Report No. 76851-NE Republic of Niger 2012 Public Expenditure Review (PER) December 27, 2013 PREM 4 Africa Region Document of the World Bank GOVERNMENT FISCAL YEAR January 1-December 31 CURRENCY EQUIVALENTS Exchange Rate Effective as of July 17, 2013 Currency Unit = CFAF US$1 = 499 CFAF WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS 3N Nigeriens Nourish Nigeriens APER Annual Public Expenditure Review BCEAO Central Bank for West African States CAADP Comprehensive African Agricultural Development Program CFAF CFA francs CGO Central Government Operations CNPC Chinese National Petrol Corporation COGES School-based Management Committees CPA Country Programmable Aid CPAR Country Procurement Assessment Report CRS Creditor Reporting System DAC Development Assistance Committee DHS Demographic and Health Survey DPT3 Diphtheria, Pertussis and Tetanus DSA Debt Sustainability Analysis GDP Gross Domestic Product GHI Global Hunger Index GNI Gross National Income HIV/AIDS Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome EFA Education for All EITI Extractive Industries Transparency Initiative EVI Economic Vulnerability Index FTI Fast Track Initiative HDS Health and Demographic Survey HIPC Highly Indebted Poor Country HOI Human Opportunity Index IDA International Development Association IFMIS Integrated Financial Management Information System IMR Infant Mortality Rate LSMS Integrated Surveys on Agriculture MDGs Millennium Development Goals 11 MDRI Multilateral Debt Relief Initiative MLA Monitoring Learning Assessment MMR Maternal Mortality Rate MoA Ministry of Agriculture MoE/A/PLN Ministry of National Education, Alphabetization, and Promotion of National Languages MoEl Ministry of Livestock MoF Ministry of Finance MoFP/T Ministry of Civil Service and Labor MoH Ministry of Public Health MoP/AT/DC Ministry of Planning, Regional and Community Development MTEF Medium Term Expenditure Framework O&M Operations and Maintenance ODA Official Development Assistance ONPPC Public Drug Procurement Entity PASEC International Student Proficiency Assessment PEFA Public Expenditure and Fiduciary Accountability PEMFAR Public Expenditure Management and Fiduciary Accountability Review PER Public Expenditure Review PESD Plan for Economic and Social Development PFM Public Financial Management PPG Public and Publicly Guaranteed PPP Purchasing Power Parity PRSP Poverty Reduction Strategy Paper SMEs Small and Medium Enterprises SORAZ Zinder Refining Company SSA Sub Saharan Africa STR Student Teacher Ratio U5MR Under-5 Mortality Rate WAEMU Western African Economic and Monetary Union WDI World Development Indicators WHO World Health Organization UNESCO United Nations Educational, Scientific and Cultural Organization Vice President: = Makhtar Diop Country Director: = Ousmane Diagana Sector Director: = Marcelo Giugale Sector Manager: = Miria Pigato Task Team Leader: = Robert Utz 111 Republic of Niger 2012 Public Expenditure Review (PER) Table of Contents ACKNOW LEDGEM ENTS .......................................................................................................................................ix EXECUTIVE SUM M ARY ......................................................................................................................................... x CHAPTER 1: INTRODU7CTION ......................................................................................................................... 1 CHAPTER 2: COUNTRY CONTEXT FOR FISCAL POLICY ...................................................................3 A. Introduction ..................................................................3 B. The Political Context for Fiscal Policy ...................................... ..........3 C. Macro-economic Context for Fiscal Policy............................................4 D. The Challenge of Population Growth..................................... ..............12 E. Large Needs for Investment in Infrastructure and Social Service Delivery ............. .........15 F. Policy Recommendations ........................................................16 CHAPTER 3: PUBLIC EXPENDITURE TRENDS AND COMPOSITION................................................18 A. Introduction .................................................................18 B. Budget Transparency, Data sources, and Issues........................................18 C. Overall Fiscal Position..........................................................23 D. Resources ...................................................................26 E. Expenditures .................................................................30 F. PRSP Priority Expenditures......................................................41 G. Policy Recommendations........................................................ 48 CHAPTER 4: OFFICIAL DEVELOPMENT ASSISTANCE .................................49 A. Introduction .................. ................................................49 B. Overview of Aid to Niger.........................................................49 C. Sectoral Distribution of Aid.......................................................53 D. Contribution of Aid to the Funding of Government Spending................................55 E. Does Niger Receive a Fair Share of International Aid? .......................................................... 56 F. Aid Effectiveness................................................................................................. 57 G. Aid Fragmentation................................................................................................. 60 H. Key Recommendations ..........................................................62 CHAPTER 5: EDUCATION C.................. E...........................................................................64 A. Introduction .................................................................64 B. Progress And Challenges In The Education Sector.......................................64 C. Public Spending In Education .....................................................71 D. Education Public Expenditures and Equity ............................................82 E. Education Public Expenditures, Efficiency and Outcomes.................................83 F. Policy Recommendations........................................................86 CHAPTER 6: HEALTH .............................................................89 A. Introduction ................................................................. 89 B. Progress And Challenges In The Health Sector..........................................89 C. Access To Health Care And Utilization Of Health Services................................ 94 D. quality of Health Services and the Health Workforce......................................95 E. Public Health Expenditures in N iger............................................................................................................. 97 F. Inequity of Public Spending, Benefit Incidence and Utilization of Health Services................108 G. Policy Recom m endations ............................................................................................................................ 81 9 iv CHAPTER 7: RURAL DEVELOPMENT ........................................................................................................ 113 A. Introduction ................................................................113 B. Performance and Challenges in the Rural Sector.......................................114 C. Agriculture .................................................................115 D. Livestock ..................................................................119 E. Water and Environment........................................................120 F. Public Expenditure in ihethe Rural Sector: Composition and Trends.........................121 G. Agriculture and Livestock.......................................................124 H. Water, Environment and Fight against Desertification...................................129 I. Official Development Assistance to the Rural Sector .................... ................132 J. Conclusions and Policy Recommendations........................................... 133 CHAPTER 8: STRENGTHENING NIGER'S PUBLIC EXPENDITURE REVIEW PROCESS .......135 A. Introduction ................................................................ 135 B. PERs in the Recent Past and their Impact............................................ 135 C. Policy Recommendations........................................................139 Annex 1: PEMFAR 2009 - Key Policy Recommendations ....................................142 List of Boxes Box 1: Enhancing Analytical Work and Giving a BOOST to Public Sector Transparency .....................21 Box 2: Further development of Boost for Niger to support decentralized public expenditure analysis............2 Box 3: Coup d'tats and aid flows to Niger...................................................50 Box 4: Measures to facilitate the use of country systems by donors ........................... ......59 Box 5: Key performance indicators for the education sector, 2012-16................................64 Box 6: A Success Story in Reducing Child Mortality ...........................................93 Box 7: Nigeriens Nourish Nigeriens - the 3N initiative .........................................113 List of Figures Figure 1: Economic growth and inflation, 2000-2012 OO............................................5 Figure 2: Sectoral contribution to growth, 2002-2012 of.BostforNigr.tosuports............................................8 Figure 3: Contribution of expenditure components to GDP, 2002-2012 ....................... ........ 8 Figure 4: Demographic profile of Niger .......................................................13 Figure 5: Population by main age groups, 2011-2020 ...........................................14 Figure 6: Required increase in primary education spending to reach 100 percent primary gross e.rollment, based on population growth of 3.9% and 2.0% ............................................15 Figure 7: PESD financing requirements, 2012-2015, US$ million ....................... ...........1..6 Figure 8: Evolution of key fiscal indicators, 2000-2012....................................... ........25 Figure 9: Composition of tax revenue, 2007 and 2011............8............. ...............27 Figure 10: Maximum change in revenue to GDP ratio over five year period between 2000 and 2010 ..........28 Figure 11: Expenditure growth rates - economic classification, 2007-2011 .................... ........33 Figure 12. Government investment by main components, growth between 2007-2011 (%)......... .....38 Figure 13: Sectoral expenditure growth rates, 2007-2012 .........................................41 Figure 14: Comparison of economic composition of pro-poor and other expenditure budget allocations, average 2007-2012 ................ .....................................................45 Figure 15: Share of pro-poor and other expenditure allocations ive.year.perio0....................................45 Figure 16: Net Official Development Assistance Disbursements to Niger, 1960-2011 .....................50 Figure 17: Trends in development assistance to Niger, 2000-2011 %............... ...................51 Figure 18: Development Food Aid and Humanitara n Aid to Niger, 2000-2010 ............... ..........53 Figure 19: Sectoral distribution of aid to Niger, PRSP-1 and PRSP-2 ................................54 V Figure 20: Contribution of external financing to funding of government expenditures ............. ........55 Figure 21: Financing of Government's Capital Expenditures, 2000-2012 (% of GDP) ....................55 Figure 22: Enrollment by location and poverty status ...............................................66 Figure 23: Girls' and boys' enrollment in urban and rural areas....................................69 Figure 24: Primary pupil textbook ratio for reading and mathematics, 2010 or latest year......................70 Figure 25: Primary schools without potable water and without toilets, 2010 or latest year ..................71 Figure 26: Total public expenditure on education in Niger, 2010 ..............................73 Figure 27: Public education expenditure by level of education as of % of Total Education Expenditure in 2010......77 Figure 28: Public expenditure per student as % of per capita GDP in primary education in Niger, 2010..............79 Figure 29: Official Development Assistance for Education as a Ratio of total Public Education Expenditure by National Income Level, 2008..................................................80 Figure 30: Donor financing in Niger's education sector ............................ ..... .........81 Figure 31: Donor education spending at the sub-sector level......................................82 Figure 32: Net enrollment rates over time ...................................................82 Figure 33: Rural-Urban gap in primary school enrollment.........................................83 Figure 34: Primary school STR by selected countries, 2010.......................................84 Figure 35: Newly-recruited female primary teachers, 2010 or latest............................86 Figure 36: Distribution of causes of deaths in children under-5 .........................................90 Figure 37: Distribution of years of life lost by causes of diseases ......................... ..........92 Figure 38: Inequities in under-5 mortality in Niger, 2009........................................93 Figure 39: Health service coverage ........................................................94 Figure 40: Density of health workers by region in Niger, per 10000 population, 2010 ............ .........96 Figure 41: Sources of Health Care Financing in Niger, 1999-2010 .................................98 Figure 42: Government resources allocated to health................ ..................... .....99 Figure 43: Trends in health expenditures in Niger, 2004-2011 ....................................100 Figure 44: Regional comparison of health expenditures, 2010 and IMR ................ ................100 Figure 45: Distribution of the Ministry of Health expenditures by health functions, 2009....... ...........104 Figure 46: Private health expenditures in Niger ...............................................106 Figure 47: Share of donor funding in government health expenditure, 2008-10........................107 Figure 48: Per capita public health expenditure on goods and services by region ......................109 Figure 49: Inequities in health service utilization in Niger............ .................. .............110 Figure 50: Recent trends in cereal production ................................................116 Figure 51: Import and export of food .....................................................116 Figure 52: Composition of agricultural trade................ . .................... .........118 Figure 53: Average share of government expenditure, 2008-10 (%) ..........................123 List of Tables Table 1: Key Policy Recommendations....................................................xxi Table 2: GDP growth 1992-2012 and contributions to growth [expenditure side] ............... ...........6 Table 3: GDP growth 2002-2012 and contributions to growth [output side] ................... ..........7 Table 4: Exports and Imports, Million CFAF, 2007-2012 ............................... ..........9 Table 5: Balance of payments, percent of GDP, 2007-2012 .......................................10 Table 6: Money and credit, 2007-2012, CFAF billion ..................................................11 Table 7: Public sector debt, percent of GDP, 2007 - 2012 ...........................................12 Table 8: Agricultural land, 2011-2020 ......................................................14 Table 9. Comparison of budget data published in the Journal Officiel.................................20 Table 10: Actual expenditures by source of financing - comparison between CGO and line item based data, 2007- 2011 % of GDP) ..........................................................22 Vi Table 11: Actual expenditures by economic classification - comparison between CGO and line item based data, 2010-2011 (CFAF billion) ....................................................22 Table 12: Fiscal aggregates, 2007-2012 (% of GDP) ............................................24 Table 13: Fiscal Indicators of WAEMU member countries, 2011 (percent of GDP) ............ ...........26 Table 14: Grants and loans, 2007-2012 (percent of GDP) ........................................29 Table 15: Domestic financing of fiscal deficits (% of GDP) ......................................30 Table 16: Economic classification of expenditures, 2007-2012 as a % of GDP......... .................31 Table 17: Economic classification of public expenditures, average 2007-2011 ..........................32 Table 18: Sectoral distribution of economic expenditure categories ...................................32 Table 19: Wage bill indicators for selected West African Countries............................33 Table 20: Public sector employment (civil service, education, health), 2006-2010 ............. ..........34 Table 21: Civil service employment by type of employment, 2006-2012 ......................................34 Table 22: Regular civil servants by grade, 2006-2012 ................................ ...........35 Table 23: Spending on operations and maintenance, average 2007-2011 ..............................35 Table 24: Spending on transfers and subsidies, average 2007-2011 ..................................36 Table 25: Investment spending by type of investment, 2007-2011 ..................................37 Table 26: Sectoral distribution of investment spending, average 2007-2011 ................................39 Table 27: Functional analysis of public expenditures, averages for 2007-2011 ..........................40 Table 28: Composition of sectoral expenditure (budgeted total, average 2007-2011) .....................40 Table 29: Pro-poor Expenditures, 2007-2012 .................................................43 Table 30: Functional classification of pro-poor expenditures (% of total expenditures), 2007 to 2010 .................44 Table 31: Spending on priority sectors as a share of GDP and total expenditures, 2007-2011 ...... ..........46 Table 32: Spending on priority sectors, growth rates 2007-2011 .........................................46 Table 33: Key recommendations for enhancing the effectiveness of public expenditures ....... ............48 Table 34: Progress in fostering aid effectiveness, 2005 - 2010 ........................ ................57 Table 35: Donors' share of aid to Niger and significance of aid relationship, 2011.......................61 Table 36: Aid fragmentation at the sector level, 2011 ............................. ..... .........62 Table 37: Key recommendations on aid and aid effectiveness .....................................63 Table 38: Gross and net enrollment rates for primary and secondary education, 2004/05-2009/10 (In Percent)........65 Table 39: Net enrollment rates by gender, age and quintiles of per capita expenditures ......................67 Table 40: Distribution of students by gender, level of education and quintiles of per capita expenditures............67 Table 41: Total public expenditure on education (Net of debt and special accounts) ............. .........72 Table 42: Economic composition of education expenditures, 2007-2011 ................... ...........73 Table 43: Trends and composition of subsidies and current transfers, 2008-2011 ............. ...........74 Table 44: Trends and composition of spending on goods and services, 2008-2011 ............. ..........74 Table 45: Composition and trends of capital expenditures, 2008-2011................................75 Table 46: Education expenditures by levels of government, in CFAF billions............. .............76 Table 47: Government expenditures on basic education (primary and junior secondary), CFAF billions..............77 Table 48: Government expenditures on upper secondary education and university, CFAF billions . ............78 Table 49: Expenditures on goods and services at the basic education level............................78 Table 50: Donor funding by categories of expenditures, 2007-2011, in CFAF billions....................81 Table 51: Education budget execution ratios................ . .................... ..........84 Table 52: Health outcomes, Regional comparison ...............................................92 Table 53: Comparison of health services utilization rates - Free versus not free services. ........ ...........95 Table 54: Density of doctors, nurses, and midwives per 10,000 population ................... .........96 Table 55: Health expenditures ratios in Niger in 2010 ............................. ..... .........98 Table 56: Trends in the central government health expenditures, 2004-2011 (Payments basis, CFAF billions) ........99 Table 57: Health expenditures by economic classification, 2007-2011 (Payments basis, CFAF billions)...............101 Table 58: Composition of government spending on subsidies and transfers in CFAF billions.... ...............102 Table 59: Composition and trends of expenditures on goods and services, in CFAF billions.... ................102 Vii Table 60: Health expenditures at the central and sub-national levels of government, in CFAF billions...................103 Table 61: Execution rate of the Ministry of health budget, 2008-2011 ......................... ......105 Table 62: Execution rate of the Ministry of Health investment budget, 2008-2010.............. ......................105 Table 63: Donor financing in the health sector, CFAF billions... ....................................107 Table 64: Donor funding by category of expenditures, CFAF billions ..................................108 Table 65: Evolution of the Human Opportunity Index in Niger, 1998-2006 ...........................110 Table 66: Basics statistics on the use of health services by per capita expenditures quintiles (percentage)..............110 Table 67: Distribution of population using health facility by type used and ...................................111 Table 68: Distribution of pregnant women by type of health facility used during delivery and per capita expenditure quintiles .... ...........................................................111 Table 69: Agriculture value added and population in Niger........... ....................115 Table 70: Cereal yield (kilograms per hectare) ...................................... ..........116 Table 71: Niger - Index of Per-Capita Production ...................................... .......117 Table 72: Agricultural trade...... ......................................................117 Table 73: Livestock population (Thousands of heads) ..................................... .....119 Table 74: Livestock production - Trends in annual production of meat, milk and eggs......... ....................120 Table 75: Water resources and irrigation.....................................................121 Table 76: Government expenditure in the rural sector (In CFAF billion, unless otherwise indicated) .....................122 Table 77: Government expenditure in the rural sector by line ministries .............................122 Table 78: Impact of decentralization on government capital expenditures ............................124 Table 79: Government expenditure on agriculture and Livestock, 2008-2011.............................125 Table 80: Subsidies and transfers in agriculture and livestock, CFAF billions ................................126 Table 81: Government expenditures on goods and services in Agriculture, 2008-2011 ............ .......126 Table 82: Capital expenditures in Agriculture, 2008-2011.................................127 Table 83: Capital expenditures in livestock, 2008-2011.....................................128 Table 84: Budget execution in agriculture and livestock.. ........................................129 Table 85: Expenditures of the Ministry of Water, Environment and Fight against Desertification ...... ......129 Table 86: Capital expenditure in the Ministry of Water, Environment and Fight against Desertification.................130 Table 87: Budget execution ratios ........................................................131 Table 88: Budget execution rate of capital expenditures ........................................132 Table 89: Official Development Assistance to the rural sector in Niger, 1980-2010 ....................133 Table 90: Sector PERs, 2006-2011...........................................................136 viii  ACKNOWLEDGEMENTS The 2012 Public Expenditure Review was prepared in collaboration between the Government of Niger and the World Bank, with support from UNICEF. The Government team was led by Mr. Salmanou Aga, Director General of Budget. Mr. Bernhard Dalmeida, focal point for PER activities at the Directorate General of Budget was responsible for day to day coordination. Mr. Aboubacar Ah6, Director for Financial Information Systems, GoN, provided the mission with line item data from the government's public financial management information system and assisted the team in the interpretation of the data. The team also acknowledges gratefully the frank discussions with a wide range of stakeholders in central and sector ministries, NGOs, and academic institutions that helped inform this PER. The World Bank team was led by Mr. Robert Utz, Senior Economist for Niger, WB, responsible for the overall coordination and drafting of the report. He also prepared the chapters on macro-economic background, public expenditure developments, and aid. Mr. Gerard Kambou, Senior Economist, WB, prepared the chapters on health, education, and rural development. Mr. Marcelo Andrade, Consultant, provided drafts of the Executive Summary and the chapter on the PER process. Mr. Abdoulahi Garba, Economist, WB, contributed to PER missions and dialogue and ensured day to day follow-up and coordination with government, including collection of data and information. Ms. Janet Owens, Senior Economist, WB, contributed to the PER dialogue and mission, especially with respect to gender and poverty aspects. Ms. Emanuela di Gropello, Lead Economist WB, Mr. Boubou Cisse, Senior Economist, WB, Mr. Djibrilla Karamoko, Senior Health Specialist, WB, Mr. Dominic Haazen, Lead Health Policy Specialist, WB, and Mr. Amadou Alassane, Senior Agricultural Specialist, WB, provided valuable inputs and feedback on the chapters on education, health, and rural development. A team led by Mr. Dino Merotto, Lead Economist, WB prepared the first version of the "Boost" public expenditure analysis tool for Niger, with support from Ms. Karen Coulibaly, Consultant, WB, and Mr. Fiacre Adopo, Summer Intern, WB. Mr. Francesco Vasquez Ahued, Consultant, prepared revised and updated versions of the "Boost" tool. Mr. Ousmane Niang, Social Sector Manger, UNICEF and Ms. Hadizatou Gado, Planning Specialist, UNICEF participated in PER missions and oversaw the work of the national consultants funded by UNICEF. This includes the work of Mr. Ibrahim Mamane, former Minister of Finance, Niger, who prepared a background report on Niger's experience with sectoral public expenditure reviews. The team also wishes to thank Mr. Briac Deffobis, Economist, Delegation of the European Union in Niger, and Chair of the development partner group on public financial management, for his insightful contributions, feedback, and participation in discussions during the missions. Mr. Richard Harmsen, mission chief for Niger, IMF, and Ms. Clara Mira, Economist, IMF, shared with the team data from the IMF's country data base. Ms. Rosa Alonso I Terme, Senior Ecnomist, WB, Mr. Leif Jensen, Senior Public Sector Specialist, WB, and Mr. Allister Moon, Lead Economist, WB, served as peer reviewers. The work was carried out under the overall guidance of Ms. Miria Pigato, Sector Manger, WB, Mr. Nestor Coffi, Country Manager for Niger, WB, and Mr. Ousmane Diagana, Country Director for Niger. Ms. Mariama Daifour Bd and Judite Fernandes, Program Assistants, WB, were responsible for the formatting and production of the report. Ms. Karima L. Ladjo and Ms. Hadidia Djamba (Program Assistants, WB) supported the team during country visits. ix  EXECUTIVE SUMMARY Background and Objectives 1. The 2012 Public Expenditure Review (PER) is the first in a planned series of annual PERs (APERs). The objective of these APERs is to provide decision makers in the Nigerien government, domestic stakeholders, as well as Niger's development partners with regular information and analysis on budgetary developments. It is hoped that they will contribute to better informed decision making, enhanced transparency and accountability, as well as a deepened budgetary dialogue among stakeholders in government, but also with stakeholders from civil society, the private sector, and international development partners. 2. It is envisaged that every APER would consist of three main parts: (a) an update on overall budgetary developments and reforms of public financial management and procurement systems; (b) an in depth review of selected public expenditure issues - the 2012 PER focusses on the issues of aid and a review of Niger's experience with sector PERs; and (c) the review of public expenditure issues in selected sectors - this PER focusses on the education, health, and rural sectors. A Public Expenditure and Financial Accountability (PEFA) assessment has been carried out in parallel which provides an in depth review of progress in strengthening public financial management and procurement systems and is complimentary to this PER. 3. The APER process aims to meet information requirements of interested stakeholders while minimizing the transaction cost for government. In the absence of a regularly published APER, the authorities are confronted with frequent and often duplicative requests for information, which claim significant staff time in an already very capacity constrained public sector environment. It is envisaged that a "one assessment - one process" approach would help to reduce transaction costs for government while meeting information requirements of interested stakeholders. Main Messages 4. In spite of significant domestic and external shocks in recent years, Niger's economy has been managed broadly well. Over the period 2007-2012, Niger sustained annual economic growth at an average 6.4 percent, a prudent fiscal strategy was pursued and inflation was kept low. Economic performance in 2012 seems to have been robust, with growth estimated at about 11 percent largely driven by the coming on-stream of a new oil project and a good harvest. Over time, government also ensured that pro-poor spending continued to be emphasized in the budget and PFM and public procurement systems have been strengthened. Later in 2012, the Government has adopted a follow-up PRSP program, the 2012-2015 Plan for Economic and Social Development. The reported developments took place while the country faced challenging times. Following the turmoil that led to the coup d'etat in February 2010, elections took place that paved the way to the successful return to constitutional order in April 2011. Also, the country continued to face an unrelenting cycle of food insecurity resulting from below normal rainfall that adversely impacted almost half of the population. Finally, in recent years, Niger is suffering from the spillovers from conflict in Libya and Mali and recurrent insecurity in Nigeria. 5. Macro-economic equilibrium was maintained at the cost of reduced expenditure efficiency. Unrealistic projections of domestic and external revenue, weak expenditure planning, a significant share of expenditures that does not follow the regular expenditure process, and frequent external shocks were dealt with through late and limited budget releases, the maintenance of a cash budget system, and frequent supplemental budgets. This made budget execution for spending ministries difficult, as expenditure programs could rarely be implemented as planned. Limited dialogue between the Ministry of Finance and sector ministries reportedly led to sub-optimal adjustments to expenditures. In addition, these pressures also led to recurrent arrears problems with negative implications for macro-economic stability, expenditure efficiency, and private sector development. x 6. Fiscal transparency is low as only the Annual Budget Law is published regularly, but no other budgetary documents and analysis. The quality of budget execution data is also poor, both with respect to comprehensiveness and classification. The comprehensiveness of public expenditure data is affected by limited information on donor financed expenditures as well as budgetary expenditures that do not follow the regular budget execution process and are thus not properly captured in the budget execution data. 7. Official development assistance funds between 30 and 40 percent of Niger's government budget, but Niger performs poorly with regard to many indicators of aid effectiveness. Niger's share in global aid is also less than what would seem warranted based on Niger's needs and the quality of its policies and institutions. Greater transparency on the use of fiscal resources, strengthened systems for aid-effectiveness, and a clear aid strategy would be important elements of mobilizing additional concessional resources. A large share of Niger's development assistance is also in the form of humanitarian aid, which plays an important role in mitigating the impact of droughts and other external shocks on the most vulnerable. However, the large share of humanitarian aid that has become virtually permanent since 2005 also risks to crowd out spending on medium to long term development. In addition, the large humanitarian assistance sector of the economy also risks to draw talent and resources from other parts of the economy, especially the private sector. 8. Despite very limited and often unpredictable resource availability, Niger has made significant progress in improving basic education and health indicators. This is partly the result of prioritization of public expenditures for the education and health sectors. The aforementioned increased levels of "permanent" humanitarian assistance are likely to also have played an important role as the impact of external shocks on education and health outcomes was mitigated. However, progress achieved remains fragile, both with respect to the sustainability of funding and the quality of outcomes achieved. A high rate of population growth represents a major challenge for sustaining and increasing public service delivery and to providing productive employment for Niger's youth. The system of free health care for children and mothers is facing funding problems and progress in primary school enrolment needs to be accompanied by adequate learning outcomes. 9. The main recommendations of the 2012 PER are for the Government to: * Pursue sound macroeconomic policies through alignment of public expenditures with domestic and concessional external resources - the efficiency of public expenditure execution can be significantly improved by strengthening the realism of revenue projections for enhanced ex ante alignment to reduce the need for ex-post alignment through the cash budget and revised budgets. * Address structural weaknesses in the macro-economic environment which constrain fiscal policies, including through fostering diversification and formalization of the economy to broaden the tax base and to reduce the vulnerability to external shocks. * Adopt adequate policies to manage rapid population growth and prioritize related investments in order to sustain progress in public service delivery and employment generation for Niger's youth. * Sharpen the priorities, improve the costing of the 2012-2015 Plan for Economic and Social Development and translate it into a medium-term expenditure framework, in line with the country's absorptive capacity and resource constraints. * Enhance transparency and the quality of budget execution and reporting, by facilitating public scrutiny and accountability of public resource management, strengthening credibility of the budget, ensuring the early release of resources to pro-poor priority expenditures, and publishing timely and comprehensive quarterly budget execution reports that include information on budget developments in key sectors. * Step up government leadership in aid management, to enhance mechanisms for coordination and better division of labor among donors, and to expand the use of country systems. * Deepen efforts to make progress towards the country's Millennium Development Goals (MDGs), by improving the allocation of public financial and human resources to service delivery at the primary xi level in the health and education sectors, ensuring a better current-capital public spending mix, and reducing economic, geographical and gender inequities. 10. The remainder of the executive summary elaborates on key findings of the review. First, it describes this PER's macro-economic context, then it presents an analysis of public expenditure and composition and a review of official development assistance trends. Subsequently, it summarizes developments in the health, education and rural development sectors and after focuses on strengthening Niger's public expenditure review process. Finally, a set of priority policy recommendations is proposed aimed at improving the development impact of Niger's public expenditures. Findings and Assessment Country and Macro-Economic Context for Public Expenditure Policies 11. Political stabilization and return to democracy, an ambitious government program for economic and social development, and a favorable government revenue outlook from an expanding extractive industries sector provide a demanding, though conducive environment for improved public expenditure policy to enhance access, quality, and efficiency of key public services. Putting into action the government's commitment to improve transparency, accountability, and efficiency in the use of public resources will be essential to fully exploit these opportunities. 12. A narrow tax base and high government revenue volatility present significant challenges for the conduct of public expenditure policy. Most of Niger's economic activities are informal and in subsistence agriculture. The modem sector accounts only for 31 percent of the economy, including most of the extractive industries sector. The tax base is thus extremely narrow and government revenue subject to high volatility due to its dependence on the extractive industries sector, which contributes about one third of total domestic revenue. Diversifying and formalizing the economy will thus be essential to enhance the environment for public expenditure policies in the medium to long term. 13. From 2007 to 2012, the economy demonstrated its resilience by achieving an annual average GDP growth of about 6.4 percent. That growth was achieved when the country was facing major adverse domestic and external shocks. First, erratic rainfall patterns resulted in poor harvests, severe food shortages and negative or low GDP rates of -0.9 and 2.1 percent in 2009 and 2011, respectively. Secondly, the country went through a 13-months successful political transition to a newly democratically elected govermment following the February 2010 coup d'etat. Finally, conflict in Mali and Libya and insecurity in Nigeria led to the return of a large number of migrant workers, significant flows of refugees and additional insecurity in some of the country's key mining areas. 14. Niger's Plan for Economic and Social Development 2012-2015 (PESD) foresees a significant scaling up of infrastructure and social development spending. The estimated funding requirement of the PESD is US$10.8 billion over the four -year period. Even if the planned increase in domestic revenue and the donor pledges from the Round Table materialize, the estimated cost still exceeds resource availability significantly. It will thus be critical to further prioritize the PESD and generate strong linkages between the PESD and the budgetary planning and monitoring process. 15. A high rate of population growth results in a rapidly expanding demand for social services and employment opportunities and generates additional pressures on scarce natural and agricultural resources. Niger is in the early stage of the demographic transition, where progress in reducing maternal and child mortality has led to an initial increase in the rate of population growth, which is estimated to have been 3.9 percent during the last ten years. A clear policy focus on managing demographic developments is thus essential to ensure that the government's ambitious plans for improved public service delivery are not overwhelmed by demographic developments. xii 16. Looking forward, scaled up production in the uranium and petrol sectors is projected to be the key driver of growth. In 2012, real GDP growth is expected to have reached about 11 percent, mostly due to the coming on-stream of a new oil project coupled with another good harvest. The fiscal deficit as a ratio to GDP, including grants, is projected to remain broadly at about the previous year's level and inflation remained low thanks to the government's food support. Over the medium term, assuming the Government maintains sound economic and fiscal policies and no major adverse domestic and external shocks, Niger can reasonably expect growth to be in the 6-7 percent range while maintaining inflation low. This strong growth will be driven mainly by the expansion of the extractive sector coupled with further improvements of the business environment and more efficient public investments. 17. Expanding the fiscal base through formalization and diversification of the economy towards the modern economy, ensuring that the revenue potential of an expanding extractive industries sector is fully exploited, smoothing development expenditure in the face of highly volatile growth and revenue, and pursuit of adequate policies and investments to control demographic development are identified as key issues that require attention in order to strengthen the macro-economic environment for public expenditure management. Public Expenditure Trends and Composition 18. Despite the challenging environment, the country has maintained overall fiscal discipline and inflation remained low. The fiscal deficit (including grants) reached 5.4 percent of GDP in 2009, due to temporary increase in capital spending financed with resources from a signing bonus of the previous year, but it dropped to 2.4 percent in 2010 reflecting the severe decline of external concessional assistance linked to the political crisis. Resumption of donor support resulted in a sustainable increase in the fiscal deficit to 3.0 percent of GDP in 2011 and further to an estimated 3.5 percent in 2012. Prudent fiscal policies and broad adherence to the Western African Economic and Monetary Union (WAEMU) convergence criteria allowed the country to keep inflation below three percent. 19. At about 16 percent of GDP, domestic resource mobilization continues to be low by international standards, but medium-term prospects look promising. Tax revenues increased from 8.6 percent of GDP in 2000 to 14.7 percent of GDP in 2012. However, the country is still lagging behind the 17 percent of GDP target stated in WAEMU's convergence criteria. Although dominance of agriculture and informal activities partly explains past poor performance, the government's current tax and customs administration reforms rightly aim at an ambitious increase of tax revenues to 18 percent of GDP by 2015. Over the next five years, as large scale uranium and petroleum investments start production, related domestic revenues are expected to increase to about five percent of GDP. Notwithstanding that the country achieved compliance with the Extractive Industries Transparency Initiative (EITI) in 2011, transparency and proper management of revenues from the mining and oil sector will need to remain a central focus of economic policy in Niger. 20. A considerable increase in public expenditure since 2000 accompanied a significant expansion in the access to and use of social services. However, the country is significantly off-track on most MDGs. From 2000 to 2011, public expenditures as a share of GDP surged from about 16 percent to 21 percent. In 2012, public spending is estimated to have expanded further, to almost 26 percent of GDP, as the new authorities seek to scale up provision of public services and also have to face external and domestic security threats. 21. From 2007 to 2012, volatility of total public expenditures reflected, mostly, fluctuations in capital expenditures, especially since while the former are almost entirely funded from the government's own resources around 60 percent of the latter are externally funded. Capital expenditures peaked at about 12 percent of GDP in 2009, due to the government's additional resources associated with income from a signing bonus in the oil sector. During 2010 and 2011, cutbacks in donor financing in response to the political crisis, led to the decline of capital expenditures to almost 8.0 and 7.0 percent of GDP, respectively. Return to the constitutional order is expected to allow for a recovery of capital spending to around 13 percent of GDP in 2012 due to a recovery of external aid flows. xiii 22. Pro-poor and priority sectors expenditures increased faster than other public spending. In terms of allocation of resources, about 30 percent of total public expenditures targeted social sectors, 24 percent economic services (including infrastructure) and 8 percent defense and security. Overall, the slow growth of spending on the health sector is a matter of concern. To link the PRSP 2008-2012 to the budget, the authorities identified both a unified list" of pro-poor expenditures and priority sectors for PRSP implementation. Between 2007 and 2011, resources allocated to pro-poor expenditures grew by 86 percent. This compares favorably with the 54 percent increase in total budget allocations. However, broadly in line with total spending, actual pro-poor spending increased by almost 10 percent due to the low budget execution rates in 2010 (73 percent) and 2011 (45 percent). In these two years, the reported sharp drop of investment spending might also reflect weaknesses in the government's data base coverage. During that period, budget allocations to priority sectors increased by 86 percent and their budget execution averaged 85 percent, the latter comparing favorably to the 73 percent execution rate achieved in the non-priority sectors. Spending on the priority sectors increased from 31 percent of total domestically financed expenditures in 2007 to 50 percent in 2011. 23. In the coming years, the composition of recurrent expenditures should be improved by addressing inadequate funding of maintenance. In recent years, recurrent expenditures fluctuated within a narrow range, around 12 to 13 percent of GDP. They have been composed to roughly equal parts of wages and salaries, operations and maintenance (O&M) and subsidies and transfers. Despite of increasing from 3.5 percent of GDP in 2007 to slightly more than 4.0 percent of GDP in recent years, the wage bill is small by international standards and well within the WAEMU convergence criteria. However, transfers also finance wages and salaries of institutions benefiting from these transfers. Employment in the civil service, education and health sectors increased by 36 percent from 2006 to 2010 with education more than doubling, to accommodate the increase in the school age population and expansion of the enrolment rates, and health contracting by about 14 percent. During 2011 and 2012, government has carried out significant recruitment in the health and education sectors to support improved access and service delivery in these sectors. 24. Gender imbalances in the civil service also require attention. Roughly 86 percent of civil service employment consists of regular staff. In 2012, women accounted only for about one third of civil service employment, representing one fifth of employees in the highest categories and two-thirds in the lowest categories. Higher salaries have also contributed to increasing the wage bill, especially the 2011 decision to increase by 10 and 40 percent the salaries of civil servants and military personnel, respectively. With regard to O&M, almost one third of these expenditures are channeled to supplies and another third to other goods and services. At only 8.0 percent of O&M expenditures, maintenance is a matter of concern, being a small allocation compared to the country's relatively large investment budget and is probably adversely impacting service delivery. In what concerns transfers and subsidies, about 78 percent of these resources are channeled to transfers. Slightly more than half of these transfers finance service delivery in social sectors, mostly in education. Subsidies are mostly directed to public and financial institutions. 25. Investment in infrastructure represents only 24 percent of the development budget', which might pose a constraint to growth given the country's large gaps. From 2007 to 2011, 34 percent of public investment was concentrated on intangible assets (mostly technical assistance and capacity development) while 24 percent was devoted to infrastructure. The share of the development budget financed by donors increased from 15 percent in 2000 to more than 50 percent in 2012, with significant difference in the types of development expenditure funded by government and donors. Government funding goes into furniture and materials (28 percent), buildings (20 percent), infrastructure (19 percent), intangible assets (18 percent) and military investment (6 percent). Donor funding focused on intangible assets (45 percent), land and improvements (14 percent) and infrastructure (31 percent). To the extent that government expenditures on intangible assets, land 1 The development budget or capital budget includes expenditures for the acquisition, development, and repair of intangible assets, land, buildings, and material and furniture. In practice, virtually all donor funded expenditure is also recorded in the development budget. xiv and infrastructure are counterpart funding for externally financed investment, low execution rates between 57 to 65 percent might hold back overall investment levels in those areas. 26. In the near future, the focus should be on creating fiscal space and increasing pro-poor and priority spending. In recent years, the authorities developed sectoral and cross sectoral medium term expenditure frameworks (MTEFs), which are mostly useful at the sectoral level but not suited to support budgetary discussions and do not respect the budgetary constraints from the global MTEF. Implementation of the previous PRSP has also shown that the share of pro-poor and priority expenditures was fairly high making it difficult to have them grow faster than other expenditures or protecting them in case of unexpected resource shortfalls. In 2012, the new PRSP - Plan for Economic and Social Development (PESD) 2012-2015 - was approved. It spells out an ambitious program costing an estimated US$10.8 billion over the four-year period, of which US$8.3 billion would need to be externally financed. Given the $300-$400 million of annual external financing available during the previous five years, and the US$4.8 billion of donor support pledged in November 2012 for the PESD period, the plan needs to be further prioritized and translated into a coherent and realistic medium term expenditure framework that represents a more organic evolution from historic levels of expenditure and identifies implementing measures to step up absorptive capacity. In this process, it would be important to narrow the definition of pro-poor and priority expenditures and consider prioritizing their execution by fully protecting them from cuts during budget implementation and by providing early budget releases. 27. Going forward, enhancing budget transparency and data reliability needs to be a priority to support better decision-making on budget issues and improve accountability to the public. Currently, the budget documentation does not facilitate strategic decision-making by the National Assembly. It lacks critical information such as a presentation on the linkages between key budgetary objectives and expenditure developments and information on budget allocations and actual expenditures in previous years. Moreover, the PER highlights budget data inconsistencies that pose a challenge to analyze budget developments. In the area of budget transparency, recent encouraging progress was made (e.g. posting the 2013 Budget on the web, public disclosure of 2007 and 2008 public procurement audits). Given that the Constitution adopted in 2011 and the new organic finance law approved in 2012 contain important provisions aimed at improving budget transparency, the current challenge is to speed up implementation of the new laws while ensuring the production of comprehensive, reliable and timely budget data and information. Official Development Assistance 28. Aid flows play an important role in Niger's economy and have been declining in recent years. Following democratic elections in 1999, official development assistance (ODA) increased to reach US$50 per capita in 2004 and then declined to US$38 per capita in 2010. As a ratio to GDP, ODA increased from about 11 percent of GDP in 2000 to almost 15 percent of GDP in 2005. Subsequently, it declined to less than nine percent in 2009. On average, two thirds of aid flows are provided to Government and an average of about 61 percent of it goes to the social sectors. However, while initially the education and health shares were similar, more recently the health sector has benefited from increased aid flows while those of the education sector have stagnated. The reported trends have had an impact on the share of government expenditures financed by external assistance. While in 2000 aid funded more than 50 percent of government spending, in 2011 it represented 30 percent. This trend is mainly due to a decline in concessional credit funding, especially since 2005 when Niger received MDRI debt relief. 