and the World Bank. 23The analysis assumes an average grant element o f 46 percent inborrowing afler 2008, compared to 50 percent inthe 2006DSA. 24The uranium price assumptions are conservative loolung forward as they are based on only modest annual increases from the 2007 contract price, which i s still l o w in comparison to the international spot price. 77 financing requirements, critical for promoting growth and achieving the MDGs: it i s assumed that one third o ftotal project financing comes inthe form o f concessional loans and the remainder ingrants. Policy-Based External Debt Burden Indicators Thresholds 1/ Niger: Baseline Scenario Ratios 2006 2007-25 21 Peak NPVofexternal debt inpercent o f Exports 150 62.6 87.0 115.5 GDP 40 10.2 17.4 22.8 Revenues 250 77.6 114.7 132.3 External debt service inpercent of: Exports 20 2.8 3.8 5.2 Revenues 30 3.5 5.0 6.0 I / Policy-dependentthresholds as used in thejoint IMF-WB LIC DSA framework for amediumpolicyperformance. Niger receivedaratingof 3.3 in the 2006 World Bank'sCountryPolicy and Institutional Assessment (CPIA), which qualifies it as amediumpolicy performer. 2/ Simple Average 5. Sensitivity tests show that Niger's external debt burden couldworsen significantly inthe event of plausible adverse macroeconomic shocks -particularly to exports - or weaker economic performance, although ratios would remainbelow their threshold levels under most o f these alternative scenarios. Ifkey variables remain at the historical average o f the previous ten years (scenario Al), the NPV o f debt-to-GDP and debt- to-exports ratios would rise to 18 percent and 90 percent respectively by 2027, below the baseline. This lower debt profile under the historical scenario reflects a lower level o f borrowing and smaller current account deficits than are assumed going forward. Incontrast, two alternative scenarios - a temporary but strong reduction inexport growth (scenario B2), or a sizeable deterioration o f the terms for new borrowing (scenario A2)25-would result ina more significant worsening of Niger's debt profile, leading to breaches of the debt-to-exports threshold (but not o f any other threshold). Under the first of these tests, the export shock, the NPV o fdebt-to-exports ratio would peak inthe medium term at 149percent (just below its 150percent threshold) but subsequently returns to a rising long-run trajectory, reaching 179percent by 2027. Under the second of these, assumingcostlier financing terms, debt-to- exports would rise more gradually, nonethelessreaching 180percent by 2027. Similarly, under a 35 percent grant element for new borrowing (scenario A4), the NPV o f debt-to- exports ratio gradually rises to 164percent by 2027. 25Under scenario A2, interest costs are 2 percentage points above the baseline. 78 6. Niger's externalvulnerability is underlinedby a further country-specific scenariocapturingpoor investmentoutcomes, under which the highinflows and investment under the baseline scenario do not leadto any growth dividend(scenario A3). Real GDP growth was set to its historical (ten year) average (3.4 percent) while current account deficits and borrowing patterns were left as inthe baseline. This scenario can be thought o f as roughly simulating poor performance inthe public investment program inthe coming years, and also inthe uraniumsector. Under this scenario, the NPV o f debt-to-GDP ratio gradually rises to 31percent by the end o f the forecast period, thus respecting the 40 percent threshold. PublicDSA 7. Considerationof totalpublicdebt, includingdomestic debt, does not significantlyalter the assessment.Domestic debt stood at approximately 11percent o fGDP (45 percent o f total public debt) at end-2006 but i s projectedto fall under the baseline scenario, reaching about 5 percent by 2013 and continuing to decline thereafter (Table 2a). This pattern is explainedby relatively low primaryfiscal deficits, averaging 2.5 percent o f GDP for the first six years of the projectionperiod and less than 2 percent thereafter. The average interest rate on domestic debt is very low (1.4 percent) as the bulk o fthe debt i s constitutedbynon-interest bearing arrears. 