29. Typically, in years of food crisis aid peaks due to large inflows of humanitarian and crisis related assistance. But this aid does not seem to be fully additional. In fact, the increase in food and humanitarian assistance generally coincides with a fall in aid for development purposes. Given the recurrent nature of food crises in Niger, the reported trend is a matter of concern as it potentially limits the country's ability to overcome deep-seated structural problems. It must also be noted that studies by the World Bank, OECD and others indicate that Niger is part of a set of countries receiving aid below what could be expected based on the country's needs and policy performance. xv 30. Enhancing the contribution of aid to Niger's development requires coordinated action of government and its development partners. Progress in enhancing aid effectiveness over the period 2005-2010 has been mixed, as only two of the twelve indicators agreed for 2010, in the Paris Declaration of Aid Effectiveness, have been met and several even show a deteriorating trend. Using the OECD measure of aid fragmentation, data for Niger suggest that there is significant scope for reducing aid fragmentation both at the aggregate and sectoral level. Education 31. Despite progress in increasing enrollment, particularly remarkable at the primary level, Niger's education outcomes compare poorly to SSA and efforts need to be step up to move towards the MDGs. An increase in the share of the national budget allocated to primary education, a massive construction of schools and rehabilitation of classrooms across the country contributed to improve the gross primary school enrolment ratio from an average of 47 percent in 2000/01-2004/05 to 72 percent in 2008/09-2010/11. Over the same period, enrollment at the junior and senior secondary levels progressed far more slowly, rising from 9.9 percent and 2.6 percent to 19 percent and 3.9 percent, respectively. However, in addition to increasing significantly primary school enrollment the country also needs to ensure that students complete the full primary education. In this regard, survival rates to grade 6 are improving, but the drop-out rates remain high as only slightly more than 50 percent of students who started primary school also complete it. Reported trends show that the country is off track to meet the MDGs. In 2010, the net primary enrollment ratio and primary completion rate are still low at 62 percent and 51 percent. Compared to SSA, Niger's above-mentioned outcomes are much weaker where average net primary and secondary enrollments reached 75 percent and 19 percent in 2010. The government that emerged from the 2011 general elections has proclaimed that every child up to age 16 must enroll in basic education. 32. Further progress in the education sector requires reducing wide economic, geographic and gender disparities in access to education. Household survey data confirms that Niger has been making progress in expanding access of children from poorer households to primary education. Data for 2007/8 and 2011 shows that all income quintiles registered improvements in the net enrollment ratio at the primary, lower and upper secondary level, though significant differences remain between the poorer and the better off quintiles. In 2011, population in the poorest quintile registered net enrollment ratios of 39, 22, and 5 percent for primary, lower, and upper secondary school. For the richest quintile, the corresponding ratios were 53, 40, and 20 percent. The same household surveys show that location is a much bigger factor in shaping schooling outcomes in Niger than poverty. The gap in enrollment between poor children living in rural areas and poor children living in urban areas was found to be almost as large as the gap in enrollment between poor and rich children (irrespective of residence) highlighted above. This suggests that while poor children are less likely to go to school, this problem is most acute for poor rural children. Similarly, while girls' enrolment in primary and secondary school has increased in urban areas, gender inequity in access remains a major problem in rural areas. While the overall enrollment rate for boys and girls is about 72 percent and 62 percent, respectively, the 10-percentage points gender gap is affected by poverty and location. Specifically, while there is only a 2-percentage point enrollment gap between poor boys and poor girls living in urban areas, there is a 15-percentage point gap in enrollment between poor boys and poor girls living in rural areas. Moreover, the gender gap opens up at the primary level, where girls accounted for 44 percent of total enrollment, increases slightly at the lower and upper secondary level, where girls account for only 39 percent and 36 percent of enrollment, respectively, and becomes very unfavorable to girls at the tertiary level where girls accounted for just 30 percent of enrollment in 2012. Analysis of drop-out rates confirm the above reported economic, geographic and gender disparities and relate them to low quality of education in schools and the financial costs (books, materials and uniforms) of schooling. 33. The quality of Niger's primary education in public schools is poor and the system is not producing students with knowledge and skills required for accelerated economic development.2 The country ranked 2 International student proficiency assessment (PASEC) in French and Mathematics. xvi 12 out of the 13 francophone African countries for which the PASEC international standardized tests results were analyzed. These results suggest that school system deficiencies are to a large extent responsible for the poor quality of education. To address such deficiencies, in the near future the focus should be on improving management of classroom teaching by tackling issues such as strict adherence to school calendar, reduction of teacher absenteeism, appropriate and timely availability of textbooks for students and teaching guides for teachers, better teacher qualifications, adequate gender balance in recruitment of new teachers, and better access to basic services (e.g. sanitation and potable water) in schools. 34. The share of government expenditures devoted to public education in Niger exceeds the average for the SSA region and compares favorably to that of other countries in WAEMU. But as ratio to GDP, the country is still below the SSA average. Over the period 2004-2011, that share of education averaged 21.7 percent and, except for two years in 2004 and 2007, it has been above the Education For All (EFA) Fast Track Initiative (FTI) benchmark of 20 percent. However, over the period 2008-2010, total public expenditure on education accounted for about 4.1 percent of GDP, below the average of 5 percent for Sub-Saharan Africa. The latter highlights the need for sustained efforts to increase investments in the education sector. From 2007 to 2011, wages and salaries and transfers and subsidies dominated the composition of the sector's expenditures. The latter highlights the importance of contract teachers in primary and secondary schools, and also includes scholarships and transfers to regional universities. The low share of spending on goods and services is a matter of concern and most likely associated with the low quality of education. Capital expenditures have sharply contracted due to crowding out by increasing transfers and significant decline of donor financing. It must be noted that the education sector budget execution rate averaged 85 percent over the period 2008-2010, with wages and salaries and transfers averaging about 95 percent and capital expenditures 51 percent. The low share of regions in total spending suggests limited progress toward the decentralization of the sectors' service delivery. Primary education accounted for 60 percent of public expenditure on education, with the rest mostly channeled to secondary 25 percent and tertiary 12 percent. Compared to other countries in the region, the country stands out in prioritizing primary education. In 2010, the country's public expenditure per student as a share of GDP per capita in primary education are broadly comparable to those of other low income countries. However, the unit costs for university education is exceptionally high and, although considerably less than tertiary education, the unit costs for secondary education are among the highest in Sub-Saharan Africa. Scholarships awarded to tertiary students might explain the tertiary education unit costs. Health 35. Niger has been improving health sector outcomes, but it still lags countries in the region. Renewed efforts are required to move towards the MDGs. Life expectancy at birth has increased from about 43 years in 1990, one of the lowest in the world, to 57 years in 2010, when it was higher than the Sub-Saharan Africa (SSA) average of 54 years. This trend reflects progress made in reducing mortality such as the infant mortality (IMR) and the under-5 mortality (U5MR) rates, which were reduced by about 50 percent in the twenty years through 2010. Similarly, the maternal mortality rate (MMR) was brought down by about 15 percent from 2006 to 2010. Comparing with S SA, the country is broadly in line with regional average rates with regard to IMR and MMR, but continues to have a considerably higher U5MR. It should be noted, however, that Niger's MMR is still very high and exceeds that of most comparator countries in the WAEMU. 36. Over the period 2005-2010, communicable diseases and maternal, prenatal and nutrition conditions accounted for an estimated 90 percent of deaths in the population, mostly due to shortcomings in preventive care. Tuberculosis and malaria remain endemic and are prominent causes of mortality. The mortality rate attributed to malaria is twice the average of SSA countries and only seven percent of under-5 children sleep under insecticide-treated bed nets. Tuberculosis is high and rising since 2000. Also, immunization against measles and DPT3, although roughly doubling during the first decade of this century, continues to lag SSA region averages. Since the 2006 introduction of free health services for children under-5 years and pregnant women, progress has been made in pre-natal care, but Niger still lags considerably the SSA region in areas such as child births attended by skilled health staff and women attended at least once during pregnancy. This also holds in the area of family planning. Access to safe drinking water is expanding but still limited compared to the xvii SSA region. Moreover, comparing to WAEMU countries, stunting and chronic malnutrition are more prevalent in Niger. As for HIV/AIDS prevalence, while it has increased over the years, it remains relatively low at 0.8 percent in 2009. 37. Reducing economic and geographic disparities in access to quality health care is essential to improve the sector's performance and for poverty reduction. A sizable gap remains between rural and urban areas and between rich and poor households in the utilization of health services. This is well illustrated in the case of births attended by skilled health personnel where 8 percent of births in rural areas and 5 percent of births in poor households are attended by a trained health worker what contrasts with 71 percent in urban areas and 59 percent in wealthier households, respectively. Partly as a result of these inequities, the under-five mortality rate is exceedingly high in rural areas and in poorer households. In 2010, slightly less than half of the population had access to centers offering the minimum health care package within a range of 5 kms. However, this access has been highest in the large urban centers, most notably in Niamey and Agadez, and lower in most rural areas, with the rural areas in the Zinder region consistently posting access at less than 40 percent. With regard to the health workforce distribution, although Niger's density of doctors, nurses and midwives is one of the lowest in the sub- region, the quality of care delivered is adversely affected by the high concentration of public sector health personnel in the Niamey region. Whereas Niamey accounts for 8 percent of the country's population, more than 40 percent of doctors, around 12 percent of nurses and more than 25 percent of midwives are located in Niamey. Recent recruitment in the health sector has reportedly been targeted to reduce regional disparities. In addition to a more balanced allocation of qualified personnel, improving access to and the use of pharmaceutical products is also required to increase the patient's satisfaction and utilization of health services. 38. The share of government expenditures on the health sector has declined by half from 2006 to 2011 and the extent of its pro-poor focus is a matter of concern. During the previously mentioned period, government spending on the health sector as a share of total government expenditures dropped from 15 percent in 2006 to 7 percent in 2011. As a ratio to GDP, comparing with several Western Africa countries, Niger's public spending is on par with that of its neighbors. However, considering the sum of public and private expenditures, Niger's spending of US$ 18 on a per capita basis is very low comparing with the countries in West Africa and almost a fifth of the SSA average in 2010. Household out-of-pocket spending is estimated to have contributed about 41 percent of total health expenditures in the country. The main contributing factor to the reported public expenditure trend was a decline in capital expenditures, mostly driven by sharp cuts in foreign financing triggered in part by the political turbulence in the country. In contrast, current spending was robust and marked by a growing share of wages and salaries, a surge in transfers and subsidies and a moderate increase of goods and services. The considerable increase in transfers and subsidies is largely due to financing required by the provision of free health services adopted in 2006. As for credibility of the budget, it is poor given that the health sector's budget execution rate averaged about 69 percent in the period 2008-2011 with wages and salaries and transfers and subsidies averaging execution rates of about 90 percent. In the absence of other factors, the low budget execution rate of capital expenditures raises questions about the absorptive capacity of the Ministry of Health. According to the national health accounts, in 2009 prevention services accounted for about 15 percent of the Ministry of Health expenditures while the hospital and ambulatory curative care programs accounted for 40 percent. In addition, during 2007-09, the relatively wealthier Agadez and Diffa regions received, on a per capita basis, more than three times the resources allocated to the Maradi region, one with the highest incidence of poverty. Overall, reallocations of resources will need to be made to improve the pro-poor focus in the use of the health sector's public monies. Rural Development 39. Government expenditure on agriculture and rural development has declined in recent years. In 2007 and 2008 government expenditure on agriculture and rural development averaged 10.9 percent of total government expenditure, attaining the target of 10 percent adopted by African Head States in the 2003 Maputo Declaration. Since then, however, government expenditure on agriculture and rural development has declined, representing 7 percent of total government expenditure in 2011. Government expenditure on agriculture and livestock in particular has been low and declining. The composition of government expenditure xviii on agriculture and rural development has been broadly in line with sector needs, however there were important deficiencies. Most notably, government investment expenditures executed by the Ministry of agriculture were lower than recurrent expenditures. they were also marked by limited spending on rural roads and other infrastructure that can generate high returns in terms of agricultural productivity. Similarly the pattern of government spending on goods and services in agriculture raises doubts about its effectiveness in supporting operations and maintenance in the sector. Budget execution, especially on capital expenditures, has been very low. While the poor performance on budget execution is not specific to agriculture, it points to the limited effectiveness and impact of government expenditures in a context where hunger remains alarming and agricultural production and productivity are declining. Finally, the uneven quality and limited availability of data, including inadequate information about the functional areas of public expenditure on agriculture, hinder a more detailed analysis of the trends, composition, and effectiveness of government expenditures in agriculture and rural development. 40. In view of the strategic importance of agriculture and rural development for economic growth, poverty reduction, and environmental sustainability the government should consider allocating more resources to the sector, targeting the level recommended in the Maputo Declaration on Agriculture and Food Security in Africa. Given the fiscal constraints facing Niger, in the short run, emphasis should be placed on improving the performance of public expenditures so as to create fiscal space in the budget. This will require: * Government efforts to improve the planning, targeting and efficiency of its expenditures, including more transparent and inclusive budget processes; * Raising the budget execution rate, especially on the capital expenditures budget to ensure resources are fully utilized. this may entail important procurement reforms. 41. In allocating budgetary expenditures, the government should channel resources towards the provision of public goods that yield strong returns in agricultural growth and poverty reduction. The provision of public goods is a crucial part of the enabling environment for agricultural investment. Evidence from many countries over many decades shows that public investment in agricultural research and development and rural infrastructure yields higher returns than other expenditure such as subsidies. For Niger, two areas need greater attention: * The composition of capital expenditures executed by the Ministry of Agriculture indicates a need for channeling more resources towards the rehabilitation and maintenance of rural roads; * The formation of natural capital such as land and other natural resources should be promoted to support agricultural production and environmental sustainability more effectively; * Priority should be given to improving internal systems for tracking, recording and disseminating information about public spending in the rural sector; * Improved data are necessary to validate the levels and trends in agricultural investments and to enable more robust analysis of the impacts of different types of investments on agricultural growth, food security and poverty reduction. Strengthening PER Process 42. Over the last decade, several PERs were conducted. However, their impact on government policies differs when PERs at global and sectoral level are assessed. At global level, the 2004 and 2009 PEMFARs were completed and building on their findings and recommendations, as well as other technical assistance advice, the Government adopted action plans for strengthening public expenditure management covering the periods 2005-2008 and 2012-2014, respectively. A recently completed PEFA assessment reports that progress since the 2008 PEFA exercise has been modest with only 11 PEFA indicators showing some progress. On the development partners' side, while PEMFARs provided major analytical pieces they did not satisfy adequately the short-term needs for up-to-date assessments of public expenditure and this led to a series xix of uncoordinated assessments being carried out. At sectoral level, the government has financed and completed PERs in education (2009), health (2008, 2011) and rural development (2009, 2011). A recent external assessment of these sectoral PERs concluded that their impact could be enhanced through stronger ownership, better alignment with the budget preparation process, stronger engagement of the Ministry of Finance, better integration in an accountability process, more pertinent content and targeting of a wider audience. 43. Looking forward, an approach of "one process - one assessment" should be adopted in PER preparation. This approach would entail preparation of annual PERs (APERs), to ensure availability of up-to- date information on public expenditure developments. Moreover, it should minimize transaction costs for government by reducing the number of individual donor inquiries and analysis on budget issues. APERs should be a Ministry of Finance-led exercise, conducted with interested stakeholders, and provide an "external assessment" to the government with timely feedback on budget performance, appropriateness of its linkages to the country's PRSP and support the public expenditure reform agenda. As for sectoral PERs, to enhance their relevance and cost-effectiveness they should be framed as part of the "one process-one assessment" approach. This would also widen the actors involved in the exercises and provide a platform for dialogue on key sectoral policies while considering the country's overall development goals and resources. Policy Recommendations 44. Improving management of Niger's public resources to achieve robust and sustained growth is a long-term effort, which requires the strong Government commitment and leadership and active support of the country's development partners. Table 1 presents a list of essential reforms that should be taken over the next few years to improve the structure of public expenditures and strengthen fiduciary standards. These are, in essence, a summary of this PER's key recommendations. A more detailed table of recommendations is presented at the end of each chapter. The validation workshop of this PER will offer the opportunity to review their appropriateness and timelines for their implementation. xx Table 1: Key Policy Recommendations Issues Measures to be Taken Responsible Technical Proposed Party Assistance Timeline of Required (L, Implementation A, or H)3 ST4 MT5 Country and Macroeconomic Context A high population growth rate 1. Ensure policy focus and MoF, H X X generates rapidly increasing appropriate funding for MP/PW/PC demand for social services and government's population employment opportunities. policy. Revenue volatility results in 2. Use a share of extractive MoF L X X inefficiencies in budget industries revenue to rebuild execution. reserves to facilitate cash management and as a buffer against short term shocks. Public Expenditure Trends and Composition Inadequate transparency and 3. Improve comprehensiveness MoF, H X X quality of budget data to allow and classification of MoP/AT/DC contestability and accountability. expenditure outturn data. 4. Preparation and publication of MoF L X quarterly budget execution reports that include information on key sectors. 5. Post key budget documents MoP/AT/CD L X and data on MoF website. Small share of capital budget 6. Improve composition of MoF, Sector L X X targets creation of physical capital budget and match with Ministries infrastructure. Resources for appropriate allocation of operations and maintenance are resources for maintenance. often inadequate. Gender MoFP/T A X disparities in civil service 7. Strengthen civil service employment. recruitment practices to promote gender balance. Public expenditures not clearly 8. Translate PESD into a cross MoF, Sector H X prioritized, especially during sectoral MTEF based on Ministries budget execution. resource projections consistent with the ECF. Resource requirements of the MoF, L X PESD likely to exceed available 9. Identify PESD core priority MoP/AT/CD resources and absorptive capacity expenditures, which benefit significantly. from early budget releases and should not exceed 25 percent of total expenditures. Official Development Assistance Government leadership in aid 10. Prepare aid strategy that sets MoP/AT/CD A X 3 L - Low, A - Average, H-High 4 Short-term ' Medium-term xxi Issues Measures to be Taken Responsible Technical Proposed Party Assistance Timeline of Required (L, Implementation A, or H)3 ST4 MT5 management and donor out govemment vision on aid coordination is weak. management and donor coordination. Persistent donor fragmentation 11. Engage in dialogue with MoP/AT/CD A X both at aggregate and sectoral donors on more effective level. division of labor and enhance mechanisms for donor coordination. Health Health sector outcomes lags 12. Increase share of MoH, MoF L X countries in the region and per govemment's expenditures capita health expenditures as allocated to health, and well. significant inequities in prioritize preventive care. access to health care. 13. Reduce economic and MoH L X geographic inequities in access to health care. Education Low rate of net primary 14. Increase share of MoE/A/PLN L X enrolment. Insufficient and govemment's expenditures and MoF inefficient public expenditure allocated to education, and financing. Poor quality and prioritize those key to improve significant inequities in access to quality of education. service delivery. L X 15. Improve pro-poor focus of MoE/A/PLN education expenditures by and MoF reducing wide economic, geographic and gender inequities. MoE/A/PLN A X 16. Enforce adherence to school calendar year and teacher accountability. Rural Development Budgetary resources allocated for 17. Allocate more resources to the MoA, MoL, the development of the rural sector - especially to research HC3N, MOF sector have been declining during and extension, rural roads, and the past five years irrigation , targeting the level recommended in the Maputo Declaration on Agriculture and Food Security in Africa. Strengthening PER Process PEMFARs do not satisfy the 18. Prepare Annual PERs MoF and L X short-term needs for up-to-date (APERs), covering sectoral Sector assessments of public policy issues on a needs basis. Ministries expenditures. Impact of sectoral PERs is negligible. xxii  CHAPTER 1: INTRODUCTION 1.1 Following a period of political turmoil, the inauguration of a new, democratically elected President in April 2011 provides a new starting point for Niger's development efforts. The Government's Plan for Economic and Social Development 2012-2015 (PESD) outlines an ambitious public expenditure program to foster sustainable inclusive growth and to improve public service delivery. In order to fund a drastically scaled up expenditure program, the government envisages to mobilize both domestic (from currently 14 to 20 percent of GDP, over a five year period) and external resources. Over the next few years, the contribution of the extractive industries sector to government revenue is expected to reach five percent of GDP, as oil production reaches full capacity and exports of uranium increase significantly as new mines come on-stream. 1.2 At the same time, pressures on Niger's public expenditures are tremendous and likely to grow. Being one of the world's poorest countries and at the very bottom of the UNDP Human Development Index, expansion of social services and infrastructure and progress towards the MDGs will require significant scaling up of expenditures. A major challenge is Niger's high rate of population growth of about 3.9 percent annually, which makes it difficult to sustain and expand the provision of public services. Niger is also highly vulnerable to external shocks due to the undiversified nature of its economy, which relies mainly on rain-fed subsistence agriculture, livestock and uranium mining. Economic volatility typically also translates into revenue volatility, which creates significant challenges for the effective implementation of expenditure programs. Finally, regional insecurity and terrorist threats create pressures for increased expenditures on security. 1.3 Improved management of public resources and economic governance are cornerstones of the government program. As highlighted in the 2013 Public Expenditure and Financial Accountability assessment, Niger's public financial management and procurement systems have significant weaknesses. A 2008 expenditure tracking study also highlights that only a small share of allocated public expenditures actually arrives at service delivery units. A Public Expenditure Management Reform action plan has been adopted in 2012 and provides a road map for reforms and helps coordinate donor support in this area. The Bank is supporting the strengthening of public financial management systems through a technical assistance grant. 1.4 Despite the importance of public expenditures for the realization of Niger's development objectives, there is a severe lack of regular up to date analysis of budget performance which would provide timely feedback to government as well as to interested stakeholders on the adequacy of budgetary policies and their implementation. As in many other developing countries, the use of public resources and the performance of the public financial management system are of critical interest to most development partners that are engaged in Niger. The Bank has in the past carried out two comprehensive Public Expenditure and Financial Management Reviews (PEMFAR I in 2004 and PEMFAR II in 2009) that have served as the basis for the development of government's public financial management reform action plans. However, while these major analytic pieces provided in depth analysis, they were not able to satisfy entirely the regular and short term needs for up to date assessments of PE and PFM development. This has led to a situation where various development partners carried out independent and uncoordinated assessments which engendered significant transaction cost for the authorities, who have to deal with multiplicative and repetitive assessments, stretching further the already very limited human resources of key public financial management functions. 1 1.5 In an effort to ensure that development partners and other interested stakeholders have adequate, up-to date information on public expenditure and financial management developments while minimizing the transaction cost for government, it is envisaged to move towards an approach of "one process - one assessment." Such a process would include a harmonized process for regular information sharing and dialogue between the authorities and interested development partners and other stakeholders on budget and public financial management issues and the preparation of an annual public expenditure review (APER) report, which would serve a common reference document on recent developments in the area of public expenditure and financial management. 1.6 The main objectives of the preparation of an annual expenditure review include the following: * Provide the government with timely feedback on budget performance through an "external assessment" of trends in budget allocations, and budget execution and the link to the PRSP; * Enrich the decision making process and reform agenda regarding overall allocative and operational efficiency of the budget and the strengthening of PFM systems; * Identify and help address bottlenecks in the budget process and potential budgetary weaknesses and risks that may affect the achievement of PRSP objectives; * Support the dialogue between the Ministry of Finance and spending ministries through the provision of relevant analysis; * Provide development partners and other interested stakeholders with up to date information; * Reduce the transaction costs for government through the establishment of "one process - one assessment" which would help to reduce the number of individual donor inquiries and analysis on budget issues; * Underpin and inform a process of regular dialogue and exchange of information between government, the providers of budget support, and other interested stakeholders. 1.7 The APERs will consist of three main parts. The first part will monitor public expenditure performance and the implementation of public financial management reforms. The second part would focus on sectoral public expenditure issues, and the third part will analyze selected public expenditure issues in detail. In the context of the annual PER process, every second year a Public Expenditure and Financial Accountability (PEFA) would be carried out. 1.8 The APER process is also expected to contribute to an improvement in data on public expenditures and related outcomes and results. The preparation of an APER creates demand for high quality public expenditure data. It is expected that the regular analysis of public expenditure data will contribute to identifying weaknesses and inconsistencies in public expenditure data and assist government in identifying key areas for improvement. 1.9 After this Introduction, this PER covers the following topics: the review's macroeconomic context in the second chapter, an assessment of public expenditure trends and composition in the third chapter and a review of the volume, modalities and allocation of official development assistance in the fourth chapter. Then, public expenditure developments in the health, education and rural development sectors are reviewed in the fifth, sixth and seventh chapters, respectively. At the end, in chapter eight, focuses on strengthening Niger's public expenditure review process. 2 CHAPTER 2: COUNTRY CONTEXT FOR FISCAL POLICY A. INTRODUCTION 2.1 Niger is a large, landlocked, mostly desert country with an area of 1.27 million square kilometers and a population of about 17.1 million. The country's population is concentrated in the areas around the Niger River in the western comer of the country bordered by Mali, Burkina Faso and Benin, and then stretches through the Sahel region all along Nigeria's long northern border. North of this belt, the land is largely desert. Niger's population is growing by 3.9 percent annually with 47 percent under the age of 15. 2.2 Niger is a poor country with an underdeveloped natural and human resource base. More than half of the population lives below the national poverty line and more than two thirds of the adult population is illiterate. About 80 percent of the population derives their livelihoods from agriculture and livestock, even though the country constantly battles drought and only about 12 percent of all its land is arable. Productivity in most sectors is low and exports consist mainly of unprocessed products from the extractive industries, livestock, and agriculture sectors. Uranium mining contributes about 50 percent of the country's exports. Much of economic activity takes place in the informal sector. Most of the country's growth potential is associated with the oil and mining sectors, livestock, and with regional trade in the West African Economic and Monetary Union (WAEMU) and with Nigeria. 2.3 Niger ranks last among the 187 countries on UNDP's 2012 Human Development Index, with a Gross Domestic Product (GDP) per capita in Purchasing Power Parity (PPP) terms of US$701 in 2012, one of the lowest in the world. Nevertheless, since 2000, the country has witnessed improvements in both economic and social indicators. Growth has slowly been gathering momentum, despite periodic setbacks due to droughts, conflict in the sub-region, and political instability. Average per capita GDP growth has been positive (at an average annual rate of 1.1 percent) since 2000, marking an encouraging shift from falling per capita GDP during the 1990s. 2.4 At present, Niger has an unprecedented opportunity to make significant advances in development and poverty reduction, but also faces high risks from conflict in neighboring countries. The successful return to constitutional order in April 2011 provides the basis for a renewed focus on economic development and poverty reduction. The government program sets out an ambitious agenda to foster economic growth, food security, universal primary education, and good governance. The start of oil production in November 2011 and large scale investments in the uranium sector promise to boost economic growth in the medium term and provide additional resources to Government for the realization of its program. At the same time, Niger faces a number of risks. These include political fragility where failure of the Government to deliver tangible results could result quickly in the loss of popular support and a political stalemate. increased security threats from conflict and terrorist activities in the sub-region. and continued vulnerability to climatic shocks and developments in commodity markets. B. THE POLITICAL CONTEXT FOR FISCAL POLICY 2.5 The period 2007 to 2012 was characterized by a significant political instability, recurrent droughts, and conflict in neighboring countries. After almost a decade of relative political stability under President Mamadou Tandja who had been democratically elected for two terms, his efforts to change the constitution to be able to run for a third term in elections scheduled to take place in 2009 resulted in a deep political crisis. President Tandja dissolved the National Assembly of Niger on 26 May 2009 in response to strong opposition from the National Assembly, civil society groups, and the courts 3 regarding his referendum proposal which was to allow him to run for a third term. The Constitutional Court of Niger ruled on 12 June 2009 that the proposed referendum was unconstitutional. The referendum was nonetheless held, but again boycotted by opposition forces. The referendum paved the way for the adoption of a new constitution and elections which were won by President Tandja, but boycotted by opposition forces. The crisis eventually led to a coup d'6tat by military leaders who overthrew President Tandja and formed a transition Government. Another referendum on a new constitution was held in 2010 and following a series of local, legislative, and presidential elections, a democratically elected regime under President Mahamadou Issoufou took office in April 2011. The political crisis and coup d'6tat resulted in a temporary disruption of Niger's relation with key development partners and reduced flows of development assistance, which had severe impacts on govermment's development spending in 2009 and 2010. 2.6 The period also was characterized by two severe droughts that required massive international support to prevent a famine. Poor harvests due to inadequate rainfall in 2009 and 2011 resulted in severe food crises in 2010 and 2012. Between ten to 15 percent of Niger's population are permanently food insecure and dependent on food assistance. However, in years of food crises the share of food insecure households increases to about 50 percent of the population and requires concerted action by government and the international community to provide support to vulnerable households. The handling of the 2010 and 2012 food crises marked a significant change in the authorities' approach. During the 2004/05 food crisis, the authorities were reluctant to acknowledge the crises and to seek international assistance. During the 2010 and especially during the 2012 crisis, govermment reacted more quickly to launch emergency programs and to seek assistance from the international community. During the 2011/12 crisis, government also implemented an agricultural emergency program to strengthen counter season production and thus help households in overcoming the negative effects of a poor harvest during the main season. 2.7 Conflict in neighboring countries has significant security, economic, and humanitarian implications for Niger. In addition to the political and food crises experienced during the period 2007 to 2012, government also had to deal with increased insecurity in the Sahel region due to conflict in Libya, Mali, and Nigeria. These conflicts led to a large inflow of returning migrant workers and refugees from conflict affected countries, disrupted trade, investment, and remittance flows, and led to a deterioration of Niger's attractiveness as an investment destination. To confront the security threats, Niger collaborates closely with regional and international partners, but also had to increase its own security spending. 2.8 Dealing with the political, food, and security crises claimed significant government attention and resources. The crisis response is being coordinated by the Prime Minister's Office, but executed by sectoral ministries including commerce, which is responsible for the management of the cereal reserve, agriculture and livestock which were implementing the emergency agriculture program, defense and interior, which handle security issues, and finance, which had to ensure appropriate funding for the crises response, including the preparation of revised budgets to reallocate resources to crises related needs. C. MACRO-ECONOMIC CONTEXT FOR FISCAL POLICY Structure of the Economy and Economic Growth 2.9 Niger's economy is dominated by activities in the rural sector, which contributed 44 percent of GDP in 2012. These consist of agriculture which contributed 28 percent, livestock with eleven percent, and forestry and fishing, with five percent. Trade, which contributes 15 percent of GDP and government with twelve percent are the other main sectors of the Nigerien economy. The contribution of the mining sector - mainly uranium - to GDP is relatively small with three percent, overshadowed by oil which contributed already five percent of GDP in 2012. Other sectors such as industry, energy and 4 handicrafts (six percent of GDP), construction and public works (three percent of GDP), transport (including the new pipeline) (seven percent of GDP) and other services (six percent of GDP) are relatively small and underdeveloped. 2.10 Most of Niger's economic activity takes place in the traditional sector and only 31 percent in the modern sector. Activities in the traditional sectors are primarily agriculture, livestock, forestry and fishing, but also mostly informal trade and production activities. From the employment side this is even more striking, as about 80 percent of Niger's population is employed in the rural sector and only a small share of the population in formal employment. Given that much of the traditional sector does not contribute to government revenue, Niger's tax base is very narrow. 2.11 Niger's economic growth has accelerated from an annual average of 4.4 igue1:Eono growth0an percent during the period 2002-2007 to 5.5 i on 0 1 percent during the period 2007-2012. This was achieved despite profound political disturbances, two severe droughts in 2009 and 2011, and an 8.0% increasingly adverse external environment. 6.0% Inflation has been below four percent in most years 4.0% since 2000. Until 2008, inflation tended to increase on account of food shortages whenever a food crisis occurred. More recently in 2010 and 2012, 0 . inflation remained low despite severe food crises. -2.0% This reflects on the one hand the impact of the food -4.0% safety net where during years of crisis food is Real GDP (change, %) -CPl (annual average change, %) distributed free or at subsidized prices to vulnerable households with funding from government and donors. On the other hand, this also reflects the lack of purchasing power of vulnerable households who contribute little to effective demand even during years following harvest failures. 2.12 On the expenditure side, faster growth of private consumption, investment, and exports contributed to the improved growth performance (Table 2). Increased aggregated demand also resulted in an acceleration of import growth. 5 Table 2: GDP growth 1992-2012 and contributions to growth [expenditure side] Average Average 2007 2008 2009 2010 2011 2012 2002- 2007- 2007 2012 Growth rates Gross domestic product (100%) 0.6% 9.6% -1.0% 10.7% 2.2% 11.2% 4.4% 5.5% Public consumption (15%) 6.0% 6.6% 7.1% -2.6% -4.4% 25.7% 7.7% 6.4% Private consumption (73%) -0.5% 2.8% 11.2% -4.7% 5.4% 5.7% 2.6% 3.3% Gross fixed capital formation (33%) 2.2% 48.5% 4.6% 52.8% 3.0% -4.5% 15.6% 17.8% Exports of goods and services (22%) 7.9% 21.0% 4.8% 19.5% 2.2% 27.2% 4.0% 13.8% Imports of goods and services (44%) 3.1% 31.8% 29.2% 14.6% 5.4% 0.5% 6.9% 14.1% Contribution to growth Public consumption 0.9% 1.0% 1.1% -0.4% -0.7% 3.5% 1.2% 1.0% Private consumption -0.4% 2.1% 7.8% -3.6% 3.6% 4.0% 2.0% 2.3% Gross fixed capital formation 0.5% 11.1% 1.4% 17.3% 1.3% -2.0% 3.0% 6.5% Net exports of goods and services 0.4% -5.9% -9.7% -2.9% -2.2% 5.8% -1.7% -3.7% Exports of goods and services 1.3% 3.7% 0.9% 4.0% 0.5% 6.0% 0.7% 3.0% Imports of goods and services -0.9% -9.6% -10.6% -6.9% -2.7% -0.3% -2.0% -6.2% Note: Numbers in brackets are shares of total Source: IMF Niger data base 2.13 On the output side, the acceleration in economic growth is primarily explained by the start of oil production and the expansion of government. The mining and oil sector grew during the period 2007 to 2012 by 43 percent, contributing 1.1 percentage points to economic growth. Government expanded by 7 percent and contributed 0.8 percentage points to economic growth. However, the rural sector remains the main contributor to economic growth with 2.3 percentage points, a performance similar to that of the preceding five year period. 2.14 The modern sector, which includes the oil industry, grew annually by nine percent during the period 2007 to 2012 and contributed half of Niger's overall economic growth, despite the fact that it only accounts for 31 percent of the economy. The growth of the extractive industries and modem sectors bodes well for Niger's capacity to generate government revenue. 6 Table 3: GDP growth 2002-2012 and contributions to growth [output side] Average 2002- Average 2007- 2007 2008 2009 2010 2011 2012p 200 20 2007 2012 Growth rates GDP at factor cost (100%) 2.1% 9.5% -1.5% 11.1% 1.5% 12.4% 3.6% 5.8% Rural sector (44%) 4.6% 16.2% -9.5% 16.7% -3.7% 6.7% 5.5% 5.2% Agriculture (28%) 5.0% 23.9% -17.6% 28.7% -7.9% 9.2% 7.7% 6.9% Livestock ( 1%) 4.3% 4.4% 4.4% -4.6% 4.5% 2.8% 4.0% 2.6% Forestry and fishing (5%) 3.3% 3.6% 9.2% 9.9% 3.0% 1.7% 0.5% 5.1% Mining+ Upstream oil (8%) -5.8% -2.1% 39.5% 19.5% 7.5% 196.8% 0.5% 42.6% Industry, energy, and handicrafts (6%) -2.4% 4.7% 5.1% 8.9% 3.9% -2.1% 1.1% 3.0% Manufacturing industries and handicrafts + Refinery (5%) 0.3% 3.9% 4.4% 3.3% 8.5% -4.0% 2.3% 2.7% Electricity and water (1%) -13.5% 8.8% 8.4% 33.7% -12.1% 5.7% -3.3% 5.2% Construction & Public Works (3%) 3.6% 5.0% 7.9% 20.3% -3.2% 7.3% 6.1% 6.8% Commerce, transport, and services (28%) -1.5% 4.0% 4.6% 5.4% 5.0% 6.6% 2.7% 4.0% Commerce (15%) 1.2% 4.8% 5.7% 5.3% 3.4% 3.9% 3.1% 4.0% Transport + Pipeline (7%) 2.3% 4.8% 5.0% 7.9% 10.2% 8.4% 2.6% 6.4% Services (6%) -10.2% 1.7% 1.6% 2.8% 3.0% 11.1% 2.2% 1.7% Government (12%) 5.8% 2.0% 6.9% 0.3% 14.2% 11.5% 1.4% 6.8% Oil GDP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Oil and uranium GDP (8%) -5.8% -2.1% 39.5% 19.5% 7.5% 184.5% 0.5% 40.5% Modern sector (31%) -1.9% 6.0% 9.3% 10.2% 9.1% 21.5% 2.8% 9.0% Traditional sector (69%) 1.7% 11.0% -4.6% 10.8% -0.5% 5.9% 4.0% 4.0% Contribution to growth Rural sector 2.1% 7.7% -4.8% 7.7% -1.8% 3.1% 2.4% 2.3% Agriculture 1.4% 6.9% -5.8% 7.9% -2.5% 2.7% 1.8% 1.8% Livestock 0.6% 0.6% 0.6% -0.6% 0.5% 0.3% 0.5% 0.3% Forestry and fishing 0.2% 0.2% 0.4% 0.5% 0.1% 0.1% 0.0% 0.2% Mining+ Upstream oil -0.1% 0.0% 0.7% 0.5% 0.2% 5.9% 0.0% 1.2% Industry, energy, and handicrafts -0.2% 0.3% 0.3% 0.6% 0.3% -0.1% 0.1% 0.2% Manufacturing industries and handicrafts + Refinery 0.0% 0.2% 0.2% 0.2% 0.5% -0.2% 0.1% 0.1% Electricity and water -0.2% 0.1% 0.1% 0.4% -0.2% 0.1% 0.0% 0.1% Construction & Public Works 0.1% 0.1% 0.2% 0.6% -0.1% 0.2% 0.2% 0.2% Commerce, transport, and services -0.5% 1.2% 1.3% 1.6% 1.4% 1.9% 0.9% 1.2% Commerce 0.2% 0.7% 0.8% 0.8% 0.5% 0.6% 0.5% 0.6% Transport + Pipeline 0.2% 0.3% 0.3% 0.6% 0.7% 0.6% 0.2% 0.5% Services -0.8% 0.1% 0.1% 0.2% 0.2% 0.7% 0.2% 0.1% Government 0.6% 0.2% 0.8% 0.0% 1.5% 1.4% 0.1% 0.8% Of which Oil GDP 0.0% 0.0% 0.0% 0.0% 0.0% 4.7% 0.0% 0.8% Oil and uranium GDP -0.1% 0.0% 0.7% 0.5% 0.2% 5.6% 0.0% 1.1% Modern sector -0.6% 1.8% 2.7% 3.3% 2.9% 7.3% 0.9% 2.9% Traditional sector 1.4% 8.5% -3.6% 8.2% -0.4% 4.4% 3.1% 3.1% Note: numbers in brackets are shares of total, p - preliminary estimate Source: IMF Niger data base 2.15 The dependence on rain fed agriculture results in high volatility of overall economic growth. Niger suffered from severe droughts and as a result a decline in rural production in 2009 and 2011 of 10 and 4 percent respectively, which reduced overall growth to minus 1.5 percent in 2009 and to 1.5 percent in 2011. Drought years have been followed by years with strong harvests, leading to overall growth of 11 percent in 2010 and 12.4 percent in 2012. 7 2.16 With an average growth Figure 2: Sectoral contribution to growth, 2002-2012 rate of 5.5 percent during the 2.5% period 2007 to 2012 and an estimate 2.0% population growth rate of 3.9 percent, average per capita incomes 1.5% have increased by about 1.6 percent 1.0% annually, which represents a 0.5% significant break with the decline in per-capita incomes observed during previous decades. However, the -0.5 A extent to which economic growth results indeed in a reduction in X. poverty depends very much on the composition of economic growth. On the output side, rural sector growth is of particular importance, since 80 percent of the population and 90 percent of the poor derive their incomes from the agriculture sector. With growth in the agriculture sector at 5.2 percent and a population growth rate of 3.9 percent, rural per capita incomes have grown only by about 1.3 percent. Considering that fertility and population growth in rural areas are higher than the Figure 3: Contribution of expenditure components to GDP, national average, per-capita income 2002-2012 growth in rural areas is likely to 8.0% even have been less than 1.3 percent annually. 6.0% 2.17 As noted above, 4.0% extractive industries and in 2.0% particular the start of oil production have also made a 0.0%st significant contribution to the -20- acceleration of growth during the -2 5.0e ead a tn h e 3 past five years. However, since o .3 p employment and linkages with Average 2007-2012 other parts of the economy are .0% limited, the impact of growth in the Pub cons Priv cons. Investment Net Exports Imports extractive industries on poverty is also limited. This is also confirmed by the decomposition of economic growth based on the use of GDP. Growth of private consumption during the period 2007 to 2012 at 3.3 percent was below the overall real GDP growth rate of 5.5 percent. This implies an average decline in per-capita consumption of about 0.6 percent, with consumption in rural areas likely to have declined more than consumption in urban areas. Nonetheless, comparing private consumption growth during the period 2007- 2012 with that achieved during the period 2002-2012 does indicate an improvement. While during the earlier period, per capita private consumption declined at an average annual rate of about 1.8 percent, it declined only by an average annual rate of 0.6 percent during the later period. 8 Trade and Balance of Payments 2.18 During the period 2007 - 2012, the nominal value of both exports and imports grew at an annual average rate of 20 percent. Uranium is Niger's main export and accounted in 2012 for 43 percent of total exports. Exports of refined oil products started in 2012 and contributed already 13 percent of total exports, despite start-up problems which resulted in production and exports being significantly below capacity. The remaining exports are mainly agricultural products. Livestock contributes eight percent to total exports. Exports of cowpeas contribute another eight percent to total exports and onions account for five percent. Table 4: Exports and I ports, Million CFAF, 2007-2012 2007 2008 2009 2010 2011 2012 Average annual Sharein growh 2007-2012 total 2012 Exports Uranium 143 198 196 242 301 339 19% 43% Oil 0 0 0 0 0 102 0% 13% Livestock 38 50 61 58 51 63 11% 8% Cowpeas 19 42 58 53 54 60 26% 8% Onions 42 42 40 40 39 43 1% 5% Other 50 50 87 131 111 134 22% 17% Re-exports 26 26 29 46 44 46 13% 6% Total 318 409 471 570 601 788 20% 100% Imports Food 88 120 206 182 228 237 22% 22% Oil products 66 91 126 133 140 16 -25% 1% Capital goods 112 227 302 290 344 424 30% 39% Intermediate goods 59 31 132 251 99 170 23% 15% Other goods 113 136 81 116 242 251 17% 23% Total 438 604 847 973 1052 1097 20% 100% Source: IMF Niger data base. 2.19 Capital goods accounted for 39 percent of total imports in 2012, reflecting large scale investment in the extractive industries and energy sectors. Food imports have grown rapidly during the period 2007 - 2012 - partly as a result of repeated harvest failures that made donor funded food imports necessary in order to meet the basic needs of the population - and account now for 22 percent of total imports. Other goods, which include a wide range of consumption goods, accounted for 23 percent of imports and intermediate goods for 15 percent. 2.20 The steady growth of imports and exports bodes well for strengthening Niger's revenue basis, as trade taxes contribute significantly to overall revenue. However, this is mitigated to the extent that investment related imports are duty and tax exempt. 9 Table 5: Balance of payments, percent of GDP, 2007-2012 2007 2008 2009 2010 2011 2012 Current account balance (including official transfers) -8.3% -13.0% -24.7% -19.9% -24.7% -17.7% Current account balance (excluding official transfers) -10.5% -15.2% -25.4% -25.4% -28.0% -20.9% Goods and services -12.6% -16.9% -26.9% -26.9% -28.5% -20.4% Goods -5.9% -8.2% -15.0% -14.2% -15.1% -9.2% Exports 15.6% 17.0% 18.7% 20.2% 20,1% 23.5% Imports -21.5% -25.2% -33.7% -34.4% -35.2% -32.7% Services -6.7% -8.8% -11.9% -12.7% -13.4% -11.2% Income 0.0% -0.4% -0.6% -0.8% -0.8% -1.8% Current transfers 4.4% 4.3% 2.8% 7.9% 4.6% 4.6% Capital and Financial Account 12.1% 16.2% 21.4% 23.5% 23.7% 20.5% Capital account 6.3% 4.8% 4.8% 3.4% 2.5% 4.9% Capital transfers 5.0% 4.8% 4.8% 3.4% 2.5% 5.8% assets Acquisition/disposal ofnon-produced, nonfinancial 1.4% 0.0% 0.0% 0.0% 0.0% 0.0% Financial Account 5.7% 11.5% 16.7% 20.1% 21.2% 15.6% Direct investment 2.8% 11.0% 13.8% 17.5% 16.7% 8.4% Portfolio Investment -0.1% -0.2% 0.3% 0.3% 0.3% 0.1% Other investment (excl. except. financing) 3.0% 0.7% 2.6% 2.2% 4.3% 7.1% Errors and Omissions -0.4% -0.2% -0.3% 0.0% 0.0% 0.0% Overall balance 3.4% 3.0% -3.6% 3.6% -0.9% 2.9% Financing -3.4% -3.0% 3.6% -3.6% 0.9% -2.9% Change in net foreign assets (-increase) -3.5% -3.2% 3.4% -3.8% 0.9% -2.9% Rescheduling obtained 0.2% 0.2% 0.1% 0.1% 0.1% 0.1% Source: IMF Niger data base. 2.21 Niger suffers from a structural trade deficit, which, due to investment related large scale imports of capital and intermediate goods, increased from 12.6 percent of GDP in 2007 to 28.5 percent of GDP in 2011. With the completion of the refinery in 2011 and the switch from an importer to an exporter of oil, the trade deficit dropped to 20.4 percent of GDP in 2012. Developments in the trade account are mirrored in the current account deficit (excluding official transfers), which increased from 10.5 percent of GDP in 2007 to 28 percent of GDP in 2011 before dropping to 20.9 percent of GDP in 2012. 2.22 The current account is financed through foreign direct investment and donor assistance. As a result of large scale foreign investments in the uranium and oil sectors, foreign direct investment increased from 2.8 percent in 2007 to 17.5 percent in 2010 and 16.7 percent in 2011. With the completion of the oil refinery in 2011, foreign direct investment dropped to 8.4 percent in 2012. Donor funding in the form of grants and loans was affected by the political crisis during the period 2009 to 2011, which resulted in a temporary decline in donor support. This also led to fluctuations in the overall balance of payments which registered surpluses of about three percent of GDP in most years with the exception of 2009 and 2011 when the overall balance registered deficits. Monetary and Exchange Rate Policy 2.23 Niger's monetary and exchange rate policy is determined within the West African Monetary and Economic Union (WAEMU) mechanisms. In particular, Niger's exchange rate - the CFA Franc - is tied to the Euro. 10 Table 6: Money and credit, 2007-2012, CFAF billion 2007 2008 2009 2010 2011 2012 Average annual change 2007-2012 Net foreign assets 231.8 285.0 193.8 292.9 263.5 388.7 11% Central Bank of West African States 240.7 297.3 224.2 292.6 265.2 363.8 9% Commercial banks -9.0 -12.3 -30.4 0.3 -1.7 24.9 0% Net domestic assets 123.9 114.2 278.5 283.1 348.1 394.8 26% Domestic credit 141.4 147.8 311.4 351.2 418.8 472.5 27% Net bank claims on government -50.5 -114.8 0.5 4.1 16.2 -16.2 -20% Credit to the economy 191.9 262.6 310.9 347.2 402.6 488.7 21% Money and quasi money 355.7 399.2 472.3 576.0 611.6 783.5 17% Currency outside banks 132.8 147.7 187.0 234.9 269.9 344.6 21% Deposits with banks 221.5 250.0 285.3 341.2 341.6 438.9 14.7% Private sector 208.4 230.7 263.5 312.0 323.0 416.6 14.9% Public institutions 13.2 19.3 20.0 27.8 18.7 18.7 7.2% Velocity of circulation of money (GDP/broad money) 5.7 6.0 5.3 4.9 4.9 4.3 1 1 Source: IMF Niger data base. 2.24 Over the period 2007 - 2012, Niger has experienced some monetary deepening, with the ratio of broad money to GDP increasing from 17 percent in 2007 to 26 percent in 2012. Nonetheless, the degree of monetization of Niger's economy remains among the lowest worldwide and also well below the 41% percent average for Sub Saharan Africa. The overall level of financial intermediation has continued to increase but remains low and the range of financial products available is still limited. Credit to the private sector increased fairly rapidly at an annual average rate of 23 percent. The main beneficiaries of credit are enterprises in the mining, telecoms and trade sector in urban areas. Small and Medium Enterprises (SMEs) and rural areas continue to have little access to credit. Access to finance for SMEs is not only limited but expensive as SMEs pay an average 2.2 percent more for credit than large enterprises. The microfinance sector in Niger, which is among the least developed in the region, has been growing but remains fragile with several networks under receivership or interim administration. Mobile banking services which are offered by several mobile phone operators have been expanding and offer the best opportunity to increase access to financial services to rural and hard to reach areas. Interest rates spreads remain high (9.1%) compared to the average of WAMU countries. The implementation of the financial sector strategy which has been completed in 2012 and awaits approval from the authorities targets improved access. 2.25 Government access to credit from the Central Bank for West African States and from commercial banks remained small and limited to smooth short term financing gaps. However, government reserves are also at a low level impacting negative on government's budget managements which continues to be managed on a cash basis, where expenditures are adjusted bi-weekly to be aligned with available revenue. Going forward, it would be important to rebuild government reserves in order to be able to protect budget execution from short term fluctuations in revenue. Debt 2.26 Following a significant reduction of Niger's external debt through the Enhanced Highly Indebted Poor Country (HIPC) initiative and the Multilateral Debt Reduction Initiative (MDRI), public and publicly guaranteed (PPG) external debt has been rising quickly from 14.9 percent in 2007 to a projected 24 percent in 2012. Most of Niger's external borrowing is on concessional terms to support its large development needs. A government guarantee for the government share of US$352 million in the loan for the construction of the petrol refinery has significantly added to Niger's external debt. The planned refinancing through a concessional loan from the Exim Bank of China in 2013 will further increase Niger's stock of public external debt as the entire loan amount would be on the Govermment's books, even though it is expected that 60 percent of the loan amount would be guaranteed by the foreign investor. 11 Table 7: Public sector debt, percent of GDP, 2007 - 2012 2007 2008 2009 2010 2011 2012 Public sector debt (% of GDP) 1/ 24.2 22.0 27.2 24.0 29.9 29.7 o/w external (% of GDP) 14.9 15.1 18.9 17.0 22.4 24.0 o/w domestic (% of GDP) 9.2 7.0 8.3 7.0 7.5 5.7 Debt service-to-revenue and grants ratio (in percent) 2/ 13.1 8.1 -1.2 7.2 4.0 8.0 Debt service-to-revenue ratio (in percent) 2/ 18.2 10.7 -1.5 9.6 5.1 11.0 Source: IDA and IMF. Niger: Debt Sustainability Analysis. March 2013. 2.27 Domestic public sector debt has declined from 9.2 percent of GDP in 2007 to 5.7 percent of GDP in 2012. Government has continued to settle domestic arrears, but there has also been some new accumulation of arrears. The stock of arrears that were accumulated prior to 2000 is gradually being reduced and declined from CFAF 112.9 billion in 2009 to CFAF 92.8 billion in 2011. At the same time, Government has been accumulating new arrears in 2010 and 2011, which were, however, less than two percent of total spending. The stock of new arrears increased from CFAF 6.4 billion in 2009 to CFAF 23.1 billion in 2011. New arrears are due to the incomplete integration of the government budget and Treasury financial management systems, expenditure commitments that are made outside the regular commitment process, and the need to fund security sector expenditures on a priority basis. The authorities have committed to reducing the share of expenditures that do not follow the regular commitment process to less than five percent of total expenditures. The full integration of the Treasury and budget financial management information systems completed in 2012 will also help prevent the accumulation of arrears. Government has established a committee charged with drawing up an inventory of arrears and preparing a plan for their liquidation and to prevent a reaccumulation of arrears. 2.28 The latest debt sustainability analysis (DSA) based on end-2011 data concludes that the risk of debt distress remains moderate. The main external debt ratios remain below their thresholds under the baseline, but breach them in the most extreme stress scenario. Enhanced public financial management and a prudent debt policy are key to preserving debt sustainability and ensuring the efficient use of available fiscal space. To prevent an increase in the risk of debt distress, Government is committed to minimize borrowing on commercial terms for public investment projects, and limit its involvement in the financing of natural resources projects. D. THE CHALLENGE OF POPULATION GROWTH 2.29 UN population projections suggest that Niger is in the early stages of demographic transition where child mortality has started to decline, but the decline in fertility has yet to follow. As the projected decrease in child mortality is faster than the projected decrease in fertility rates, the population is projected to continue growing rapidly until 2100 while dependency ratios are projected to decline only gradually. The 2012 Health and Demographic Survey (HDS) estimates an average fertility rate of 7.6 children per women between the ages of 15 to 49, an increase compared to the estimated rate of 7.1 children in 2006. UN population projections for Niger suggest that its total population will increase from about 16 million in 2012 to 18.5 million by 2015 and further to 22 million by 2020. Young people below the age of 15 account for 49 percent of the population in 2011 and their share is projected to remain at that level over the next 10 years. 12 Figure 4: Demographic profile of Niger Country Profile: Niger Total population by variant Total population by major age groups 200 90 175 High varianyt 175.. . . . . . . . . . . . . . . 8 Low variant :_0-14 150 Medium variant 7015-64 125 60 ~65+ E50 100 . 40 75 50 20 25 10 0 0L 4 1950 2000 2050 2100 1950 2000 2050 2100 Total fertility Mortality under age 5 8 350. -.-- Niger 7 .....................I.....- Vestern Africa 300, E Africa 250 ...200............................---..Ni.. 200 Niger 5 Vestern Africa 150 Africa t 1 0 0 .. . . . . . .. . . . . . .. . . . . . 2 ~2 0 1950 2000 2050 2100 1950 2000 2050 2100 Life expectancy at birth by sex Life expectancy at birth by major area and region 80 80 70.rso....................... ................. ............................... .............. 60 0. . . . . . ........... . .. .. .......... ....-ai 6 0 50 Mal .. . . .. . .5 S40 - - Niger 4 4estern Africa Africa 30 30 1950 2000 2050 2100 1950 2000 2050 2100 Year Year Source: UNDESA/Population Division. World Population Prospects: The 2010, Volume II: Demographic Profiles. 2.30 Niger is unlikely to benefit from a demographic dividend in the next decade. On the contrary, one of the world's highest fertility and population growth rates and a predominantly young population represent significant challenges for the achievement of sustainable economic growth and the provision of public services. 13 Table 8: Agricultural land, 2011-2020 2011 2015 2020 Agricultural area (ha per capita) 2.719 2.367 1.981 Arable land and permanent crops (ha per capita) 0.932 0.811 0.679 Permanent meadows and pastures (ha per capita) 1.788 1.556 1.302 Total area equipped for irrigation (ha per capita) 0.005 0.004 0.003 Source: Author's calculations based on FAOSTAT and UNDESA/Population Division data. 2.31 With an estimated population growth rate of 3.9 percent in recent years, average real economic growth of at least 3.9 percent is necessary just to prevent a decline in per-capita incomes. Niger's high population growth results in a large number of people joining every year the work force, while opportunities for employment and income generating opportunities are limited. At present, about 300,000 Nigeriens reach working age every year and it is projected that by 2020 this will have increased to 470,000. With 80 percent of the population earning their livelihoods from agricultural and livestock activities, many of these youth will seek their livelihoods in rural areas, which will put further pressure on already limited and very fragile land resources. At present, the agricultural area is estimated to be about 2.7 ha per person, of which 0.9 ha is arable land and 1.8 ha is pastoral land. With the projected population growth rates, agricultural and pastoral land per capita is projected to decline by 13 percent by 2015 and by 27 percent by 2020 (Table 8). Sustaining agricultural growth will thus be dependent on policies that support more intensive agricultural and livestock production, including through the increased use of improved inputs and methods and enhanced research and extension services. Increasing land scarcity is also likely to result in increased migration from rural to urban areas, which will require a stronger policy focus on urban development. 2.32 The large number of people joining every year the workforce and increasing levels of education will also generate increased demand for non-agricultural employment. Data from the national employment promotion agency indicate that in 2011 for more than 16,000 job seekers only about 8,000 jobs materialized. Figure 5: Population by main age groups, 2011-2020 10.0 0 9.0 8.0 E 7.0 a. 6.0 5.0 4.0 b0 3.0 2.0 c 1.0 0 -; 0.0 . 2011 2012 2013 2014 2015 2017 2018 2019 2020 0-4 3.2 3.3 3.4 3.5 3.6 3.9 4.0 4.1 4.2 - 5-9 2.6 2.7 2.8 2.9 3.0 3.2 3.3 3.4 3.5 10-14 2.1 2.2 2.3 2.4 2.4 2.6 2.7 2.8 2.9 - 15-19 1.7 1.7 1.8 1.9 2.0 2.1 2.2 2.3 2.4 - 20+ 6.6 6.8 7.0 7.3 7.6 8.1 8.5 8.8 9.1 Source: Author's calculations based on UNDESA/Population Division data. 2.33 Rapid population growth compounds Niger's challenge of expanding the provision of basic social services and protection. Despite significant progress achieved in recent years, Niger's access to basic social services remains limited. The primary and secondary gross enrollment ratios were 79.2 percent and 20.1 percent, respectively, in 2012. Only 46 percent of the population have access to 14 improved water sources, compared to 58 percent for low income countries in Sub-Saharan Africa and 62 percent for all low income countries. The ratio of doctors and nurses per capita have recently improved from one physician per 41,200 people in 2010 to one physician per 16,420 in 2012 and from one nurse per 5,560 people to one nurse per 4,159 people over the same period. Niger's Plan for Economic and Social Development targets significant improvements in social services. However, rapid population growth makes progress extremely difficult, as the expansion of social services has not only to close existing large gaps in access to services, but it has also to keep up with a rapidly expanding population. Figure 6: Required increase in primary education spending to reach 100 percent primary gross enrollment, based on population growth of 3.9 percent and 2.0 percent Population growth: 3.9 percent Population growth: 2.0 percent 70.0 70.0 60.0 60.0 50.0 50.0 > 40.0 40.0 Ss30.0 oE 30.0 ~20. , 0M 20.0 10.0 10.0 0.0 0.0 2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019 a increase due to increase in access E increase due to population growth increase due to increase in access n increase due to population growth increase due to cross effects increase due to cross effects Source: Authors calculations. 2.34 This can be illustrated by showing the implications of rapid population growth on the envisaged expansion of primary education from a gross enrollment ratio of 79.2 in 2012 to a gross enrollment ratio of 100 percent by 2019 (Figure 6). We assume a steady improvement of the gross enrollment ratio by three percentage points, which would allow Niger to reach a primary gross enrollment ratio of 100 percent by 2019. With population growth and increased access, there are three components of the required increase in primary education expenditure. First, is the effect of the increase in access If population, and thus the size number of children of primary school age, was to remain constant, increasing access would require an increase in spending on primary education by about 26 percent, assuming that the cost per student remains constant. However, with a growing population, the additional cost of primary education are significantly higher. At the current rate of population growth of 3.9 percent, the increase in population alone just to keep the gross enrollment ratio constant would require an increase in spending by 31 percent. The interaction of increasing access and a growing population adds another eight percent to the required increase in education spending. With a population growth rate of 3.9 percent, spending on primary education would thus need to increase by about 65 percent by 2019 to increase the primary enrollment ratio to 100 percent. 2.35 With a lower rate of population growth, the required spending increase to reach a gross enrollment ratio of 100 percent would be significantly less than with the current rate of population growth. For example, with a population growth rate of two percent the require increase would only be 45 percent. Of this, 26 percentage points would be due to the increase in access, 15 percent due to the increase in population, and 4 percent due to the interaction between increasing access and a growing population. E. LARGE NEEDS FOR INVESTMENT IN INFRASTRUCTURE AND SOCIAL SERVICE DELIVERY 2.36 Niger's Plan for Economic and Social Development 2012-2015 (PESD) sets out ambitious objectives for accelerated sustainable economic growth and improvement, food security, and 15 significant improvements in the level of social development. The PESD targets 11 strategic results and identifies 86 programs for their achievement. These are clustered in five programmatic areas which are (i) Strengthening the credibility and efficiency of public institutions; (ii) Creating the conditions for inclusive, sustainable and balanced development; (iii) Food security and sustainable agricultural development; (iv) Competitive and diversified economy for accelerated, inclusive growth; (v) Promotion of social development. 2.37 The prioritized action plan foresees an increase in PESD related expenditure from Figur 7: Pirirn t about US$1.2 billion in 2012 to US$3.8 billion in Public 2015, for a total of US$10.8 billion over the four sttuton, Foundations of year period. The bulk of expenditures would be development, for strengthening infrastructure (US$2.3 billion), education and health (each US$1.2 billion), water Food security 3,978 & nd agriculturl and sanitation (US$915 million), and security (US$770 million). The PESD indicates that about 1,571 77 percent or US$8.3 billion of the cost of the PESD is to be externally funded. At a PESD Round Table held in Paris from November 13-14, 2012, indications of donor support for the period 2012-2015 amounted to about US$4.8 billion, leaving an external resource gap of about US$3.6 billion. Over the previous five years, annual external financing for Niger was between US$300 and US$400 annually. Reaching the level of externally funded expenditures envisaged in the PESD would thus require a massive increase in the amount of external support and absorptive capacity. As an operational strategy to deal with financing and absorptive capacity risks, staffs thus advise the authorities to further prioritize the PESD to a volume of expenditures that represents a more organic evolution from historic levels of expenditures while at the same time implementing measures to strengthen absorptive capacity. F. POLICY RECOMMENDATIONS 2.38 A number of structural characteristics of the Nigerien economy result in significant challenges for public expenditure policies and management. Addressing these is thus essential in order to ensure that fiscal policies can effectively support Niger's development objectives set out in the Plan for Economic and Social Development. Though it is beyond the scope of this report to provide detailed recommendations in this area, it is nonetheless important to highlight the key issues that require policy attention. 2.39 First is the undiversified nature of Niger's economy which is largely informal and agriculture based and thus results in an extremely narrow tax base. Policies that foster the formalization of Niger's economy and its diversification towards the modern taxable sectors will thus be essential to strengthen the tax base. 2.40 Second, an expanding extractive industries sector holds the potential of generating significant revenue for the authorities. To fully exploit the potential of these sectors it will be important to adopt policies that strike a sound balance between fostering investments in this sector, minimizing the dissipation of rents through rent seeking activities, and generating the maximum amount of revenue for government. 2.41 Third, even though economic growth has been accelerating in recent years, it remains extremely volatile which also translates in high volatility of government revenue. Niger has a fairly solid track record of keeping recurrent expenditures at a relatively low level, so that even during period of 16 an economic downturn recurrent expenditures can be sustained. The adjustment falls thus heavily on development expenditures, with a potentially negative impact on medium to long term development. Going forward, it would be important to develop mechanisms that allow a smoothing of development expenditures over boom and bust years, rather than having development spending move in a strongly pro- cyclical way. 2.42 Fourth, regional insecurity has adverse effects on Niger's trade and investment and requires increased spending on security and on dealing with humanitarian impacts. Given the importance of spending in this area as the basis for maintaining stability, it will be important to ensure the efficiency of this spending. It is thus recommended to carry out a review of the integrity of public financial management in the security which would help identify weaknesses and reassure internal and external stakeholders that expenditures in this area are well managed and any weaknesses addressed. 2.43 Finally, Niger's rapid population growth increases the required spending for improving social and economic indicators. As highlighted in the PESD, managing Niger's demographic development through appropriate policies and adequate investments in demographic management are critical. This would help accelerate the demographic transition and allow Niger to harness a demographic dividend as dependency ratios fall and population driven spending requirements for the delivery of basic social services slows down, thus creating more space for investments in increased access and quality of these services. 17 CHAPTER 3: PUBLIC EXPENDITURE TRENDS AND COMPOSITION A. INTRODUCTION 3.1 Government expenditure amounted to about 25.7 percent of GDP in 2012. Given Niger's low per capita income, this translates into very low government expenditures of about USD75 per capita and significantly constrains government's ability to provide adequate funding for development and poverty reduction purposes. This chapter will analyze in some detail public expenditure trends covering the period 2007 to 2012 which largely overlaps with the implementation period of Niger's second PRSP- 2008-2012. The starting point is a discussion of the main sources of public expenditure data used in the analysis. B. BUDGET TRANSPARENCY, DATA SOURCES, AND ISSUES 3.2 Reliable and consistent public expenditure data are essential for good public expenditure management. They also are the foundation for the APERs. What is required are sufficiently detailed data on approved budgets and actual expenditure, covering both recurrent and development expenditures, domestically and foreign financed. 3.3 Public availability of public expenditure information is limited. The 2012 Open Budget Index prepared by the International Budget Partnership concludes that Niger provides scant information to the public. The assessment is based on a detailed questionnaire that assesses the availability of eight key budget documents as well as the comprehensiveness of the data contained in these documents. The eight budget documents include a pre-budget statement, the executive's budget proposal, the enacted budget, a citizen's budget, in-year reports, a mid-year report, a year-end report and an audit report. Out of these eight documents, only the enacted budget is regularly published. Of the remaining seven documents, six are produced for internal use, but not made public. No citizen's budget is being prepared. The report also assesses the quality of the documents prepared by the authorities, whether published or not. The comprehensiveness of the published enacted budget is assessed as being "significant", while the comprehensiveness of all other budget documents prepared by the authorities is assessed as being "scant". 3.4 In conformity with the organic public finance law, Niger publishes in the Journal Officiel the approved budget, typically shortly after approval by the National Assembly and promulgation by the President. The published budget consists of6 (i) a budget framework note (expos6 des motifs du projet de loi de finances), (ii) the budget law, (iii) an annex that details revenue estimates, (iv) an annex that details expenditure estimates at the line item level, (v) an annex that summarizes budget allocations by vote for the current and the previous year and which also presents the budget allocations to pro-poor expenditure items, (vi) an annex on the special Treasury accounts, and (vii) the debt strategy. The information provided in the published budget consists mainly of line item budgetary information for the fiscal year (n), without providing information on budget allocation in the preceding year (n-1) and on actual expenditures in the foregoing year (n-2). The budget framework note provides information on key budgetary objectives and revenue and expenditure developments on a very aggregate level. The budget fulfills its administrative function of estimating revenue and allocating resources to administrative units. However, the information contained in the budget does not provide an adequate basis for informing 6 This describes the budget for 2012. While there may be small changes with respect to the content and number of annexes, the main structure of the budget presentation has been stable. 18 strategic decision making by the National Assembly, nor provide the public with a clear vision of how policy priorities are translated into budget allocations. Going forward, it would be important to enhance the presentation of the budget by presenting information on budget allocations and actual expenditures in previous years and to provide more analysis on strategic orientations and how these are reflected in budget allocations, including summary tables using the economic and functional classification of expenditures. 3.5 It is important to note, that since the preparation of the 2012 assessment of budgetary transparency, which is based on the situation in 2011, Niger has taken a few steps towards greater transparency. This includes the occasional publication of budget execution reports, the comprehensiveness of which, however, is poor. In October 2012, the Ministry of Finance also published the draft budget for 2013 on the web, in parallel to the submission and discussion at the National Assembly. Following the establishment of the Court of Accounts in 2010, the Court of Accounts published its first report in 2011 and made it available on its website. There has also been progress in reducing the backlog of budget regulation laws. Budget regulation laws for 2008 and 2009 were submitted to the National Assembly in 2012. Similarly, Niger's Regulatory Procurement Authority has carried audits of procurements undertaken between 2007 and 20108 and published the reports on its website and summaries in the most widely read newspaper in Niger. 3.6 Niger's new constitution adopted in 2010 and the new organic public finance law adopted in 2011 contain important provisions for greater budgetary transparency. The constitutions contains a provision for public access to information held by public services (Art. 31), the preparation and approval of key budgetary documents (Art. 113-115), and the publication of mining contracts and disaggregated information on mining revenue in the Official Journal (Art. 150). A new organic finance law was approved in March 2012. Key provisions introduced by the new organic law that can be expected to have a positive impact on transparency include (i) the introduction of a programmatic approach to budgeting, which organizes budget allocations around specific objectives, and (ii) the requirement for the preparation, publication, and presentation to the National Assembly of a medium term economic and fiscal framework paper, a medium term expenditure framework, and quarterly budget execution reports. The government's commitment to engage in an Annual Expenditure Review process also constitutes an important step towards greater budgetary transparency. 3.7 Going forward, enhancing budget transparency needs to be a priority to support better informed decision making on budgetary issues and as the basis for enhanced accountability to the public. Priority measures that could be implemented quickly to enhance budgetary transparency are the following: * Prepare and publish quarterly budget execution reports, which also contain information on budget execution in key sectors; * Regularly update information on the web site of the Ministry of Finance and publish key budget documents; * Improve the presentation of budgetary documents by including comparative information on public expenditures in preceding years and summary tables using the economic and functional classification; * Continue efforts to reduce the backlog in the preparation of budget regulation laws. Budget and expenditure data used in the Public Expenditure Review 19 3.8 Niger's public expenditure management is computerized and in principle captures budget data at every stage of the expenditure chain - budget approval, budget release, expenditure commitment (engagement), invoicing (liquidation), payment order (ordonnancement), and payment (paiement). The budget coding follows WAEMU guidelines and is sufficiently detailed to support in depth analysis of expenditure data. 3.9 Data on donor financed public expenditures are poorly captured in government systems. As is the case for many developing countries, most donor funded expenditures are not implemented following government's standard budgetary procedures. Information on donor funded expenditure in the govermment budget is thus often incomplete and inaccurate, reflecting both weak systems to capture such information, but equally important, low priority accorded by many donor agencies to the provision of high quality information on planned project disbursements in a timely manner. Most of the donor funded expenditure also does not use government systems for financial management and procurement. This implies that only a small part of donor funded expenditure is captured in the government's Treasury system. 3.10 The analysis in this PER relies on three principal sources of data. First are aggregate data from the Central Government Operations (CGO) table, which are used for the analysis of the evolution of govermment resources and expenditures during the period 2007-2012. For a more detailed analysis of expenditures, line item data are being used which have been provided by the authorities for the period 2007 to 2011 covering approved budgets, budget releases, actual expenditures and disposable credits. Finally for the analysis of aid funded expenditures we use data from the OECD's creditor reporting system, which captures project-level data provided by donors. Table 9. Comparison of budget data published in the Journal Officiel and data contained in the line item data base 2010 2011 Boost Budget books Boost Budget books (LDFR2 2010) (LdFR2 2011) Public debt 55.5 55.5 53.6 53.6 Salaries and wages 96.6 96.6 126.7 126.7 Operations and maintenance 87.8 87.8 100.5 101.0 Subsidies and transfers 164.7 164.7 318.0 318.8 Investment 285.8 285.8 336.1 333.4 Special Accounts 21.8 21.8 26.5 26.5 Total 712.1 712.2 961.4 960.0 Note: LDFR2 - Second Revised Budget Law. Source: Nigerien authorities. 3.11 Line item budget data allow a detailed analysis of budgetary developments. This is facilitated by the use of the "BOOST" tool which was adopted for Niger to support the APER process and dialogue and allows for the aggregation of data using the government's budget codes and nomenclature. The line item data on approved expenditure items are consistent with the data published in the budget books published in the Official Journal. This is illustrated in Table 9 which compares the main budgetary aggregates as published in the Official Journal with the aggregates generated based on the line item data. For 2010, the data match exactly. For 2011, there is a small difference of about CFAF 1.5 billion between the amount of total expenditures published in the Official Journal and the aggregate generated on the basis of the line item data. This discrepancy represents 0.1 percent of the total amount and is sufficiently small as to allow the use of data on the approved budget for a detailed expenditure analysis. 20 Box 1: Enhancing Analytical Work and Giving a BOOST to Public Sector Transparency A new World Bank tool called BOOST collects and compiles detailed data on public expenditures from national treasury systems and presents it in a simple user-friendly format. BOOST can then be used by researchers, government officials and ordinary citizens to examine trends in allocations of public resources, analyze potential sources of inefficiencies, and become better informed about how government's finance the delivery of public services. How does BOOST work? The tool uses detailed government expenditure data directly from a country's budget and treasury system. By using raw data at the most disaggregated level available, the resulting BOOST database takes advantage of the full breadth and depth of the country's budget classification system. The data on expenditures, organized using all of the country's budget classification codes, is then compiled in one database that covers all sectors, all spending units, and all types of expenditures recorded in the treasury system. The content of each BOOST is country-specific. For instance, some Ministries of Finance have IT systems that record detailed expenditure data for every provider of public services (for example, schools, health clinics, police stations, etc.), while others may only have data aggregated at the district levels. Nonetheless, all BOOSTs have some common features. Each database typically contains information on the approved budget, revised budget, and actual expenditure amounts broken down by: * government level (central or local); * administrative unit (typically a ministry, department, agency, university, hospital, or school); * sub-national spending unit (such as districts, municipalities, towns and villages); * economic classification (wages, goods and services, capital expenses, etc.); * functional classification (sector and sub-sector); * program classification (if the country uses program-based budgeting); and * financing source (budget revenue, domestic or foreign borrowing, etc.). To allow users to easily navigate these multiple dimensions, the data is presented in Microsoft Excel with a PivotTable front-end user interface. The PivotTable feature in Excel allows the user to aggregate data using different combinations of budget classifications, or to choose (using filters) individual items of spending by sector, region, or budget holder and drill down further to get a better understanding of how that spending has evolved. The tool comes with a user manual and World Bank teams are also providing training in its usage to counterparts and civil society (in the countries where governments have already made the tool publicly available). 3.12 Unfortunately, aggregates for actual expenditures generated from line item budget data differ from aggregate data presented in the Central Government Operations table. Table 10 compares aggregate actual expenditures by source of financing (own resources, project loans, and project grants) using data contained in the CGO table and data generated on the basis of line item data. Total govermment expenditures shown in the CGO tables are significantly higher than aggregate expenditures derived from line item budget data. In addition, the discrepancy has been widening between 2007 and 2011. While in 2007, the difference was 1.5 percentage points of GDP, by 2011 the discrepancy has increased to six percent of GDP. Of the difference in 2011, 3.2 percentage points are related to loans and grants, while 2.8 percentage points are related to own resources. For the years 2007 and 2008 CGO and line item based aggregates for loan and grant financed development expenditures are reasonably close. However, for the years 2009-2011, virtually none of the externally financed expenditures seem to be captured in government's line item budget data. As mentioned above, the discrepancy for data on expenditures funded by grants and loans is due to incomplete capture of externally funded expenditures in the government's accounting system. The discrepancy observed for expenditures funded from government's own resources seems to be related to expenditures that were incurred outside the regular budget execution process. Such expenditures are regularized in the context of the preparation of the budget regulation law. Thus for the years 2007 to 2009, for which budget regulation laws have been prepared, the discrepancy is smaller than for the years 2010 and 2011. 21 Table 10: Actual expenditures by source of financing - comparison between CGO and line item based data, 2007-2011 (% of GDP) 2007 2008 2009 2010 2011 Line item data (actual expenditures) 16.1% 15.5% 17.8% 15.0% 16% Own resources CGO data (actual expenditures) 16.1% 17.1% 18.7% 17.4% 18.7% Difference 0.0% -1.6% -0.9% -2.4% -2.8% Line item data (actual expenditures) 1.0% 0.9% 1.1% 0.5% 0.0% Project loans CGO data (actual expenditures) 1.5% 1.3% 1.6% 1.3% 1.2% Difference -0.5% -0.4% -0.5% -0.8% -1.2% Line item data (actual expenditures) 4.8% 4.2% 0.5% 0.3% 0.0% Project grants CGO data (actual expenditures) 5.8% 4.4% 4.2% 3.1% 2.0% Difference -1.0% -0.2% -3.7% -2.8%1 -2.0% Line item data (actual expenditures) 21.9% 20.6% 19.3% 15.8% 15.9% Total CGO data (actual expenditures) 23.4% 22.8% 24.6% 21.8% 21.9% Difference -1.5% -2.2% -5.3% -6.0% -6.0% Source: Authors' calculations based on data from Nigerien authorities. Table 11: Actual expenditures by economic classification - comparison between CGO and line item based data, 2010-2011 (CFAF billion) 2010 2011 Boost CGO Difference Boost CGO Difference Public debt/1 32.4 30.7 1.7 16.3 22.2 -5.9 Salaries and wages 94.5 103.2 -8.7 126.9 141.0 -14.1 Operation and maintenance 67.5 94.3 -26.8 83.9 115.4 -31.5 Subsidies and transfers/2 126.4 125.1 1.3 123.1 111.0 12.1 Investment 92.7 217.7 -125.0 87.3 206.0 -118.7 Special accounts 9.9 20.1 -10.2 13.8 24.6 -10.8 Total 423.5 591.1 -167.6 451.3 620.2 -168.9 /1 Includes interest, amortization of external debt, and change in arrears /2 Net of tax expenditures Source: Author's calculations based on data provided by Nigerien authorities. 3.13 Outturn data from Boost and from the CGO using the economic classification differ significantly, with most of the difference is attributable to investment spending (Table 11). Operations and maintenance expenditure figures also show fairly large discrepancies, while the differences for the other expenditure categories are smaller. 3.14 The implication for the use of data in this PER is as follows. With regard to approved budgets, the line item data seem to be a fair representation of the data contained in the published budget books and can thus be used for detailed analysis. With regard to outturn data, especially on investment spending, we adopt the following strategy. For the analysis of broad expenditure trends, we use the CGO data, given that they have undergone significant scrutiny. For more detailed analysis of public expenditures, we analyze expenditures funded from government's own resources (which includes budget support) using the line item data, given that the observed discrepancies are relatively small, but also due to the lack of an alternative source of data. With respect to foreign financed development expenditures, we carry out a separate analysis using data from the OECD/DAC Creditor Reporting System data base. 22 Box 2: Further development of Boost for Niger to support decentralized public expenditure analysis Boost can be a powerful tool to support fiscal transparency and decentralized expenditure analysis. Further developing the Boost tool should involve the following aspects: * Strengthening budget classification and comprehensiveness. The Boost application uses (exclusively) line item data from government's budget and accounting system. Enhancing the quality and comprehensiveness of budget classification and data are thus central. As the Boost tool supports decentralized data analysis, such analysis can provide important feedback to the managers of Niger's budget and accounting systems on weaknesses in the data or classification as the basis for improvements. * Ensuring that budget codes are fully identified in Boost. The Boost tool uses the Government's 24 digit budget code to facilitate public expenditure analysis. At present, these codes are fully identified at the more aggregate level, but Boost is not yet able to analyze data at the detailed level found in the published budget documents. Further work is thus needed to fully reflect the detailed budget nomenclature in boost to allow analysis at greater granularity. * Capacity building among local stakeholders. One of the great advantages of the Boost tool is its simplicity and portability, which can support decentralized public expenditure analysis by a wide range of stakeholders inside and outside government. Building such capacity is thus essential and often will have to include training in Excel which is the program used by the Boost tool. Such capacity building could also involve the development of a network of Boost practitioners in WAEMU countries, which share standardized budget classification schemes in line with WAEMU directives. * Linking expenditure data to output and outcome data. Analyzing the efficiency and effectiveness of public expenditure requires that expenditure data are related to output and outcome data. Several countries have already made progress in this direction. For example, in Uganda education spending in regions and local authorities has been linked to output data such enrollment ratios, which allows the comparison of education efficiency across local authorities. * Making budgetary data publically available. Several countries, among them Togo in the WAEMU, also have developed with Bank support web based interfaces which provide access to government expenditure data for independent analysis. To support the further development of the Nigerien Boost, initially focusing on ensuring regular updates, strengthening the quality of expenditure information in the Boost, and capacity building among local stakeholders, Niger is among the first countries to benefit from Trust Fund resources from the Gates Foundation managed by the World Bank for the further development of the Boost tool in Niger. C. OVERALL FISCAL POSITION 3.15 The period under review - 2007 to 2012 - was characterized by severe domestic and external shocks. These include domestic political upheavals, where efforts by the then President Mamadou Tandja to extend his presidency by a third term led to a deep constitutional crisis in 2009 which culminated in a successful coup d'6tat in February 2010. Niger was governed by a military transition government for 13 months before returning to a democratically elected regime in April 2011. Inadequate rains in 2009 resulted in a poor 2009/2010 harvest and a food crisis in 2010. On the external front, Niger was hard hit by developments in the sub-region. The Libyan conflict resulted in the return of about 200,000 migrant workers from Libya to Niger. It also contributed to increased insecurity in the sub-region, including scaled up terrorist activities by several groups as well as instability in neighboring Mali. 23 Table 12: Fiscal aggregates, 2007-2012 (% of GDP) 2007 2008 2009 2010 2011 2012 2012 (preliminary) (budget) (projection) Domestic Revenue 15.0 18.4 14.7 13.6 14.3 18.0 16.0 Tax revenue 11.3 11.7 13.8 12.8 13.4 14.7 Nontax revenue 3.5 6.6 0.8 0.8 0.6 1.1 Total Expenditure 23.1 22.8 24.6 20.7 21.1 30.8 25.7 Current Expenditure 11.6 12.5 12.1 13.0 12.7 13.4 12.4 Capital Expenditure 11.5 10.3 12.5 7.7 8.4 17.3 13.3 Fiscal deficit (commitment, excl. -8.1 -4.4 -9.9 -7.0 -6.8 -11.6 -9.7 grants, cash) Change in payments arrears and -0.4 -0.7 -0.6 -0.4 -0.1 -0.3 float External Financing 9.4 6.8 5.9 5.6 6.5 12.8 10.7 Grants 7.1 5.9 4.5 4.6 3.8 8.0 6.2 Net. Concess. Foreign Credits 2.3 0.9 1.4 1.0 2.8 4.7 4.5 Domestic financing -1.3 -2.4 4.5 1.9 0.3 -1.4 -0.7 Source: Ministry of Finance, IMF. 3.16 In the face of these severe domestic and external shocks, successive governments were able to maintain fiscal and macro-economic stability, although with a low level fiscal equilibrium. Niger's membership in the WAEMU currency mechanism largely precludes inflationary financing of government expenditures. Niger operates a cash budget where budget releases are determined on the basis of cash availability. Actual expenditure is thus determined by the availability of domestic and external resources. During the period 2007 to 2012, domestic revenue fluctuated between 13.6 and 18.4 percent of GDP, declining during the years of political crisis to 13.6 percent of GDP in 2010, but recovering to 16 percent in 2012. The peak of 18.4 percent of GDP in 2008 reflects an oil signing bonus of US$300 million received that year. External financing was more affected by the political crisis, as donors reduced their financing from 9.4 percent of GDP in 2007 to 5.9 percent of GDP in 2009 and further to 5.6 percent of GDP in 2010. The return to a democratic regime in 2011 triggered a recovery of aid inflow to 6.5 percent of GDP in 2011 and further to a projected 10.7 percent of GDP in 2012. The impact of the cutbacks in donor financing during the years 2008-2010 was dampened by the availability of resources from the oil signature bonus. Overall spending could thus increase from 22.8 percent of GDP in 2008 to 24.6 percent of GDP in 2009, but dropped to 20.7 percent of GDP in 2010 and to 21.1 percent of GDP in 2011 before recovering to 25.7 percent in 2012. 24 Figure 8: Evolution of key fiscal indicators, 2000-2012 Domestic resource mobilization has been improving Additional revenue has mainly been used to increase steadily since 2000, bolstered by non-tax revenue from development spending, while recurrent expenditure was uranium and oil sector signing bonuses in 2007 and 2008 contained at around 12 percent of GDP since 2000 20.0% 30.0% 18.0% 16.0% 25.0% 14.0% 20.0% 12.0%. 10.0% ,~15.0% 9 8.0% 6.0% 10.0% 4.0% 5.0% 2.0% 0.0% 0.0% 2000 20012002 2003 2004 2005 2006 2007 2008 2009 2010 20112012 2000 20012002 2003 2004 2005 2006 2007 2008 2009 2010 20112012 * Tax revenue Other revenue * Recurrent expenditures w Capital expenditures The fiscal deficit (after grants) has improved until 2008 and Grant and loan funding fluctuated around 10 percent, but was between three to four percent of GDP in recent years dropped to below six percent in 2009 and 2010 due to the 2.0% political crisis 1.0% 12.0% 0.0% 10.0% -1.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 8.0% -2.0% 0 -3.0% 6.0% -4.0% 4.0% -5.0% -6.0% 2.0% -7.0% 0.0% Fiscal deficit (incl. grants) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 mGrants alLoans External debt declined sharply as a result of debt relief, but has started to increase in recent years, mainly on account of a government guarantee for the financing of a new refinery. 140.0%- 120.0% 100.0% 80.0% 60.0%- 20.0%- 20.0%- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 m Domestic debt a External debt 3.17 The budget for 2012 projected significant increases in revenue and expenditures, but actual performance is projected to be significantly below the budget estimates. The democratically elected regime that came to power in 2011 announced an ambitious development program, which is reflected in the 2012 budget. The Government intended to strengthen tax and customs administration, which was expected to result in an increase in overall domestic revenue from 15.4 percent in 2011 to 17.9 percent of GDP in 2012. The 2012 budget allocates the higher revenue primarily to capital expenditure, with overall 25 expenditure projected to increase from 26.7 percent in 2011 to 29.4 percent in 2012. Preliminary figures on the budget outturn suggests an increase in revenue and expenditures compared to 2011, which however remain significantly below the budgeted amounts. 3.18 Niger's domestic revenue and total expenditure are low in comparison with other WAEMU member countries (Table 13). Domestic revenue in Niger (14.3 percent of GDP), is below the average for the WAEMU (16.5 percent of GDP). Several countries, including Mali, Benin, Togo, and Senegal revenue of more than 17 percent of GDP and thus meet the WAEMU convergence criterion on revenue. Similarly, overall expenditures in Niger (21.1 percent) are also below the average for all WAEMU countries (24.4 percent). Table 13: Fiscal Indicators of WAEMU member countries, 2011 (percent of GDP) Burkina Cote Guinea Benin Faso d1voire Bissau Mali Niger Senegal Togo WAEMU Overall fiscal balance -1.8 -3.9 -6.1 -2.4 -4.3 -3.0 -6.3 -3.4 -4.8 (including grants) Government revenue (commitment basis, 17.6 15.8 13.9 11.0 17.6 14.3 20.3 18.0 16.5 excluding grants) Government expenditure 21.9 26.7 20.2 21.0 25.6 21.1 28.9 24.8 24.4 Government current 15.0 13.5 17.3 12.2 14.7 12.7 17.4 16.7 16.0 expenditure Government capital 6.6 12.4 2.9 8.1 9.5 6.9 10.9 8.1 7.9 expenditure Source: IMF. 2012. West African Economic and Monetary Union (WAEMU) Staff Report on Common Policies for Member Countries. D. RESOURCES 3.19 The main sources of revenue to fund Niger's public expenditure program include domestic revenue, which contributed about 70 percent of total resources in 2011, and foreign concessional resources, which contributed about 30 percent. The scope for non-concessional borrowing is constrained by the limited creditworthiness of Niger and by commitments to restrain from non- concessional financing made in the context of the MDRI debt relief initiative. Domestic Revenue 3.20 At about 16 percent of GDP in 2012, domestic revenue remains low in international comparison. Nonetheless, Niger has made important progress in steadily increasing tax revenue from 8.6 percent of GDP in 2000 to 14.7 percent of GDP in 2012. Signing bonuses in the uranium and oil sectors added significant non tax revenue in the years 2006 to 2008. The structure of the Nigerien economy - which is dominated by agriculture and informal sector activities - explains much of the weak revenue mobilization. The decline and stagnation of per capita incomes since the early 1980s has prevented Niger's economic base from acting as a driver of public revenue growth. While economic growth and structural change are important for generating a positive revenue dynamic, improved revenue administration is essential to fully exploit the revenue base. Ongoing work on the social and poverty impact of business income tax reforms suggests very weak tax compliance. A survey carried out by the 26 Nigerien tax department of the Ministry of Finance showed that in a sample of 11,701 businesses with a tax identification number and thus the obligation to file annual tax returns, only 4013 filed at least one tax return during the period 2008-2010. The authorities are currently implementing action plans to strengthen tax and customs administration which were prepared in 2010. Reforms of revenue policies and administration need to balance the dual, and sometimes conflicting objectives of enhancing public revenue in an efficient and equitable manner on the one hand, and establishing an attractive investment environment on the other. Figure 9: Composition of tax revenue, 2007 and 2011 (percent of total tax revenue) 100% - 90% 80% _ m Other budgetary fiscal 70% -revenue 60% -Income 50% - 40% -- Goods and services 30% - " International trade 20% - 10% 0% 2007 2011 3.21 The structure of tax revenue changed little between 2007 and 2011, with international trade remaining the main source of revenue, even though the share of customs revenue in total tax revenue declined from 43 percent in 2007 to 41 percent in 2011. The share of revenue from the taxation of goods and services also declined from 31 to 27 percent. The role of income taxation on the other hand increased from 21 to 25 percent despite the reduction of the corporate income tax from 35 percent to 30 percent in 2010. The share of other budgetary revenue increased from 4 to seven percent of total revenue. 27 Figure 10: Maximum change in revenue to GDP ratio over five year period between 2000 and 2010. 16 14 *L 12 10 0 U 2- 0 "5 tX ~ ~, ~ < (0 A C Change in Revenue to GDP Ratio over 5 year period 3.22 The Government program contains ambitious targets for increasing tax revenue from 13 percent of GDP in 2011 to 18 percent of GDP by 2015. To assess the feasibility of increasing revenue significantly over a five year period, it is instructive to review the experience of other countries. Figure 10 above shows the maximum change in the revenue to GDP ratio over a five year period between 2000 and 2010 for a large number of countries. Of the group of 109 developed and developing countries, 40 were able to achieve an increase of five or more percentage points of GDP during a five year period. This includes a number of African countries such as Mali, South Africa, Cote d'Ivoire, Seychelles, the Republic of Congo, the Democratic Republic of Congo, and Lesotho. 3.23 Niger's mining and petrol sector already contribute about two percent of GDP to domestic revenue. However, over the next five years as large scale uranium and petrol investments start production, revenue from the mining and oil sector is expected to increase by about three percent of GDP. Niger achieved compliance with the Extractive Industries Transparency Initiative (EITI) in 2011 and transparency and proper management of mining and petrol sector revenue will need to remain a central focus of economic policy in Niger over the coming years in order to prevent the resource curse and to ensure that the Nigerien public benefits in a sustainable manner from Niger's natural resource endowments. Development Assistance 3.24 About 30 percent of Niger's budget are funded through development assistance in the form of grants and concessional credits. While as a share of GDP aid flows are comparable to those of other countries, per capita levels of aid (which is generally considered to be the more relevant measure of aid) of around US$30 are relatively low. Work by the Bank and by the OECD identify Niger as an aid orphan,' i.e., a country that receives significantly less aid than its needs and policy performance would suggest. In recent years, aid flows to Niger have also been highly unpredictable and volatile, in part reflecting international reactions to domestic events in Niger. A more detailed analysis of aid to Niger is 7Utz, Robert. 2010. Will Countries that Receive Insufficient Aid Please Stand Up? CFP Working Paper Series No. 7. September 2010. 