8. A significantproportionof domestic debt as of end-2006is accounted for by domestic arrears. The baseline analysis therefore also takes into account the ongoing implementation o f a domestic arrears reductionplan, which reduces domestic debt to 10percent o f total public debt by 2013, and nearly eliminate it by 2017. Underthese assumptions, total public sector debt (NPV) would remain stable at around 20 percent o f GDP up to 2017 and then gradually increase, but driven solely by new external debt. Two sensitivity tests generate a significant rise o fpublic debt. The first o f these i s the standardized stress test incorporating a two-year low growth shock. The second i s the country-specific lower long-run growth scenario described above. Inboth cases, total public debt (NPV) reaches about 40 percent o f GDP, and about 175 percent o f forecast revenue, by the end o f the projectionperiod (Figure 2). Conclusion 9. Staffassessmentis that despitelow currentlevels of debt, Niger remainsat moderaterisk of debt distress over the mediumto longterm.Thisrisk assessmentis the same as inthe previous 2006 DSA.Debt anddebt service ratios remain at comfortable levels underthe baseline assumptions and stress tests revealbreaches o fthepolicy-dependent external debt-to-exports threshold only under three o f the eight standardized stress tests. Niger i s financing significant current-account deficits andthe baseline used for this DSA incorporates GDP growth rates that are based on the assumed impact o f a large program o f public investment andrapid expansion inmining. The standardized tests o f export shocks or costlier financing terms underline the moderate risk assessment. 79 10. The resultsofthe DSA underscorethe needfor the authoritiesto pursueprudent debt policies,seekingmaximumconcessionality,combinedwith soundmacroeconomic managementand export diversification.While the debtprofile has improvedwith the grantingo fHIPC and MDRIassistance andbetter prospects for sustained growth, the country remains vulnerable to external shocks. Policies should therefore aim to boost growth and diversify the productive base, particularly exports, while continuing to privilege grants and highlyconcessional loans. 80 Box 1.Baselinescenario assumptions The baseline macroeconomic scenario for 2007-27 hinges on the following assumptions: Real GDP growth i s expected to rise from its historical average (1997-2006) o f 3.4 percent to an average o f 5.5 percent in2007-16, fostered mainly by increased investmentand productiono f uranium. In2017-27, after a moderation o f the uranium boom, annual GDP growth i s expected to settle at about 5 percent. This level i s still above the historical average, and results from planned investments inirrigation and infrastructure, as well as o f ongoing reforms to improve the investment climate. The investment rate is projectedto be highin2007-12, between 25 and 28 percent o f GDP, partly as a result o fplanneduranium-related investments. Investment would remain at around 20 percent o f GDP in2014-27, as mining-related investment decline. The assumed GDP deflator would be below 2.5 percent throughout the period. The revenue-to-GDP ratio i s projectedto rise gradually from 12.9 percent in2006 to about 17 percent by 2025, reflecting the gradual convergence o f the tax revenue ratio to the WAEMU norm (17 percent). Public expenditures would rise sharply from 18.6 percent o f GDP in2006 to 23 percent by 2008, and shouldremainbetween 23 and 24 percent o f GDP duringthe rest o fthe projection period, reflectingthe authorities' efforts to promote growth and increase social spending. The evolution o f total exports inthe medium term will be largely determined by developments in uranium exports, resulting from investments to expand production and from higher prices. Investments relatedto uranium in2008-2012 are projectedat around 30 percent o f GDP, leadingto a triplingo fcurrent productionby 2014mainlybecause