28 presented in chapter 4. The following paragraphs provide a brief overview of aid in the government budget. Table 14: Grants and loans, 2007-2012 (percent of GDP) 2012 2012 2007 2008 2009 2010 2011 (ugt (ocn (budget) (projection) Grant and loan disbursements 9.7% 7.2% 6.1% 6.2% 5.6% 13.8% 11.1% Grants 7.1% 5.9% 4.5% 4.9% 4.0% 8.6% 6.2% Budget financing 1.3% 1.5% 0.2% 1.8% 2.0% 2.1% 1.8% Project financing 5.8% 4.4% 4.2% 3.1% 2.0% 6.5% 4.4% Loans 2.6% 1.3% 1.6% 1.3% 1.6% 5.2% 4.9% Budget financing 1.1% 0.0% 0.0% 0.0% 0.4% 0.3% 1.5% Project financing 1.5% 1.3% 1.6% 1.3% 1.2% 4.9% 3.4% Budget financing 2.5% 1.5% 0.2% 1.8% 2.4% 2.4% 3.3% Project financing 7.3% 5.7% 5.9% 4.4% 3.2% 11.4% 7.8% Source: Ministry of Finance, IMF. 3.25 Aid flows during the period 2007-2012 are marked by the decline during the period of political crisis and are projected to return to pre-crisis levels in 2012. Grants and loans dropped from 9.7 percent of GDP in 2007 to 5.8 percent in 2010. In 2011, when a democratically elected regime returned to power, aid inflows slightly recovered 6.9 percent of GDP in 2011 and are projected to increase to 11.1 percent of GDP in 2012. On average, about 75 percent of aid was in the form of grants and 25 percent in the form of loans during the period 2007 to 2012. More than 75 percent of aid inflows funded projects while 25 percent of aid was budget support. During 2009, the year when the political crisis escalated, donors practically withheld all budget support. However in 2010, once the transition government presented a credible plan for the restoration of democracy, budget support inflows resumed quickly. The main budget support donors are IDA, the EU, France, and the African Development Bank. Domestic and external non-concessional borrowing 3.26 The scope for non-concessional borrowing from domestic and external sources is limited and also constrained by commitments made in the context of debt relief initiatives. At the same time, the authorities are keen to expand financing sources beyond domestic revenue and concessional finance in order to be able to fund their expenditure program. The development of Niger's extractive industries could potentially provide important collateral for ring-fenced, non-concessional borrowing. The exploitation of Niger's oil resources is done in partnership with the Chinese National Petroleum Corporation (CNPC). This includes a refinery (SORAZ) where the government share of 40 percent was initially funded through a non-concessional loan which was covered by a government guarantee, limited to government revenue from the refinery and upstream oil production. In 2012, the authorities agreed with the EXIM Bank of China on the refinancing through a concessional loan to government in the amount of about US$880 million (twelve percent of GDP) of which the foreign partner would be expected to guarantee 60 percent and which would be onlent to SORAZ. Nonetheless, given Niger's very narrow economic base and its high vulnerability to external shocks, concessional financing should remain the preferred source of external financing with access to non-concessional financing necessarily remaining very limited and specific opportunities requiring close analysis and justification of their economic and financial merits. 29 Table 15: Domestic financing of fiscal deficits (% of GDP) 2007 2008 2009 2010 2011 2012 Domestic financing -1.1% -1.9% 4.5% 1.1% 0.4% -1.8% o/w BCEAO -1.1% -1.9% 2.3% 0.5% 0.5% -1.3% o/w Commercial banks -0.5% -0.4% 2.3% -0.4% -0.1% -0.6% o/w Non-banking Sector 0.5% 0.4% -0.1% 1.0% 0.0% 0.0% Change in domestic arrears -0.7% -0.7% -0.6% -0.6% -0.4% -0.3% Net position 2.5% 4.8% 0.0% -0.2% -0.6% 1.3% Net position with the Central Bank 1.5% 4.0% -0.7% -1.3% -1.8% -0.2% Net position with the Banking Sector 1.0% 0.8% 0.8% 1.2% 1.3% 1.7% Source: BCEAO. 3.27 Domestic financing is mainly provided by the Central Bank and commercial banks and has been very limited over the past five years. In the context of the WAEMU arrangement, access to Central Bank borrowing is limited and serves mainly to manage government liquidity. Commercial borrowing has also been small. In 2008, government obtained a large signature bonus (US$300 million) from the China National Petroleum Corporation. Part of the signature bonus was saved in 2008 and spent in subsequent years. The slightly higher levels of domestic financing in these years represent the drawdown of the signature bonus used for capital spending. The net position of the Government with the banking sector has been close to zero in recent years though by the end of 2012 due to the disbursement of budget support it increased temporarily to 1.3 percent of GDP. The absence of an adequate level of reserves constitutes an important constraint on government's expenditure management, as it limits the extent to which revenue fluctuations can be smoothed out through the drawdown of reserves. 3.28 Government has also continued to settle domestic arrears, but there has also been some new accumulation of arrears. The stock of arrears that were accumulated prior to 2000 is gradually being reduced and declined from CFAF 112.9 billion in 2009 to CFAF 92.8 billion. At the same time, Government is accumulating new arrears in 2010 and 2011, which were however, less than 2 percent of total spending. The stock of new arrears increased from CFAF 6.4 billion in 2009 to CFAF 23.1 billion in 2011. In 2010 the transition government carried out an audit of arrears to prevent the payment of unjustified claims. An important problem that needs to be addressed urgently relates to cross arrears between the central government, local government, and state owned public enterprises. At present, no complete inventory of debts among these entities exists. However, the authorities have expressed their intent to carry out a stocktaking exercise of these liabilities with a view to resolving them. E. EXPENDITURES 3.29 Over the past decade, public expenditures have increased from about 16.2 percent of GDP in 2000 to about 20.7 percent of GDP in 2011 and are projected to have further increased to 25.7 percent of GDP in 2012. Although the level of public expenditures remains relatively modest in comparison to many other developing countries, this increase in public expenditures has accompanied a significant increase in access and use of social services, including health, education, and water, as well as some improvements in the road infrastructure. Nonetheless, Niger is significantly off-track on most MDGs. External and domestic security threats, recurrent severe external shocks, and high levels of poverty create additional expenditure pressures. 3.30 The program of the new authorities envisages significantly scaled up provision of public services. In addition to enhanced resource mobilization, this will also require increases in the efficiency of public expenditure, clear prioritization in a context of hard budget constraints, and the elimination of 30 leakages in Niger's public expenditure system. The following provides a brief overview of the economic and functional structure of Niger's public expenditures and highlights some of the key issues. Economic classification 3.31 This section analyzes the composition of public expenditures according to their economic classification into expenditures on debt service, salaries and wages, operations and maintenance subsidies and transfers, investment and special accounts. A broad overview of trends in these components is provided using data on actual expenditure from the CGO table. Subsequently, additional details are provided using the line item budget data for the period 2007-2012. Table 16: Economic classification of expenditures, 2007-2012 as a % of GDP 2007 2008 2009 2010 2011 2012 Total expenditure and net lending 23.1 22.8 24.3 20.7 21.1 25.7 Total current expenditure 11.8 12.5 12.0 13.0 12.7 12.4 Wages and salaries 3.5 3.5 3.7 3.7 4.5 4.1 Materials and supplies 3.0 2.6 3.3 3.3 3.9 3.1 Subsidies and transfers, net of trans. pour compte de tiers 2.8 4.2 3.6 4.4 3.2 4.0 Interest, scheduled 0.3 0.2 0.2 0.2 0.3 0.4 Of which: External debt 0.2 0.2 0.2 0.1 0.2 0.2 Adjustments and tax expenditures 0.0 0.4 -0.2 0.3 0.0 0.0 Special accounts expenditure 1.9 1.5 1.0 0.7 0.8 0.9 Capital expenditure and net lending 11.5 10.3 12.3 7.7 8.4 13.3 Capital expenditure 11.5 10.3 12.3 7.7 6.9 13.3 Domestically financed 3.6 4.0 6.0 3.4 3.8 5.0 Externally financed 7.3 5.7 5.8 4.2 3.1 7.8 Of which: Grants 5.8 4.4 4.2 2.9 1.9 4.4 HIPC Initiative resources 0.6 0.6 0.5 0.1 0.2 0.3 Net lending 0.0 0.0 0.0 0.0 1.5 0.0 Source: Ministry of Finance, IMF. 3.32 Total expenditures showed significant volatility during the period 2007 to 2012, driven mainly by fluctuations in capital expenditure which had to absorb external shocks to resource availability. This allowed to protect to a certain extent recurrent expenditures, which fluctuated in a rather narrow band from 11.8 percent to 13.0 percent of GDP. Recurrent expenditures are composed to roughly equal parts of wages and salaries (average of 3.8 percent of GDP over the period 2007-2012), materials and supplies (3.7 percent of GDP), and subsidies and transfers (3.2 percent of GDP). Interest payments are small and averaged to only about 0.2 percent over the period 2007-2012. Expenditures on wages and salaries increased from about 3.5 percent of GDP in 2007 to 4.1 percent in 2012. This was primarily driven by salary increases awarded in 2011 and new recruitment in 2012. 3.33 Capital expenditures peaked at 12.3 percent in 2009, as income from a signing bonus in the oil sector provided additional resources to Government. Subsequently, due to cut-backs in donor financing in response to the political crisis, capital expenditure dropped to 7.7 percent of GDP in 2010 and further to 6.9 percent in 2011, before the projected recovery to 13.3 percent of GDP in 2012. 'Addressing these concerns may require additional actions, including increased monitoring of budget outputs and intermediate results, identifying demand and supply constraints during budget execution phase, instituting actions to better monitor and ensure governance of service delivery. 31 3.34 The subsequent analysis uses line item budget data to examine the main economic aggregates of public expenditure in more detail. Based on this data, total approved expenditures averaged 27.7 percent of GDP over the period 2007-2011, with expenditures funded from government's own resources amounting to 20.6 percent of GDP and expenditures funded from external sources amounting to 7.1 percent of GDP. Regarding expenditures funded from own resources, actual expenditures were 16 percent of GDP, representing an execution rate of 78 percent. Table 17 shows the distribution of public expenditures by economic classification, Table 18 shows the sectoral distribution of expenditures in each economic category, and Figure 11 shows the growth rates of expenditures in each category. Table 17: Economic classification of public expenditures, average 2007-2011 percent of GDP percent of total expenditures budget execution aproved approved actual approved aproved approved actual approved budget - budget - actul approed budget - budget - expenditures - budget - total external own expenditures t - external own own resources own resources total own resources resources resources resources resources Debt service 2.1% 0.0% 2.1% 1.3% 7.5% 0.0% 10.1% 8.3% 63.5% Recurrent expenditures (net of 12.5% 0.0% 12.4% 10.4% 45.0% 0.1% 60.5% 65.2% 83.9% debt service) 1 0 Salaries and wages 3.8% 0.0% 3.8% 3.7% 13.8% 0.0% 18.6% 23.2% 97.4% Operations and maintenance 3.3% 0.0% 3.3% 2.7% 11.8% 0.1% 15.9% 16.7% 81.9% Subsidies and transfers 5.4% 0.0% 5.4% 4.0% 19.4% 0.0% 26.1% 25.2% 75.5% Investment 12.0% 7.1% 4.9% 3.5% 43.3% 99.9% 23.7% 21.9% 72.2% Special accounts 1.2% 0.0% 1.2% 0.7% 4.2% 0.0% 5.7% 4.6% 64.0% Total 27.7% 7.1% 20.6% 16.0% 100.0% 100.0% 100.0% 100.0% 78.0% Source: Author's calculations, based on line item date provided by the Ministry of Finance. Table 18: Sectoral distribution of economic expenditure categories (actuals - own resources, average 2007-2011) Debt Salaries and Operations and Subsidies and Investment Special Total service wages maintenance transfers Accounts General services 6.8% 19.7% 1.9% 6.0% 6.7% Defense, order, and security 17.7% 14.6% 0.3% 8.0% 78.1% 12.0% General and financial administration 20.3% 41.5% 29.9% 25.9% 21.2% 25.8% Education, training, and research 35.7% 9.2% 46.4% 9.8% 23.7% Culture, sports, and leisure 1.1% 1.3% 1.4% 1.0% 0.7% 1.1% Health and social action 10.8% 8.8% 12.2% 15.6% 10.5% Administration and development of infrastructure 4.1% 2.0% 5.1% 24.3% 7.9% Production and trade 3.5% 3.0% 2.8% 9.3% 4.1% Others 100.0% 8.3% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: Author's calculations, based on line item date provided by the Ministry of Finance. 32 Figure 11: Expenditure growth rates - economic classification, 2007-2011 150% 100% - 50% - 0% - -50% -~ N approved total expenditures 0 approved own funded expenditures actual own funded expenditures Source: Author's calculations, based on line item date provided by the Ministry of Finance. 3.35 45 percent of total expenditures constitute recurrent expenditures and 43 percent investment during the period 2007-2011. Debt service accounted for 7.5 percent and special accounts expenditures for 4.2 percent. Recurrent expenditures are almost entirely funded from government's own resources, the only exception being the education sector, where the common fund also contributes to recurrent expenditures. Of the investment spending included in the budget, about 60 percent is funded from external sources and 40 percent from domestic resources. The average budget execution rate for the period 2007 to 2011 was 84 percent for recurrent expenditures and 72 percent for govermnent's own funded investment expenditures. During that period, approved recurrent expenditures and actual recurrent expenditures grew by 87 percent and 73 percent respectively, compared to 59 and 49 percent for approved and actual own funded investment expenditures. Table 19: Wagye bill indicators for selected West African Countries Wage bill % Wage bill % domestic Wage bill % GDP revenue expenditures Niger 4.3% 28.1% 16.2% Guinea 4.2% 25.3% 21.3% Mali 4.7% 35.7% 22.1% Gambia 5.3% 28.5% 25.1% Togo 5.4% 31.7% 34.9% Benin 5.7% 29.7% 24.6% Senegal 5.8% 30.7% 24.2% Sierra Leone 5.8% 41.1% 27.3% Mauritania 5.9% 27.2% 32.1% Coted'lvoire 8.6% 45.5% 40.8% Liberia 8.7% 33.9% 34.5% Ghana 11.3% 41.2% 27.6% Average 6.2% +33.4% 27.5% Source: Niger - government data for 2011, other countries - 2008 data from World Bank. 2009 Ghana Public Expenditure Review. 33 3.36 The wage bill at less than 4.3 percent of GDP in 2011 is small in international comparison and among the smallest in West Africa (Table 19). As the government wage bill claims less than 30 percent of domestic revenue and accounts for only about 16 percent of total expenditures, this provides Niger with significant flexibility for expenditure management. However, it is important to note that expenditures on transfers also cover wages and salaries of institutions that benefit from these transfers. Similarly donor funded investment expenditures also include funding for staff working on projects. The education sector claimed about 36 percent of total salary and wage expenditures, followed by general and financial administration (20.3 percent) and the health and social action sector (10.8) percent. Between 2007 and 2011, expenditures on wages and salaries grew by 75 percent as a result of both increases in employment, changes in the structure of government employment, and salary increases. In particular, in 2011 salaries for all civil servants were increased by 10 percent while salaries for the military service were increased by 40 percent. Given that Niger's wage bill remains at the low end in comparison with other West African countries, it will be important to consider in more detail the implications of this for the country's capacity to provide adequate public services. Table 20: Public sector employment (civil service, education, health), 2006-2010 2006 2007 2008 2009 2010 change 2006-2010 Civil Service 33102 34213 35065 34682 40404 22% Education 33576 36495 39843 45167 52245 56% Health 4329 4340 4409 4896 3702 -14% Total 71007 75048 79317 84745 96351 36% Source: Authors' calculations based on INS Statistical Yearbook. 3.37 Employment in the civil service, education, and health sectors increased by 36 percent from 71,007 in 2006 to 96,351 in 2010. Employment in the education sector more than doubled during that period to accommodate both the increase in the school age population and the increase in enrollment rates. Education also represents by far the largest share of public sector employment with about 40,000 primary, secondary, and higher education staff in 2010. Health sector employment on the other hand declined by 14 percent from 4,329 in 2006 to 3,0702 in 2010. The sector also accounts for a relatively small share of public sector employment with a total of 3,702 public sector health staff in 2010. 2011 saw the recruitment of 12,000 new staff in the education sector and 2,600 new staff in the health sector. Table 21: Civil service employment by type of employment, 2006-2012 Share Change Share in within 2006 2007 2008 2009 2010 2011 2012 2006- Total 2012 (2012) (2012) Total 33102 34213 35065 34682 40404 40857 47337 43% 100% Men 23619 24350 24891 24545 28229 28264 31793 35% 67% 67% Women 9483 9863 10174 10137 12175 12593 15544 64% 33% 33% Regular civil servants 26424 27516 28044 28186 34017 34213 40728 54% 86% Men 18357 19045 19332 19446 23186 23011 26546 45% 56% 65% Women 8067 8471 8712 8740 10831 11202 14182 76% 30% 35% Auxiliaries (contract workers icle) (6678 6697 7021 6496 6387 6644 6609 -1% 14% included) Men 5262 5305 5559 5099 5043 5253 5247 0% 11% 79% Women 1416 1392 1462 1397 1344 1391 1362 -4% 3% 21% Source: Authors' calculations based on INS Statistical Yearbook. 3.38 In June 2012, the civil service counted 47,337 employees, of which 67 percent were men and 33 percent women. Civil service employment had grown by 43 percent between 2006 and 2012. Of total civil service employment, 86 percent are regular civil servants, and 14 percent auxiliaries and contract workers. 34 Table 22: Regular civil servants by grade, 2006-2012 Change Share in Share 2006 2007 2008 2009 2010 2011 Jun-12 2006- Total within 2012 (2012) category Cat6gorie A Total 8403 9141 9708 10142 11185 11450 12917 54% 32% Men 6715 7305 7705 8041 8882 9025 10154 51% 25% 79% Women 1688 1836 2003 2101 2303 2425 2763 64% 7% 21% Cat6gorie B Total 8949 9398 9686 9514 10441 10577 12050 35% 30% Men 6156 6369 6538 6408 6915 6864 7397 20% 18% 61% Women 2793 3029 3148 3106 3526 3713 4653 67% 11% 39% Cat6gorie C Total 7620 7517 7237 7155 11045 10799 14034 84% 34% Men 4840 4746 4490 4427 6854 6609 8430 74% 21% 60% Women 2780 2771 2747 2728 4191 4190 5604 102% 14% 40% Cat6gorie D Total 1452 1460 1413 1375 1346 1387 1727 19% 4% Men 646 625 599 570 535 513 565 -13% 1% 33% Women 806 835 814 805 811 874 1162 44% 3% 67% Source: Authors' calculations based on INS Statistical Yearbook. 3.39 Women account only for 33 percent of civil service employment, but their share has been increasing between 2006 and 2012 at all levels. Not only has the total number of female civil servants increased faster than that of men, but women were able to gain ground at all levels of the civil service. However, women are still predominantly employed at lower levels of the civil service. In the highest category, women account only for 21 percent of all employees while in the lowest category, women account for 67 percent. 3.40 Expenditures on operations and maintenance amount to three percent of GDP. The bulk (41.5 percent) is claimed by general and financial administration, followed by general services (19.7 percent) and defense, order, and security (14.6 percent). Infrastructure receives only 2 percent and production and trade (with includes the important livestock and agriculture sectors) receives only 3 percent. Some operations and maintenance funding is covered by subsidies and transfers (e.g., road maintenance) and externally funded investment expenditure also contains expenditure that should be more appropriately classified as operations and maintenance spending. Table 23: Spending on operations and maintenance, average 2007-2011 Share of total Growth rate budget approved - own executed - approved - executed - own execution ratio own own -own resources resources resources resources resources Operations and maintenance 100.0% 100.0% 61.8% 54.4% 81.9% Supplies 32.0% 32.3% 50.4% 55.1% 82.7% Maintenance 8.1% 7.8% 35.1% 36.2% 78.6% Services 2.3% 2.0% 16.8% 38.0% 71.2% Insurance 0.0% 0.0% 229.2% 142.2% 49.1% Water, electricity, gas, and other 11.4% 13.0% 38.7% 47.8% 93.8% energy sources Communication 3.8% 3.9% 116.1% 113.9% 83.9% Rent 1.8% 1.9% 146.0% 91.5% 88.0% Transport 8.9% 7.9% 63.2% 37.5% 72.6% Other goods and services 30.8% 30.8% 85.5% 56.7% 81.9% Source: Author's calculations, based on line item date provided by the Ministry of Finance. 3.41 Budgetary spending on operations and maintenance is funded from government's own resources. 32 percent of it are for supplies and another 31 percent for other goods and services. Utility payments constitute 11 percent, transport 9 percent, and maintenance spending 8 percent of total expenditures on operations and maintenance. Budget allocations over the period 2007 to 2011 grew by 35 62 percent and actual spending by 54 percent, reflecting an overall budget execution ratio of 82 percent. Spending on communication, insurance, and rent were the fastest growing components. The fact that maintenance accounts for only 8.1 percent of total spending and was also the slowest growing component is of concern. The amount is small in relation to Niger's relatively large investment budget, which raises the question whether the balance between investment, operations, and maintenance is adequate and supportive of sustained service delivery from public investments. 3.42 Transfers and subsidies were the fastest growing component of public expenditures during the period 2007 to 2012 and accounted in 2011 for 19 percent of total budgeted expenditures and 25 percent of actual expenditure funded from government's own resources. 46 percent of subsidies and transfers represents the funding of educational institutions at all levels, including the funding of contract teachers. Another 30 percent of transfers represent transfers and subsidies provided through the Ministry of Finance to a large array of institutions and 12 percent go to health sector institutions. Table 24: Spending on transfers and subsidies, average 2007-2011 Share of total Growth rate budget executed - approved - bde approved-all approved - own ect ovd executed - own execution ratio resources resources - own resources resources resources Subsidies and other current transfers 100.0% 100.0% 100.0% 116.5% 86.1% 75.5% Subsidies 22.1% 26.2% 20.0% 31.6% -4.3% 57.6% Public institutions 6.8% 8.0% 9.7% 43.9% 45.4% 91.6% Public and semi-public enterprises 0.0% 0.0% 0.1% 100.0% Private enterprises 0.1% 0.1% 0.2% 150.0% 150.0% 94.3% Financial institutions 5.1% 6.0% 4.4% 23.2% -41.6% 55.8% Other beneficiaries 10.1% 12.0% 5.6% 25.3% -47.3% 35.3% Current transfers 77.9% 73.8% 80.0% 157.6% 126.8% 81.9% Other public administrations 0.0% 0.0% 0.0% 12.0% 2.6% 62.5% Households 42.4% 50.3% 61.6% 90.4% 116.5% 92.6% Supranational organizations and mutiatra isttuios1.1% 1.4% 1.5% 18.4% -6.0% 85.9% rnultilateral institutions Transfers to other budgets 5.4% 6.5% 8.5% 72.7% 71.3% 99.4% Other 28.9% 15.7% 8.3% 674.6% 2810.8% 39.9% Source: Author's calculations, based on line item date provided by the Ministry of Finance. 3.43 Of total budget allocations for transfers and subsidies during the period 2007 to 2011, 22 percent were subsidies and 78 percent transfers. Public institutions, financial institutions, and other beneficiaries were the main recipients of transfers. Public, semi-public, and private enterprises received virtually no transfers according to the budget figures. Transfers to households account for 42 percent of overall budgeted transfers and subsidies, 50 percent of budgeted transfers funded from government's own resources, and 60 percent of actual spending on transfers and subsidies from government's own resources. However, apparently these transfers do not necessarily accrue directly to households, but are to a significant degree funding service delivery in the social sectors as they cover the salaries of contractual staff. 3.44 A relatively large share of the Nigerien budget (43 percent over the period 2007 to 2011) is allocated to capital expenditure. Some of this may be miss-classified and actually be recurrent expenditure in the context of donor funded development projects.9 9 Details of public investments as presented in Titre 5 are vague. More detail can be found in the Min of Plan/ Dept of Programme Evaluation data base. The Poverty Assessment attempted to review the quantity and quality of 36 Table 25: Investment spending by type of investment, 2007-2011 Share of total (average 2007-2011) approved - approve - executed - budget approved - all external own execution resources resources resources ratio - own Investment 100.0% 100.0% 100.0% 100.0% 72.2% Intangible assets 34.3% 45.3% 18.1% 15.6% 62.4% Studies, research, and development 1.7% 1.5% 2.0% 1.5% 55.3% Other rights and intangible assets 32.6% 43.9% 16.1% 14.1% 63.3% Land, subsoil, acquisition and 11.6% 13.6% 8.7% 7.8% 64.5% improvements Land 0.7% 0.8% 0.5% 0.5% 76.1% Plantations and forests 1.4% 0.8% 2.3% 2.6% 81.8% Water bodies 7.9% 11.6% 2.5% 1.6% 46.0% Other lands 1.6% 0.3% 3.4% 3.1% 64.6% Buildings, acquisition and large repairs 34.1% 30.9% 38.8% 35.0% 65.1% Administrative buildings for office use 8.6% 3.0% 16.8% 17.5% 75.3% Administrative buildings for hoiuse Administrative buildings for housing 0.1% 0.0% 0.3% 0.3% 90.3% use Administrative buildings for technical 1.2% 0.0% 3.0% 2.4% 57.8% use Works and infrastructure 24.2% 27.9% 18.7% 14.7% 56.7% Acquisition and large repairs of funtr admtrls17.4% 10.1% 28.0% 33.9% 87.4% furniture and materials Office and housing furniture and mateials0.5% 0.0% 1.2% 1.3% 75.6% materials Computer equipment 0.4% 0.0% 0.9% 0.9% 67.7% Office vehicles 0.7% 0.0% 1.8% 1.9% 73.9% Technical material and equipment 10.3% 6.2% 16.3% 21.0% 93.4% Transport equipment 0.1% 0.0% 0.3% 0.3% 75.6% Strategic and emergency stocks 3.6% 2.0% 5.9% 6.7% 82.3% Livestock 1.8% 1.9% 1.6% 1.9% 82.9% Acquisition, construction, and large 2.6% 0.0% 6.4% 7.7% 86.9% repairs of military equipment Military housing 0.0% 0.0% 0.0% 0.0% 71.6% Military works and infrastructure 2.0% 0.0% 5.0% 5.8% 84.3% Military furniture, material, and 0.6%0.0%1.4%1.9%96.5% equipment Source: Author's calculations, based on line item date provided by the Ministry of Finance. agricultural investments using this data base which also possessed limited information on the content and results of projects. Geographic detail was also limited. 37 Figure 12: Government investment by main components, growth between 2007-2011 (%) 400.0% 300.0% 200.0% - 100.0% - 0.0% - -100.0% Total Intangible Land Buildings Furniture Military investment assets and equipment materials Eapproved- all Eapproved- own resources Nexecuted-own resources Source: Author's calculations, based on line item date provided by the Ministry of Finance. 3.45 Over the period 2007 to 2011, approved government investment consisted to 34 percent of investments in intangible assets, 12 percent in land, 10 percent in buildings, 24 percent in infrastructure, 17 percent in furniture and equipment, and 3 percent for military investment. The large share of investment devoted to intangible assets (34 percent) - representing mainly technical assistance and capacity development - and the relatively small share (24 percent) devoted to the actual development of infrastructure are remarkable. Over the period 2007 to 2011, spending on buildings, including infrastructure, and on military equipment showed the highest growth rate, while growth of the other components was low and that of spending on furniture and materials even negative. Considering Niger's large infrastructure gaps and significant security threats originating from conflict in the sub region suggests that the emphasis on increasing spending in these two categories is appropriate. In particular, further accelerating spending on infrastructure and increasing its share in government investment will be important to support economic growth in Niger. 3.46 Disaggregating the components of total approved expenditures into those financed from external resources and those financed from government's own resources reveals significant differences in funding priorities. Donor funding is focused on "intangible assets" i.e., technical assistance and capacity building, infrastructure, and land, which together account for almost 90 percent of externally funded investment. Government's investment resources on the other hand are focused on furniture and materials (28 percent of government spending funded from own resources), buildings (21 percent), infrastructure (19 percent), and intangible assets (18 percent). Military investment is entirely govermment funded and accounts for 2.6 percent of total govermment investment and 6.4 percent of investment funded from government's own resources. Execution rates for investment funded from government's own resources show that items that receive priority in the approved budget receive further priority during budget execution. The budget execution rates for furniture and materials (87 percent), buildings (73 percent), and military equipment 87 percent are above those for components that receive high donor priority - the budget execution rate for own funded intangible assets is 62 percent, for land 65 percent and for infrastructure only 57 percent. To the extent that govermment spending in these areas constitutes counterpart funding for externally funded investment, these relatively low execution rates could be problematic and hold back overall investment levels in these areas. 38 Table 26: Sectoral distribution of investment spending, average 2007-2011 (percent of total investment by funding source) approved - all approved - own resources actual - own resources General services 7% 5% 6% Defense, order, and security 3% 7% 8% General and financial administration 16% 26% 26% Education, training, and research 9% 10% 10% Culture, sports, and leisure 0% 1% 1% Health and social action 18% 14% 16% Administration and development of infrastructure 33% 28% 24% Production and trade 14% 9% 9% Total 100% 100% 100% Source: Author's calculations, based on line item date provided by the Ministry of Finance. 3.47 With respect to the sectoral distribution of government investment, the infrastructure sector received on average 33 percent of total approved budget allocations during 2007-2011, health and social action 18 percent, general and financial administration 16 percent, and production and trade 14 percent. The allocation of government's own resources for investment gives higher priority to general and financial administration, which receive 26 percent of government's own investment resources, followed by infrastructure (28 percent) health and social action (14 percent) and education and training (10 percent). Functional and administrative classification 3.48 The functional classification of the budgeto (Table 27) shows that over the period 2007 to 2011, about 30 percent of total resources were allocated to the social sectors (including education and health), 24 percent to economic services (including infrastructure), and 8 percent to defense and security. The remaining 38 percent went to administration and other items. The share of the various sectors in total expenditure varied significantly from year to year and he role of external financing differs significantly across sectors. More than 50 percent of external resources are allocated to the infrastructure and 30 percent to the social sectors. Within the social sectors, the difference between education and health financing is quite striking. Education is mostly financed from government's own resources, receiving 20 percent of government's own resources, but only 8 percent of external resources. Health, on the other hand, receives more than 20 percent of external resources but less than 10 percent of govermment's own resources. 10 The Nigerien budget classification uses the following sectors in its functional classification: general services; defense, order, and security; general and financial administration; education, training and research; culture, sports and leisure; health and social action; administration and development of infrastructure; production and trade; and others. 39 Table 27: Functional analysis of public expenditures, averages for 2007-2011 budget percent of GDP percent of total expenditures execution aproved approved aproved approved approved budget - budget - actual approved budget - budget - actual budget - external own expenditures - budget - external own expenditures - expenditures - total resources resources own resources total resources resources own resources own resources Social services 8.4% 2.1% 6.3% 5.6% 30.3% 29.3% 30.7% 35.2% 89.5% Education, training, and research 4.7% 0.6% 4.1% 3.8% 17.1% 8.3% 20.2% 23.7% 91.5% Health and social action 3.5% 1.5% 2.0% 1.7% 12.5% 20.8% 9.6% 10.5% 85.0% Culture, sports, and leisure 0.2% 0.0% 0.2% 0.2% 0.7% 0.2% 0.9% 1.1% 92.7% Economic services 6.5% 3.7% 2.8% 1.9% 23.6% 52.4% 13.6% 12.0% 68.8% Production and trade 2.0% 1.2% 0.8% 0.7% 7.2% 16.4% 4.1% 4.1% 78.0% Administration and development of infrastructure 4.5% 2.6% 2.0% 1.3% 16.3% 36.0% 9.5% 7.9% 64.9% Defense, order, and security 2.2% 0.0% 2.1% 1.9% 7.9% 0.5% 10.4% 12.0% 89.9% Administration 10.6% 1.3% 9.3% 6.5% 38.3% 17.9% 45.3% 40.8% 70.1% General services 1.8% 0.6% 1.2% 1.1% 6.6% 8.5% 5.9% 6.7% 87.8% General and financial administration 6.7% 0.7% 6.0% 4.1% 24.2% 9.4% 29.3% 25.8% 68.8% Others 2.1% 0.0% 2.1% 1.3% 7.5% 0.0% 10.1% 8.3% 63.5% Total 27.7% 7.1% 20.6% 16.0% 100.0% 100.0% 100.0% 100.0% 78.0% Source: Author's calculations, based on line item date provided by the Ministry of Finance. 3.49 Budget execution rates differ significantly across sectors. The rate of budget execution for expenditures funded from government's own resources is highest for the social sectors and defense at around 90 percent. For economic services and administration on the other hand, the budget execution rate was only around 70 percent. The differences in budget execution rates reflect, on the one hand, priorities of government in the course of budget execution. On the other hand, they also reflect the composition of expenditures in individual sectors. Sectors with a high share of salary expenditures - such as education - tend to have higher rates of budget execution than other sectors. Table 28: Composition of sectoral expenditure (budgeted total, average 2007-2011) Operations Subsidies and Special Debt service Salaries and wages and Investment Ac s Total maintenance General services 0% 15% 33% 5% 47% 0% 100% Defense, order, and security 0% 31% 22% 1% 17% 30% 100% General and financial administration 0% 11% 20% 32% 29% 8% 100% Education, training, and research 0% 29% 7% 42% 22% 0% 100% Culture, sports, and leisure 0% 21% 19% 32% 26% 3% 100% Health and social action 0% 13% 8% 16% 63% 0% 100% Administration and development of infrastructure 0% 4% 2% 8% 87% 0% 100% Production and trade 0% 7% 5% 7% 81% 0% 100% Others 100% 0% 0% 0% 0% 0% 100% Total 7% 13% 11% 19% 42% 4% 100% Source: Author's calculations, based on line item date provided by the Ministry of Finance. 3.50 The economic composition of expenditures differs significantly across sectors. The share of wages and salaries in sectoral expenditure allocations ranges from only seven percent in production and trade to 31 percent in the defense, order and security sectors. Operations and maintenance are 20 percent or more of total sectoral expenditures for general services, defense, order and security and general and financial administration. On the other hand, in the health, education, infrastructure, and production and trade sectors, budget allocation for operations and maintenance account for less than 10 percent of total sectoral expenditures. Subsidies and transfers account for more than 40 percent of education sector spending and more than 30 percent of spending in the general and financial administration. While the share of investment in total budget allocations is 42 percent, it is significantly higher in health (63 percent), infrastructure (83 percent), and production and trade (81 percent). 40 Figure 13: Sectoral expenditure growth rates, 2007-2012 180% 160% 140% 120% 100% 80% 60% 40% -20% JU ~ -20 m approved budget E approved budget- own resources actual expenditures - own resources Source: Author's calculations, based on line item date provided by the Ministry of Finance. 3.51 Infrastructure spending grew fastest between 2007 and 2011 (Figure 13). Budget allocations for general services and general and financial administration grew faster than some of the PRSP priority areas (production and trade, education, and health). Finally, defense, order, and security show the lowest growth rates over the period 2007 to 2011. Looking at approved and actual expenditures funded from govermment's own resources provides a slightly different picture. Own funded budget allocations to infrastructure, but also to production and trade and education, grew faster than total budget allocations to these sectors. This indicates that external funding sources gave relatively lower priority to these sectors than government itself. This also translates into budget execution, where the data suggest that production and trade as well as education and training received clear priority and show together with infrastructure and sports the highest growth rates of actual own funded expenditures. Given the current fragile security situation, the fact that defense and security spending received the lowest budget allocations is particularly noteworthy. Second, the low growth of spending for health is also of concern. However, it is noteworthy that over this period Niger was able to achieve some well documented reduction in infant and child mortality due to a combination of government policies supporting universal access, provision of free health care for pregnant women and children, and decentralized nutrition programs. F. PRSP PRIORITY EXPENDITURES 3.52 Niger's previous PRSP - the Accelerated Development and Poverty Reduction Strategy 2008 - 2012 - was issued in August 2007. Its main objectives include (i) the incomes of the population will be increased; (ii) their health and nutrition status will be improved; (iii) their level of education will be enhanced; (iv) environmental balances will be preserved; (v) access to modem energy services and drinking water will be reinforced; (vi) participation in decision-making will be institutionalized; (vii) towns and villages will be opened up through adequate infrastructure; and (viii) universal access to new information and communication technologies will be provided. The strategy for achieving these objectives, for which the PRSP provides specific targets, is built around seven pillars. These are: * Search for strong, diversified, sustainable and job creating growth; * Equitable access to quality social services; * Control of population growth; 41 * Reduction of inequalities and strengthening of social security of the vulnerable groups. * Infrastructure development; * Promotion of good governance; and * Effective Implementation of the Strategy. 3.53 The PRSP mid-term report issued in 2012 indicates that Niger is significantly off-track in reaching most of the PRSP objectives and the MDGs. The report does not provide a detailed analysis of the link between performance and spending in the PRSP areas. However, overall funding levels were clearly below the estimated cost of programs to achieve the PRSP objectives. 3.54 Economic growth during the PRSP period was close to the targeted growth rate for the realization of the PRSP targets, but projections on external financing significantly overestimated actual resources that become available during the PRSP period. The PRSP spelt out three macro- fiscal scenarios - a reference scenario, an intermediate scenario, and a MDG scenario. Projections of economic growth for the PRSP period range between four percent in the reference scenario to seven percent in the MDG scenario. Under the reference scenario, total revenue is projected to increase from 12 to 15 percent and total expenditures remain stagnant at around 24 percent of GDP. The ambitious MDG scenario sees total revenue increase to 19 percent of GDP and total expenditures increase to around 50 percent of GDP on the back of a large increase in grants. Real economic growth averaged 6.1 percent during the period 2008 and 2012 and was thus close to the projection of the MDG scenario. However, performance of fiscal indicators was close to the reference scenario, with total revenue standing at 15.1 percent in 2011 and total expenditures at 22 percent of GDP. Highly optimistic projections of scaled up donor support in line with PRSP requirements did not materialize, partly due to the political instability experienced during the PRSP period. However, even in a politically stable environment it would have been unlikely to see donor support increase from about 9 percent of GDP in 2007 to about 30 percent of GDP by 2012. The detailed costing of the PRSP is reflected in the ambitious MDG macro-fiscal scenario which sees expenditures reach 50 percent of GDP. However, the PRSP does not provide projections of the evolution of sectoral expenditures. To link the PRSP to the budget, the authorities took several initiatives. 3.55 First, the authorities identified a "unified list" of pro-poor expenditures items. Allocations to these expenditure items are shown in an annex to the annual budget and government's expenditure reports report on aggregate actual spending on pro-poor expenditure items. This approach provides a strong linkage between the budget and the PRSP. However, it also suffers from several weaknesses. First, the presentation of budget allocations to pro-poor expenditure items makes it difficult to see the strategic evolution of priority expenditures since data are only shown at the line item level in an annex to the budget, while budget reporting only shows the total spending. Complementary information that aggregates pro-poor expenditures by PRSP targets and shows their historic evolution would be immensely helpful. Second, the coding of pro-poor expenditures is not integrated into the general budget coding. Reporting on pro-poor expenditures can thus not be done automatically using the government's computerized budget and treasury systems. This not only complicates the management of pro-poor expenditures, but it also creates a source for error and reduces the scope for analyzing pro-poor expenditures using standard codes. Third, it also appears that the monitoring of pro-poor expenditures suffers from the incomplete capture of donor funded expenditures. Fourth, a mechanistic focus on pro- poor expenditure items reduced the focus on linking budget allocations to sector performance. Ideally, budget allocations should reward sectors that are able to use resources efficiently, but also address cases where insufficient resources rather than their inefficient use are the main reason for weak results. It is important to note that the mid-term review report on PRSP implementation issued in February 2012 does not make reference to or analyze pro-poor expenditures patterns and, in general, contains only a very cursory discussion of funding for PRSP priority areas. 42 Table 29: Pro-poor Expenditures, 2007-2012 2007 2008 2009 2010 2011 2012 Pro-poor expenditures (Budget, CFAF billion) 152 204 230 228 282 343 Pro-poor expenditures (Actual, CFAF billion)) 117 164 185 167 128 Pro-poor expenditures (Budget,% of GDP) 7.40% 8.50% 9.20% 8.40% 9.70% Pro-poor expenditures (Actual,% of GDP) 5.70% 6.80% 7.50% 6.20% 4.50% Pro-poor expenditures (Budget,% change) 34% 12% -1% 24% 22% Pro-poor expenditures (Actual,% change) 40% 13% -10% -23% Budget execution rate (Actual to budget) 77% 80% 80% 73% 45% Note: 2010a - Initial budget . 2010b - Second Revised budget (November 2010). Source: Niger Loi de Finance 2012, 2011 and 2010, Nigerien authorities. 3.56 Between 2007 and 2011, budget allocations to pro-poor expenditures increased by 86 percent, compared to an increase in overall budget allocations by 54 percent. With the exception of 2010, the year of the coup d'6tat, allocations to pro-poor expenditure items have been steadily increasing. In 2012, budget allocations to pro-poor expenditures grew by another 22 percent. Actual pro-poor expenditures increased between 2007 and 2009 in line with the increases in the budget. However, in 2010 and 2011, the budget execution rate of pro-poor expenditures declined from 80 percent in 2009 to 73 percent in 2010 and further to 45 percent in 2011 and actual pro poor expenditure declined from CFAF 185 billion to CFAF 128 billion according to the government's budget execution report. In line with the observations on overall expenditures, where government data seem to underreport donor funded investment spending, this could also reflect a weakness in the government's data base rather than an actual decline in spending. This would need to be urgently verified in order to ensure the integrity of the government's reporting on expenditure outturns. 43 Table 30: Functional classification of pro-poor expenditures (% of total expenditures), 2007 to 2010 Functional classification 2007 2008 2009 2010 Other expenditures 72.4% 67.9% 70.6% 67.9% Pro-poor expenditures 27.6% 32.1% 29.4% 32.1% Primary education 6.7% 9.4% 8.7% 8.9% Financial and budgetary affairs 1.4% 2.6% 1.7% 4.3% Public health services 4.1% 5.2% 4.1% 3.7% First cycle of secondary education 3.0% 3.0% 2.7% 3.3% Agriculture 3.0% 4.8% 2.9% 3.1% Road transport 1.3% 1.4% 4.1% 2.6% Education not defined by level 2.6% 2.2% 2.1% 2.5% Protection of biodiversity and the environment 0.0% 0.1% 0.1% 0.7% Courts 0.5% 0.5% 0.4% 0.5% General hospital services 0.6% 0.5% 0.4% 0.4% Education not classified elsewhere 0.1% 0.1% 0.5% 0.4% Secondary technical education 0.2% 0.3% 0.3% 0.3% Pharmaceutical products 0.3% 0.3% 0.2% 0.3% Second cycle of secondary education 0.1% 0.3% 0.1% 0.2% Order and security not classified elsewhere 0.0% 0.2% 0.2% 0.2% Medical equipment 0.2% 0.3% 0.2% 0.2% Water supply 1.1% 0.2% 0.2% 0.2% Economic affairs and trade 1.1% 0.3% 0.1% 0.1% Services in the fight against social exclusion 0.1% 0.1% 0.0% 0.1% Protection of the environment not classified elsewhere 0.0% 0.0% 0.0% 0.1% Extractive industries 0.1% 0.1% 0.0% 0.0% Pollution reduction 0.2% 0.1% 0.1% 0.0% Economic affairs not classified elsewhere 0.1% 0.0% 0.0% 0.0% Defense not classified elsewhere 0.0% 0.0% 0.0% 0.0% Other general services 0.0% 0.0% 0.0% 0.0% Paramedical services 0.0% 0.0% 0.0% 0.0% Cultural services 0.2% 0.0% 0.0% 0.0% Invalidity services 0.0% 0.0% 0.0% 0.0% Housing 0.0% 0.0% 0.0% 0.0% Social protection not classified elsewhere 0.0% 0.0% 0.0% 0.0% Development projects with multiple objectives 0.7% 0.0% 0.0% 0.0% Total exenditures 100.0% 100.0% 100.0% 100.0% 3.57 Primary education, health, secondary education, agriculture, and road transport constitute the bulk of pro-poor expenditures (Table 30). With the exception of the health sector, expenditure allocations on pro-poor expenditure items have increased between 2007 and 2012. 3.58 The economic composition of budget allocations for pro poor expenditure item allocations differs significantly from that of other expenditures. In particular, the share of salaries and transfers in pro poor expenditures is higher, while that of investment is lower compared to the composition of other expenditures (Figure 14). Pro-poor expenditure allocations are to a greater extent financed from domestic resources than other expenditures. Since 2007, the share of expenditures on pro-poor expenditure items that is funded from government's own resources has increased from less than 80 percent to almost 100 percent in 2012. As mentioned before, this is likely also a reflection of an apparent underreporting of donor funded expenditure in the government data. 44 Figure 14: Comparison of economic composition of pro-poor and other expenditure budget allocations, average 2007-2012 100% 90% 80% m Investment 70% 60% Current transfers 50% 40% E Operation and maintenance 30%- 20% j Salaries and wages 10% 0% Other Pro-poor Figure 15: Share of pro-poor and other expenditure allocations funded from domestic resources, 2007-2012 120% 100% 80% 60% - Pro-poor -Other 40% 20% 0% 2007 2008 2009 2010 2011 2012 3.59 Government also identified priority sectors for PRSP implementation, the definition of which is, however, not consistently applied in various government documents. Until 2010, the budget contains a summary table of allocations to priority sectors. They included the Ministry of National Education, the Ministry of Secondary and Higher Education and Scientific Research, the Ministry of Professional Training and Alphabetization, the Ministry of Public Health. the Ministry of Population, Promotion of Women, and the Protection of Children, the Ministry of Water, Environment, and the Fight against Desertification, the Ministry of Agriculture and Livestock, the Ministry of Transport, Tourism, and Handicrafts, and the Ministry of Works. The mid-term review report on PRSP implementation issued in February 2012 contains a table on PRSP priority sector spending, including education, health, rural development, and mining and energy. The tracking of priority sector expenditures is further complicated by the split or consolidation of ministries. The analysis in this section uses the list of sectors used in the government budget until 2010. 45 Table 31: Spending on priority sectors as a share of GDP and total expenditures, 2007-2011 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Budgeted expenditures Actual expenditures Share of GDP Priority sectors 5.1% 6.6% 7.3% 6.1% 7.7% 4.0% 6.1% 6.0% 5.3% 7.0% Non-priority sectors 12.7% 10.5% 13.1% 13.0% 17.7% 10.6% 8.5% 10.7% 8.8% 13.2% All 17.8% 17.1% 20.4% 19.1% 25.5% 14.6% 14.6% 16.6% 14.1% 20.2% Share in total expenditures Priority sectors 28.9% 38.6% 35.6% 31.9% 30.4% 27.2% 41.6% 35.8% 37.7% 34.4% Non-priority sectors 71.1% 61.4% 64.4% 68.1% 69.6% 72.8% 58.4% 64.2% 62.3% 65.6% All 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Budget execution (actual expenditures as share of approved expenditures) Priority sectors 77.2% 91.7% 81.9% 87.2% 89.8% Non-priority sectors 84.0% 81.0% 81.6% 67.6% 74.7% All 82.1% 85.1% 81.7% 73.9% 79.3% Source: Author's calculations, based on line item date provided by the Ministry of Finance. Table 32: Spending on priority sectors, growth rates 2007-2011 Approved - own Actual - own budet execution ratio - Approved - all resources resources own resources Growth rates 2007-2011 Secondary education and research 98.7% 99% 109% 93% Youth and professional training 175.3% 175% 183% 92% Planning, regional, and community development -58.3% -42% -62% 52% Transport, tourism and handicrafts 0.0% -17% 10% 59% Agriculture and Lifestock 89.9% 70% 128% 77% Works 212.9% 213% 277% 56% Basic education and alphabetisation 93.8% 94% 111% 91% Water, environment, and fight against desertification 87.4% 153% 249% 86% Health 46.1% 46% 67% 86% Population, promotion of women, and protection of children 399.8% 400% 454% 75% Total priority expenditures 85.5% 93% 117% 85% Total non-priority expenditures 29% 41% -1% 73% Total expenditures 54% 58% 36% 78% percent of total expenditures (average 2007-2011) Priority sectors 50% 38% 42% Other sectors 50% 62% 58% Total 100% 100% 100% percent of GDP (average 2007-2011) Priority sectors 14% 8% 7% Other sectors 14% 13% 9% Total 29% 21% 16% Source: Author's calculations, based on line item date provided by the Ministry of Finance. 3.60 Both budget allocations and own funded actual expenditures in priority sectors increased faster than spending in non-priority sectors. Priority sector spending over the period 2007 to 2011 grew by 86 percent in terms of approved budgets, 93 percent in terms of approved budget items funded from government's own resources, and by 117 percent in terms of actual spending on priority sector budget items funded from government's own resources. The respective growth rates for spending in other sectors are 29 percent, 41 percent and minus 1 percent. During that period, priority sectors accounted for half of the overall budget, 38 percent of budget allocations funded from government's own resources, and 42 percent of actual spending. The budget execution rate for priority sectors was 85 percent, compared to 73 percent for other sectors. Among the priority sectors, spending by the ministry in charge of population, the promotion of women, and the protection of women grew five-fold, spending by the Ministries of Water and Works more than tippled, and spending on education, agriculture, and livestock more than doubled. Spending increases for health were more modest, but still significantly above the average growth rate for non-priority sectors. 3.61 Finally, the authorities undertook the preparation of sectoral and cross sectoral Medium- Term Expenditure Frameworks. In order to enhance strategic planning, government has prepared cross- 46 sectoral medium term expenditure frameworks and several of the priority sectors - education, health, rural development, and works - have developed sectoral Medium Term Expenditure Frameworks. These exhibit the following characteristics:" * The documents are complex and detailed, targeted primarily at the sector specialists and not so much at the Ministry of Finance; * The methodologies and formats used are not uniform across sectors, which makes it difficult for the Ministry of Finance to use them for budgetary discussions or for the preparation of a consolidated presentation of sector MTEFs; * The budgetary constraints (from the global MTEF) are in most cases not respected; * Budgetary and extra-budgetary financing is often not separated; but * The documents reflect the significant effort spent by the concerned ministries and a good understanding of their sectors and of programmatic budgeting. 3.62 Success of sector MTEFs depends on improving the credibility of the annual budget, both at the aggregate and line ministry levels. The new organic finance law foresees the preparation of sector MTEFs (multi-year expenditure programming documents) by all sectors. These MTEFs would link results, programs for their realization, and budgetary resources. While this is an important initiative, its success will very much depend on improvements of the annual budget process. In particular, as long as there are significant discrepancies between budgeted amounts and actual spending by ministries and, as long as the capture of information on donor supported expenditures is incomplete, the MTEF process will also suffer from a credibility problem. 3.63 In order to strengthen the link between the new PRSP - the Plan for Economic and Social Development 2012-2015 (PESD) - which was adopted in 2012, and the budget, a number of points are worth considering: * Translate the PRSP into a medium term expenditure framework. This needs to encompass both recurrent and investment expenditures. It will also important that the PRSP works with realistic projections of government and donor resources and it may be necessary to adjust expected results in line with these resource projections, if they differ from those underlying the PRSP costing. * Review the system of pro-poor expenditures and priority sector expenditures. In the past, the share of priority sector and pro-poor expenditures in total expenditures was fairly high, but the link to specific targeted results was difficult to discern. Going forward, the implementation of program budgeting would be ideal, but as experience from many countries shows, this is difficult to operationalize in a meaningful way in a highly capacity constrained environment. Until the programmatic budget is fully operational, we thus recommend maintaining a system of pro-poor expenditures and priority sectors that is aligned with the PESD. A reporting mechanism that shows the alignment of public expenditures with key PESD objectives would support strategic decision making. * Adopt measures that would facilitate a high budget execution rate for pro-poor expenditures and priority sectors. In particular, this would include providing early budget releases for these sectors and protect their allocations from cuts in the course of budget execution. This may require a more narrow definition of these expenditures then was the case in the past. If priority expenditures account for a large share of the budget, it is difficult to have them grow IMF, 2012. Ripublique du Niger - Prdparer la Stratigie Budgtaire et Divelopper les CDMT Sectoriels, February 2012. 47 significantly faster than other expenditures, if the overall functioning of government is not to be jeopardized. It is also difficult to protect priority expenditures in the process of budget execution, if they account for a large share of the budget. Acknowledging, that achievement of PRSP objectives may be indeed related to a wide range of expenditures, it could be useful to distinguish between priority and core priority expenditures, where core priority expenditures would receive a higher degree of priority during budget preparation and of protection during budget execution than other PRSP related expenditures. * Enhance the dialogue between the Ministry of Finance, sector ministries, and development partners. The role of the budget in helping sectors achieve the PRSP targets can be strengthened by ensuring that funding from the budget, but also from development partners, is well informed by sector needs and priorities, both during budget preparation and budget execution. One option would be to organize quarterly budget review meetings with the participation of the above three parties, which would provide an opportunity to discuss and resolve bottlenecks that constrain the implementation of the budget and donor funded programs. G. POLICY RECOMMENDATIONS 3.64 The foregoing analysis in this chapter identifies a range of issues that limit the effectiveness of public expenditures in Niger and proposes options for improvements. Table 34 highlights the key issues and key actions that should be considered to enhance the effectiveness of public expenditures. Considering the limited and already overstretched capacities of the Ministry of Finance, the recommendations seek to focus on key measures. Table 33: Key recommendations for enhancing the effectiveness of public expenditures Issue Recommendation Enhancing transparency and the * Preparation and publication of quarterly budget execution reports, that quality of data to enhance include information on budget execution in key sectors. contestability and accountability. * Publication of key budget documents and data on the website of the Ministry of Finance. Domestic revenue mobilization is * Implement strategic plans for customs and tax department. insufficient to ensure adequate funding for PESD implementation and * Adopt measures that would increase the compliance of businesses with results in an uneven playing field for registration with the customs and tax authorities and the submission of economic actors due to weak and annual tax returns. uneven enforcement of tax laws. Only a relatively small share of the * Channel more resources of the investment budget for physical capital budget is actually targeted at investments, matched by appropriate resources for maintenance. the creation of physical infrastructure and resources for operations and maintenance are often inadequate. Expenditures on wages and salaries do * Carry out a detailed review of public sector staffing and wage policies. not support a well performing civil service. Public expenditures are not clearly * Translate the PESD into a cross sectoral Medium Term Expenditure prioritized, especially during budget Framework based on resource projections consistent with the ECF execution. supported macro-economic program. * In consultation with sector ministries, identify PESD related core priority expenditures which would benefit from early budget releases and be fully protected. Such core priority expenditures should not exceed 25 percent of total expenditures. * Adopt a reporting mechanism that links public expenditures to key PESD objectives. 48 CHAPTER 4: OFFICIAL DEVELOPMENT ASSISTANCE A. INTRODUCTION 4.1 This chapter analyzes the volume, modalities, and allocation of official development assistance to Niger as well as issues related to the adequacy of aid receipts based on indicators of performance and need, aid effectiveness, and aid fragmentation. The analysis relies on two main sources of data, namely donor reported data compiled by the OECD and fiscal data compiled by the government of Niger.12 The OECD's International Development Statistics databases cover bilateral and multilateral donor aid and other resource flows to developing countries in two separate databases: > The DAC annual aggregates database, which provides comprehensive data on the volume, origin and types of aid and other resource flows; > The Creditor Reporting System (CRS), which provides detailed information on individual aid activities, such as sectors, countries, project descriptions etc. 4.2 At the government level, aggregate data are reported in the Central Government Operations Table which shows aid disbursements split into credits and grants and program and project assistance. It is important to note that Niger also receives significant aid from non-DAC donors who often do not report their aid disbursements to the OECD. These aid flows are thus not fully reflected in OECD data, but may, however, be included in the government budget. B. OVERVIEW OF AID TO NIGER 4.3 Official development assistance plays an important role in Niger's economy. Following independence in 1960, net official development assistance to Niger increased steadily to reach US$120 per capita (in 2010 US$) or 30 percent of GDP in the mid-1970s. Beginning in the mid-1980s, ODA started to decline to drop below US$30 per capita (or 7 percent of GDP) by 1999. Following democratic elections in 1999, ODA started to increase again to reach US50 per capita by 2004, but then declined again and stood at US$38 per capita in 2010. ODA flows to Niger also show large variations from year to year that appear to be partly a donor response to government performance (Box 3). 12 Complementary data sources on aid flows are the UNDP's development cooperation reports and balance of payments statistics. 49 Figure 16: Net Official Development Assistance Disbursements to Niger, 1960-2011 140 120 100 80 60 40 20 0 r W W W W r- r-I r r- r- 0 r- r- 0- r- r- r- r- r- r- 0 0 0 0 0 H ~ ~ ~ ~ ~ ~ ~ ~ - H1 H HHHHHHH rqJ r14 C' C'4 r4J -ODA: Total Net (constant 2010 US$, per capita) -ODA: Total Net (percent of GDP) Source: Author's calculations based on data from the OECD DAC ODA data base. Box 3: Coup d'6tats and aid flows to Niger Since independence, Niger has experienced four coup d'6tats, namely in 1974, 1996, 1999, and 2010. The review of aid flows before, during, and after the year of a coup d'6tat reveals some interesting patterns. The first coup d'6tat in 1974 was preceded by a significant increase in aid receipts which was also sustained during the year of the coup d'6tat. However aid dropped in the two years after the coup d'6tat. For the next three coup d'6tats, aid dropped already significantly in the year prior to the coup d'6tat. This could indicate that reasons that caused donors to cut back on aid, ultimately resulted in a coup d'6tat to resolve the situation. This hypothesis is reinforced by the fact that aid in the year after the coup d'6tat increased significantly, signaling an implicit endorsement of the change in government by the donor community. The relationship between economic growth and coup d'6tats seems to be much more erratic with no apparent relationship with the pre-coup growth rate and the occurrence of the coup d'6tat. Nonetheless, it is interesting to note that all four coups occurred during the first four months of the year, the time when the population typically starts to suffer from the effects of a poor harvest. Indeed the 1974 and the 2010 coup d'6tats were preceded by severe harvest failure, while the 1996 and 1999 coup d'6tats are typically ascribed primarily to political reasons. year of coup d'6tat change in one year prior to coup d'ktat year of coup d'etat one year after coup d'6tat two years after coup d'ktat net ODA 43.2% 70.5% -13.4% -6.7% 15-Apr-74 real GDP -17.0% 8.8% -2.8% 0.7% netODA -32.5% -5.8% 45.0% -11.6% 27-Jan-96 real GDP 2.6% 3.4% 2.8% 10.4% net ODA -11.6% -35.4% 19.3% 28.6% 9-Apr-99 real GDP 10.4% -0.6% -1.4% 7.1% net ODA -21.1% 59.6% -18.1 18-Feb-10 real GDP -0.9% 8.0% 2.3% 50 4.4 The subsequent analysis will focus on the period 2000-2012, during which Niger has been implementing two PRSPs (PRSP-1 - 2002-2007, PRSP-2 - 2008-12) and which also coincides with the period of political stabilization following the return to a democratically elected regime in late 1999. We start the analysis by reviewing trends in the level and composition of aid receipts by Niger, using data from the OECD data base on aid. Figure 17: Trends in development assistance to Niger, 2000-2011 Panel A: On average, only about two thirds of aid Panel B: Aid delivered through NGOs and the UN reported by donors is channeled to government system accounts for a significant share i aid to Niger, __________________________________________ especially in years of food crises 16.0% 800 14.0% ___________________________700 m To be defined 12.0% SO 10.0% 000 2400 - O Multilateral Organisations S6.0% 8OO400 4.0% m 0 Public-Private 2.0% B: Aid Partnerships (PPP) -ODA netpefidebt onerationso- toocountrys 800 ODA net of debt operations - to government 2008 2009 2010 2011 Panel C: Donor and government reported figures on Panel D: Almost 50 percent of grant assistance have net loans match closely, but net loans have been been channeled outside government, with this share declining in the wake of debt relief initiatives increasing significantly during years of crisis 6% 14% 5% 12% 10% 4% 0 08% 3% 0 6% 2% 4% 2% % 0 - D ne 0% 2000 2001 2002 200320042005 2006 2007 2008 2008 2010 2001 2000 2001 2002 2003 2004 2005 2006 2007 2008 2008 2000 2011 0 Grants (net of debt relief) - to country Loans (net) - to country * Loans (net) - to government * Grants (net of debt relief) - to government Source: Author's calculations based on data from the OECD DAC ODA data base. 4.5 Overall aid to Niger has been increasing from about eleven percent of GDP in 2000 to almost 15 percent of GDP in 2005 and declined subsequently to less than nine percent of GDP by 2009. In years of food crises - 2005 and 2010 - aid peaked reflecting large inflows of humanitarian and other crisis related assistance. Of overall aid flows, on average two thirds are provided to government. The trend of aid receipts to government differs slightly from the trajectory of overall aid receipts, with aid receipts of around between nine and ten percent of GDP between 2000 and 2007. In 2008, aid to govermment started to decline and, as a result of the political crisis, dropped to less than six percent of GDP by 2011, when the political crisis was resolved and Niger had returned to a democratically elected regime (Figure 17)." 1 Since there are differences as to how debt relief is captured between OECD and government data, Figure 17 shows net aid flows that exclude all debt relief related aid flows. 51 4.6 The share of credits in overall aid and in aid to government has declined significantly during the past decade. While until 2004 about half of ODA received by government was in the form of grants and half of it was in the form of credits, since 2005 the share of credits in aid financing to government has decreased significantly and stands now at around 28 percent of total ODA to government. Development assistance delivered in the form of loans is generally provided to government and the discrepancy between what is captured in the OECD data and in the government data is thus small. However, data on grant aid suggest that in most years between four and five percent of GDP in OECD data is channeled to recipients outside of government. In addition, the OECD data also show a widening gap between overall aid levels and those delivered through the government in the years of severe food crisis (2005 and 2010) when much emergency support was provided through the UN system and NGOs. 4.7 During the recent political crisis in Niger, both bilateral aid delivered directly to government and aid delivered through multilateral channels declined, while aid delivered through NGOs was less sensitive to political developments. 4.8 Figure 17-Panel B shows the channels through which aid was delivered to Niger. This includes the direct delivery of bilateral aid to government, the delivery of bilateral aid through NGOs and civil society, and through multilateral agencies such as the UN and multilateral development banks. For about 25 percent of disbursements the channel of delivery is not identified. The graph provides not only important information on the channels used to deliver aid to Niger, but it also describes interesting dynamics of donor reaction to the political and food crisis that hit Niger in 2009 and 2010. During 2008, a relatively normal year before the crises hit Niger, most of the aid was delivered directly by bilateral donors to government, though delivery through NGOs and multilateral channels also clearly played an important role. In 2009, when the political crisis erupted, both bilateral and multilateral disbursements declined, while aid delivered through NGOs was less affected. Finally, in 2010, when the political crisis culminated in a coup d'6tat, direct bilateral aid to government increased moderately. However, aid delivered through NGOs and multilateral organizations increased significantly, primarily on account of the delivery of humanitarian aid to assist Niger in dealing with a severe food crisis caused by harvest failure. 4.9 Since the food crisis in 2005, humanitarian and food aid have become significant elements of aid to Niger. These inflows have peaked during the severe food crises in 2005 and 2010. However, it appears that following the 2005 food crises, food and humanitarian aid have become a permanent fixture of assistance to Niger. Even in years with normal or relatively good harvests, around 2 percent of GDP is provided in food and humanitarian aid. Unfortunately, the increase in food and humanitarian aid coincides with a fall in aid for development purposes from 13 percent of GDP in 2005 to less than 8 percent in 2009. The fact that food and humanitarian aid do not seem to be fully additional to aid for medium to long term development is of concern, as it potentially impedes the prospects for Niger to overcome deep seated structural problems that result in recurrent food crises and high vulnerability to a range of external shocks. In this context, it is important to note that the Government's 3N initiative for agricultural development and food security presents an important effort to overcome structural vulnerability to food insecurity and merits consideration for scaled up support by donors, which should at least match funding for food and humanitarian assistance. 52 Figure 18: Development Food Aid and Humanitarian Aid to Niger, 2000-2010 16.0% 14.0% 12.0% 0 S10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Development Food Aid Humanitarian Aid - Other Aid Source: Author's calculations based on data from the OECD DAC ODA data base. C. SECTORAL DISTRIBUTION OF AID 4.10 From the PRSP-1 to the PRSP-2 period, development assistance earmarked to specific sectors increased significantly. OECD/DAC data provide a glimpse on the evolution of sectoral allocations of aid. In this section we focus on the sectoral evolution of aid flows comparing data from the period covered by Niger's first PRSP (2002-2007) and Niger's second PRSP (2008-2011). At an aggregate level, aid can be classified into resource flows that directly benefit specific sectors, commodity and program assistance (including budget support), humanitarian aid, and debt relief. Niger reached the HIPC completion point in December 2000 and qualified for MDRI debt relief in December 2005. Debt relief thus constitutes an important element of aid to Niger during the PRSP- 1 period. Sector allocable aid is aid that directly benefits specific sectors such as health and education. Total sector allocable aid increased significantly between the PRSP-1 and the PRSP-2 period, with average annual aid disbursements increasing from around US$300 million to US$400 million. The other aid category that saw a significant increase between the two PRSP periods is humanitarian aid, both as a consequence of significant aid inflows to fight the severe food crisis in 2010, but also reflecting sustained high levels of humanitarian aid following the 2005 food crisis. Commodity aid and general program assistance on the other hand experienced a small decline from the PRSP-1 to the PRSP-2 period as a consequence of the political instability experienced during the latter period. 53 Figure 19: Sectoral distribution of aid to Niger, PRSP-1 and PRSP-2 Panel 1: Main Aid Categories, Average annual Panel 2: Sector Allocable Aid, Average annual disbursements during the PRSP-1 and PRSP-2 period disbursements during the PRSP- 1 and PRSP-2 period 900 450 800 400 a 700 tnOther 350 E Multi-Sector / Cross- 600 m Humanitarian Aid, Total C 300 Cutting U500 - 250 - Production Sectors Action Relating to Debt, 400 Total C200 - Economic Infrastructure & 300 - Commodity Aid / General 150 Services E Prog. Ass., Total 1 Social Infrastructure & S200 100 m Total Sector Allocable Services 100 50 0 0 PRSP-1 PRSP2 PRSP-1 PRSP-2 Panel 3: Aid Receipts by Sector, Average annual disbursements during the PRSP-1 and PRSP-2 period 80 070 w**I 0 60 50 40 u~30 o 20 10 - PRSP-1 .2 0PRSP-2 Source. Author's calculations based on data from the OECD CRS data base. 4.11 Most aid goes towards the social sectors, which accounted for 61 percent of disbursements of sector allocable aid during the PRSP-2 period, followed by economic infrastructure (14 percent), the productive sectors (13 percent), and multisectoral aid (12 percent) (Figure 19-Panel 2). Comparing the two PRSP periods, the share of aid to the social sector remained constant at 61 percent of total sector allocable aid. On the other hand, aid to the productive sectors decreased from 17 to 13 percent, while that to economic infrastructure increased from 9 percent 14 to percent. The share of multisectoral aid declined marginally from 13 to 12 percent. 4.12 Aid disbursements to individual sectors show significant changes from the PRSP-1 to the PRSP-2 period. During the PRSP- 1 period, health, government and civil society, education and agriculture benefitted each from annual aid receipts of more than US$30 million. PRSP-2 aid disbursements present a much more differentiated picture. Health, government and civil society, transport and storage benefitted from significant increases in aid flows, making them the largest recipients of aid. Aid disbursements to the education and agriculture sectors, on the other hand, stagnated. The sectoral aid allocations are consistent with Niger's PRSP, though the sectoral differentiation that apparently took 54 place between PRSP-1 and PRSP-2 is not justified by clear statements in the second PRSP that these sectors have higher priority than other sectors. D. CONTRIBUTION OF AID TO THE FUNDING OF GOVERNMENT SPENDING 4.13 The share of government expenditures funded by foreign aid has almost halved between 2000 and 2011 (Figure 20). In 2000, the contribution of gross external aid to the funding of total government expenditures was more than 50 percent. By 2011, the contribution of aid has dropped to 30 percent. The decline in external financing is mainly due to a decline in funding through concessional credits, especially since 2005 when Niger received MDRI debt relief. Similarly, the share of budget support also dropped significantly from about 22 percent of total expenditures to about 10 percent in recent years. Figure 20: Contribution of external financing to funding of government expenditures 60% 60% ,50% SO5% S40% 40% a, a S30% ECredits 30% SProjectsupport 0 *Grants 0 Budget support 20% 20% .10% l.1% 0% 0% Figure 21: Financing of Government's Capital Expenditures, 2000-2012 (% of GDP) 20% 18% 16% 14% 0 12% 0 10% 8% 6% 4% 2% 0% 2000 20012002 2003 2004 2005 2006 2007 2008 2009 2010 20112012 H Domestically financed U Externally Financed 4.14 Despite the decline in overall aid levels and smaller declines in project support, Niger has been able to expand its capital budget by enhancing the share of domestic financing (Figure 21). The share of domestic financing increased from 15 percent in 2000 to more than 50 percent in recent years. The budget for 2012 projects a significant increase in both externally and domestically funded capital expenditures. 55 E. DOES NIGER RECEIVE A FAIR SHARE OF INTERNATIONAL AID? 4.15 The literature on aid allocations identifies a range of factors that explain the allocation of aid to recipient countries. These include factors that create a special relationship between donor and recipient countries such as colonial legacies, shared language, or strong trade ties. They also include factors such as political alliances, a country's geo-strategic importance, or factors that impact on the attractiveness of a country for donor agency staff, including security, government-donor relationships, and so on. Finally, from the perspective of aid efficiency, the quality of a country's policy and institutional regime and the needs of countries are key determinants of relative aid flows. 4.16 Studies on the allocation of aid identify Niger as a country that receives less aid than would be warranted based on the country's needs and performance. The World Bank 14 developed a methodology to identify under aided countries by taking into account countries' needs (measured by per capita income) and performance (measured by the World Bank's Country Policy and Institutional Performance Assessment). Using data for the years 2005-2006, this study identifies Niger as being one of nine countries that receive a smaller share of international aid than would be predicted when applying various methodologies. An update of this study by the OECD using data for 2008-2009 confirms the findings of the World Bank study and identifies Niger together with four other countries as deserving close attention in the allocation of aid by donor countries, as their aid receipts are below what would be expected based on Niger's needs and policy performance. As shown above, the period of 2005 to 2006 and even more so the period 2008 to 2009 were years when Niger's aid receipts were declining, partly in response to a weakening reform effort and increased political instability. The recent stabilization which is accompanied by a recovery of aid levels is likely to bring Niger's aid levels closer to what could be expected based on its needs and performance. 4.17 The approach used by the World Bank and by the OECD does not take into account structural disadvantages of individual countries in the pursuit of growth and poverty reduction objectives in order to equalize the poverty risk at a certain point in time. A study by Cogneau and Naudet,15 using data for 1996, shows that aid levels to Niger are significantly below what would be expected if structural disadvantages of the country were taken into account. Finally, the recent discussion of aid allocation has also highlighted that countries' vulnerability to external shocks should be reflected in aid allocations.16 The UN's Economic Vulnerability Index (EVI) includes three indicators of the likely size of the exogenous shocks, either external (instability of exports of goods and services) or natural (instability of agricultural production and percentage of population displaced due to natural disasters), and four indicators of the exposure to shocks (smallness of population size expressed in logs, remoteness from world markets adjusted for landlockedness, share of agriculture, forestry and fisheries in total value added, and concentration of exports). Shocks and exposure receive the same aggregate weighting within EVI. Niger's EVI for 2012 is 38.6 and it ranks in the middle among low income countries. However, it is important to note that the EVI may not fully capture Niger's extreme vulnerability to agricultural shocks and conflict in the Region. 14 Utz, Robert. 2010. Will Countries that Receive Insufficient Aid Please Stand Up? CFP Working Paper Series No. 7. September 2010. 15 Cogneau, Denis and David Naudet. 2004. Who deserves aid? Equality of opportunity, international aid and poverty reduction. Document de travail. DT 2004/10. November 2004. 16 E.g., Guillaumont, Patrick. 2008. Adapting Aid Allocation Criteria to Development Goals. fondation pour les 6tudes et recherches sur le d6veloppement international. Document de travail S6rie << Politiques de d6veloppement >> / PI, Mai 2008. 56 F. AID EFFECTIVENESS 4.18 Progress in enhancing aid effectiveness over the period 2005 to 2010 has been mixed (Table 26). The Paris Declaration on Aid Effectiveness defines indicators in five areas that are considered to be essential for effective aid, namely ownership, alignment, harmonization, results orientation, and mutual accountability. For only two of the twelve indicators has the target for 2010 been reached. However, in most areas, there has been very little progress and for half of the indicators, the data suggest even a deterioration of the situation between 2005 and 2010. While measurement problems for the individual indicators are certainly an issue, it is clear that more efforts to enhance aid effectiveness are needed by both donors and government. Table 34: Progress in fostering aid effectiveness, 2005 - 2010 Direction of Indicator 2005 Reference 2007 Resultat 2010 Target 2010 change 2005- 2010 Ownership Indicator 1. Operational Development Strategies C C C C __ Alignment Indicator 2a. Reliable Public Financial Management Systems 3.5 3.5 3.5 4 4 Indicator 2b. Reliable Procurement Systems N/A B N/A No target N/A Indicator 3. Aid flows are aligned on national priorities 99% 91% 85% 100% 1j Indicator 4. Strengthen capacity by co- ordianted support 15% 50% 55% 50% t Indicator 5a Use of country PFM systems 27% 26% 29% 51% t Indicator 5b. Use of country procurement systems 49% 37% 23% No target 4. Indicator 6. Avoiding parallel Project Implementation Units 52 47 53 17 4 Indicator 7. Aid is more predictable 73% 78% 72% 87% Indicator 8. Aid is untied 85% 76% 84% Above 85% i Harmonization Indicator 9. Use of common arrangements or procedures 31% 49% 41% 66% t Indicator 10a Joint Missions 21% 15% 3% 40% 4. Indicator 1Ob. Joint country analytic work 40% 32% 34% 66% 4 Results orientation Indicator 11. Results oriented frameworks D D C "B" or "A" 1 Mutual Accountability Indicator 12. Mutual Accountability N N N 0 14 4.19 Ownership needs to be strengthened. Ownership as defined in the Paris Declaration on Aid Effectiveness comprises two aspects. The first is the country's capacity to effectively take charge of its development policies and strategies. The second relates to the country's capacity to effectively coordinate the activity of all development actors in a country. The establishment of the Ministry of Planning, Regional and Community Development in 2011 represents an important step taken by the authorities to strengthen the design, coordination, implementation and monitoring and evaluation of the government's program. The Government's development policies are spelt out in the new PRSP - the Plan for Economic and Social Development 2012-2015 (PESD) - which was adopted in 2012 and which is to be framed within a long term strategy for inclusive sustainable growth which is currently being prepared. 57 4.20 Insufficient funding of operations and maintenance for donor funded investments is a sign of weak ownership. For example, the road sector is constantly struggling to assure a minimum level of funding for road maintenance. After a temporary improvement in the funding situation in 2009 and 2010, the situation deteriorated again recently. Delays in project implementation are often due to coordination problems and rent seeking activities at all levels. Insufficient or delayed allocations and releases of counterpart funding are another indicator of weak ownership. As an example, a donor funded vaccination program requires up-front government contributions in order to unlock donor funds for the purchase of vaccines. In the past, delays in the provision of counterpart funds have led to delays in the roll out of vaccination campaigns. 4.21 The PESD presents an ambitious program, the implementation of which will however face significant constraints in terms of available resources and absorptive capacity. The prioritized action plan foresees an increase in PESD related expenditure from about US$1.2 billion in 2012 to US$3.8 billion in 2015, for a total of US$10.8 billion over the four year period. Of this, about 77 percent or US$8.3 billion is to be externally funded. At a PESD Round Table held in Paris from November 13-14, 2012, indications of donor support for the period 2012-2015 amounted to about US$4.8 billion, leaving an external resource gap of about US$3.6 billion. Over the previous five years, annual external financing for Niger was between US$300 and US$400 annually. Reaching the level of externally funded expenditures envisaged in the PESD would thus require a massive increase in the amount of external support and absorptive capacity. As an operational strategy to deal with financing and absorptive capacity risks, it would thus be important to further prioritize the PESD to a volume of expenditures that represents a more organic evolution from historic levels of expenditures while at the same time implementing measures to strengthen absorptive capacity. 4.22 Alignment - its improvement requires prioritization of the PESD. Alignment requires that aid is in support of the country's own development strategy and that it uses and helps to strengthen national systems, especially for financial management and procurement. Surprisingly, the results of the 2011 survey on the implementation of the Paris Declaration suggest a decline in the share of aid that is aligned to national priorities from 99 percent in 2005 to 85 percent in 2010. The Government's Plan for Economic and Social Development leaves much scope for development partners to claim that their development support is aligned, given that its financing requirements exceed significantly what is likely to become available and it does thus not impose an effective constraint on the range of donor activities. Further prioritization of the PESD would ensure that donor support is indeed guided to those areas which are of the highest priority to government. 4.23 The use of country systems remains very limited. Only about 29 percent of aid uses the country's public financial management system and 23 percent the country's procurement system. Despite the progress made by the authorities in strengthening these systems - though not yet reflected in the Paris Declaration assessment -, the use of public financial management systems has only marginally increased between 2005 and 2010, while the use of procurement systems has dropped significantly. A recent report prepared by the World Bank on the use of country systems in Niger provides specific recommendations on how to facilitate the use of country systems by the Bank (Box 4). 58 Box 4: Measures to facilitate the use of country systems by donors In order to facilitate the use of Niger's financial management systems by the Word Bank and other donors, a recent assessment identifies the following measures: * Establishment of a Special Account for each project, which would ensure that the management of externally financed development projects are fully integrated into the government's budget, accounting, reporting, and Treasury systems, while ensuring that extemal resources are only used for the supported project; * Expanding the Govemment's Integrated Financial Management Information System (IFMIS) by developing special modules for the management of extemally funded projects and the preparation of project specific reports, the automatization of the creation of budget credits, and the decentralization of the IFIMIS with strengthened intemet connections; * Preparation of a modemization plan of the Treasury unit in charge of deposit account in order to move in the medium term to the management of transaction accounts. As an intermediate step, designated project accounts should be placed with the BCEAO outside the current account of the Treasury, and transaction accounts with commercial banks; * Involve the financial controller in the control of all extemally funded project expenditures, in order to prevent irregularities, including the nomination of project specific financial controllers for the largest projects. * Involve the Court of Accounts in the audit of externally funded project accounts, starting with the audit of a sample of five projects in collaboration with a private audit firm with the objective of building capacity and gradually transferring the audit of all project accounts to the Court of Accounts; * Accompany the move towards using national systems with technical assistance and support in the areas of budgeting, accounting, asset management, and intemal and extemal audit - closely coordinated with broader capacity building efforts for public financial management and procurement. Source: The World Bank. 2012. Examen de l'utilisation du systime nationale de gestion financidre pour les projets d'investissement de la Banque Mondiale. (Review of the use of the national financial management system for investment projects of the World Bank). Draft. September 2012. 4.24 The number of parallel Project Implementation Units has increased slightly from 52 in 2005 to 53 in 2010. Parallel project implementation units facilitate project implementation in the short term, but draw capacities from regular public sector functions and increase the risk of the unsustainability of development efforts, once the donor support to the parallel project implementation ceases. 4.25 Predictability of aid has also seen little improvement over the period 2005 to 2010. Predictability of aid is particularly important with respect to budget support in order to ensure that budget support is adequately reflected in the budget and disbursed early in the fiscal year in order to remove liquidity constraints and enhance budget implementation. Political instability experienced by Niger between 2009 and 2011 had a detrimental impact on aid predictability. However, with the return to constitutional order and with a democratically elected regime in place, efforts are underway to enhance predictability of budget support. In particular, the World Bank and the European Union are working with the authorities to gradually adjust the timetable for budget support in order to be able to provide a firm commitment before the start of the fiscal year and to disburse early in the fiscal year. However, predictability also depends critically on the timely implementation of reforms which are the basis for the Bank's budget support. Implementation of reforms is occasionally constrained by the lack of adequate budget allocations for the technical work. It would thus be important, that agreed reforms that condition the release of budget support are fully costed and funded, either from own or external resources. 4.26 Harmonization requires further efforts by development partners. Niger receives development assistance from a fairly large number of donors. The OECD counts 28 bi- and multilateral donors who provided aid to Niger in 2011. This does not include donors who provided aid of less than US$250,000, but also, more importantly donors who are not reporting to the OECD Development Assistance committee, such as China. Given the very weak capacities in government, harmonization of 59 aid and a reduction in the fragmentation of aid has an important role to play in improving aid effectiveness. 4.27 While there has been some progress in the use of common arrangements or procedures, the share of joint missions and coordinated analytical work has actually gone down according to the OECD data. Progress is most advanced in the health sector, where much of the donor support is provided through a common fund. Education and rural development have also fairly strong donor coordination around government sector programs. Harmonization among the key budget support donors to Niger namely the World Bank, the European Union, and the African Development has also seen some progress with the establishment of a common policy reform and results matrix. However, further efforts in aligning review and disbursement schedules are needed to be able to move towards semi-annual joint reviews based on the common policy reform and results matrix. Furthermore, stronger government leadership and the institutionalization of the management of budget support would be key to ensure that harmonization efforts are sustained and not dependent on the efforts of individual persons. 4.28 Results based management is being stepped up on the basis of the country's results framework. The country's previous PRSP had a well-developed results framework and monitoring mechanism, even though it suffered from problems with the comprehensiveness and timeliness of the provision of data. The PESD is accompanied by a results framework and it is expected that the monitoring mechanisms from the previous PRSP are maintained. At the sector level, education, health, and rural development have performance frameworks, with progress being assessed semiannually in the health sector and annually in the education and rural development sector. There has also been progress in the harmonization among the key budget support donors (World Bank, European Union, and the African Development Bank) in establishing a joint policy and results framework used to monitor progress. 4.29 Mutual Accountability is weak. Processes for mutual accountability are weakly developed, as there is no up to date aid strategy or policy, nor country specific targets for improving aid effectiveness and a process to measure progress. In the context of the adoption of a new PRSP in 2012, development of an aid strategy that clearly sets out a framework for guiding aid would be very welcome. Such a strategy would be an important tool for more effective government leadership and coordination of aid and as a framework for fostering aid effectiveness. It could guide donor coordination, the choice of aid instruments and the role of budget support, the use of country systems, and the implementation of measures to strengthen aid effectiveness. As such, an aid strategy could also serve as the basis for enhanced mutual accountability between the Nigerien authorities and its technical and financial partners. G. AID FRAGMENTATION 4.30 Managing donor supported projects and relationships with donors entails significant transaction costs for the recipient government. According to OECD data, in 2011 28 bilateral and multilateral donors provided country programmable aid (CPA)" in the total amount of US$431 million to Niger. 18 The OECD has developed a measure of aid fragmentation that assesses whether an aid relationship is significant from the perspective of the donor and of the recipient country. With respect to the donor perspective, an aid relationship is considered to be significant if its share in aid to Niger is 17 Country Programmable Aid (CPA) is the portion of aid donors programme for individual countries, and over which partner countries could have a significant say. It excludes humanitarian and food aid, debt relief, support to NGOs etc. 8 This does not include donors who provided less than US$250000 and which the OECD refers to as "micro aid relations." These often take the form of non-project technical cooperation, which includes activities such as scholarships, volunteers and trainees and minor grants channeled through. 60 larger than its share in global aid. From the country's perspective, an aid relationship is considered significant if the donor is among the largest donors that cumulatively account for at least 90 percent of the country's aid. 4.31 Data suggests that aid fragmentation could be reduced. Table 35 shows for the 28 aid donors to Niger their share in global country programmable aid as well as their share in country programmable aid to Niger. The twelve largest donors to Niger provide 90 percent of country programmable aid to Niger and their aid relationship is thus considered significant from the country perspective. The remaining 16 donors provide the remaining ten percent to aid. For 18 of the 28 donors to Niger, their share in country programmable aid to Niger exceeds their share in global country programmable aid and these aid relationships are thus considered to be significant from the donor perspective. For a group of eight, mostly bilateral donors, the aid relationship is neither significant from the donor nor from the country perspective. However it is important to note that some of these donors, such as the USA, play an important role in providing humanitarian aid to Niger, even though their share in country programmable aid is small. Nonetheless, this data does suggest that there is some scope for reducing aid fragmentation at the aggregate donor level. Table 35: Donors' share of aid to Niger and significance of aid relationship, 2011 Donors' Donhr ' Significant - Significant - Donor Cumulative aid country donor Both global CPA Niger's CPA perspective perspective (in %) 1 IDA 11.9 23.1 23.1 y y y 2 EU Institutions 8.8 21.3 44.4 y y y 3 AfDF 2.1 10.9 55.3 y y y 4 France 5.9 8.3 63.6 y y y 5 UNICEF 0.8 4.5 68.1 y y y 6 Germany 5.7 4.3 72.3 y 7 Spain 1.3 4.1 76.5 y y y 8 Belgium 0.5 3.5 80.0 y y y 9 GAVI 0.8 3.0 83.0 y y y 10 Switzerland 0.7 2.5 85.5 y y y 11 IFAD 0.7 2.4 87.9 y y y 12 Global Fund 3.0 2.1 90.0 y 13 UNDP 0.4 2.1 92.0 y 14 Denmark 1.2 1.7 93.7 y 15 Japan 12.4 1.6 95.4 16 United States 18.5 1.2 96.6 17 Luxembourg 0.2 1.1 97.7 y 18 UNFPA 0.3 0.7 98.4 y 19 OFID 0.3 0.4 98.8 y 20 WHO 0.2 0.3 99.1 y 21 Canada 1.41 0.23 99.3 22 Korea 1.00 0.14 99.5 23 Australia 2.62 0.13 99.6 24 UNAIDS 0.08 0.13 99.7 y 25 Italy 0.60 0.07 99.8 26 BADEA 0.11 0.07 99.9 1 27 IAEA 0.04 0.06 99.9 y 28 Isl.Dev Bank 0.40 0.06 100.0 1 61 4.32 In addition to considering aid fragmentation at the aggregate level, the OECD also provides data on fragmentation at the sector level. The significance of an aid relationship at the sector level is defined in a manner similar to that at the country level. With respect to the donor perspective, an aid relationship is considered to be significant if a donor's share in aid to the sector is larger than his share in aid to the country. From the country's perspective, an aid relationship is considered significant if the donor is among the largest donors that cumulatively account for at least 90 percent of the sector's aid. The fragmentation ratio is defined as the ratio between the number of non-significant aid relationships in a sector and the total number of donors in the sector. Table 36: Aid fragmentation at the sector level, 2011 Significant - Fragmentation Ratio Number of country and don c nt Non significant (Non-significant aid CPA (USD donors donor aid relationship relationships as million) perspective perspective perspective percent of all) Economic Infrastructure 13 3 3 1 6 46 54 Health 16 4 3 2 7 44 60 Environment 7 2 1 1 3 43 5 Other Production Sectors (Forestry, Fishing, Industry, Mining, Construction, Trade Policy and Tourism) 5 2 1 0 2 40 2 Education 13 5 2 1 5 38 16 Other Social Infrastructure 8 4 1 0 3 38 11 Government and Civil Society 16 4 2 4 6 38 8 Agriculture 15 6 3 1 5 33 47 Water Supply and Sanitation 16 5 3 3 5 31 30 Population Policies and Reproductive Health 15 5 4 2 4 27 4 Multi sector 16 6 3 3 4 25 35 General Budget Support 3 3 0 0 0 i 0 97 4.33 Most sectors have a relatively large number of donors represented, but many of these aid relationships are non-significant. Fragmentation is highest in the economic infrastructure sector. Aid is provided by 13 donors, but only the aid of 7 donors is significant at least from either the country or from the donor perspective. Health, environment, and other production sectors have also a fragmentation ratio of 40 percent of more, i.e. the aid of 40 percent or more of the donors in the sector is non-significant. At the other end of the spectrum is budget support, which is only provided by three donors and is in all cases significant from both the donor and country perspective. The data suggests that there is significant scope for reducing fragmentation at the sector level through greater selectivity at the sector level. Government led initiatives to sharpen the division of donors across sectors would thus be important to enhance aid effectiveness. H. KEY RECOMMENDATIONS 4.34 Enhancing the contribution of aid to Niger's development requires coordinated action of government and its development partners. The recommendations summarized in Table 38 highlight some of the issues where there is scope for significant improvement through concrete actions. Overall, the preparation of an aid strategy would be helpful as it would help to develop a shared vision between the authorities and its development parties on how to make the aid relationship more effective and efficient. 62 Table 37: Key recommendations on aid and aid effectiveness Issue Recommendation Government leadership in aid management and * Prepare an aid strategy that sets out the donor coordination is weak. government vision on aid management and donor coordination. The use of country systems remains very limited. * Implement recommendations from World Bank study on the use of country systems in Niger. A relatively large number of donors provides * Engage in dialogue with donors on more effective development assistance to Niger, with many division of labor and enhance mechanisms for donors being active in a relatively large number of donor coordination. sectors. Implementation of the investment budget suffers * Prepare detailed estimates of counterpart funding from insufficient and delayed provision of requirements during budget process and protect counterpart funding. these funding requirements during budget execution. Sustainability of donor funded projects suffers * Clearly establish recurrent cost implications of from inadequate resources for related recurrent donor funded investments for inclusion in the cost for operations and maintenance. annual budget. Progress in harmonizing budget support is at risk * Establish a joint government-donor secretariat for due to lack of institutionalization of harmonization the regular follow up and reporting in the arrangements. implementation of the reform programs supported by budget support. Commitment and disbursement of budget support * Estimate cost of implementing the reforms that are experience delays as underlying reform program is conditions for the disbursement of budget support not fully funded. and include adequate provisions in the annual budget. 63 CHAPTER 5: EDUCATION A. INTRODUCTION 5.1 Despite rising enrollment ratios, Niger still has relatively low proportions of its children in both primary and secondary education. In 2010, the average net primary and secondary enrollments were 75 percent and 19 percent for Sub-Saharan Africa. the corresponding figures for Niger were 62 percent and ten percent, respectively (World Development Indicators, 2012). The government's objective is to achieve universal and quality education for all, a priority that is aligned with the Millennium Development Goal on education. To this end, it has embarked on a program to increase access to basic education, improve the quality of teaching and learning, and strengthen the internal efficiency of the educational system. 5.2 Box 5 below lists the key indicators that the Government has selected to monitor performance in the education sector over the period 2012-2016. The performance indicators highlight the focus on broadening access to primary and secondary education, enhancing efficiency, and improving education completion and outcomes. Box 5: Key performance indicators for the education sector, 2012-16 * Raise primary school completion rate from 49% in 2010 to 70% in 2016; * Raise gross primary school enrollment rate from 72.9% in 2010 to 89% in 2016; * Increase the transition rate to secondary education from 48% to 55% in 2016; * Reduce the repeat rate to 10% in 2016 in primary school; * Increase the success rate at the first level secondary school exam to 70% in 2016; * Raise the gross enrollment ratio at the junior secondary level from 17.8% to 31% in 2016; * Raise the completion rate at the junior secondary level from 9.1% in 2010 to 21% in 2016; * Raise the share of student enrollment at the junior secondary level in rural areas to 50% of total enrolment at the junior secondary level in 2015; * Raise the proportion of adults taught to read and write from 29% in 2006 to 34% in 2016; * Teach 1,494,596 adults and adolescents aged 15 years and more how to read and write; * Admit 105676 children not enrolled or out of school aged 9 to 14 years in centers of non-formal or formal schooling. Source: Ministry of Education. 5.3 This chapter assesses the recent performance of the education sector at various levels. It begins with a review of progress and challenges in the sector, highlighting the issues that need attention. the trends, composition, and functional distribution of public expenditures on education are then analyzed. The questions of the level of resources available for education and their allocation across and within education levels are then discussed in some detail and recommendations are provided at the end. B. PROGRESS AND CHALLENGES IN THE EDUCATION SECTOR 5.4 In the academic year 2010/11, public and private schools at all levels of education enrolled 2,304,407 pupils in over 15,758 schools. Formal education in Niger begins with three years of pre- primary schooling followed by six years of primary education, continuing with four years in junior 64 secondary school and three years in upper secondary school culminating in the baccalaureate. Graduates from junior secondary school can continue with technical and professional education, which is divided into upper technical secondary education of three years and professional training of two to three years. Graduates from upper secondary school can go on to higher education including university, with the number of years to completion varying depending on the program. In academic year 2012, the distribution of students across these levels of education was: 4.7 percent in pre-school, 84.9 percent in primary education, 9.3 percent in lower secondary education, 0.7 percent in upper secondary education, 0.4 percent in technical education, and 0.5 percent in higher education. As in most countries in Sub-Saharan Africa, education in Niger is provided largely by the public sector, which accounted for more than 97 percent of total enrolment in primary schools, 77 percent of lower secondary enrolment, and 64 of upper secondary enrollment. 5.5 There is a strong government commitment to universal education in Niger. The new government which emerged from the 2011 general elections has proclaimed that every child up to age 16 must enroll in basic education. This policy statement highlights that the government has committed to providing free education services to all pupils at the basic level of schooling, which includes primary education, junior level secondary education, and non-formal education. The latter encompasses the promotion of national languages and literacy programs focused on reading and writing. Achieving universal enrollment in education, coupled with investments to improve its quality, is viewed as essential to stimulating Niger's growth and competitiveness in the years ahead and to enhancing the capabilities of the population to share the benefits of improved economic performance and strong growth. Efficient and effective education spending is therefore a key element in Niger's economic and social development program. Enrollment rates and Millennium Development Goals 5.6 Niger has made remarkable progress in increasing primary school enrollment in recent years. Implementation of the 10-year strategy for the development of the education system which the Government of Niger formulated at the beginning of the 2000s has resulted in an increase in enrollment at all levels of education. Gross primary school enrollment, in particular, has risen continuously. Over the period 2000/01-2010/11 the number of students enrolled in primary school increased annually by more than 11 percent on average. As a result, the gross primary school enrolment ratio rose from an average of 47.4 percent in 2000/01-2004/05 to 72.3 percent in 2008/09-2010/11. An increase in the share of the national budget allocated to primary education, a massive construction of schools and rehabilitation of classrooms across the country, and recruitment of teachers permitted this rapid growth in primary school enrolment. In comparison, enrollment at the junior secondary level has increased at a relatively modest pace, rising from 9.9 percent in 2000/01 to about 19 percent in 2010/11. and the enrollment ratio at the senior secondary level has progressed far more slowly, rising from 2.6 percent in 2000/01 to just 3.9 percent in 2010/11. Overall secondary gross enrollment rate was 13 percent in 2009-20 10 compared to an average of about 36 percent for Sub-Saharan Africa. Table 38: Gross and net enrollment rates for primary and secondary education, 2004/05-2009/10 (In Percent) 2003 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 Gross enrollment ratio Primary education 57.1 62.6 67.8 72.9 76.1 Secondary education Junior secondary 11.0 12.0 12.0 17.0 18.0 21.0 Upper secondary 2.0 3.0 3% 4.0 3.0 4.0 Source: Ministry of Education and World Development Indicators 2012. 