o f the new Imouraremproject. Uraniumprices have increasedby 60 percent from 2006 to 2007, and are conservatively projectedto increase by 2 percent per year inthe future. With the sharp increase inuranium exports, overall exports growth in current price, i s projected at about 12percent per year in2007-16, which compares to 5.5 percent in the last ten years when miningexports were stationary. With a moderationinthe growth o furanium exports and drop ingold production(expected to peak in20lo), growth inexports after 2016 i s largely dependent on expected acceleration inother sectors. Nominal exports are projectedto grow during2017-2027 at about 7 percent per year. Uranium-related activity will also boost other items o fthe current account through increased imports of equipment and capital goods, higher repatriationo fprofits, and larger compensation to foreign employees. Hence, total imports innominal terms would grow around 9 percent on average during2007-16, with the current account deficit-to-GDP ratio reachinga peak in2012. Afterwards, imports are projectedto grow broadly inline with nominal GDP growth, with the current account deficit as a share to GDP declining gradually. The average interest rate on new external borrowing i s projected at 1.2percent, assuming half o f new external debt i s contracted on IDA terms and halfat an interest rate o f about 2 percent. Project financing inthe form o f external grants and loans i s projectedto rise inline with nominal GDP, with grants being two thirds o f the total. External budgetary financing will remain stable incurrent terms after reachinga peak in2007-08, with grants also about two thirds o f the total. The domestic debt profile assumes a reduction o f domestic arrears in2007-13 and no domestic financing of the deficit after 2017. The average interest rate on the stock o f debt i s very low (1.4 percent) because arrears do not pay interest. The interest rate o f new domestic financing up to 2017 i s assumed at 4 percent. These assumptions leadto an improvement inthe non-interest current account deficit from an average o f 12 percent o f GDP in2006-10 to about 8 percent o f GDP by 2025. 81 Box 1(continued). Baselinescenario assumptions 30 T I Fiscal Indicators (% of GDP) 30 25I e - . - . .-..- .___..._._....-....- Total Expenditure - 2 w 1 2we 2011 2016 2021 2026 Current Account Indicators (% of GDP) Current Account and Capital Inflows(% of GDP) T 10 30 CapitalGrants .._._............_.. 0 0 5t. t15 5 5 0 5 10 -10 -10 -10 5 -15 -20 1 I -201. I 1 - 2 0 2001 2wB 2011 2016 2021 2026 2001 2wB 2011 2016 2021 2026 82 Figure 1.Niger: Indicatorso fPublic andPublicly GuaranteedExternalDebt Under Alternative Scenarios, 2007-2027 12.0 DebtAccumulation 49 NPV of debt-to-GDPratio I Grant element (right scale) I 10.0 Threshold 35 8.01'* @/--48 Grant-equivalenVGDP 48 - 47 - 47 4.0 - 46 2.0 Historical scenario 46 0 0 45 0 1 2007 2012 2017 2022 2027 2007 2012 2017 2022 2027 NPV of debt-to-exDortsratio - NPV ofdebt-to-revenueratio 200 300 , 180 Threshold 160 I.I .IIIIIIII rn Threshold II 140 200 - 120 Most extreme shock (B2) I d 5 - z 100 80 60 lSO 100 40 Historical scenario 50 - 20 Historical scenario 0 2007 2012 2017 2022 2027 2007 2012 2017 2022 2027 35 Debt-service-to-revenueratio I IIIIIIIlIIII 20 IIIIIIiIIIII Threshold Threshold 25 15 - lo i Most extreme shock (B2) 1 ii Baseline \ 10 Most extreme shock (A2) > ' Baseline E c a l scenano Historical scenario 0 1 I I I 2007 2012 2017 2022 2027 Source: Staffprojectionsand simulations 83 Figure2. Niger:Indicatorsof Public DebtUnder Alternative Scenarios, 2007-2027 1/ _< 40 - N P V of debt-to-GDP ratio 35 - 30 - ___---- c - 25 - _ _ e - - *-I-- _ + - - 20 - __-_____---- 15 - 10 - -Baseline ---NoReform 5 - ~ M o sexheme suess test t 200 180 - N P V of Debt-to-Revenue Ratio 2/ 160 - 140 - 120 - -_----- _-----_----__--- 100 - 80 - 60 - -Baselme 40 - ---NoReform 20 - -Most exueme stresstest 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 8 Debt Service-to-Revenue Ratio 2/ 7 6 - 5 - 4 - 3 - 2 - - ---NoReform Baseline 1 - -Most extreme stresstest 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Source: Staffprojections and simulations. 1/Mostextreme stress test is test that yields highestratio in 2017 (B1in all three graphs). 2/ Revenue including grants. 84 Table la. Niger: External Debt Sustainability Framework, Baseline Scenario, 2007-2027 1/ (In percent of GDP,unlessotherwise indicated ~ ~________ ~ _____ ~ Actual Hstorual sundud Proleaions Avmage61 Bnmm61 1Wi I1 1013 17 2004 2005 2006 2W7 2008 2009 2010 2011 2012 A v w r 2017 2027 Avmer Enernsldebt (nomlnsl) I1 58.8 51.2 14.4 15.4 16.8 18.3 19.7 11.1 12.1 19.5 366 d w publicandpubliclyparanteed (PPG) 1969.9 -1513.9 -385 0 -350 1 .348.0 -349.9 -346.1 -337 5 .321 8 -288.2 -1572 Changeinm m a l debt -I1 1 -6.6 -379 1.0 1.4 15 1.4 1 4 1.1 I2 0.2 Identifiednel debt-sreathgflows 1.. -06 1 4.1 8.2 6.6 7.0 6.5 6.3 6 1 5 5 4 7 Non-lnltrwt current accwntdendt 7.4 9.3 8.4 6.7 1.6 10.6 10.5 13.1 14.6 14.1 16.3 8.4 7.9 85 Deficit inballncc ofgoodsand s&ca 110 14.6 12.7 14.8 13.5 15.8 17 I 16.8 18.0 88 87 Exporn 17.9 163 163 17 3 17.2 183 18.1 17.2 I 8 5 21.5 197 bpcm 28 8 309 290 32 I 30.7 34.1 35.1 34.0 36.4 30 3 28.4 - Nelc m m l bansfes (oegative= inflow) -3 6 -5.5 4.2 -3.3 I 1 4.8 -40 -4.0 -36 .3.6 -3.4 -2.6 dw official -2.5 -3 0 -2 4 -3 3 -2.8 -2 8 -2.4 -24 -2.2 -2 6 .I8 -2.0.91 olhecmmt m u 1Bow (negative netinflow) 0 0 0.2 -0 I 0 7 1 1 1.2 1 I I 1 1 7 2 4 13 Net FDI(wpllve - Inflow) -0.5 -1.3 -0.6 4.1 0.7 -1.0 J.4 -5.5 .7.4 -7.1 -9.1 -2.0 -2.11 -2.0 End-enonr debt dynimlu Y -5.8 -7.6 -3.6 -0.5 -0.5 -0.6 -0.1 -0.8 -0.9 -1.0 -13 Contribution60mnominalinteest rate 0 4 0.1 0 2 0.2 0.2 0.2 0.3 0 3 03 0 3 0 4 Canhibution6omreal GDP50wb -2 8 0.3 -25 -0 7 -0.8 -0.9 -0.9 -1 I -1 2 -1.3 -1.7 Ccntributianfrom pice and exchangerate changes -3 4 -80 -I3 .. ... . . . . Rei1du.I 31 -11.1 -6.1 42.0 -7.1 -5.2 4.4 -5.1 4.9 -5.0 4.3 4.4 d W CXCQtimd financing 0 0 0.0 0 0 0 0 0.0 0.0 0.0 0.0 0 0 0.0 0 0 NPV of externaldebt 41 409.6 376.0 375 9 380 I 378.4 371.9 357 9 335.6 216.4 lopBCen1OfCXporn ....25158 2170 2 21869 2073.5 20954 2158 8 1938 8 1563.7 1099.1 NPV of PPG nternpl dcM ._ .I 10.1 10.5 11.1 11.9 11.6 13.4 13.9 11.9 11.8 I"peremtofC I p O I l l 61.6 60.4 64.7 69.9 77.5 75.1 68.8 83.4 115.5 Inpercentofgwerarmnlnvm~n ... 17.6 82.9 88.9 '64.9 93.0 96.1 99.3 99.5 93.3 118.4 131.3 Debt seIY1cH~expR1ratio (In percent) 11.9 8.3 116.4 3.3 3.4 3.0 3.1 3.6 3.8 3.4 3.5 5.2 PPGdebt seTVIce-t~lporlirilh(In percent) 11.9 8.3 116.4 3.3 3.4 3.0 3.1 3.6 3.8 3.5 5.1 PPGdebt seIY1cc.t~revenueratlo (In prcent) 10.3 11.5 180.5 4.6 4.7 4.4 4.3 4.6 5.1 5.0 6.0 Total 5055 financingred(billiaos0fU.S dollars) 0.3 0 3 1.6 0.4 0.4 0.4 0 4 05 0.5 0.7 1.3 Nan-inteest CUrrmtaculwltdeficitthat stabilize deb ratio 184 159 462 9.6 9.I 11.5 13.2 12.8 15.2 7.2 7.7 Key marroeeonomlcurumptloni RealGDP 50ulh (inpscml) 4 4 -0.6 5 2 3 4 3 7 5.6 5.4 5.5 5.5 6 1 6.2 5 7 5.0 5 1 5.I GDP deflator inUS dollar t m s (mange inpecenl) 5 1 157 2 6 4.7 102 10 8 3 7 2.4 2.6 3.2 3.2 4 3 23 2 1 2 2 Effectiveinteest rate k c a t ) 51 0 7 0.2 0.4 0.6 0 2 1 9 1 7 1.6 1.5 1.5 1 4 1 6 1.3 13 13 G r a d ofexporn o f G U (US dollar t w b inpercent) 24.8 4.7 7.9 5.5 13 4 24 6 8.4 15.2 6.6 4 4 17 5 12 8 6 1 6 6 7 9 Grovth ofimpwta ofG&S (US dollar t w 6 io pecent) 22.6 23.1 1.3 8.3 149 29 6 4.4 20.2 11.5 5.9 17.4 14 8 5.5 6 7 5 7 GrMl clrmmt Of newpublicsectwbarrowing (inpcenl) 46 3 46 2 46.3 46.4 46 7 46.8 46 5 47.9 47.9 47 9 Aid Bows (inbillims ofUS dollars) 71 0 2 0 3 1 7 03 03 0.3 0.4 0 4 0.4 0.6 1 0 dWOrlnl6 02 0.3 I 7 0 3 0.3 0 3 0 4 0.4 0 4 0.6 I O d W Cancessionsl10- 0 1 0 1 0.1 0.I 0 1 0.2 0.2 0.2 0.2 0.3 0.5 Grantqdvslmt financing (inpsvntofGDP) 81 9 6 8.2 84 8.2 8.4 8.1 7 7 6.8 7.5 Granl-equivslmt 6nlncing(inpsceotof external finmcing) 81 83.8 83.3 83.6 83.3 81 8 81.8 80.5 79 8 80 3 Memiondurnilem Nominal GDP @illionsofUS dollars) 2.9 33 3 6 4 2 4.6 5 0 5.4 5 9 6.5 9.3 I 8 8 WV1-NPV1-LYGDR-I (inmcmt) 2.1 1 7 1.7 1.8 2 0 1 9 I 8 2 0 19 2 0 Source SllffmuIaUom I1 Includesboth publicand pivale sector mmaldeM 2) Derivedas [r g