65 5.7 Despite the remarkable progress in boosting primary school enrollment, Niger is not on track to meet the Millennium Development Goals for universal primary education by 2015. To make rapid and sustainable progress toward the education MDG Niger not only needs to increase significantly primary school enrolment, it also has to ensure that students who enroll stay in school to complete the full primary education. The net primary enrollment ratio is still significantly low, at 62 percent in 2010. and the primary completion rate, at 51.2 percent in 2010, lags even further behind the MDG target. Survival rates to grade 6, the last primary school grade, are improving. but drop-out rates remain high. Critical challenges that need to be addressed include reducing the wide disparities in enrollments between urban and rural areas and between boys and girls, and improving the quality of education. Reducing inequality in enrollment ratios 5.8 Niger's enrollment expansion over the past decade has helped increase access of the poor and of girls to primary education but striking inequalities remain especially at post-primary level. The increase in enrollments were particularly pro-poor at the primary level. Not only did the net enrollment ratio of the poorest quintile of the population increase from 39.4 percent in 2007/08 to 47.8 percent in 2011, but the share of the poorest population quintile in total enrollments also increased, which implies that enrollment of children from poor households increased faster than the average. The net enrollment ratio for lower and secondary education of the poorest population quintile also increased, but at a slower pace than for the rest of the population and their share in total enrollment thus dropped. Finally, For higher education, both the net enrollment ratio and the share in total enrollment of the poorest quintile dropped between 2007/08 to 2011, indicating that gains in enrollment benefitted primarily the better off. The shares in total enrollment for the wealthiest quintile increase from 40.7 to 45.9 percent for lower secondary education, from 71.2 to 74.6 percent for upper secondary education, and from 84.8 percent to 92.6 percent for University education. 5.9 The gap between girls and boys enrollment at the primary and lower secondary level has narrowed significantly, while it widened for upper secondary and university education. In 2007/09, the net primary enrollment ratios for girls and boys were 38.3 and 51.3 percent respectively, with a gap of 13 percentage points. By 2011, the net primary enrollment ratio for girls had increased to 48.9 percent and for boys to 56.7 percent and the gap narrowed to 7.8 percentage points. On the other hand, for upper secondary and university education, the net enrollment ratio increased faster for boys than for girls and the gap widened from 6.8 percentage points in 2007/08 to 8.5 percentage points in 2011 for upper secondary and from 4.7 to 8.4 percentage points for university education. For the poorest quintile of the population, the situation is identical. The gender gap narrowed for primary and lower secondary education, but increased for upper secondary and university education. Figure 22: Enrollment by location and poverty status 0 Rural W urban 100 90 80 S70 60 w 50 40 30 20 10 0. Q1Q2 Q3 Q Quartile of expenditure Source: World Bank staff estimates from ENBC 2007/2008. 66 ―目＊-L、・ 5.10 Despite the significant increase in primary school enrollment at the national level, rural- urban disparities remain pronounced. The Poverty Assessment prepared in 2011 provides an analysis of children's opportunities in education in Niger based on the 2007/2008 household survey. Comparing enrollment rates by rural and urban residence it found that location is a much bigger factor in shaping schooling outcomes in Niger than poverty. The gap in enrollment between poor children living in rural areas and poor children living in urban areas was found to be almost as large as the gap in enrollment between poor and rich children (irrespective of residence) highlighted above. This suggests that while poor children are less likely to go to school, this problem is most acute for poor rural children. For example, while gross primary school enrolment in urban areas reached 99.1 percent in 2010/11 it was about 70 percent in rural areas, a 30-percentage point gap. The urban-rural gap in primary school completion was equally large, with the primary completion rate at 74.5 percent in urban areas and 45 percent in rural areas, the latter being significantly lower than the national average of 51.2 percent. 5.11 Similarly, while girls' enrolment in primary and secondary school has increased in urban areas, gender inequity in access remains a major problem in rural areas. The poverty assessment found that while the overall enrollment rate for boys is about 72 percent, it is 62 percent for girls. It also found that the gender gap (10 percentage points) in enrollment is affected by poverty and location (Figure 23). Specifically, while there is only a two percentage point enrollment gap between poor boys and poor girls living in urban areas, there is a 15 percentage point gap in enrollment between poor boys and poor girls living in rural areas. These findings underscore the fact that it is among poor girls living in rural areas that the problem of low enrolment is most acute, a fact that also applies to many other low income countries. Moreover, the gender gap opens up at the primary level, where girls accounted for 44 percent of total enrollment, increases slightly at the lower and upper secondary level, where girls account for only 39 percent and 36 percent of enrollment, respectively, and becomes very unfavorable to girls at the tertiary level where girls accounted for just 30 percent of enrollment in 2012. 5.12 School enrolment issues involve not only the supply but also the demand for education. While schools may be available for the poor, often the poor do not send their children to school. and the drop-out rate tends also to be higher for school children in poor households and especially among girls. In 2009/10, the drop-out rate in primary school was 10.5 percent nationally compared with 8.4 percent in 2008/09. it was 9.9 percent for boys and 11.4 percent for girls. The drop-out rate was highest among girls in Tillabery, at 14.8 percent, followed by Tahoua at 12.8 percent, and Maradi at 11.6 percent, which are also among Niger's poorest regions. The highest drop-out rate for boys was at 12.5 percent in Diffa, a relatively wealthier region. These high drop-out rates are the product of many factors. One of the main factors is that the poor see low value in educating their children, perhaps because they see the low quality of education in the schools. Additionally, financial costs of schooling are major obstacles for the poor. While public schools are free, they often require that students purchase school books, materials, and uniforms which the poor cannot afford. Helping poor families meet these out-of pocket costs is often an effective way of increasing school attendance and helping to reduce poverty. Pressures to contribute to family income and a very young age of first marriage for girls are also important factors contributing to low secondary enrollment ratios. The free and compulsory enrollment policy in basic education adopted by the Government is an important effort by the State to reduce the financial burdens of school enrollment on poor households. 68 Figure 23: Girls' and boys' enrollment in urban and rural areas NQ1 EQ2 Q3 * Q4 100 90 80 M 70 S60 W 50 E = 40 S30 20 10 0 Girls rural Girls urban Boys rural Boys urban Quartile of expenditure Source: Niger Poverty Assessment Report, World Bank 2011. Improving the quality of education 5.13 Recent assessments suggests that learning outcomes are poor and lag behind comparator countries. Average student test scores for Math and French combined on the latest available regional standardized achievement test, PASEC, are only 25, compared to e.g. Burkina Faso's 46. making Niger the lowest performer in the sub-region, due to low teacher qualifications, lack of learning materials and lack of sufficient instruction time. 5.14 A critical challenge for Niger is to improve significantly the management of classroom teaching. This will entail ensuring that the school calendar is strictly adhered to, controlling teacher absenteeism, and enhancing the efficiency of use of school time. In particular, there is a clear need to improve the quantity of school time in Niger. Available data indicates that about 30 percent of primary school teachers are absent for more than 18 days during the school year (RESEN, 2010). but it is likely that the level of teacher absenteeism is much higher, especially in rural areasl9. Compounding this, the school year often begins late and ends at varying dates irrespective of whether the required number of classroom hours has been completed, suggesting that the probability that students are not learning at their grade level in a given year is quite high. Going forward, in addition to ensuring that the quantity of school time is adequate, the government would also need to ensure that minimum standards of teaching practice are met and that teaching management is geared toward the achievement of results. 5.15 The uneven availability of textbooks for students and teaching guides for teachers and the inadequate level of teacher qualifications also need to be addressed. The supply of reading and mathematics textbooks per pupils seems adequate as Figure 24 below shows. however, this national-level data hides significant regional disparities. Pupils in some schools have more than one textbook, while shortages persist in many others, highlighting the need to address inefficiencies in the distribution of textbooks. There is also a clear need for teacher educational attainment to be improved. The majority of primary school teachers in Niger are contract teachers who tend to have lower qualifications than civil 19 A randomized impact evaluation of school grants revealed that teachers are absent one in five days. The most common reasons were strike, salary collection and illness. Absenteeism was highest among contract teachers than among civil servant teachers. 69 servant teachers, most of whom are positioned in urban schools. In 2006 the Government introduced school-based management committees (COGES) in all public primary schools in an effort to improve access to and the quality of education including through greater community involvement. An experiment with a pilot school grant program to strengthen the effectiveness of the COGES suggests that if mechanisms of performance control, teacher attendance and teaching quality for example, are effectively implemented they could translate into higher learning outcomes. Figure 24: Primary pupil textbook ratio for reading and mathematics, 2010 or latest year Cameroon m3.1 Cameroon m 11.2 C. African... m 7.9 C. African Rep. 8. Angola .0 Angola 2.) Chad .6 Chad 2. Togo 3.6 Togo 2.z Uganda 3.2 Uganda 2.1 Gambia 2.1 Gambia m 2.3 Cote d'lvoire 2 0 Cote d'lvoire m 2.0 Congo 2.1 Congo m 1.8 DR Congo 1.9 DR Congo m 1.8 Ethiopia 1.5 m Pupils per Ethiopia m 1.5 m Fupils pe Mozambiq... 1.3 math Mozambique 1 1.3 reading Sao Tome... 1.1 textbook Sao Tome &...m 1.1 textbook Benin 1.) Benin 1.1 Guinea 1.1 Guinea 1.0 Niger 1.) Niger 1.0 Mali 1.1 Mali 1.0 Cape Verde 1.) Cape Verde 1.0 Madagascar 1.4 Madagascar 0.8 Burkina Faso 1.3 Burkina Faso 0.8 Rwanda I0. Rwanda 0.4 Mauritius 1. Mauritius 0.3 0.0 5.0 10.015.0 0 5 10 15 Source: UNESCO Institute for Statistics database. 5.16 The quality of primary education in public schools in Niger is also adversely affected by the widespread shortage of basic services. Niger's average primary school class size of 40 students compares favorably with most African countries but Niger ranks very poorly with respect to access to basic services in schools. Most notably, about 75 percent of primary schools lack sanitation facilities, 85 percent lack potable water, and 95 percent are not equipped with electricity (UNESCO Institute for Statistics database, 2012), higher than in most countries in Sub-Saharan Africa. 70 Figure 25: Primary schools without potable water and without toilets, 2010 or latest year m Schools without potable water (%) m Schools without toilets (%) Niger 75 Niger 85 Chad 7 Z Guinea 78 Equatorial Guinea 66 C. African Rep. 77 Madagascar 60 Gabon 76 Cote d'lvoire 60 Togo 3 Togo 5 Chad *67 Congo 5 Burundi 67 Mali 5 DR Congo 65 Benin 46 Equatorial Guinea 1 63 Senegal 44 Ethiopia 1 63 Ghana 44 Cameroon 56 Cameroon 43 Burkina Faso 5 C. African Rep. 41 Cote d'lvoire 4 Gabon 39 Eritrea 44 Eritrea 5 Senegal 44 Guinea 4 Madagascar 43 Burkina Faso 3 Nigeria 38 DR Congo 29 Gambia 28 Cape Verde 4 Cape Verde 18 Burundi 3 Malawi 1 Ethiopia 1 Ghana 9 Mauritius 0 Rwanda 0 0 20 40 60 80 100 __ 0 20 40 60 80 Source: UNESCO Institute for Statistics database. 5.17 The low quality of primary education means that Niger's education system is not producing enough students with the knowledge and skills required to work in economic sectors with high growth potential. Reflecting the limited effectiveness of Niger's basic education system, adult literacy is very low, estimated at just 29 percent over the period 2005-10 (WDI, 2012), compared with the average of 62 percent for low-income countries and Sub-Saharan Africa. The PASEC light survey, using standardized French and mathematics tests taken by grade 5 pupils in 2002, and in which Niger ranked 12 out of the 13 countries for which results are available, underscores the need to sharply improve literacy and numeracy skills in the country. This would be critical to permit mobility of the labor force from lower productivity into higher productivity activities. C. PUBLIC SPENDING IN EDUCATION 5.18 This section examines public expenditures on education over the period 2008-2011. It updates and extends the analysis in Niger PEMFAR 1&2 which, taken together, cover the period 2000- 2008. The previous section highlighted the need to improve primary completion and secondary coverage, reduce inequality in enrollment between income groups as well as the disparities between urban and rural areas and between boys and girls, and to improve the quality of education. The analysis of funding and 71 allocation of education expenditure in this section assesses whether the current level of spending on education is adequate and whether public resources are deployed in ways that help to improve the quality, equity and efficiency of Niger's education system. Total Public Expenditure on Education 5.19 Real government expenditures on education increased by 23.6 percent in 2008 and, following a decline of 3.5 percent in 2010, are projected to rise by 15.2 percent in 2011. There has been a significant increase in government spending on education since the beginning of the 2000s, with an average real increase of 10 percent between 2005 and 2009. The decrease in education spending in 2010 was caused by a sharp decline in capital expenditures in the context of falling levels of government expenditure induced in large part by the political crisis prevailing in the country at the time. In 2010 total govermment expenditure fell by 22.4 percent in real terms, having previously slowed by 4 percent in 2009 from a 13 percent increase in 2008. 5.20 The share of education in total government expenditures was at 27.2 percent in 2010 and is estimated at 21.6 percent in 2011. Education expenditure represents from 11 percent to 28 percent of total govermment spending in Sub-Saharan Africa (SSA), with an average of 18.3 percent (UNESCO, 2011). Compared to other regions, countries in SSA tend to invest a relatively large proportion of the government budget in the education sector. The level of government expenditures devoted to public education in Niger exceeds the average for the SSA region and compares favorably against that of other countries in the West Africa Economic and Monetary Union (WAEMU) such as Cote d'Ivoire, Senegal, Benin and Togo. The share of education expenditure in total govermment expenditure provides a measure of the degree of commitment of a country to educational development. Table 41 shows that, over the period 2004-2011, the share of education in government expenditure has averaged 21.7 percent and, except for two years in 2004 and 2007, it has been above the Education For All (EFA) Fast Track Initiative (FTI) benchmark of 20 percent. During 2008-2010, it averaged 23.6 percent. Table 41: Total public expenditure on education (Net of debt and special accounts) Current CFAF (billions) Total education expenditure 53.3 63.1 65.1 73.1 96.4 105.9 103.7 123.8 Recurrent 37.6 48.9 50.9 54.5 78.2 88.0 96.8 112.5 Capital 15.7 14.2 14.2 18.6 18.2 17.9 6.9 11.3 Constant CFAF (Billions) Total education expenditure 37.5 41.5 42.2 45.9 56.7 59.8 57.7 66.5 Recurrent 26.5 32.1 33.0 34.2 46.0 49.7 53.9 60.4 Capital 11.2 9.3 9.2 11.7 10.7 10.1 3.8 6.1 Education expenditure as% of GDP 3.5 3.6 3.4 3.6 4.0 4.3 3.9 4.4 Education as% of total government expenditure 19.1 21.0 21.6 19.7 21.6 21.9 27.2 21.6 Total govemment expenditure as% of GDP 18.2 16.9 15.8 18.2 18.6 19.5 14.2 20.2 Source: PEMFAR 1&2. WDI 2012. and author's calculations based on MoF data. 5.21 Over the period 2008-2010, total public expenditure on education accounted for 4.1 percent of GDP, below the average for Sub-Saharan Africa. As a region, Sub-Saharan Africa devoted about five percent of its GDP to public education expenditure in 2010 (WDI, 2012). While the govermment displays a high degree of commitment to educational development, Niger's relatively low share of education expenditure in GDP highlights the need for sustained efforts to increase investments in the education sector, particularly given that a large number of children in Niger are out of school. It is estimated that about 478,000 boys and 607,000 girls of primary school age were out of school in 2010 (WDI, 2012). 72 Figure 26: Total public expenditure on education in Niger, 2010 m As % of GDP As % of total government expenditure 30 25 20 15 10 - - - - 5 Sr Wo rl cd cD el opment -Ii c 0 o E a Exediue a (U Source: World Development Indicators, 2012. Economic Composition of Education Expenditures 5.22 Over the period 2008-2010 the majority of government education expenditures were allocated to wages and salaries and transfer payments. This period was characterized by a rapid rise in expenditures on transfers and subsidies, which rose from 33.3 percent of total education expenditure in 2007 to 49 percent in 2011, with a peak of 53.7 percent in 2010. and they accounted for 48.5 percent of government education spending on average. Wages and salaries were the second largest category of expenditure, accounting for 32.8 percent of government education expenditures on average over the period. Expenditures on goods and services were the smallest item, far below personnel spending and transfers and subsidies, averaging just 6.1 percent of government spending on education. In total, current expenditures dominated outlays, averaging 85.8 percent of total government spending on education during 2008-10. Table 42: Economic composition of education expenditures, 2007-2011 CFAF % of CFAF % of CFAF % of CFAF % of CFAF % of billion total billion total billion total billion total Billion total Current Expenditure 54.5 74.5 78.2 81.1 88.0 83.1 96.7 93.3 112.5 90.9 Salary 25.1 34.3 30.0 31.1 30.8 29.1 34.6 33.4 44.9 36.3 Non salary 29.4 40.3 48.2 50.0 57.2 54.0 62.1 59.9 67.5 54.6 Goods & services 5.1 7.0 5.8 6.0 6.3 6.0 6.4 6.1 6.8 5.5 Transfers & subsidies 24.3 33.3 42.4 44.0 50.9 48.0 55.7 53.7 60.7 49.0 Capital Expenditures 18.6 25.5 18.2 18.9 18.0 16.9 6.9 6.7 11.3 9.1 Total 73.1 100.0 96.4 100.0 105.9 100.0 103.6 100.0 123.8 100.0 Source: Author's calculations based on data from MoF. 5.23 The dominant size of subsidies and transfer payments highlights the growing importance of contract teachers in driving government spending on education in Niger. Payments to contract 73 teachers in primary and junior secondary schools represented on average 60.9 percent of subsidies and transfers over the period 2008-2010 and are estimated at 54.9 percent in 2011. The payments to contract teachers were followed by transfers to other budgets, which accounted for 15.6 percent of spending on subsidies and transfers on average in 2008-2010 and 19.4 percent in 2011. These transfers consisted mainly of transfers to the regional universities to support their operations. Spending on scholarships also increased steadily over the period under review, rising from an average of 7.3 percent in 2008-2010 to 11.3 percent in 2011 (Table 43). Table 43: Trends and composition of subsidies and current transfers, 2008-2011 Subsidies 0.11 0.3% 0.12 0.2% 0.14 0.3% 0.18 0.3% Public establishments 0.11 0.3% 0.12 0.2% 0.13 0.2% 0.17 0.3% Other subsidies 0.00 0.0% 0.00 0.0% 0.01 0.0% 0.01 0.0% Current transfers 42.28 99.7% 50.74 99.8% 55.56 99.7% 60.51 99.7% Transfers to households 35.51 83.8% 42.99 84.5% 46.68 83.8% 48.74 80.3% Scholarships 2.28 5.4% 3.41 6.7% 5.39 9.7% 6.87 11.3% General education 4.94 11.6% 5.96 11.7% 7.56 13.6% 6.45 10.6% Technical education 0.47 1.1% 0.66 1.3% 0.57 1.0% 0.80 1.3% Contract teachers 27.05 63.8% 31.56 62.1% 31.68 56.9% 33.32 54.9% Transfers to other budgets 6.69 15.8% 7.71 15.2% 8.86 15.9% 11.75 19.4% Total 42.38 50.86 55.70 60.69 Source: Author's calculations based on Niger BOOST. 5.24 During the years of rapid expansion of transfer expenditures, the share of goods and services in government education expenditure declined and remained unchanged at a relatively low level, suggesting some crowding out effect. However, the purchases of goods and services have not been equally affected by the cuts. As Table 44 below illustrates, the purchase of materials which account for the largest share of spending on goods and services fell steeply in 2010. Purchases of materials are an important category of expenditure on goods and services. they include school materials, teaching materials and fuel, all of which contribute to the operational efficiency of schools and so deep cuts on these expenditures are likely to affect the effectiveness with which schools operate. By contrast, spending on other goods and services, a category of expenditures that is not precisely defined, increased fairly rapidly during 2008-2010, surpassing spending on maintenance. Table 44: Trends and composition of spending on goods and services, 2008-2011 Materials 3.80 65.2% 4.31 68.0% 3.55 55.7% 3.97 58.0% 62.9% Maintenance 0.95 16.3% 0.58 9.2% 0.82 12.8% 1.05 15.3% 12.8% Transport & travel 0.17 2.9% 0.11 1.8% 0.18 2.8% 0.21 3.0% 2.5% Other goods &services 0.61 10.4% 0.98 15.5% 1.45 22.8% 1.17 17.1% 16.2% Total 5.83 100.0% 6.34 100.0% 6.38 100.0% 6.84 100.0% 100.0% Source: Author's calculations based on Niger BOOST. 5.25 Capital expenditures were modest, declining from a high of 25.5 percent of government expenditures on education in 2007 to 9.1 percent in 2011, with an average of 15.4 percent over the 2008-10 period. This raises several concerns. The first is that the decline in the share of capital expenditures coincided with the rapid increase in the proportion of current expenditures allocated to transfers and subsidies, suggesting a large crowding out effect. A second concern is that the relative 74 decline in capital expenditure may reflect lower capability within government to execute investment projects. Finally, as in the health sector, capital expenditures are financed mostly by donors and a significant fraction of these investment projects are directly managed by donor agencies in the country outside the normal expenditure process. which means that the relatively low share of capital expenditures in government education spending may reflect under-reporting by donor agencies. 5.26 Capital expenditures over this period consisted in part of spending aimed at strengthening institutional capacity and developing human capital. As Table 45 below illustrates several of the largest budget line items in these areas were linked to institutional development projects, teachers' training, literacy, and curriculum development. There was some, but limited, support aimed at promoting the enrollment of girls. However, from 2009 onward the bulk of capital spending was on infrastructure development. and, in this area, the focus has been on the construction and equipment of classrooms in primary schools which accounted for 65 percent of capital expenditures in 2011. Table 45: Composition and trends of capital expenditures, 2008-2011 Intangible assets 12.02 66.0% 4.45 24.8% 3.17 45.6% 1.49 13.1% Institutional development 9.91 54.5% 2.39 13.3% 2.46 35.4% 0.32 2.8% Teachers' training 1.11 6.1% 0.80 4.4% 0.30 4.3% 0.05 0.5% Girls' education 0.25 1.4% 0.44 2.4% 0.09 1.4% 0.01 0.1% Literacy program 0.31 1.7% 0.42 2.4% 0.00 Curriculum development 1.03 9.1% Infrastructure 6.04 33.2% 13.47 75.0% 3.70 53.0% 9.34 82.5% Construction &equipment of classrooms 5.25 28.9% 8.66 48.2% 1.52 21.9% 7.36 65.0% (primary) Construction &equipment of classrooms 0.23 1.3% 0.58 3.2% 0.56 8.1% 0.65 5.7% (secondary) School infrastructure 0.56 3.1% 4.23 23.6% 1.61 23.3% 1.33 11.8% Equipment 0.14 0.7% 0.03 0.2% 0.07 1.0% 0.49 4.3% Total 18.19 100% 17.95 100% 6.94 100% 11.32 100% Source: Author's calculations based on Niger BOOST. Education expenditures by levels of government 5.27 Over the period 2008-11 the majority of government education expenditures were spent at the central level. As Table 46 shows the share of regions in total education spending increased in 2011 but the central government was the main spender, accounting for 97.3 percent of total spending with regions accounting for just 2.7 percent during the period. Regions' spending has been mostly on goods and services and capital expenditures, which accounted for about 8.5 percent and 2.1 percent of these expenditures, respectively during 2007-11. The low share of regions in total education spending suggests limited progress toward the decentralization of education service delivery, with the regions having very limited discretion in managing resources and shaping key education sector decisions. 5.28 The expenditures on goods and services executed at the regional level were directed mainly at primary education. These expenditures were channeled through the regional directorates of the Ministry of National Education for use at the school level. Zinder had the highest share of expenditures on goods and services executed at the regional level, followed by Tillabery, Tahoua, Maradi and Dosso. However, the extent to which these allocations responded to established criteria is unclear. 75 Table 46: Education expenditures by levels of government, in CFAF billions Wages& salaries (CFAF billion) 25.1 30.0 30.8 34.8 44.9 Central administration (% of total) 100.0 100.0 100.0 100.0 100.0 Goods& services (CFAF billion) 5.1 5.8 6.3 6.4 6.8 Central administration (% of total) 92.2 91.4 92.1 92.2 89.7 Regions (% of total) 7.2 8.7 8.0 7.9 10.7 Agadez 0.7 0.7 0.5 0.5 0.7 Diffa 0.6 0.7 0.5 0.6 0.8 Dosso 0.9 1.2 1.1 1.0 1.4 Maradi 0.9 1.3 1.2 1.1 1.7 Tahoua 0.9 1.5 1.3 1.3 1.7 Tillabery 1.0 1.3 1.4 1.4 1.9 Zinder 1.0 1.5 1.4 1.4 1.9 Niamey 1.3 0.6 0.4 0.5 0.6 Transfers& subsidies (CFAF billion) 24.3 42.4 50.9 55.7 60.7 Central administration (% of total) 100.0 100.0 100.0 100.0 100.0 Capital expenditures (CFAF billion) 18.6 18.2 18.0 6.9 11.3 Central administration (% of total) 99.7 99.6 99.9 99.6 90.9 Regions (% of total) 0.3 0.4 0.1 0.5 9.2 Source: World Bank staff estimates based on Niger Boost. Public Expenditure by Education Sub-sector 5.29 In 2010, public expenditure on primary education accounted for about 60 percent of total public expenditure on education, secondary education accounted for about 25 percent, tertiary education for 12 percent, and non-formal education accounted for the remaining 3 percent20. Figure 27 shows the allocation of public education expenditure by level of education in Niger and across a range of countries in Sub-Saharan Africa. Primary education occupies the largest share of public education expenditure in most SSA countries, but this share ranges from nearly 66 percent in Burkina Faso to about 30 percent in Cameroon. Among the countries with comparable indicators, Niger stands out in allocating a larger share of total public education resources to primary education. 20 Figures are from World Development Indicators, 2012. 76 Figure 27: Public education expenditure by level of education as of/o of Total Education Expenditure in 2010 100% - 90% - 80% --- 70% - 60% - 50% - - - - 40% - - 30% - 20% - 10% - 0% M c a Seonar ua a) 0 Td Ot Suc U C I E Saitc E a)C 0 ED M~ 0L U U MJ U a 0 0 Primary education n Secondary education 0 Tertiary education 00Other Source: UNESCO Institute for Statistics. 5.30 At the operational level, 63 percent of government expenditures on education were channeled through the Ministry of Education (basic education and literacy). About 36 percent was channeled through the Ministry of Secondary and Higher education. and the remaining one percent was executed through the Ministry of vocational education. Spending by the Ministry of technical education and vocational training over the period under review is not well documented, and so assessing its level and composition separately is difficult. 5.31 The share of current spending dedicated to salary and non-salary expenditure varies by level of education. Niger allocates a relatively large portion of current expenditure to salaries, especially at the primary level. however, this portion appears to fall as the levels of education rise to upper secondary and tertiary. It is important to note that teacher salaries are generally not well correlated with teacher performance, all the more in Niger with high teacher absenteeism which suggests scope for more effective use of teachers. In particular, Niger needs more accountability for its teachers. Spending on transfers and subsidies is predominant at all levels of education and represents the bulk of current spending at the upper secondary and tertiary levels, consisting mostly of transfers to the regional universities as noted above. Table 47: Government expenditures on basic education (primary and junior secondary), CFAF billions Wages &salaries 18.2 35% 21.8 31% 22.3 30% 25.4 38% 32.6 41% Goods &salaries 3.0 6% 4.3 6% 4.3 6% 4.1 6% 4.5 6% Transfers &subsidies 12.4 24% 27.8 39% 32.7 44% 32.9 49% 34.8 44% Capital expenditures 18.2 35% 17.0 24% 14.6 20% 4.6 7% 7.5 9% Total 51.9 100% 70.8 100% 73.9 100% 67.1 100% 79.4 100% Source: World Bank staff's estimates based on Niger Boost. 77 Table 48: Government expenditures on upper secondary education and university, CFAF billions Wages &salaries 6.8 32% 8.2 32% 8.5 26% 9.3 25% 12.3 28% Goods &salaries 2.1 10% 1.5 6% 2.0 6% 2.2 6% 2.2 5% Transfers &subsidies 11.9 56% 14.6 57% 18.2 57% 22.7 62% 25.9 59% Capital expenditures 0.4 2% 1.2 5% 3.4 10% 2.4 6% 3.8 9% Total 21.2 100% 25.6 100% 32.0 100% 36.6 100% 44.2 100% Source: World Bank staffs estimates based on Niger Boost. 5.32 The share of non-salary spending in current expenditure is often regarded as an indication of the quality of education because it is associated with textbooks and other learning materials. Empirically the relationship between the level of teacher salaries and the quality of instruction is weak, while other factors such as teacher training and supervision or availability of text books and other learning materials have a strong positive impact on leaming outcomes. Niger thus needs to invest in these other determinants of education quality. Table 48 shows the main categories of expenditures on goods and services at the level of basic education for the period 2007-2011. The table indicates that Niger allocates a significant share of current spending to the purchase of school materials, which reached a high of 47 percent in 2008, and this appears to have helped provide an adequate supply of reading and mathematics textbooks per pupil in primary schools. but these expenditures appear to suffer significant cuts in the years when government spending is falling as in 2009 and 2010. Purchases of teaching materials fluctuated considerably, ranging from 16 percent in 2007 to 3 percent in 2010 to a very negligible amount in 2011. Fuel expenditures were steady and spending on maintenance has been relatively stable. but the period was marked by a significant increase in the purchase of other goods and services, a broadly defined category of expenditure, and it is unclear how this type of spending contributes to the objectives and priorities of the education sector. These pattems suggest that there is significant scope to improve the composition of spending on goods and services in the education sector. 5.33 While spending on textbooks etc. is important, it also needs to be ensured that these materials indeed do reach schools and students. A public expenditure tracking study carried out in 2008 for health and education showed that spending on non-wage items at the central level does not necessarily lead to increased availability of teaching and leaming materials at the school level. More recently, a study carried out in 2012 by the Directorate General of Financial Control of the Ministry of Finance showed that purchased materials remained in central storage rather than being distributed to schools. The report notes that only in Niamey there are a dozen of govemment stores full of text books and teaching materials, while there is a severe lack of these in schools. The fact that these stores are virtually unguarded also creates opportunities for theft of these materials. Improved management of the chain from the purchase of materials to schools, teachers, and students is thus essential. Table 49: Expenditures on goods and services at the basic education level School materials (primary) 0.97 32% 2.02 47% 1.69 39% 1.33 32% 1.71 38% Teaching materials 0.49 16% 0.07 2% 0.49 11% 0.14 3% 0.00 0% Fuel 0.19 6% 0.27 6% 0.31 7% 0.28 7% 0.36 8% Equipment maintenance 0.29 10% 0.49 11% 0.14 3% 0.24 6% 0.34 7% Building maintenance 0.14 5% 0.11 3% 0.11 2% 0.09 2% 0.17 4% Transport maintenance 0.20 7% 0.23 5% 0.22 5% 0.32 8% 0.32 7% Other purchases 0.30 10% 0.43 10% 0.78 18% 0.77 19% 0.82 18% Total 3.03 100% 4.30 100% 4.33 100% 4.13 100% 4.52 100% Source: World Bank staffs calculations based on Niger Boost. 78 Analysis of Education Expenditure per Student 5.34 In 2010 public expenditure per student as a share of GDP per capita was estimated at 21.1 percent for primary education, 41.9 percent for secondary education and 43.8 percent for tertiary education21. While the unit costs for primary education are broadly comparable to those of other low income countries, the unit costs for university education are exceptionally high in Niger. Public expenditure per tertiary student exceeds more than 20 times the expenditure per primary pupil. An explanation for the high tertiary education costs may be the large scholarships awarded to tertiary students and the annual transfers made by the central government to the regional universities. Though considerably less than tertiary education, the unit costs for secondary education in Niger are among the highest in Sub- Saharan Africa. Figure 28: Public expenditure per student as% of per capita GDP in primary education, 2010 25 21.1 20 - 16.4 155 15 -11.4 10.8 10 6.6 7 8.2 5 0 Source: World Development Report, 2012. 5.35 The high unit costs for secondary and tertiary education suggest that there is scope for creating fiscal space by reprioritizing and better targeting budget allocations within the education sector. The rapid increase in primary school enrollment is leading to an increase in demand for expansion of secondary education and social demand for post-secondary education is on the rise as well. The very low enrollment rates in secondary and tertiary, in combination with increased demand, suggest a need to enhance the efficiency in post primary education spending through better prioritization and targeting of resources (for instance fewer and better targeted scholarships for tertiary. more materials. etc) and mechanisms to foster more and better decentralization and higher teacher accountability. However, it is important not to neglect basic education. funding for this level of education should not be compromised as this could hinder attainment of the Education for All (EFA) goals and the education MDGs as well as the development prospects of Niger. Donors' spending in the education sector 5.36 Niger receives donor funding for education as a PRSP priority sector. External sources of funding include grants but also concessional loans from multilateral organizations and bilateral agencies. International NGOs are also active in the country, providing a range of support in the education sector including in rural areas. Not all donor support to Niger is captured in Niger's public expenditure 21 Figures are from World Development Indicators, 2012 79 management system. For example, the support that is channeled through local and international NGOs working in Niger is difficult to quantify and some of it may not even be captured in the net ODA flows. In addition, some investment projects are directly executed by donor agencies and the funding for these projects is not fully captured in the budget data. With these limitations in mind, the available data suggests that donor funding for the education sector in Niger has declined considerably over the past several years. In 2007, donors accounted for some 37 percent of expenditures in the education sector. but since then this share has declined, falling to 8 percent in 2009, and has not exceeded 10% over the period 2009-2011. Niger's treasury has been the main source of financing of the education sector. 5.37 According to OECD-DAC, the amount of official development assistance for education that Niger received in 2008 accounted for 26 percent of total public education expenditure. This compares with 72 percent for Liberia, 35 percent for Burundi and 9 percent for Togo. More generally, compared to countries with a comparable level of national income, Niger receives relatively less foreign aid to finance its education expenditures than most. Figure 29: Official Development Assistance for Education as a Ratio of total Public Education Expenditure by National Income Level, 2008 Countries with GDP per capita < PPP$ 1,000 Countries with GDP per capita of PPP$1,000-3000 80 72 60 0 70 51 * .550 o060 04 6- - -L -P 404 25 50 4 M e 4 04 2- 2 10 - -4--0 - - - 0 10,-- 00 Source: UNESCO Institute for Statistics. 5.38 Much of the donor support for the education sector was channeled through HIPC debt relief funds. Niger reached the HIPC completion point in 2000 and qualified for additional debt relief under the Multilateral Debt Relief Initiative (MDRI) in 2005. HIPC funds represented 66 percent of the support donors provided to the education sector in 2008-10, considerably more than multilateral (22%) and bilateral (12%) aid. In addition, while assistance was provided through HIPC funds throughout the period under review, bilateral aid was suspended in 2009, 2010, and 2011 in response to political instability and uncertainty in the country. Multilateral aid continued but was interrupted in 2011. In 2008- 2010, the largest multilateral donors to education in Niger were the World Bank, the European Union, the African Development Bank and the Islamic Development Bank. The largest bilateral donors were France, Japan and Luxembourg. United Nations agencies active in the sector included UNESCO. 80 Figure 30: Donor financing in Niger's education sector a Government financing a Multilateral donors Bilateral donors, Paris Club 0 Bilateral donors, Non-Paris Club i HIPC funds 100% 80% - 60% 40% 20% 0% 2007 2008 2009 2010 2011 Source: Author's calculations based on Niger BOOST. 5.39 Donor funding for education was generally directed to the priority areas identified in the PRSP with an emphasis on infrastructure development. HIPC funds were utilized to finance the purchase of goods and services, including school materials. In 2007, HIPC funds accounted for 15 percent of the purchases of goods and services, but since then this share has steadily declined, falling to just 1 percent in 2011. HIPC funds were also utilized to make transfer payments to contract teachers. and although their share has declined from a high of 37 percent in 2007, they averaged at least 10 percent in 2010-11. But by far, donor funding in the sector has concentrated on capital expenditures. In 2007, donors funded 95 percent of capital expenditures and 85 percent in 2008, with bilateral donors taking the lead. However, with the cuts in bilateral and multilateral donor support, this share fell to 31 percent in 2011. Donor funded-projects targeted not only school infrastructure, most notably the construction and equipment of classrooms, but also intangible assets including curriculum development, programming, system development, as well as vocational training and other capacity building activities. Table 50: Donor funding by categories of expenditures, 2007-2011, in CFAF billions Wages &salaries 25.07 29.99 30.79 34.76 44.90 Treasury 25.07 100% 29.99 100% 30.79 100% 34.76 100% 44.90 100% Goods &services 5.12 5.83 6.34 6.38 6.84 Treasury 4.63 90% 4.84 83% 5.89 93% 5.97 94% 6.74 99% Bilateral, Paris Club 0.00 0% 0.15 2% 0.00 0% 0.00 0% 0.00 0% HIPC 0.49 10% 0.85 15% 0.45 7% 0.41 6% 0.10 1% Transfers &subsidies 24.32 42.38 50.86 55.70 60.69 Treasury 15.39 63% 38.72 91% 48.37 95% 49.55 89% 54.71 90% Bilateral, Paris Club 0.00 0% 0.00 0% 0.00 0% 0.00 0% 0.00 0% HIPC 8.93 37% 3.66 9% 2.49 5% 6.14 11% 5.98 10% Capital expenditures 18.61 18.19 17.95 6.94 11.32 Treasury 0.99 5% 2.75 15% 12.84 72% 2.70 39% 7.78 69% Multilaterals 6.48 35% 4.54 25% 1.97 11% 2.04 29% 0.00 0% Bilateral-Paris Club 0.00 0% 3.64 20% 0.00 0% 0.00 0% 0.00 0% Bilateral, Non-Paris Club 7.87 42% 3.65 20% 0.00 0% 0.00 0% 0.00 0% HIPC 3.28 18% 3.62 20% 3.14 18% 2.19 32% 3.50 31% Total 73.12 96.40 105.94 103.77 123.78 Source: Author's calculations based on Niger BOOST. 81 5.40 Donor spending at the sub-sector level was concentrated on basic education and literacy. In total, donor funding in the education sector was relatively modest, averaging about CFAF 15 billion over the period 2007-11 or approximately US$30 million at the average exchange rate. The majority of this spending was allocated to basic education, and supported activities aimed at expanding access and improving the quality of primary education. HIPC funds were the main channel of donor support in the sub-sector. Figure 31: Donor education spending at the sub-sector level 100% 80% 60% 40% 20% 0% 2007 2008 2009 2010 2011 m Secondary &higher education a Basic education &iteracy Source: Author's calculations based on BOOST. D. EDUCATION PUBLIC EXPENDITURES AND EQUITY Equity in enrolment rates across levels and regions 5.41 Education expenditures in Niger are mostly directed to the primary school level, which tends to be pro-poor. About 60 percent of education expenditures by the government are directed to the primary school level. Fund allocation at this level tends to be pro-poor, given that a larger proportion of the poor attending school is found at the primary level. In contrast, at the junior secondary level, the poorest quintile makes up around 15 percent, while at the upper secondary level, its share is around nine percent. Figure 32: Net enrollment rates over time 70 60 50 40 30 20 10 0 1991 1999 2002 2010 -4-Primary education -U-secondary education Source: UNESCO Institute for Statistics. 82 5.42 Niger's enrollment expansion is reducing the enrollment gap across income groups at the primary education level. In 2011, the net primary school enrollment ratio was 53 percent, which compares to 45 percent in 2007/08 and 34 percent in 2002. and the share of the poorest quintile increased from 29 percent in 2005 to 39 percent in 2007/08 and further to 48 percent in 2011. While strong inequalities remain, problems with access are more significant at the junior secondary school level and are further pronounced at the upper secondary school level. In 2011, the net lower and upper secondary school enrolment rates were 40 and 20 percent, respectively, compared to 27 and 9 percent, respectively, in 2007/08. The corresponding rates for the poorest population quintile were 34 and 12 percent in 2011, up from 22 and 5 percent in 2007/8. Officially, basic education (primary and lower secondary) is compulsory and free for children aged up to 16 years and this policy is expected to expand access further among poorer income households at the basic education level. However, it remains unclear how this policy would be enforced. For a large number of the poor the transition to junior secondary schooling appears to represent a major educational access issue. 5.43 Enrollment rates in Niger vary significantly between rural and urban areas and the rural- urban gaps are often more pronounced than the enrollment gaps in income levels. While the primary school enrollment rate has expanded steadily and a growing proportion of children from poor households attend primary school, a sizable rural-urban gap persists. Figure 33 below shows that although this gap appeared to narrow in school year 2009/10 it widened substantially in 2010/11 as enrollment stagnated in rural areas between 2009/10 and 2010/11. Figure 33: Rural-Urban gap in primary school enrollment 120 E 100 E 80 - 40 20 0 2006/07 2007/08 2008/09 2009/10 2010/11 m National E Rural Urban Source: Author's calculations based on Ministry of Education data. E. EDUCATION PUBLIC EXPENDITURES, EFFICIENCY AND OUTCOMES Efficiency in Budget execution 5.44 The education budget has been under-executed over the period under review. The education budget execution rate averaged just 85.4 percent over the period 2008-10. Execution was particularly weak in 2009, with an average execution rate of less than 80 percent, which could be due to political instability. However, this average hides significant variations across categories of expenditures. The execution rate was highest on wage and salary expenditures and on transfer payments. The execution rate 83 for goods and service expenditures, which concern the purchase of materials and supplies and operation and maintenance expenses, has been less than 80 percent on average. More worryingly, it has not improved over the past three years. After reaching 80 percent in 2008, the budget execution rate on goods and services stagnated around 74 percent. Since expenditures on goods and services are those that support the operation of the sector, this suggests that schools are far from operating efficiently. On the other hand, the execution rate on transfers and subsidies has increased rapidly from 86 percent in 2007 to 95 percent in 2011, reaching a peak of 97 percent in 2009. By contrast, the execution rate on capital expenditures declined steadily from 71 percent in 2007 to a low of 36 percent in 2010 before rising to 53 percent in 2011. The rapid increase in spending on transfers and subsidies may have crowded out capital expenditures as well as spending on goods and services. Table 51: Education budget execution ratios 2008 2009 2010 2008 2009 2010 2008 2009 12010 2008-10 Wages & salaries 30.0 30.8 34.8 30.3 36.0 35.1 99.1 85.6 99.1 94.6 Capital expenditure 18.2 17.9 6.9 27.3 36.1 19.0 66.6 49.7 36.4 50.9 Total 96.4 105.9 103.8 109.6 132.9 120.7 88.0 79.7 86.0 84.6 Source: Author's calculations based on Niger BOOST. Efficiency in personnel management: teacher distribution 5.45 Niger's low student-teacher ratio suggests inefficiencies in sector spending. Niger has one of the lowest student-teacher ratios (STR) in the region, at less than 40 as illustrated in Figure 34. Comparable primary school STRs are significantly higher, averaging close to 50:1 in countries such as Burkina Faso and Mali. Since teacher salaries represent a large share of the education budget, the low STR carries a high financial burden, which is further exacerbated by distribution inefficiencies. Figure 34: Primary school STR by selected countries, 2010 Central African Republic 84 Rwanda 65 Mozambique 58 Chad 56 Burundi 5 Congo, Rep. 49 Mali 48 Burkina Faso 48 Benin 46 Guinea 42 Togo 41 Madagascar 40 Niger 39 Eritrea 38 Mauritius 21 0 20 40 60 80 100 Source: UNESCO Institute for Statistics. 84 5.46 The distribution of teachers per school in Niger is to a large extent determined by factors other than the number of students. Available data shows that schools with the same number of students have very different numbers of teachers. Inequities in teacher distribution are particularly evident when looking at the supply of teachers in urban and rural schools. Urban schools tend to have more teachers compared to rural schools of the same size. and schools in Tahoua and Maradi seem to be especially understaffed compared to schools in other regions22. This pattern implies that some schools are considerably understaffed and therefore unable to ensure a minimally supportive learning environment, whereas other schools have a comparative surplus of teachers. 5.47 The current method of determining teacher supply requirements encourages inconsistencies and inequities in the distribution of teachers. Under the current system, schools submit their teacher supply requirements to the relevant regional directorate. The latter then requests the number of additional teachers required from the central education office. The central office subsequently allocates teachers to the regions and provides the additional teacher salaries through the personnel department. Under this system, the schools, which do not pay the salaries, have a strong incentive to claim undersupply and request additional resources, with little incentive to use teacher resources efficiently. 5.48 As the school-age population continues to grow and more children enroll in schools, the demand for teachers is expected to continue to rise rapidly. However, the number of graduates from teacher-training programs is substantially below the number of new teachers that are needed to achieve universal primary education. A recent study by the UNESCO Institute for Statistics estimates that new graduates from primary teacher-training programs represent about 8 percent of teachers currently in service23, which compares with 13 percent in Cameroon and 22 percent in Madagascar. The study estimates that, given the projected teacher demand, Niger will need to double the teacher workforce to reach universal primary education, which implies an increase of approximately 20 percent of the actual existing staff that should occur every year until 2015. 5.49 In recruiting new teachers attention needs to be paid to gender balance. Women in Niger represent about 45 percent of newly-recruited teachers. Studies show that the presence of female teachers in the classroom is associated with higher levels of pupil performance, as well as increased rates of retention, progression, and completion of primary education. Compared to other regions, Sub-Saharan Africa has the lowest percentage of female teachers, at 43 percent, almost similar to that of Niger. 22 Source: "School Grants as Catalyst for School-based management and Accountability? Results from a Randomized Impact Evaluation in Niger." Draft report, September 2011. World Bank 23 The paper is: "School and Teaching Resources in Sub-Saharan Africa: Analysis of the 2011 UIS Regional Collection on Education." UIS Information Bulletin No.9; UNESCO Institute for Statistics, April 2012. 85 Figure 35: Newly-recruited female primary teachers, 2010 or latest 60 S7 49 51 S50 15 3839 S40 2 9 31 30 20 ~10 0 Source: UNESCO Institute for Statistics. Education outcomes: student performance and test scores 5.50 Niger ranks low in international standardized tests. Niger participated in the Monitoring Learning Assessment (MLA) administered by UNESCO and in the international student proficiency assessment (PASEC) in French and Mathematics in 2002. Niger's results on the PASEC test were very weak, especially in comparison with those of other participating countries in the region. About 36 percent of Niger's fifth graders displayed learning difficulties. and with an average score of 25.4 on the applicable scale in French and math, Niger ranked 12 out of the 13 francophone African countries for which the PASEC results were analyzed. Among these countries, Niger had the highest unit cost as a share of per capita GDP in primary education. These results suggest that school system deficiencies, rather the poorer background of students are to a large extent responsible for this poor performance. Poor background (leading to poor outcomes) and low enrollment (leading to high unit costs) also contribute to low cost- effectiveness. 5.51 The low quality of schooling raises questions about the adequacy of the primary schooling system in delivering returns and improving employability and income prospects. The allocation of resources to the education sector has helped to improve enrollment rates in primary education. Investments in teaching quality are necessary in order to increase returns to education. Niger's poor performance in the PASEC rating reinforces the view that the education system is not meeting the needs of the country's development and returns to investment in the education sector are not being maximized. F. POLICY RECOMMENDATIONS 5.52 Niger has made notable progress in increasing the gross primary enrollment ratio but faces significant challenges to achieve universal primary education. The low rate of net primary enrollment, coupled with ongoing efforts to rapidly expand access over the past several years, points to the need to strengthen the capacity of the education system to meet the demands of universal primary education. The following recommendations should be considered. 86 Levels of education spending 5.53 On average, the total amount of resources devoted to public education expenditure in Niger is on par with that of most countries in the SSA region and higher than that of many other WAEMU countries. Given the rapid population growth more resources will be needed to achieve the EFA objectives and improve the quality of education and equity. In the short run, greater emphasis should be placed on prioritizing resources by levels of education and ensuring that committed resources are effectively utilized. * Additional resources for education should on a priority basis be devoted to expanding access, quality, and equity of primary education. Given the low primary completion rate as well as the low net enrollment rate, it would be critical to ensure that share of the budget allocated to primary education is not compromised. The high per unit cost in secondary and tertiary education suggests that the scope for resource re-allocation within the sector is significant. However, the low enrollment and high demand suggest that efficiency gains will be necessary, but not sufficient to ensure a balanced development of the education sector which is essential for Niger's overall development. * The low budget execution rate means that fiscal space can also be created within the sector by improving the utilization of financial resources. The execution rate for goods and service expenditures, which concerns the purchase of materials and supplies and operation and maintenance expenses, has been less than 80 percent on average, while the budget execution rate on capital expenditures averaged just 51 percent. Increasing the budget execution rate on these categories of expenditures should receive greater attention. Improving the spending mix 5.54 The spending mix in the education sector should be improved. Currently government spending in primary education is heavily geared toward salaries and transfers to contract teachers. The emphasis on teacher salaries and transfer payments has been at the expense of expenditures on learning materials. * The distribution of expenditure in primary education should be improved by increasing the share allocated to goods and services, especially learning materials and operations and maintenance. Efforts should be made to protect these expenditures from deep budget cuts. Resources allocated to non-salary expenditure as defined in the budget nomenclature are large but dominated by transfer payments to contract teachers. * Since net enrolment rates at the primary school level are still low, a focus should also be maintained on investing in education infrastructure. In particular access at the primarily level needs to be improved in rural areas. Making education expenditures more equitable 5.55 The expansion in enrollment is narrowing the gap across income groups in primary education but strong inequalities remain, especially at the secondary education level. Disparities in enrollment between urban and rural areas are significant. Girls in rural areas have the lowest enrollment rate. Efforts to ensure an equitable access to education should therefore be increased. The government should focus on improving the enrollment of children of households in the poorest income quintile. The issues involve not only the supply but also the demand for education. * While schools may be available for the poor, often the poor do not send their children to school, especially in rural areas, may be because of their perception of the low quality of education. 87 Education-related costs are also major obstacles for the poor. While public schools are free, they require that students purchase school books, materials, and uniforms which the poor cannot afford. Helping poor families meet these out-of pocket costs would be an effective way of increasing school attendance. This implies that the free and compulsory basic education policy should be effectively implemented. * The gender gap in enrollment is high in rural areas and efforts to address this gap should be increased. There are a number of strategies to enhance female education, including building more schools, training more female teachers, promoting the benefits of female education, and providing stipends and scholarships for girls at the primary education level in rural areas. Improving the efficiency of education expenditures 5.56 To address the uneven distribution of teachers, it will be necessary to re-evaluate staffing policies. A potential option for staffing schools in the future is to determine school allocation on the basis of the number of students, with a weighting for smaller schools which are primarily located in rural areas. With enrolments in basic education expected to increase, the demand for teachers will rise rapidly. Improving the distribution of teachers would be helpful but not sufficient. greater attention would also have to be paid to strengthening the teacher-training program. Strengthening accountability, teacher allocation and decentralization need to play a key role in enhancing education sector performance and outcomes. 88 CHAPTER 6: HEALTH A. INTRODUCTION 6.1 Improving public health is central to Niger's economic and social development challenge. Participatory beneficiary assessments have consistently highlighted ill health as a leading cause of poverty. Ill health lowers the welfare of the poor and reduces their capacity to participate in the growth process. Improving the health status of the population will contribute directly to overall well-being. good health will also raise human capital levels, and this will have a positive effect on individual productivity and on economic growth. Because the poor account for a large proportion of the disease burden, improving health outcomes requires not only improving the quality of health care but also improving substantially access of poor households to health services and reducing the large inequities in the utilization of health services between rural and urban areas. 6.2 This chapter assesses the performance of the health sector in terms of key outcomes and results. It first reviews progress and challenges in the health sector and provides an overview of health conditions in the country. Access to health care and utilization of health services by the population are then examined, followed by an analysis of several aspects of Niger's health system such as quality of health services and the health workforce, public expenditures in the sector, and inequity of public spending and utilization of health services. Policy recommendations are provided at the end; (The data indicates that although on average the health of the Nigerien has improved over the years, the population is still among the least healthy in the world. The analysis confirms that the density of health professionals is very low and that the health workforce limitations and unequal distribution represent a major challenge to health care delivery. The analysis also highlights the need to make pharmaceuticals accessible and affordable. This is followed by a review of health care financing in Niger. Per capita health expenditures in Niger are low and dependent on household and donor financing. The latter is volatile and induces a high degree of variability in investment expenditures. The review suggests that, at its current level, the resources allocated to the health sector are insufficient to achieve the sector objectives outlined in the health development plan. In real terms, government health expenditures have declined over the past three years. A key conclusion of this report is that improving allocation efficiency with a greater focus on outcomes and results and strengthening budget execution could contribute to increasing fiscal space in the health budget to finance additional expenditures needed to enhance the health status of the population. B. PROGRESS AND CHALLENGES IN THE HEALTH SECTOR 6.3 The government of Niger is striving to improve the health status of the population and has focused its agenda on key issues with the aim of achieving the health Millennium Development Goals. The government's strategic objectives for improving health outcomes are set out in the Health Development Plan for 2011-2015. They are to (i) expand access to health services; (ii) develop reproductive health care services; (iii) adequately staff public health facilities; (iv) ensure that health facilities are regularly supplied with medicine, vaccine, and other basic supplies; (v) intensify the fight against endemic diseases; (vi) strengthen governance and leadership at all levels of the health care system; (vii) develop health care financing mechanisms. and (viii) promote research in health. Progress toward these objectives is monitored through annual action plans that set out the priority actions that have to be implemented and the milestones for the targets that the government aims to meet by 2015. 89 Child and maternal mortality 6.4 Though life expectancy in Niger is still low it is improving, pointing to some progress in reducing morbidity and mortality rates. In 1990, life expectancy at birth was about 43 years, one of the lowest in the world. Reflecting progress made over the years, it was estimated at 58 years for female and 57 years for males in 2010 (WHO, World Health Statistics Report, 2012). Overall life expectancy in Niger stands at 57 years, higher than the Sub-Saharan Africa average of 54 years and slightly below the low-income countries' average of 59 years. 6.5 The government's continued commitment to the health sector has led to significant progress in reducing infant and under-five mortality. The infant mortality rate fell from 132 per 1000 live births in 1990 to 73 per 1000 live births in 2010. The under-5 mortality rate has also improved substantially, falling from 311 per 1000 in 1990 to 143 per 1000 live births in 2010 (WHO, 2012). Progress has been uneven across regions, however, with large variations according to the areas of residence and the income level of households. Most notably, the infant and under-5 mortality rates are substantially higher in rural areas and in households with an uneducated mother. The main causes of childhood deaths are pneumonia, malaria, diarrhea with dehydration, malnutrition, and immunizable childhood diseases, all of which can be prevented by simple cost-effective interventions. Figure 36: Distribution of causes of deaths in children under-5 Pneumonia 22 Other diseases .9 Malaria 15 Diarrheoa .4 Prematurity 12 Birth asphyxia 7 Injuries Congenital anomalies 3 Neonatal sepsis 3 HIV/AIDS 1 Measles 0 0 5 10 15 20 25 U Percentage of total Source: WHO, 2010. 6.6 Maternal mortality has declined from its peak. however, Niger is not on track to meet the MDG for maternal mortality. The child survival/mortality survey conducted by the authorities estimated maternal mortality at 554 deaths per 100,000 live births in 2010, appreciably down from 648 deaths per 100,000 live births in 2006. The modeled estimates, derived by WHO, UNICEF and other United Nations organizations, also indicate a declining trend, with maternal mortality estimated at 1,400 deaths per 100,000 live births in 1990, 1,100 in 2000 and 820 in 2008. Despite this progress, the maternal mortality ratio remains extraordinarily high in Niger and exceeds that of most comparator countries in the West Africa Economic and Monetary Union (WAEMU) region. Most medical causes of maternal mortality, including infections and post-partum bleeding, can be prevented with well-organized reproductive health services. 90 6.7 Niger can accelerate the reduction of the maternal mortality rate through the intensification of prenatal care, better assistance to childbirths, and adequate post-natal care. In 2012 about 14 percent of Niger's women used family planning methods compared with an average of five percent over the previous decades. Despite this improvement the contraceptive prevalence rate in Niger remains lower than the Sub-Saharan Africa average of 22 percent and far below the 34 percent average for low-income countries. Unmet need for family planning methods is estimated at 16 percent in 2010. Data from the authorities' administrative records suggest that Niger has been making progress in the area of pre-natal care since the introduction of free health services for pregnant women in 2006. The data shows that the percentage of pregnant women that completed a prenatal consultation in a health center has increased under this scheme from 50.8 percent in 2006 to 90.6 percent in 2010, while the percentage of births attended by skilled health staff rose to 20.5 percent in 2010 from 12.9 percent in 2006. Even though administrative records sometimes tend to overestimate coverage in part because of double-counting and also because of uncertainty in the number of women receiving these services, data from the 2012 demographic and health survey 24 (DHS) broadly confirm the progress made in recent years. The percentage of women attended at least once during pregnancy by skilled health personnel for pregnancy- related reasons is estimated at about 83 percent in 2012 compared to the average of 74 percent for Sub- Saharan Africa (SSA). The percentage of live births attended by personnel trained to give women the necessary care during pregnancy and labor is among the lowest in the SSA region, estimated at 29 percent. 6.8 Communicable diseases account for a large proportion of deaths in Niger but the prevalence of HIV/AIDS remains relatively low. Over the period 2005-2010 90 percent of deaths in the population were attributed to communicable diseases and maternal, prenatal and nutrition conditions (WDI, 2012). Tuberculosis and malaria remain endemic and are prominent causes of mortality. The mortality rate attributed to Malaria was estimated at 184 per 100,000 in 2008 (WHO, 2011), almost twice the average for the Africa region (98 per 100,000) and considerably higher than the average for low- income countries (58 per 100,000). Although malaria is a leading cause of deaths among children under-5 years just around 29 percent of children under-5 receive malaria treatment and only seven percent of them sleep under insecticide-treated bednets. The prevalence of tuberculosis is high and rising, estimated at 328 per 100,000 in 2009 up from 285 per 100,000 in 2000. The incidence of tuberculosis, which measures the number of new cases each year, increased from 152 per 100,000 in 2000 to 181 per 100,000 in 2009. HIV/AIDS prevalence has increased over the years but remains relatively low, at 0.8 percent in 2009. As in most SSA countries, HIV/AIDS afflicts predominantly the age group 15-49. and within that age group, women in urban areas have the highest sero-prevalence rate. It is estimated that in 2009 women accounted for some 53 percent of the population with HIV. Tuberculosis is a leading cause of deaths among HIV- positive people. 24 INS Niger and ICF International. 2012. Enqute d6mographique et de sant6 et A indicateurs multiples du Niger EDSN-MICS-IV 2012. Rapport Pr6liminaire. D6cembre 2012. 91 Figure 37: Distribution of years of life lost by causes of diseases 100 90 78 80 60 40 2 0 15 20 3 1 7 0 Niger Regional average a Communicable N Noncommunicable Injuries Source: WHO, 2011. 6.9 Despite notable progress in many areas in recent years, Niger lags most of its neighbors on most conventional measures of health outcomes. Niger's maternal mortality rate, in particular, is considerably higher than that of its comparators and, reflecting this outcome, it also has the lowest percentage of births attended by skilled health staff. Since 2000, Niger has made significant progress in expanding immunization coverage among 1-year-olds. Immunization against measles increased from 37 percent in 2000 to 71 percent in 2010. and over the same period, immunization against DPT3 increased from 34 percent to 70 percent. However, as Table 52 below illustrates, Niger lags the SSA region on both indicators. and, in particular, fares poorly against most countries in the WAEMU region on the DPT3 indicator. This relatively low immunization coverage points to significant shortcomings in preventive care. Nevertheless in one critical area, namely infant mortality, Niger stands well below the SSA average and outperforms its neighbors with the exception of Togo. Most of these differences in outcomes continue to hold when per capita gross national income (GNI) is taken into account. Despite having the second lowest GNI per capita after Niger, Togo fares better on most measures. while Cote d'Ivoire, the country with the highest GNI in the WAEMU region, has one of the highest maternal mortality rates. Table 52: Health outcomes, Regional comparison GNI Life Crude death IMR U5MR DPT rate Measles MMR Births per expectancy rate attended by capita skilled Per 1000 Per Per % of % of Per health staff (US$) Years people 1000 1000 children children 100,000 live live ages 12- ages 12- live births births births 23 months 23 (modeled % of total months estimate) Niger 370 54 13 73 143 70 71 650 18 Burkina 550 55 12 93 176 95 94 310 54 Faso Benin 780 56 12 73 115 83 69 400 74 Cote 1,160 55 12 86 123 85 70 540 57 d'Ivoire Mali 600 51 15 99 178 76 63 460 49 Nigeria 1,180 51 14 88 143 69 71 550 39 Senegal 1,090 59 9 50 75 70 60 400 52 Togo 490 57 11 66 103 92 84 .. 60 Sub-Saharan 1,176 54 13 76 121 77 75 650 46 Africa I I_ I Source: World Development Indicators, 2012. 92 Box 6: A Success Story in Reducing Child Mortality Government policies supporting universal access, provision of free health care for pregnant women and children, and decentralized nutrition programs permitted Niger to decrease child mortality at a pace that exceeds that needed to meet the MDG 4 of reducing by two-thirds the mortality rate of children younger than 5 years, between 1990 and 2015. Niger has achieved far greater reductions in child mortality and gains in coverage for interventions in child survival than neighboring countries in West Africa. The mortality rate in children younger than 5 years declined significantly from 226 deaths per 1000 live births in 1998 to 128 deaths in 2009, an annual rate of decline of 5.1%. Stunting prevalence decreased slightly in children aged 24-35 months, and wasting declined by about 50% with the largest decreases in children younger than 2 years. Coverage increased greatly for most child survival interventions in this period. About 59,000 lives were saved in children younger than 5 years in 2009, attributable to the introduction of insecticide-treated bed nets (25%). improvements in nutritional status (19%). vitamin A supplementation (9%). treatment of diarrhea with oral rehydration salts and zinc, and care seeking for fever, malaria, or childhood pneumonia (22%). and vaccinations (11%). Source: Amouzou et al. 2012. Reduction in child mortality in Niger: a countdown to 2015 country case study. The Lancet, volume 380, issue 9848, pages 1169 - 1178, September 29,2012. 6.10 Like its infant mortality rate, Niger's under-five mortality rate has decreased over time from 226 death per 1000 live births in 1998 to 128 deaths per 1000 live births in 2009. The under-5 mortality in the poorest quintiles is significantly higher than in richer population groups. In addition to the income effect, there is a strong rural-urban divide with the under-five mortality rate sharply higher in rural areas. For instance, in 2009, at 229 per 1000 live births, the under-five mortality rate in rural areas was 1.6 times higher than in urban areas. If the decline in under-five mortality continues at the rate observed in recent years, Niger is likely to meet the MDG of reducing under-5 mortality to 70 deaths per 1000 live births by 2015. Figure 38: Inequities in under-5 mortality in Niger, 2009 250 229 204 200 154 150 139 100 50 0 Rural Urban Poorest 20% Wealthiest 20% Source: WHO, 2012. 6.11 A significant proportion of maternal and child mortality can be attributed to the poor nutritional status of mothers and children. The prevalence of child malnutrition is high in Niger. Over the period 2005-2010, on average 42.1 percent of boys and 37.5 percent of girls under age 5 were underweight. while 56.8 percent of boys and 52.6 percent of girls under age 5 suffered stunting. 93 Compared to the rest of WAEMU countries stunting and chronic malnutrition are more prevalent in Niger. The main causes of malnutrition are infection-nutrition interactions, insufficient calorie supply, generalized food insecurity, and, particularly for children, inadequate nutritional practices during breast feeding and weaning. About 84 percent of children under five and 61 percent of pregnant women are anemic and there is widespread iodine and vitamin A deficiency. 6.12 Access to safe drinking water is an important determinant of good health. While important strides have been made in the provision of water supply to the population more needs to be done to prevent the spread of diseases. From 1990 to 2010 the percentage of the population with access to drinking water rose from 35 percent to 49 percent (WDI, 2012), as the government made a concerted effort to install wells in villages. However, this is still significantly below the SSA average of 61 percent. In addition, sanitation remains a serious problem, with some 80 percent of the population lacking access to improved sanitation facilities. 6.13 The routine immunization program needs to be implemented more effectively to expand further the vaccination coverage and contribute to disease prevention. C. ACCESS To HEALTH CARE AND UTILIZATION OF HEALTH SERVICES 6.14 Access of the population to health care services is uneven and low in the poorer regions. Available data show that the percentage of the population with access to health centers offering the minimum health package within a range of 5 kms stagnated around 41 percent over the period 2005-2007 before rising to a peak of 49.7 percent in 2008. In 2010, access rebounded to 49.4 percent, following a decline to 44.3 percent in 2009. In general access to health services has been highest in the large urban centers, most notably in Niamey and Agadez, and lower in most rural areas. In five of the country's eight regions, access to health services has been at less than 50 percent, with the rural areas in the Zinder region consistently posting access at less than 40 percent. 6.15 Utilization of health services by the population in Niger lags the rest of the Africa region. This is particularly the case for several MDG-related indicators, most notably and births attendedby skilled health personnel where Niger lags the Africa region substantially. However, Niger is close to the Sub-Saharan Africa average on indicators such measles immunization and positive TB treatment. Figure 39: Health service coverage N Niger a Regional average 76 79 80 71 48 43 24 15 18 11 Contraceptive Antenatal care (4+ visits) Births attended by Measles immunization Positive TB treatment- prevalence skilled prsonnel (1-yr-olds) success Source: World Health Organization, 2012. 94 6.16 When individuals seek treatment during illness episodes they choose health posts for their medical consultations. Most health facilities are government managed. Around 2378 health posts (cases de sant6) and 838 health centers (centres de sant6 integr6s) and 33 district hospitals provide primary health care. Secondary health care is provided in six regional hospitals, two regional maternity hospitals, and seven mothers and children hospitals. Three national hospitals and one national maternity hospital, all based in Niamey, provide tertiary care. The 2011 LSMS survey indicates that during illness 69 percent of individuals consulted a health service. Surprisingly, rural dwellers with a rate of 75 percent are more liklely to consult a health service than urban dwellers, with a rate of only 55 percent. Better off households in rural areas are more likely than poorer households to consult a health service. For urban areas, a household's position in the expenditure distribution does not seem to be related to the likelihood of consulting a health service. These findings suggest that in general, and more so in rural areas, the poor do not make use of the vast majority of the spending that is channeled into tertiary and secondary care. 6.17 In 2006 the government abolished user fees for children under-5 years, prenatal consultations, births by caesarean section, and the detection and treatment of cancer for women. This measure became effective in 2007 and survey data will be needed to assess its impact. However, the evidence that is beginning to emerge appears to suggest that the introduction of free health care services targeted at children and pregnant women is having a positive effect on the utilization of health services (Table 52). Table 53: Comparison of health services utilization rates - Free versus not free services Free Children under 5 0.43% 0.72% 1.09% 1.07% 1.61% 0-11 months 0.84% 1.31% 1.57% 2.02% 2.96% 12-59 months 0.33% 0.57% 0.95% 0.84% 1.32% Women % receiving Pre natal care 50.8% 67.9% 80.4% 85.0% 90.6% No. of visits 1.39 1.85 2.19 2.31 2.51 Caesarians 0.47% 0.90% 1.10% 1.20% Contraceptives 5.7% 8.5% 12.9% 16.4% 20.4% Not free Children 5-14 years old 0.13% 0.10% 0.13% 0.17% 0.16% Women Assisted delivery 12.9% 18.7% 15.4% 17.4% 20.5% Post natal 12.7% 17.7% 21.7% 23.5% 25.8% Source: World Bank, 2011. D. QUALITY OF HEALTH SERVICES AND THE HEALTH WORKFORCE 6.18 Over the past two years, government has recruited a large number of health staff to close the coverage gap to other countries in the region. Niger's density of doctors and nurses by population has until recently been the lowest compared to other countries in the sub-region. Niger faced a large shortfall of qualified health professionals, especially physicians. Over the past two years, 536 doctors and dentists and about 2000 other health workers, including nurses and midwives, have been recruited. The number of doctors has increased from 0.24 per 10,000 population in 2010 to 0.6 in 2012, that of nurses from 1.8 per 10,000 population to 2.4, and that of midwives from 1.9 per 10,000 women of child bearing age to 2.7. 95 Table 54: Density of doctors, nurses, and midwives per 10,000 population 2000-2010 2000-2010 Niger 288 0.2 2115 1.4 Benin 542 0.6 7129 7.7 Burkina Faso 921 0.6 10539 7.3 Cameroon 3124 1.9 26042 16.0 Chad 345 0.4 2499 2.8 Cote d'Ivoire 2746 1.4 9231 4.8 Mali 729 0.5 4383 3.0 Nigeria 55376 4.0 224943 16.1 Senegal 741 0.6 5254 4.2 Togo 349 0.5 1816 2.7 Source: World Development Indicators, 2012. 6.19 Until recently, Niger also suffered from significant regional disparities in terms of health personnel whose distribution is not necessarily based on needs. In particular there was a strong concentration of public sector medical doctors in Niamey. Whereas Niamey accounts for about 8 percent of the population, more than 40 percent of public sector doctors were located there. The density of doctors in Niamey was 17 times higher than in Tillaberi and 13 times higher than in Dosso, two of Niger's poorest regions. Figure 40: Density of health workers by region in Niger, per 10000 population, 2010 m Doctors a Nurses Midwives 4.50 4.00 3.50 3.00 - 2.50 - 2.00 - 1.50 -- 1.00 -- 0.50 -- 0.00 Agadez Diffa Dosso Maradi Tahoua Tillaberi Zinder Niamey Source: Ministry of Health. 6.20 The ratios of nurses and midwives per population are far higher than those of doctors but significant regional disparities exist. Around 12.3 percent of all public sector nurses are based in the Niamey region, a much lower concentration ratio compared to doctors. Nurses are relatively better distributed across the country than physicians. The gap between Niamey and the least well served region in terms of supply of nurses (Dosso) is 1.28, which is broadly similar to the distribution of nurses in other countries in Sub-Saharan Africa. By contrast the concentration of midwives in the Niamey region is relatively more pronounced. More than 25 percent of midwives are located in Niamey, which has nine 96 times more midwives than Diffa, the least well supplied region. The placement of recently recruited health staff was reportedly done in a way so as to reduce regional disparities in coverage. It will be important to closely monitor and manage the regional distribution of health staff to ensure an equitable distribution across regions. This will require a reasonably equitable distribution of health facilities. 6.21 In addition to increasing the density of health workers, improving the quality of health services will also require improving access to and the use of pharmaceutical products. Niger has developed a system for supplying hospitals, health posts and health centers with essential medicines but inadequate access to these medicines hampers the effectiveness of service delivery. A public drug procurement entity (ONPPC) at the Ministry of Health is responsible for the purchase, distribution, storage and management of medicine. The ONPPC distributes essential medicine to health facilities through decentralized medical stores. Private sector vendors intervene also in the distribution chain. Despite this effort, the availability of medicine throughout the country is limited and the regular provision of drugs to the public sector facilities is not assured. Stock-outs occur frequently and health centers may not receive their deliveries for long periods of time. The drugs are available in the country and the level of the stock- out has been reduced because the public health services have the authorization to purchase medicine in the private sector in case of stock-out in the ONPPC. One of the challenges faced by the public health centers are delays in the reimbursement by the Ministry of Finance for the cost of providing free health care. 6.22 Affordability of drugs is a major issue since most medicines are expensive and paid for out of pocket. this, coupled with weaknesses in quality control, limits access to effective medicine. Rational use of medicines by both providers and patients is also necessary to ensure improved health outcomes. 6.23 Overall, the quality of health services in Niger is low, with low availability of medication, inadequate infrastructure and insufficient supply of health care personnel. Patients' dissatisfaction with the health system is a major factor behind the low utilization of health services. Survey data suggests that in addition to geographical remoteness and cost of access the low utilization rates are caused by the provision of low-quality care due to lack of equipment and supplies and lack of trained staff, especially in rural areas. The recent elimination of user fees by the government on a range of public health services for children and women attempts to attenuate the constraints to the utilization of health services. E. PUBLIC HEALTH EXPENDITURES IN NIGER 6.24 In 2010 total health expenditures in Niger were estimated at US$18 per capita, representing 5.2 percent of GDP.2' Total health expenditures are defined as the sum of private and public expenditures, the latter including expenditures from central and local governments as well as donors. As defined, total per capita health expenditures in Niger are below the average for low-income countries and considerably lower than the average for Sub-Saharan Africa. Regional comparisons between levels of health expenditures show that Niger's per capita spending levels are also on average considerably lower than those of neighboring countries. However, as a share of GDP, Niger spends as much on health as Cameroon, Cote d'Ivoire and Nigeria and significantly more than other sahelian countries such as Chad and Mali. 25 These figures are from World Development Indicators, 2012. 97 Table 55: Health expenditures ratios in Niger in 2010 Country Total health Total health Public health Out of pocket expenditure per expenditure (% expenditure (% of expenditure (% of capita (US$) of GDP) total health total health expenditure) expenditure) Benin 31 4.1 49.5 46.8 Burkina Faso 40 6.7 51.0 36.2 Cameroon 61 5.1 29.6 66.5 Chad 31 4.5 25.0 72.5 Cote d'Ivoire 60 5.3 21.6 77.5 Guinea 23 4.9 11.3 88.1 Mali 32 5.0 46.6 53.2 Niger 18 5.2 50.9 41.3 Nigeria 63 5.1 37.9 59.2 Senegal 59 5.7 55.5 35.0 Togo 41 7.7 44.2 46.9 Sub-Saharan Africa 84 6.5 45.1 31.8 Average Low income average 27 5.4 38.7 48.1 Source: WHO 2008, WDI 2012. 6.25 Private funds, consisting mainly of household out-of-pocket expenses, are the second largest source of financing of health expenditures in Niger. As Figure 41 below illustrates private funds account on average for about 51 percent of total health expenditures, considerably higher than the average for Sub-Saharan Africa and low income countries. Since 2005, household expenditures have consistently represented more that 90 percent of private sector health expenditures. Other private sector contributions to health care financing are from non-profit institutions servicing households, most notably NGOs, which accounted for 4.1 percent of total private health expenditures over the period 2005-2010. Private insurance accounted for about 3.9 percent of private expenditures on health over the same period. Figure 41: Sources of Health Care Financing in Niger, 1999-2010 100% 80% 60% 40% 20% 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 m Government health expenditure a External resources " Private expenditure on health Source: WHO, various years. Government Health Expenditures 6.26 Since reaching a peak in 2006 government expenditures in the health sector have declined and remained at 11 percent of total government expenditure. In 2005 government expenditures on 98 health represented 15 percent of total government expenditure allocations, in line with the Abuja declaration of 2001 requesting countries to allocate 15 percent of public expenditures to the health sector. However, since reaching 16 percent of total government expenditures in 2006 government spending on health has declined and remained at 11 percent of government expenditure. The central government, most specifically the Ministry of Health, is the main financing agent, accounting for the bulk of total government health expenditures. The next sub-section examines in detail the budget of the Ministry of Health. Figure 42: Government resources allocated to health 18 16 14 12 10 8 6 4 2 0 I I I I 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -% of all government resources going to health Source: WHO, various years. Analysis of the Ministry of Health Expenditures 6.27 The expenditures of the central government in the health sector declined significantly over the period 2008-2010, from CFAF 55.4 billion to CFAF 29.6 billion, which represents an annual decline of more than 7 percent in real terms over this period. This decline was particularly pronounced in 2009- 2010 when spending fell by about 29 percent on average. As a share of total government expenditure health expenditures have also fallen, declining from 12.4 percent in 2008 to 7.8 percent in 2010. As a result of these trends, health spending as a share of GDP remains low and has decreased from 2.3 percent in 2008 to 1.1 percent in 2010. However, Figure 43 below illustrates health expenditures rebounded in 2011 with spending as a share of GDP trekking back to its 2009 level. Table 56: Trends in the central government health expenditures, 2004-2011 (Payments basis, CFAF billions) Nominal government health expenditures 27.0 31.7 46.3 38.4 55.4 38.2 29.6 40.5 Real government health expenditures 19.0 20.8 30.0 24.1 32.6 21.6 16.5 21.8 Annual growth of real health expenditure -20.1 9.6 44.1 -19.7 35.1 -33.8 -23.6 32.1 Government health expenditure as% of total 9.7 10.5 15.4 10.4 12.4 9.0 7.8 7.1 government expenditure Government health expenditure as% of GDP 1.8 1.8 2.4 1.9 2.3 1.5 1.1 1.4 Total government expenditure 279. 300.6 301.1 370.6 446.8 423.8 381.2 574.3 Total real government expenditure 196.5 197.5 195.1 232.5 262.7 239.3 212.1 308.4 Source: Author's calculations based on MOF data. 99 Figure 43: Trends in health expenditures in Niger, 2004-2011 40 3 - 2.5 *30 - 2 2 25 - r 20 - 1.5 U 0 15 15 1 0 = 10 - 0.5 .. 5- L.L0 0 2004 2005 2006 2007 2008 2009 2010 2011 m Real government expenditures on health --*-Government health expenditure as % of GDP Source: Author's calculations based on data from MoF. 6.28 Regional comparison between levels of health expenditure shows that Niger's spending levels are on par with those of its neighbors in the sub-region, at about three percent of GDP on average. However, many countries allocate a larger share of government resources to the health sector, with 12 percent or more of total expenditures spent on the sector. These figures are more revealing when taking the respective infant mortality rates into account. Niger has a relatively low infant mortality rate per 1,000 live births. Figure 44 below shows that Niger spends relatively more on health compared with countries with higher infant mortality rates such as Chad, Cote d'Ivoire and Nigeria. but spends relatively less compared to countries with lower infant mortality rates in the sub-region, such as Togo and Senegal. However, while Burkina Faso spends significantly more than Niger on health, it has a higher infant mortality rate. The spending levels coupled with the infant mortality outcome suggest that going forward Niger would not only need to allocate a higher share of government expenditures to the health sector. but it would also need to ensure that these resources are transformed into results and outcomes that will permit and sustain accelerated progress toward the MDGs. Figure 44: Regional comparison of health expenditures, 2010 and IMR 20 120 99__ _99_ _-_100 * 15 A93 84 M b88-8 10- 73 4Z%73 _68 0 50 -00 - - 20 10E 020 E 0 0 0 0 o M General government expenditure on health % of general government expenditure a General government expenditure on health % of GDP Infant mortality rate (per 1,000 live births) Source: Author's calculations based on data from WHO, 2010. 100 Economic Composition of the Ministry of health expenditure 6.29 The recent decline in government spending on health was driven by capital expenditures, which have declined continuously since 2009. In particular, during 2009-2010, capital expenditures contracted sharply, falling by 64 percent in real terms on average. Other categories of expenditures also fell during this period. Expenditures on goods and services fell by 11 percent. and spending on transfers and subsidies fell by 3.6 percent. while wages and salaries rose moderately. Preliminary data show that spending rose in 2011, led by a robust increase in transfers and subsidies and wages and salaries. but capital expenditures have continued to fall, accounting for just 8.4 percent of total government spending in the sector. Table 57: Health expenditures by economic classification, 2007-2011 (Payments basis, CFAF billions) CFAF %of CFAF %of CFAF %of CFAF %of CFAF %of billion total billion total billion total billion total billion total Wages &salaries 7.0 18.1 9.2 16.5 9.6 25.1 9.9 33.5 11.7 28.7 Goods &services 4.8 12.4 5.8 10.5 5.3 13.9 4.8 16.3 6.8 16.8 Transfers &subsidies 7.4 19.2 11.1 20.1 12.4 32.4 10.8 36.5 18.7 46.0 Capital expenditures 19.3 50.3 29.3 52.9 10.9 28.7 4.0 13.7 3.4 8.4 Total 38.4 100.0 55.4 100.0 38.2 100.0 29.6 100.0 40.5 100.0 Source: Author's calculations. 6.30 The decline in capital expenditures was driven by sharp cuts in foreign financing which were only partially offset by domestic resources. In 2007, donors financed about 93.2 percent of investment expenditures in the health sector. Project grants accounted for 40.8 percent of these funds, project loans for 32.3 percent, and HIPC funds for 20.1 percent. Since 2008, however, the share of donor funds has declined continuously, falling to 51.2 percent in 2010. In that year, there were no project loans and HIPC funds fell sharply. The decline in donor funding appears to have been triggered in part by the political crisis in the country that was brought about by a military coup in 2009 and the lingering uncertainty in the run-up to the presidential election in 2011. 6.31 In contrast, current spending was robust, marked by a growing share of wages and salaries and a surge in spending on transfers and subsidies. The share of personnel spending in health expenditures rose from 16.5 percent in 2008 to 25.1 percent in 2009 and 33.5 percent in 2010, as the government recruited new health workers. At the same time, the share of transfers and subsidies rose from 20.1 percent in 2008 to 36.5 percent in 2010, and is estimated at 46 percent in 2011. During this period spending on goods and services, which also includes operational and maintenance spending as well as spending on items such vaccines, expanded moderately from 10.5 percent in 2008 to 16.3 percent in 2010 and is estimated at 16.8 percent in 2011. This trend is concerning as it suggests that the government is allocating lower amounts of resources to operational and maintenance expenditures needed to support the delivery of health services. 6.32 Given the growing share of transfers and subsidies in government health spending it is important to pay attention to the factors driving these expenditures. Budget data summarized in Table 58 below show that the government provides large subsidies to support the operation of various public health institutions in the country, including the school of public health in Niamey, national hospitals, and various regional hospitals. In 2011 subsidies were also provided for the purchase of anti- retroviral drugs to combat the AIDS epidemic. However, the largest expenditure items have been the current transfers to households, which were largely dominated by provisions to cover the costs linked to the free health care service initiative introduced in 2006 for children under five years and pregnant 101 women. These expenses were estimated at CFAF 8 billion in 2011, accounting for 67 percent of the transfers and 43 percent of all subsidies and transfers in the sector. Table 58: Composition of government spending on subsidies and transfers in CFAF billions Operational subsidies 4.3 4.3 4.5 4.5 6.8 Subsidies to public health establishments 4.2 4.2 4.4 4.4 5.3 Anti-retroviral purchases 1.2 Other subsidies 0.1 0.1 0.1 0.1 0.3 Current transfers 3.0 6.8 7.7 6.3 11.9 Current transfers to households 3.0 6.8 7.7 6.3 11.9 Provision for free health services 0.3 3.6 4.2 3.1 8.0 Payments to contractual staff 0.8 0.9 0.9 0.8 1.0 Medical evacuations 0.4 0.4 0.4 0.7 1.0 Medical care and hospitalizations in Niger 0.3 0.2 0.2 0.3 0.3 Personnel training 0.4 0.4 0.4 0.2 0.3 Total 7.4 11.1 12.4 10.8 18.7 Source: Author's calculations based on Niger BOOST. 6.33 In addition to the free health care initiative, significant other transfer expenditures included payments to contract staff, medical hospitalizations and evacuations. Not all subsidies and transfers are bad. In particular, the initiative to provide free health care services to vulnerable groups, for example, is justified. However, the magnitude of these transfers presents the government with the challenge of ensuring that they are effective, well targeted, transparent and consistent with the government's institutional and administrative capabilities. 6.34 Purchases of pharmaceutical products and maintenance expenses dominated expenditures on goods and services. Purchases of pharmaceutical products, which include vaccines, accounted for the largest share of expenditures on goods and services over the 2008-2011 period. However, since reaching a peak of 37.2 percent in 2009, their combined share has declined, falling to an estimated 29.8 percent in 2011 with the larger cuts falling on the purchase of pharmaceutical products. Maintenance expenditures have focused on technical equipment, building and transports materials, with the largest share of expenditures going to the latter two categories. This allocation of maintenance expenditures, with a relatively heavy focus on building and transport materials, suggests that there is need to pay closer attention to their prioritization to ensure that they contribute to the delivery of health services. Table 59: Composition and trends of expenditures on goods and services, in CFAF billions Materials 4.10 70.8% 3.72 70.2% 3.24 67.1% 4.62 67.6% Pharmaceutical products 1.20 20.7% 1.19 22.5% 1.02 21.1% 1.23 18.0% Veterinary products 0.74 12.8% 0.78 14.7% 0.44 9.2% 0.81 11.9% Fuel 0.24 4.1% 0.19 3.5% 0.18 3.6% 0.34 4.9% Maintenance 1.29 22.3% 1.18 22.3% 1.24 25.7% 1.72 25.2% Technical materials 0.21 3.6% 0.24 4.5% 0.16 3.3% 0.38 5.6% Buildings 0.47 8.1% 0.44 8.3% 0.25 5.1% 0.62 9.1% Transport materials 0.54 9.3% 0.46 8.6% 0.84 17.4% 0.63 9.2% Transport and travel expenses 0.19 3.3% 0.21 4.0% 0.15 3.1% 0.25 3.6% Total 5.79 1_ 1_ 5.29 1 4.83 1 1 6.83 1 1 Source: Author's calculations based on data from MoF. 102 Health spending by levels of government 6.35 The majority of health expenditures, about 83 percent on average, were spent at the central level. About 17 percent of government health expenditures were executed at the sub-national level. These expenditures consisted mostly of subsidies and transfers and the acquisition of goods and services. The shares of spending by the different levels of government have remained largely unchanged since the advent of decentralization. However, most of the 83% spent at the central level consist of goods and equipment purchased for the regional level. Table 60: Health expenditures at the central and sub-national levels of government, in CFAF billions Central level 32.39 84.3 46.36 83.7 32.14 84.2 23.91 80.7 33.08 81.6 Wages &salaries 6.97 18.1 9.15 16.5 9.58 25.1 9.93 33.5 11.65 28.7 Goods &services 2.05 5.3 3.56 6.4 3.39 8.9 3.21 10.9 3.75 9.2 Transfers &subsidies 4.19 10.9 7.96 14.4 9.06 23.7 7.46 25.2 14.37 35.4 Investment 19.18 49.9 25.69 46.4 10.11 26.5 3.32 11.2 3.31 8.2 Sub-national level 6.03 15.7 9.02 16.3 6.05 15.8 5.71 19.3 7.46 18.4 Wages &salaries 0.00 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 0.0 Goods &services 2.71 7.0 2.23 4.0 1.90 5.0 1.62 5.5 3.08 7.6 Transfers &subsidies 3.17 8.3 3.17 5.7 3.32 8.7 3.35 11.3 4.29 10.6 Investment 0.16 0.4 3.62 6.5 0.84 2.2 0.75 2.5 0.09 0.2 Total 38.42 55.38 38.20 29.62 40.53 Source: Author's calculations based on Niger BOOST. 6.36 A recent study by the Ministry of Health claims that districts spend about half the total health budget26. According to the study, health districts accounted for 51.2 percent and 52.9 percent of health expenditures in 2008 and 2009, respectively. and within the districts, integrated health centers received more than 65 percent of the health resources on average. Even so, most of these expenditures have been for the most part non-discretionary recurrent expenditures. In particular, although decentralization formally devolved the responsibilities for health from the central level to the sub-national level, the majority of the investment budget is still directly spent by the central government. Functional allocation of health expenditures 6.37 The budget nomenclature is based on a sectoral classification of expenditures which renders the analysis of the national budget according to its functional classification very difficult. However, for 2008 and 2009 the national health accounts have attempted to classify government health expenditure according to its various functions. The findings show that the programs that constitute the majority of the budget are the "hospital and ambulatory curative health care", "capital investment," "administration of public health services" and "health prevention" programs. According to the national health accounts, in 2009 the hospital and ambulatory curative care programs accounted for 40 percent of government health expenditures. The hospital curative care program is focused on providing in-patient care at the secondary level through six regional hospitals and two regional maternity hospitals, and at the tertiary level through three national hospitals located in Zinder and Niamey and one national maternity hospital located in Niamey. The ambulatory curative care program concentrates on providing care at the primary level through the integrated health centers and health posts within each district. The capital investment program is focused on the development of health infrastructure and equipment. while the public administration program is centered on the administration of health facilities. 26 National Health Accounts 2008-2009, December 2011 103 Figure 45: Distribution of the Ministry of Health expenditures by health functions, 2009 Prevention services Education, training Pharmaceutical 1%& research products & other 2% non-durable medical goods 2% General Hospital administration Ambulatory curative care 18% curative care 20% 20% Gross fixed capital formation Source: National Health Accounts, 2008-09. 6.38 The functional allocation of health expenditures appears to reflect broadly government priorities. However, disease prevention needs more attention. Prevention services seem appropriately directed at maternal and child health, including immunization, as well as at communicable and non- communicable diseases and the promotion of good health. However, given that the vast majority of deaths in the population are attributed to communicable diseases and maternal, prenatal and nutrition conditions, it is critical to ensure that prevention services are adequately funded, especially given that a larger share of resources is allocated to general administration. Furthermore, as expenditures on prevention programs are financed mostly through donor-funded projects, it would also be important to ensure that these expenditures are not driven by the overhead costs of project implementation units but rather by allocations to specific health interventions or activities in the program. 6.39 Looking ahead the Ministry of Health should strive to link its expenditure allocation more directly to outcomes. In order to facilitate this, health information systems should be improved to permit more consistent monitoring and evaluation. The budget also needs more information to allow analysis by health programs. At present these programs are described in general terms which provide little insight into how to reallocate expenditure or change expenditure categories towards more efficient categories. In sum, there is a need to reinforce systems for information generation to allow for knowledge-based planning and management of the basic health services. Budget execution 6.40 The budget execution rate of the Ministry of Health has been relatively low. The budget execution rate averaged 67.7 percent over the period 2008-2010, with a peak of 88.6 percent in 2008 and a low of 54 percent in 2009. The execution rate for wages and salaries has been consistently high, at more than 95 percent on average over this period. The execution rate for subsidies and transfers was the second highest, rising sharply in 2009 and averaging 87.2 percent. By contrast, the execution rate on goods and services declined consecutively in 2009 and 2010, averaging 79.5 percent. and the execution rate for capital expenditures was lowest, averaging just 46 percent. Preliminary data for 2011 show some improvements with the overall budget execution rate rising to 74.4 percent from 60.6 percent in 2010. but while the budget execution rate for subsidies and transfers and goods and services improved significantly it continued to remain low on the investment budget. 104 Table 61: Execution rate of the Ministry of health budget, 2008-2011 2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011 2008-10 Wages 9.2 9.6 9.9 11.7 9.6 10.4 10.0 13.7 95.2 92.1 99.7 85.2 95.7 &salaries Goods 5.8 5.3 4.8 6.8 6.5 6.8 6.8 7.2 89.3 78.1 71.1 94.7 79.5 &services Subsidies 11.1 12.4 10.8 18.7 13.8 12.9 12.8 19.1 80.8 96.2 84.6 97.6 87.2 &transfers Capital 29.3 10.9 4.1 3.4 32.7 40.7 19.4 14.5 89.8 26.9 21.0 23.4 45.9 expenditures Total 55.4 38.2 29.6 40.5 62.5 70.8 48.9 54.5 88.6 54.0 60.6 74.4 67.7 Source: Author's calculations based on Niger BOOST. 6.41 The low budget execution rate on the investment budget raises questions about the absorptive capacity of the Ministry of Health. Following a peak of nearly 90 percent in 2008 the execution rate on the investment budget fell sharply to 26.9 percent in 2009 and has remained very low since then, estimated at about 23.4 percent in 2011. As stated before, this may also partly reflect that donor funded expenditures are not appropriately captured in government data after 2009, especially since OECD data show an increase in donor spending on heatlh. Investment expenditures cover a range of items including the acquisition of office materials, the construction, equipment and rehabilitation of health infrastructures, and intangible assets which support institutional development, prevention activities, and capacity building efforts. The budgeted expenditures for intangible assets, financed mostly through project grants, reached CFAF 23.5 billion in 2008 and increased to CFAF 28.4 billion in 2009, surpassing significantly planned expenditures on physical assets and infrastructures. The execution rate weakened for most expenditure categories in the investment budget from their high levels in 2008. but as Table 61 illustrates, it is on the investment projects for intangible assets that the budget execution rate fell the most (which is a category primarily financed by donors). In 2009 and 2010, for example, only a small fraction of the budgeted resources was utilized. Table 62: Execution rate of the Ministry of Health investment budget, 2008-2010 2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011 2008-10 Intangible assets 21.02 2.06 0.04 0.08 23.49 28.40 11.72 9.84 89.5 7.3 0.03 0.08 32.3% Construction & 7.15 8.22 3.67 2.30 7.75 10.87 7.07 3.52 92.3 75.6 52.0 65.4 73.3% rehabilitation of infrastructure Acquisition & 1.13 0.65 0.38 1.09 1.41 1.47 0.56 1.15 80.6 44.5 68.5 95.2 64.5% repair of office material &equipment Total 29.3 10.9 4.1 3.4 32.65 40.7 19.35 14.5 89.8 26.9 21.0 23.5 45.9% Source: Author's calculations based on Niger BOOST. Household expenditures 6.42 Household out-of-pocket expenses represent the second largest source of total health expenditures in Niger. In 2010 Nigerien households spent around CFAF 58 billion on health, 105 contributing to 41 percent of total health expenditures in the country (Figure 46). Between 2008 and 2010 household out-of pocket expenses increased by five percent in real terms while the Ministry of health spending decreased by more than 20 percent over the same period. Figure 46: Private health expenditures in Niger 100% 90% 10.6 10.6 10.6 10.6 10.6 10.8 80% 70% 60% 50% 40% 30% 20% 10% 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 N Private insurance E Out of pocket expenditures Nonprofit institutions Source: Author's calculations based on data from WHO. 6.43 Although about 90 percent of private financing of health care is through out-of-pocket payments made by households, private insurance has emerged in the past three years as the second most important source. However the contribution of private insurance remains limited, averaging about 4.8 percent of private health expenditures in 2008-2010. The contribution of non-profit institutions, which include international and local NGOs, averaged 3.9 percent over the same period. Households contribute to the financing of the health care system through the cost recovery mechanisms instituted in 1994 on the purchase of medicines, consultation fees, and payments for hospital care. According to the national health accounts, in 2009 about 51 percent of household health expenditures were on medicines, while 35 percent fell on ambulatory curative care and 8 percent were on in-service hospital curative care. 6.44 Out-of-pocket payments increase the vulnerability of households and individuals and can result in pushing the poor further below the poverty line, especially when they face catastrophic health expenditure. The government is keenly aware of this and has taken steps to address this problem, most notably by instituting in 2006 free health care services for pregnant women, women with cancer, and children under-five. However, whether this initiative is effective in ensuring that these vulnerable groups have access to adequate health services will depend in part on how it is operationalized. In particular, the ability of the government to release in a predictable manner the budget provisions to cover the costs of these services will be critical. Concerns expressed by health facilities and stakeholders that delays in releasing these funds are mitigating the impact of the free health care initiative underscore the need for the government to pay close attention to the implementation of this policy. Donor Financing 6.45 External funds are an important source of financing of public health expenditure in Niger, contributing 29 percent to total health expenditures in 2010. External financing comes from a variety of sources including bilateral and multilateral donors, the United Nations system, and HIPC resources. Donor financing is currently organized around a number of specific health projects supported by IDA, the 106 African Development Bank, France, Belgium, Japan, the Saudi Arabia Development Fund, the Global Fund, UNDP and other UN organizations including the World Health Organization (WHO). Among others, these projects aim to tackle HIV/AIDS and communicable diseases, improve primary health care, and strengthen the health system. In addition to project support, the health sector also benefits from budget support operations from the World Bank through its development policy operations, the EU, and the African Development Bank, which target poverty reduction more broadly. Table 63: Donor financing in the health sector, CFAF billions Niger Treasury 18.67 49% 29.02 52% 29.10 76% 27.17 92% 37.63 93% Multilateral donors 6.41 17% 11.43 21% 1.77 5% 0.0 0% 0.0 0% Bilateral donors 2.10 5% 2.12 4% 0.52 1% 1.24 4% 0.0 0% Other donor groups 11.25 29% 12.82 23% 6.81 18% 1.22 4% 2.91 7% HIPC funds 5.61 15% 5.63 10% 6.81 18% 1.22 4% 2.91 7% WHO 2.57 7% 4.67 8% 0.0 0% 0.0 0% 0.0 0% Global Fund 3.07 8% 2.52 5% 0.0 0% 0.0 0% 0.0 0% Total 38.43 55.38 38.20 29.63 40.54 Source: Author's calculations based on Niger BOOST. 6.46 Data suggest that over the period 2008-2011 donors' expenditures in the health sector have been relatively low and declining. Not all donor-funded expenditures in the health sector are captured in Niger's public expenditure management system and the figures reported in Table 63 should be treated with caution but they highlight several important aspects of donor support to Niger's health sector. First, donor funding was high in 2007, totaling nearly CFAF 20 billion or approximately US$ 40 million and representing 51 percent of government health expenditures. Since then, however, donor funding has declined, falling sharply in 2009 and remaining at very low levels in the following years. In 2011, for example, donor funding contributed just seven percent to government health expenditures. As in the education sector, this trend was driven by the political crisis that began in 2009 in the country. Secondly, as also in the education sector, much of the donor funding was channeled through HIPC funds, which accounted for 49 percent of donor expenditures and 11 percent of government health expenditures. Thirdly, WHO and the Global Fund contributed 8 percent and 5 percent, respectively, to government health expenditures in 2008, with seemingly no further contributions in the subsequent years. In sum, with deep and sustained cuts since 2009, donor funding as presented in Table 63 amounted to less than 1 percent of GDP over the period 2008-10, indicating that the bulk of government health spending over this period was financed through its own resources. Figure 47: Share of donor funding in government health expenditure, 2008-10 HIPC funds, WHO, 3% Global Fund, Bilateral 11% 2% donors, 3% Multilateral donors, 8Y Source: Author's calculations based on Niger BOOST. 107 6.47 Donor funding supported transfer and subsidy payments as well as the purchase of goods and services, but it was mostly directed at investment expenditures in line with government priorities. Over the period 2008-2010, on average 91 percent of donor funding in the health sector was allocated to investment expenditures, with HIPC funds providing most of the resources followed by bilateral donors including Belgium, Japan and Saudi Arabia. and multilateral donors including IDA, the African Development Bank and the French Development Agency. These expenditures were mostly on intangible assets which, according to the functional classification provided in the National Health Accounts, are also linked to health prevention services. Over the same period, about 7 percent of donor funding, consisting of HIPC funds, went to transfers and subsidies. The latter consisted mostly of transfers to contract health workers in primary health care facilities, but included also support to the fight against malaria and training of health personnel. About 2 percent of donor funding was allocated to the purchase of goods and services on average. this share rose to 5 percent in 2011, and involved the use of HIPC funds to facilitate the purchase of pharmaceutical products. Table 64: Donor funding by category of expenditures, CFAF billions Goods &services 0.35 2% 0.25 1% 0.17 2% 0.06 3% 0.16 5% Transfers &subsidies 1.39 7% 0.89 3% 0.55 6% 0.28 11% 0.67 23% Investment expenditure 18.02 91% 25.23 96% 8.38 92% 2.12 86% 2.08 72% Multilateral donors 6.41 36% 11.43 45% 1.77 21% 0.0 0% 0.0 0% Bilateral donors 2.10 12% 2.12 8% 0.52 6% 1.24 59% 0.0 0% HIPC funds 3.88 22% 4.49 18% 6.09 73% 0.87 41% 2.08 100% WHO 2.57 14% 4.67 19% 0.0 0% 0.0 0% 0.0 0% Global Fund 3.07 17% 2.52 10% 0.0 0% 0.0 0% 0.0 0% Total 19.76 1 1 26.37 9.10 2.46 2.91 Source: Author's calculations based on Niger BOOST. F. INEQUITY OF PUBLIC SPENDING, BENEFIT INCIDENCE AND UTILIZATION OF HEALTH SERVICES Inequality in public health expenditures 6.48 The allocation of the budget for goods and services to the regions seems very inequitable. On a per capita basis, Agadez and Diffa have consistently received the largest allocation of these resources. In 2009 for example the share of the goods and services budget executed in Agadez was more than three times that of Maradi, the region with the lowest share. Dosso, Tahoua and Tillabery are the other regions that have a received a low share of the expenditures on goods and services. This is notable because Maradi, Dosso, Tahoua, and Tillabery are also the regions with the highest incidence of poverty, whereas Agadez and Diffa are relatively wealthier, and poverty is at moderate levels in Zinder and Niamey. 108 Figure 48: Per capita public health expenditure on goods and services by region 600 500 400 300 200 100 0 Agadez Diffa Dosso Maradi Tahoua Tillabery Zinder Niamey 02007 02008 2009 Source: Author's calculations based on Niger Boost. 6.49 However more data is needed to assess the extent of inequity in public spending at the local level. In particular it would be useful to assess whether and to which extent health expenditures from the central government in the form of deconcentrated spending are effective in terms of targeting poorer districts. This is especially important as the Ministry of Health intends to increase the level of deconcentrated spending in the near future. Benefit incidence of public health spending and utilization of health services 6.50 There are also concerns that public health spending may benefit richer income groups more than the poor through regressive subsidies for secondary care. While public health services most utilized by poor households are basic health care facilities, Niger spends about 20 percent of public health spending on hospital curative care with large transfers allocated to public hospitals. Survey data suggests that the poor have very little access to public hospitals and hence do not make use of the vast majority of the spending that is channeled into secondary care. 6.51 The Human Opportunity Index (HOI) for Niger indicates that while some progress has been made in recent years in equalizing access to health services much remains to be done27. The human opportunity index (HOI), which measures not just service coverage rate but also takes into consideration the equity of access to the service, makes it possible to track progress on opportunities. The HOI is defined as the coverage rate plus a "penalty" for the share of access to services considered universal that is not equitably distributed. The ratio of the shortfall in equal coverage relative to average coverage is called Dissimilarity index (D-index). it is a "penalty" imposed on lack of equity in access. Table 65 shows the evolution of HOI in Niger between 1998 and 2006 for some basic opportunities in health. The calculations are all based on DHS surveys. The table shows that two health opportunities for Niger children, namely immunization against measles and underweight - a measure of nutrition adequacy in childhood - have improved significantly, with relatively large positive changes between 1998 and 2006. However, as discussed above, Niger lags behind SSA in vaccination coverage and nutrition-related indicators. 27 This discussion is based on World bank report "Niger: Investing for Prosperity - A Poverty Assessment", May 2011 109 Table 65: Evolution of the Human Opportunity Index in Niger, 1998-2006 Human Significant Coverage D-Index opportunity Index change in (HOI) HOI? 1998 2006 1998 2006 1998 2006 Immunization against measles I44.0% 52.6% 15.4% 12.0% 37.2% 46.3% Yes Underweight (weight-for-age 54.4% 62.1% 16.5% 5.2% 50.9% 58.8% Yes Source: Niger Poverty Assessment Report, 2011. 6.52 Despite progress in expanding opportunities utilization of health services continues to be heavily influenced by residence in rural and urban areas and by family wealth. A sizable gap remains between rural and urban areas and between rich and poor households in the utilization of health services. As Figure 49 illustrates, this gap is particularly pronounced in the case of births attended by skilled health personnel. Only 8 percent of births in rural areas and 5 percent of births in poor households are attended by a trained health worker, compared with 71 percent in urban areas and 59 percent in wealthier households, respectively. Partly as a result of these inequities, the under-five mortality rate is exceedingly high in rural areas and in poorer households (Figure 39). Figure 49: Inequities in health service utilization in Niger 80 71 59 63 63 60 5 40 0. 20 Births attended by skilled DTP3 immunization (1- health personnel year-olds) 0 Rural M Urban Poorest 20% M Wealthiest 20% Source: WHO, 2012. Table 66: Basics statistics on the use of health services by per capita expenditures quintiles (percentage) All population Women 12-49 years old Consulted Being pregnant Consulted Deliver in a Ill during the among those during the last during health care last 30 days who were ill 12 months pregnancy facility 2007/08 1 21.1 41.7 25.9 63.8 na 2 25.0 38.8 23.3 59.1 na 3 27.4 45.0 17.8 64.2 na 4 26.4 45.9 19.8 61.9 na 5 29.4 54.3 17.8 71.1 na Total 25.9 45.6 20.7 64.0 na 2011 1 19.1 42.0 24.7 77.8 54.0 2 18.8 43.5 26.7 81.8 65.7 3 22.7 52.6 24.2 81.6 42.8 4 23.8 52.3 24.1 82.2 31.9 5 25.0 62.2 21.8 85.8 47.3 Total 21.9 51.3 24.1 82.0 50.6 Source: Data from 2011 LSMS. 110 Table 67: Distribution of population using health facility by type used and per capita expenditure quintiles Hospital & Case de Private Private Maternity CSI sant modern traditionnal Total 2007/08 1 8.7 18.3 15.1 5.9 14.1 15.0 2 14.5 14.6 21.7 8.1 17.6 16.5 3 18.0 18.4 23.9 24.2 22.6 20.9 4 17.6 23.5 19.8 11.9 19.7 20.5 5 41.2 25.2 19.6 49.9 26.0 27.1 Total 100.0 100.0 100.0 100.0 100.0 100.0 2011 1 2.4 14.6 19.3 3.4 13.6 14.3 2 8.0 14.0 18.2 5.9 14.8 14.5 3 13.5 22.9 20.8 17.0 31.4 21.3 4 25.2 23.0 21.5 13.6 18.0 22.2 5 51.0 25.5 20.2 60.1 22.3 27.8 Total 100.0 100.0 100.0 100.0 100.0 100.0 Source: Data from 2011 LSMS. Table 68: Distribution of pregnant women by type of health facility used during delivery and per capita expenditure quintiles Hospital & Case de Private Home & Maternity CSI sante modern other Total 2011 1 6.2 22.3 21.1 0.0 23.2 20.1 2 11.8 19.3 15.9 0.0 25.6 21.2 3 13.1 22.3 21.2 0.0 19.8 19.3 4 19.0 14.4 18.3 0.0 20.8 18.8 5 50.0 21.8 23.6 100.0 10.6 20.6 Total 100.0 100.0 100.0 100.0 100.0 100.0 Source: Data from 2011 LSMS. 6.53 As a result of the introduction of free health care for children and pregnant women, the use of health facilities has gone up between 2007/08 and 2011. 51 percent of people who were sick in 2011 consulted health services in 2011, compared to 45 percent in 2007/08. 82 percent of pregnant women benefitted from prenatal care compared to 64 percent in 2007/08. However, only 42 percent of the poorest households used health services in case of sickness, with virtually no change between 2007/08 and 2011. However, the share of women in the poorest quintile receiving antenatal care increased from 64 percent in 2007/08 to 78 percent in 2011. 54 percent of women in the poorest quintile delivered in a health care facility, a share which is actually above the average for the entire population. 6.54 The type of health care facility consulted differs significantly by expenditure quintile. The top quintile accounts for 51 percent of the use of hospitals and maternities and 60 percent of private modem health facilities. Similarly, the top quintile also accounts for 50 percent of deliveries in hospitals and maternities and 100 percent of deliveries in private modem facilities. Other providers of health care are more equally used by different expenditure quintiles of the population. In particular, "cases de sant6" are equally used by all quintiles. CSIs also only show relatively small differences in the use between poorer and better off households. G. POLICY RECOMMENDATIONS 6.55 Niger is lagging considerably behind in health indicators which are, in most cases, below the rate of progress required by the Millennium Development Goals. There are three main reasons for 111 this: low quality of basic health care, low utilization rates of health services by the poor and relatively low levels of preventive care. The following recommendations should be considered. 6.56 In view of the fact that per capita health expenditures in Niger are among the lowest in the region, going forward the government should consider allocating more resources to the health sector, targeting the 15 percent of government expenditures level recommended by the Abuja Declaration of 2001. In the short run, the government should focus on improving allocation efficiency to create fiscal space in the health budget. This could be achieved through a greater focus on results and by improving budget execution. * Implementing innovative mechanisms in the health sector such as "Results Based Financing" will help lower inefficiencies in public health spending. * Improving the budget execution rate will ensure that resources provided to the sector are fully utilized. Higher budget execution rates would also justify higher budget allocations. The categories of expenditures that need most attention are goods and services and capital expenditures. To improve budget execution it would be critical to strengthen the capacity of the main actors involved, clarify their roles, and ensure that the procurement rules are adhered to. In particular, it would be important to institutionalize a coordination mechanism between the Ministries of Health and Finance, for regular discussion of the issues to find solutions. 6.57 Inequities in the utilization of health services are large and contribute to high mortality rates among poorer households and in rural areas. The government should strive to reduce inequalities by increasing access to and quality of health services for the poor by better targeting allocations to the poor and under-served regions with a particular focus on strengthening "case de sant", which are used by all income groups. In many cases, the under-served regions are also the regions with a high incidence of poverty, such as Maradi. Increasing access and the quality of services in these regions would also involve achieving a more equal distribution of doctors, nurses and midwives across regions. 6.58 Lack of cash is one of the main reasons for low utilization of health facilities. To address these concerns, user fees on a range of services have been abolished for children and women whose health needs significant improvement. The government needs to ensure that this measure is well targeted, transparent, and effectively implemented. Persistent communicable diseases and low performance on the main MDG outcome indicators highlight the need for increased and sustained investment in preventive care. While impressive progress has been achieved with respect to reducing infant and under-five mortality rates, maternal mortality rates remain among the highest in Africa. Strengthening preventive care and intensifying programs that tackle communicable diseases, particularly in rural areas where mortality rates are exceedingly high is thus essential. The government should ensure that preventive programs are adequately funded. 112 CHAPTER 7: RURAL DEVELOPMENT A. INTRODUCTION 7.1 The rural sector is a key driver of inclusive growth in Niger and the government has placed its transformation at the center successive development strategies. The rural sector in Niger represents about 40 percent of GDP, provides employment to some 80 percent of the population, and is the largest source of exports after uranium. But it also accounts for the largest share of the poor, the majority of whom are involved in rain-fed agriculture. A robust and growing rural sector is central to Niger's quest for long-term economic growth, food and nutrition security, and environmental sustainability. Box 7: Nigeriens Nourish Nigeriens - the 3N initiative In 2012 the Nigerien Government adopted a new Strategic Framework for Food Security and Sustainable Agricultural Growth - "Nigeriens Feeding Nigeriens" which is known as the 3N initiative. The overall objective of the 3N initiative is "to contribute to the protection of the Nigerien people from hunger and to ensure their full participation in national production and the improvement of their income." The initiative has five strategic pillars: * Growth and diversification of agro-silvopastoral and fishing production; * Regular supply of rural and urban markets in agricultural and food products; * Improvement of Nigeriens' resilience to climate change, crises, and disasters; * Improvement of Nigeriens' nutritional status; and * Facilitation and Coordination of the 3N initiative. The 3N initiative constitutes the third pillar of the PESD and the overall cost of its implementation over the period 2012-2015 is estimated at CFAF1,000 billion. The PESD priority action plan allocates CFAF786 billion to the 3N initiative, of which only CFAF196 billion in funding had been secured at the time of the preparation of the action plan. The implementation of the 3N initiative takes place through existing structures and is coordinated by the 3N High Commissioner. 7.2 The government's overarching goal, set in relation to the Millennium Development Goals, is to reduce the incidence of rural poverty from 66 percent to 52 percent by 2015. To this end, the authorities adopted a rural development strategy in 2003 which set out the guiding principles for government interventions in the rural sector. The strategy emphasized decentralization, private sector initiatives, equity, good governance and regional integration. In 2006, the authorities adopted an action plan which detailed how the sector objectives are to be achieved and prioritized the programs to be implemented. An assessment of the rural development strategy, carried out in 2010, concluded that progress in the rural sector has been slow and uneven, with investment programs aimed at strengthening resilience to climatic shocks lagging behind short-term, emergency-driven programs. In 2012 the rural development strategy was abandoned by the new government that came to power in 2011 and replaced with a new initiative called "les 3N: les Nigeriens Nourissent les Nigeriens" (Nigeriens feed Nigeriens), which intends to place greater emphasis on food security and food self-sufficiency (Box 7). 7.3 This paper reviews government spending in Niger's rural sector and assesses whether and to which extent it supports the sector's priorities, contributes to its development and promotes environmental sustainability. It begins with an overview of recent developments in the sector and, 113 focusing on the period 2008-2011,28 it highlights progress toward the sector development goals and the key issues affecting sector performance. This provides the backdrop against which public spending in the rural sector is analyzed. The analysis focuses on govermment expenditure and examines its level and trends, composition, functional distribution, and execution. Low agricultural productivity is a major obstacle to sustained and inclusive growth in Niger. Partly as a consequence of this low productivity Niger still relies on food aid and the hunger situation remains alarming. While private on-farm investment is important for eradicating hunger, public investment is also critical. The analysis in this paper highlights the need to ensure that government expenditures in the rural sector are stable, geared toward priority activities, and effectively executed. In particular, more and better public investment in agriculture is needed to help improve sustainable productivity growth. this would help mitigate the volatility of agricultural growth and contribute to reducing the widespread vulnerability and poverty in Niger's rural areas. B. PERFORMANCE AND CHALLENGES IN THE RURAL SECTOR29 7.4 Annual rural sector expenditures in Niger reached 4 percent of GDP in 2008. in the years that followed, government expenditures fell sharply and remained at 1 percent of GDP. Government expenditure in the rural sector reached a high of CFAF 86.4 billion in 2008 but fell to CFAF 31.6 billion in 2009 and to a low of CFAF 22.1 billion in 2010. This drop was driven by a sharp fall in expenditure on agriculture and livestock which, despite a rebound in 2011, has remained below its peak in 2008. The decline in government spending on agriculture and livestock was only partially compensated by government spending on water, the environment and the fight against desertification, the other key areas of the government's rural development strategy. 7.5 Niger's rural development indicators are low and compare unfavorably against those of its neighbors. In 2008, about 39 percent of the rural population had access to an improved water source and just 4 percent had access to improved sanitation facilities, among the lowest in the region. As elaborated in the health and education chapters, health status and educational attainment in rural areas are equally poor. Niger's rural population growth, at 3.6 percent on average in the past decade, is one of the highest in the world. it is more than twice the Sub-Saharan African average of 1.7 percent, and constitutes a significant challenge to service delivery. 7.6 With low incomes and limited access to basic services, rural areas have a high incidence of poverty. Despite some progress in recent years more than 65 percent of rural households are poor compared with 41 percent of urban households. Poverty rates are considerably higher in a number of rural areas. For example, cantons located in the southern area of Tillabery have upwards of 75 percent poverty rate. and, in the Maradi region, a group of southern cantons are estimated to have upwards of 85 percent poverty ratio.0 More generally, most of the families that rely on agriculture and livestock for their livelihoods are likely to live in extreme poverty. Unless these trends are reversed, Niger is unlikely to achieve its goal of reducing rural poverty to 52 percent by 2015. 28 An assessment of the 3N initiative is beyond the scope of this paper. 29 The government ministries currently in charge of the rural sector consist of the (i) Ministry of Agriculture and Livestock, (ii) Ministry of Water, Environment and the Fight against Desertification, and (iii) Ministry of Country Planning, Urban planning and Housing. 30 "Niger: Investing for Prosperity: A Poverty Assessment." World Bank, 2011 114 C. AGRICULTURE Agriculturalproduction and productivity growth is low and declining 7.7 The large size of the agricultural sector, both in its share of GDP and employment, points to the unique opportunities that agricultural development can provide in Niger. Accounting for nearly 40 percent of GDP in 2009, agriculture is the single largest sector in the economy. About 83 percent of the population lived in rural areas in 2010, the largest in the sub-region after Burkina Faso (Table 1). moreover, the agricultural population has one of the fastest growth rates in the region. This suggests that to reduce poverty in Niger growth must come from activities in which the poor participate directly, principally smallholder agriculture and livestock, which can also enhance incomes through linkages to marketing and other activities within the rural sector. However, to make progress on poverty reduction the sector must become more productive given the close relationship between employment and agriculture. 7.8 Real agricultural growth has maintained a positive trend in recent years, averaging 3.4 percent annually over the period 2000-2007. However, agricultural productivity growth has been well below the annual average growth of 6.0 percent that the Comprehensive African Agricultural Development Program (CAADP) has determined is required to unleash the sector's potential for economic growth and development. Moreover, agricultural growth has fluctuated considerably depending on the vagaries of weather and has been, on average, less than population growth thereby contributing to Niger's low long-term per capita income rather than raising it. It follows that if agriculture is to realize its poverty-reducing potential it is essential that its growth outpace agricultural population growth, which requires that agricultural productivity increase. Table 69: Agriculture value added and population in Niger Gross domestic product Agriculture value added Agricultural population Per capita Real growth Share of Annual Share of Growth GDP change total Current US$ % % % % % % 2010 2008-09 2009-10 2009 2008-09 2010 1990-2000 Benin 689.5 2.7 2.5 32.2 ... 44.3 1.3 Burkina Faso 597.5 3.2 5.8 33.3 ... 92.1 2.9 Chad 767.7 0.3 5.1 13.6 ... 65.7 2.0 Cote d'Ivoire 1036.2 3.8 2.6 24.4 -2.4 37.9 0.0 Mali 691.6 4.5 4.5 36.5 ... 74.9 2.3 Niger 381.2 -0.9 7.5 39.6 ... 82.9 3.2 Nigeria 1389.3 7.0 8.4 32.7 ... 24.9 -0.3 Senegal 980.9 2.2 4.2 16.6 7.1 70.2 2.3 Togo 458.8 3.2 3.4 43.7 ... 53.4 1.5 Source: FAOSTAT. 7.9 Niger has made some progress in recent years in expanding crop production, including food, but this progress has been uneven. Gains were made in cereal production. Over the past decade cereal production more than doubled, rising from 2.1 million tons in 2000 to 5.2 million tons in 2010 (Figure 51). The gains were not uniformly distributed across crops, however. Whereas millet and sorghum posted solid gains, the production of rice was lower at the end of the decade. and maize production fluctuated considerably while wheat production stagnated. 115 Figure 50: Recent trends in cereal production 6000000 5000000 - 4000000 3000000 2000000 1000000 0 2000 20012002 2003 2004 2005 2006 2007 2008 2009 2010 - Maize - Rice, Paddy - Sorghum - Wheat - Millet - Total Source: Author's calculations based on data from FAOSTAT. 7.10 Cereal yield, measured in kilograms per hectare of harvested land, has remained relatively low"'. Table 2 below compares yields of food crops across countries in the sub-region including the Sahel. In general, yields of Nigerien commodities lag behind those of comparator countries. Most notably, yields per hectare of main agricultural products are low for all the three main crops (millet, sorghum, and groundnuts) and significantly lower on average compared to comparator countries. This suggests that the increase in production noted above was driven mostly by an expansion in areas cultivated. Rice is the only crop where yield per hectare has been relatively high and in line with the region's average. but, by the end of the decade, Niger appeared to have lost its advantage over comparator countries. Niger's low cereal yields underlie the problem of low productivity of resources utilized in agriculture. This is due to a number of factors, including poor land quality and lack of fertilizer. Scarcity of rainfall and water also constitute severe constraints on raising yields and total production, highlighting the need for irrigation systems. Table 70: Cereal yield (kilograms per hectare) Average 2000-04 Average 2005-2010 Sorghum Rice Millet Groundnuts Sorghum Rice Millet Groundnuts Benin 927.8 2266.8 803.2 861.4 1005.2 3175.7 817.4 945.3 Burkina Faso 923.2 1970.5 747.1 830.1 1013.1 2137.7 850.5 762.7 Chad 662.6 1183.5 498.0 914.2 732.7 1359.3 565.2 794.8 Cote d'Ivoire 589.3 1904.4 648.9 905.5 616.9 1856.0 782.7 1027.7 Mali 763.8 1995.1 649.5 792.0 986.9 3135.8 837.7 944.2 Niger 262.4 3048.3 415.1 416.3 359.3 2591.4 474.6 446.7 Nigeria 1139.0 1393.9 1298.1 1530.0 1185.9 1611.8 1488.5 1326.5 Senegal 799.4 2420.3 623.6 779.9 874.9 3077.5 701.6 859.4 Togo 898.9 2062.0 634.6 602.8 1028.2 2382.8 703.5 663.2 Source: Author's calculations based on FAOSTAT data. 31 Consistent data series on value added per worker were not available to underpin a broader assessment of agricultural productivity. 116 7.11 The crop production index points to an extensive decline in per capita food and agricultural production over the years. The crop production index presented below measures agriculture production for a given period relative to the base period 2004-2006 and includes most crops. Similarly, the food production index covers all crops that are considered edible and that contain nutrients. Table 3 shows the evolution of the index of agricultural production and food production over the period 1996-2011 in per capita terms. it indicates that per capita agricultural production as well as per capita food production has been on a declining trend since 2001, with the decline being particularly pronounced over the period 2006-2011. Agricultural productivity, measured by the ratio of agricultural production to the number of workers in agriculture, increased during the 2001-2006 period, but has been falling since then. This performance reinforces the statement that sustained productivity growth is essential for sustained agricultural development and that substantial effort and resources are needed not only to create agricultural technologies but also to adapt them to Niger's particular agro-ecological settings. Table 71: Niger - Index of Per-Capita Production Gross PIN [base 2004-2006] Annual growth rate [%] 1996 2001 2006 2011 1996- 2001- 2006- 2001 2006 2011 Food production per capita 87 97 106 112 2.2 1.79 1.11 Agricultural production per capita 87 97 106 112 2.2 1.79 0.93 Agricultural production per agricultural worker 85 95 107 107 2.25 2.41 1.23 Source: FOASTAT. Trade patterns point to Niger's high dependence on imports to meet cereal needs 7.12 The import and export data show that food is a significant component of Niger's agricultural trade. Niger's main agricultural exports include dry onions, rice, vegetables and beans. Rice tops Niger's agricultural imports, which also include sugar, maize, sorghum, and millet. Food accounts for a large share of Niger's agricultural imports. however, since reaching a peak of 67 percent in 2002-04 the share of food imports over total merchandise exports has declined steadily to 26 percent in 2008-10.32 Table 72: Agricultural trade Cereal Trade (Thousands of metric tons) Agricultural Food Exports Imports Exports Imports Production Exports Imports ($ millions) ($millions) ($millions) ($millions) 2009 2008 2008 2008 2008 2008 2008 Benin 1,508 5 226 450 791 300 745 Burkina Faso 3,627 11 205 273 294 67 228 Chad 2193 0 147 87 143 54 111 Cote d'Ivoire 1,471 38 1,090 4361 1224 3382 1036 Mali 6,335 4 252 351 416 144 341 Niger 3,451 30 320 97 335 87 282 Nigeria 20,983 5 1,364 856 3400 696 2991 Senegal 1,869 37 1,533 252 1793 133 1633 Togo 1,004 19 307 301 326 247 279 Source: Africa Development Indicators 2011. 32 "The State of Food Insecurity in the World." FAO, Rome 2012 117 7.13 Cereals remain a large share of Niger's food imports. In 2010, about 85 percent of Niger's agricultural exports consisted of food products, with cereal accounting for about 5 percent of these exports. By comparison, cereals accounted for about 35 percent of Niger's agricultural imports, all other food for 40 percent, and non-food for about 20 percent. Niger's main agricultural export markets include not only neighboring countries but also several emerging countries. In 2010 Niger's top agricultural export destinations included Nigeria, Ghana, Brazil, Thailand, Malaysia, Vietnam, Ivory Coast, and Burkina Faso. In 2010 Niger's agricultural imports originated mainly from the United States, Nigeria, France, Vietnam and Brazil. Others included Thailand, Ivory Coast and China. Figures 51 and 52 show that, while on the whole Niger was a net food exporter in 2010, it depends on imports to meet its cereal needs and, hence, is vulnerable to food price shocks. Figure 51: Import and export of food Figure 52: Composition of agricultural trade Niger Niger Share of food in total trade -2010 Composition of agricultural trade - 2010 100- 100- 40- 20- 40 - ..... 0- 20- Import Export 0- Non food products Im port Export All other food Cereals o rFood Dairy products + eggs Food Meat Source: FAOSTAT, FAO ofthe UN,Accessed on August29, 2012. Source FAOSTAT, FAO ofthe UN, Accessed on August29, 2012. http:rlfaostat.fao.orgsite6342JdefaidLaspx httpM:/faostatfao. org1site342idefaidLaspx Food security has improved but the hunger situation remains alarming 7.14 Niger's food security indicators show that while access to food has improved over the years the population remains vulnerable to food price volatility and high variability in food production. The prevalence of undernourishment, a broad measure of food insecurity, has declined steadily and was estimated at 12.1 percent in 2010-12, an outcome that compares favorably to the average of 26.8 percent for Sub-Saharan Africa. Similarly, the prevalence of food inadequacy, at 18.3 percent in 2010-12, is significantly lower than the Sub-Saharan Africa average of 33.2 percent. However, per capita food production variability is among the highest in the region. estimated at 18.5 in 2010, it was 6 times higher than the region's average. 7.15 The Global Hunger Index combines three equally weighted indicators into one score to assess the evolution of a country's hunger situation.3 These indicators are the proportion of people who are undernourished, the proportion of children under five who are underweight, and the mortality rate of children younger than age five. Niger's Global Hunger Index (GHI) has declined steadily over the years, falling from 36.4 in 1990 to 30.5 in 2001 and 22.3 in 2012. This compares to the average of 24.6, 23.7 and 20.7, respectively, for Sub-Saharan Africa. GHI in the range 20.0-29.9 is considered alarming. 33 Global Hunger Index 201 - The Challenge of Hunger: Ensuring Sustainable Food Security Under land, Water, and Energy Stresses. IFPRI 118 This indicates that while Niger has made progress in reducing its hunger index, hunger remains a constant threat. In part as a result of these trends, Niger is unlikely to achieve the MDG target of reducing by half the percentage of people suffering from chronic hunger by 2015. Eradicating hunger sustainably will require a significant increase in agricultural investment. D. LIVESTOCK 7.16 Livestock-rearing plays a key role in Niger's economy. It's the main economic activity carried out in the more arid regions of the country. A characteristic feature of these areas is low and highly variable rainfall, which makes them unsuitable for crop production. Livestock plays a particularly important role in food security in these regions, which cover about 70 percent of the country's land surface. At the sector level, livestock production is the second most important contributor to the agricultural economy, accounting for about 35 percent of the agricultural GDP on average. From an average of 11.8 percent of total GDP over the period 2000-2007, its share of the overall economy declined to 11.3 percent in 2011 and to 10.5 percent in 2012. As Table 4 illustrates, the livestock population has increased fairly rapidly over the past two decades, with growth driven mainly by the population of cattle, sheep and goats. However, inadequate access to veterinary services and advisory assistance, financing, water and forage and difficulties in securing rangeland constrain sector growth. Live cattle are the second largest foreign exchange earner after uranium, and are mostly sold to Nigeria, Niger's neighbor in the south. Table 73: Livestock population (Thousands of heads) Year Annual growth rate M%) 1990 2000 2010 2011 1990-2000 2000-2010 Cattle 3,061 5,482 9,817 9,553 79.1 79.1 Sheep & goats 11,727 17,066 24,590 23,250 45.5 44.1 Pigs 37 39 40 41 5.4 2.5 Poultry 10,048 11,434 17,101 17,323 13.8 49.6 Total livestock unit 2,811 4,569 7,546 7,282 62.5 65.2 Source: FAOSTAT- Conversion factors: cattle (0.50), sheep and goats (0.10), pigs (0.20), and poultry (0.01). 7.17 While livestock production has expanded, trends in annual per capita production of meat, milk and eggs are stagnating. Niger's potential in the production and exports of derived products with higher value-added, such as milk, meat, hides and skin, has not been fully exploited in part due to the limited transport infrastructure and slaughterhouses. However, the production and exports of livestock were also severely affected by the 2004 drought and locust infestation, as animals died because of lack of food and greater vulnerability to disease.34 34 See the Economist Intelligence Unit (EIU) for more details on these events. 119 Table 74: Livestock production - Trends in annual production of meat, milk and eggs Meat Milk Egg Thousand Annual% Thousand Annual% Thousand Annual% tons growth tons growth tons growth 1995 2007 1995- 1995 2007 1995- 1995 2007 1995- 2007 2007 2007 Benin 45 58 2.2 24 37 3.8 6 11 4.4 Burkina Faso 142 240 4.5 140 234 4.4 34 48 2.7 Chad 95 134 2.9 172 256 3.4 4 5 2.3 Cote d'ivoire 200 156 -2.1 22 25 1.0 16 35 6.7 Mali 184 291 3.9 426 636 3.4 12 11 -1.0 Niger 105 138 2.3 286 339 1.4 9 11 1.0 Nigeria 847 1108 2.3 380 468 1.8 390 553 2.9 Senegal 100 127 2.0 106 121 1.1 12 32 8.8 Togo 25 36 3.2 8 10 1.7 6 8 2.0 Sub-Saharan Africa 7129 9291 2.2 17635 24319 2.7 1106 1539 2.8 Source: The State of Food and Agriculture, FAO 2009. 7.18 Development of the livestock sector could contribute substantially to raising levels of nutrition, improving agricultural productivity, bettering the lives of rural populations and contributing to the growth of the Niger economy. However, this will require balancing out the positive aspects of livestock development with the negative externalities that the unregulated growth of livestock populations may generate, including increased production of greenhouse gases. pollution of soils and water sources from animal wastes. increased human health risks. and deforestation and unsustainable use of land resources for feed grain production."s E. WATER AND ENVIRONMENT 7.19 Lack of water, in particular low rainfall, is a major problem in Niger. The rainy season in Niger lasts only three months. total rainfall amounts to 150-600 mm per year and is unevenly distributed across the country. Regions north of Tahoua, Zinder and Diffa, for example, receive less than 100-200 mm of rainfall per year. while annual rainfall in the Niamey region is around 500 mm. This makes irrigation essential for agricultural development in Niger. The government has constructed several dams along the Niger River to provide water for agriculture. however, the irrigation potential is vastly under- utilized. Less than 30 percent of the total available area has been equipped for irrigation. and, despite some progress in recent years, the equipped areas are not fully irrigated. 3' For more detailed discussion of the contributions livestock can make to growth and poverty reduction, see "Livestock Sector Development for Poverty Reduction: An Economic and Policy Perspective" FAO, Rome, 2012. 120 Table 75: Water resources and irrigation Water resources Irrigation Irrigation Total area % of equip. % of equip. potential equipped area area For irrigation Irrigated by Actually groundwater irrigated Per capita Per capita Thousand Thousand % % m3/yr m3/yr Ha Ha 1992 2009 2008 2008 2008 2008 Benm 5166 3068 322 12 18 10 Burkina Faso 1270 782 165 25 12 100 Chad 6731 3932 335 30 20 87 Cote d'Ivoire 6063 4193 475 73 0 92 Mali 11018 6707 566 236 0 75 Niger 4054 2248 270 74 2 89 Nigeria 2794 1853 2331 293 23 75 Senegal 5047 3205 409 120 9 97 Togo 3845 2491 180 7 1 86 Source: World Development Indicators, 2012. 7.20 The percentage of the population with permanent access to an improved water source has increased in recent years, from 45 percent in 2004 to 49 percent in 201016. nevertheless, this is still far below the Sub-Saharan Africa average of 61 percent, and access to safe water even in the main cities remains inadequate. Niger also lacks adequate sanitation and waste-water treatment systems. Just 4 percent of the total population has access to improved sanitation services as noted above, and only a fraction of the population is connected to a sewerage system, mainly in Niamey the capital city. 7.21 Frequent droughts, poor farming methods and demographic pressure have accelerated desertification in Niger. It is estimated that to date Niger has lost as much as 90 percent of its arable land to desert. it loses around 200,000 ha annually, reclaiming about 5,000 ha per year through tree-planting37. The farming and fishing activities that depend on the river have also been affected. The authorities are fighting desertification and the falling river level with their own schemes and in cooperation with the 'Comite permanent inter-Etats de lutte contre la secheresse dans le Sahel' and the Niger Basin Authority. Ensuring environmental sustainability is critical for growth and development in Niger. F. PUBLIC EXPENDITURE IN THE RURAL SECTOR: COMPOSITION AND TRENDS 7.22 Government expenditure in the rural sector in Niger averaged about 1.9 percent of GDP over the period 2008-2010.38 A strong increase in government expenditure in the sector in 2008 was followed by sustained declines in the ensuing two years. In 2009-2010 government spending in the rural sector fell by about 48 percent in real terms, with the bulk of the decline occurring in 2009. Over the period 2008-2010, government expenditure in the rural sector averaged about 10.9 percent of total government expenditure. While this was in line with the "Maputo Declaration on Agriculture and Food Security in Africa," endorsed by African Head States in 2003 and establishing the Comprehensive 16FAOSTAT 37 EIU, December 2012. 38 This review of government expenditures in the rural sector is based on budget data provided by the authorities and analyzed with the Boost platform. 121 African Agriculture Development Program (CAADP);" since 2009, government expenditure in the rural sector has averaged less than 10 percent of total government expenditure. Table 8 summarizes the trends in government expenditure in the rural sector over the period 2007-2011. Table 76: Government expenditure in the rural sector (In CFAF billion, unless otherwise indicated) 2007 2008 2009 2010 2011 Average 2008-10 Wages& salaries 3.84 5.01 5.09 5.35 6.94 5.15 Goods& services 2.37 2.29 2.44 2.52 2.96 2.42 Transfers& subsidies 1.98 7.31 1.33 1.5 2.84 3.38 Capital expenditures 53.48 71.87 22.78 12.76 28.14 35.80 Total rural expenditure 61.67 86.48 31.64 22.13 40.88 46.75 Total government expenditure* 370.62 446.78 423.85 381.2 574.27 417.28 Nominal GDP 2,057 2,405 2,481 2,680 2,839 2,522 Total rural expenditure as% of GDP 3.0% 3.6% 1.3% 0.8% 1.4% 1.9% Total rural expenditure as% of government 17.0% 19.0% 7.0% 6.0% 7.0% 10.9% expenditure Total government expenditure as% of GDP 18.0% 19.0% 17.0% 14.0% 20.0% 17% GDP deflator (1987=100) 163 173.9 1181 183.7 190.3 179.5 Source: Author's calculations based on Niger Boost. * Net of debt and special accounts. 7.23 The decline in government expenditure in the rural sector was concentrated in capital expenditure, which fell by about 57 percent in real terms over the period 2009-10. As a result, the share of capital expenditure in government spending in the rural sector fell from 83 percent in 2008 to 58 percent in 2010. The share of recurrent expenditure rose, with wages and salaries accounting for 24 percent of government spending, compared with just 6 percent in 2008. Table 8 indicates that transfers and subsidies were the second largest category of expenditure in 2008, with a share of 8 percent of government expenditure in the rural sector. but government spending on transfers and subsidies also fell sharply in 2009 and remained low in 2011. Although they rebounded in 2011 they have remained considerably lower than their level in 2008. In contrast, spending on goods and services rose steadily from 2008 onwards, suggesting limited disruptions in operations expenditures during this period. Table 77: Government expenditure in the rural sector by line ministries Government expenditure Share of Government (CFAF billion) expenditure in rural sector (%) Ministries 2008 2009 2010 2011 2008 2009 2010* 2011 Agriculture 33.82 7.26 13.19 16.49 39% 23% 60% 40% Livestock 13.63 4.66 0.00 1.97 16% 15% -- 5% Territorial Planning, Urban Planning & 18.91 4.11 0.43 1.40 22% 13% 2% 3% Housing Water, Environment and Fight against 20.14 15.60 8.51 21.20 23% 49% 38% 52% Desertification Total 86.48 31.63 22.13 41.06 100% 100% 100% 100% Source: Author's calculations based on Niger Boost. *In 2010, the Ministries of Agriculture and Livestock were merged into a single Ministry. 3 Two important targets of CAADP were to increase agriculture productivity by 6 percent annually through 2015 and to allocate at least 10 percent of national budgetary resources to agriculture and rural development within five years. 122 7.24 The Ministry of Agriculture accounted for the largest share of government expenditure in the rural sector. Over the period 2008-2010 the Ministry of Agriculture accounted for 40 percent on average of government expenditure in the rural sector, followed by the Ministry in charge of Water, Environment and the fight against Desertification with 37 percent, the Ministry of Territorial Planning, Urban Planning and Housing, and the Ministry of Livestock with 12 and 10 percent, respectively (Figure 53). Taken together the Ministries of Agriculture and livestock accounted for more than half of government spending in the rural sector, reaching 60 percent in 2010. The decline in government spending that occurred in 2009-2010 was to a large extent bome by these two ministries. As a result, in 2011, the Ministry of Water, Environment and the Fight against Desertification accounted for 52 percent of government expenditure in the rural sector more than the Ministries of Agriculture and Livestock combined. Separately, the Ministry of Livestock received the lowest share of government expenditure in the rural sector. Figure 53: Average share of government expenditure, 2008-10 (%) * Agriculture & Livestock * Water, Environment, & Desertification 37% NTerritoral Planning, Urban Planning & Housing Source: Author's calculations based on Niger Boost. 7.25 The central administrations within each of the Ministries have been responsible for the majority of government expenditures in the rural sector, reflecting the slow and uneven progress in Niger's decentralization of government responsibilities. Over the period 2008-2010, the share of govermment expenditures in the rural sector executed by central administrations ranged from 65 percent to 94 percent. While expenditures on the wage bill and transfers and subsidies are centralized, capital expenditures and expenditures on goods and services are decentralized to varying degrees. About 10 percent of government expenditures on goods and services were executed by subnational governments, whereas 90 percent were executed by the central administrations. however, sub-national governments have been responsible for a larger share of the capital expenditure budget. Subnational governments' share of capital expenditures in the rural sector increased from 22 percent in 2008 to 41 percent in 2010, averaging 29 percent over this period, of which the urban commune of Niamey accounted for 9 percent, and the regions of Diffa and Dosso accounted for 4 percent, respectively. 123 Table 78: Impact of decentralization on government capital expenditures 2008 2009 2010 2011 Average 2008-10 Central Administration 77% 78% 59% 98% 71% Agadez 0% 0% 0% 0% 0% Diffa 4% 0% 6% 0% 4% Dosso 1% 5% 16% 0% 7% Maradi 1% 0% 3% 0% 2% Tahoua 5% 7% 0% 0% 4% Tillabery 1% 1% 6% 1% 3% Zinder 2% 0% 0% 0% 1% Urban commune of Niger 8% 9% 10% 0% 9% Total region 22% 22% 41% 2% 29% Outside Niger 1% 0% 0% 0% 0% Grand Total 100% 100% 100% 100% 100% Source: Author's calculations based on Niger Boost. 7.26 The proportion of expenditures carried out by subnational governments varies considerably by sub-sector. In agriculture and livestock, where decentralization seems to be progressing, subnational governments' share of expenditures executed in the sub-sector increased from 32 percent in 2008 to 40 percent in 2010, averaging 35 percent over this period. In contrast, subnational governments accounted for just 6 percent of government expenditures executed in the Ministry of Water, Environment and the Fight against Desertification. The decentralization of responsibility to lower tiers of government needs greater attention as it will enable a comprehensive and sustained execution of budget expenditures. G. AGRICULTURE AND LIVESTOCK40 7.27 Government expenditure on agriculture and livestock in Niger is low in relation to the size of the sector. Government expenditure on agriculture declined from 1.4 percent of GDP in 2008 to 0.5 percent of GDP in 2010, averaging 0.7 percent of GDP over the period 2008-10. Government expenditure on agriculture and livestock combined represented 1.0 percent of GDP and 5.6 percent of total government expenditure over the same period. The level of government expenditure on agriculture and livestock in Niger compares with the average of [] percent of GDP for Sub-Saharan Africa and [] percent of GDP for low-income countries. Composition of government expenditure in agriculture and livestock 7.28 The economic classification of government expenditure on agriculture suggests a dominance of recurrent expenditures. Over the 2008-2010 period, on average 62 percent of government expenditures in the rural sector that the Ministry of Agriculture executed were recurrent expenditures, and 34 percent were capital expenditures. Over this period, the agricultural sector received 77 percent of government transfers and subsidies to the rural sector. As Table 79 indicates, these trends continued in 2011, with the share of capital expenditures executed in the agricultural sector remaining at 30 percent while the share of transfers and subsidies rose further. In contrast, in the case of livestock, capital expenditures have dominated government expenditure. The relatively low level of government investment expenditures executed in the agricultural sector appears to be one of the factors underpinning the slow progress in expanding agricultural production and improving agricultural productivity. 40 This PER focuses on the analysis of expenditure of the Ministries of Agriculture, Livestock, Water, Environment and the fight against Desertification. 124 Table 79: Government expenditure on agriculture and Livestock, 2008-2011 Government Expendit re on Agriculture and Livestock CFAF billions % of Government expenditure in rural sector 2008 2009 2010 2011 2008 2009 2010 2011 Average 2008-10 Wages& salaries 2.36 2.78 3.08 3.84 47% 55% 58% 55% 53% Goods& services 1.06 1.13 1.61 1.71 46% 46% 64% 58% 52% Transfers& subsidies 6.70 0.83 1.16 2.38 92% 62% 77% 84% 77% Total recurrent expenditure 10.12 4.74 5.85 7.93 69% 53% 62% 62% 62% Capital expenditure 23.7 2.53 7.35 8.56 33% 11% 58% 30% 34% Total Agriculture 33.82 7.27 13.20 16.49 39% 23% 60% 40% 41% Wages& salaries 0.34 0.17 7% 3% -- -- 3% Goods& services 0.28 0.23 0.22 12% 10% -- 7% 7% Transfers& subsidies 0.17 0.11 2% 8% -- -- 4% Total recurrent expenditure 0.79 0.52 0.22 5% 6% -- 2% 4% Capital expenditure 12.84 4.14 1.75 18% 18% -- 6% 12% Total Livestock 13.63 4.66 1.97 16% 15% -- 5% 10% Grand Total 47.45 11.93 13.20 18.46 55% 38% 60% 45% 51% Source: Author's calculations based on Niger Boost. 7.29 Given the high share of subsidies in agriculture it is important to examine how they have been utilized. After reaching a high of CFAF6.7 billion in 2008, the level of government subsidies in agriculture declined. but while it remained relatively low, it exceeded the level of resources allocated to goods and services in 2011. Table 12 below indicates that subsidies and transfers in agriculture were mainly directed at public administrative establishments and financial institutions. Over the period 2008- 2010, about 54.1 percent of the subsidies were allocated to public administrative establishments. in 2011, this share increased to 62.0 percent. These subsidies targeted public establishments, which provide advisory services to farmers as well as specialist as and general training in farming methods and management. In addition to these efforts to provide public goods, in 2008, the government provided subsidies amounting to CFAF5.9 billion to financial institutions for the procurement of fertilizers. Since then, however, the share of subsidies allocated to financial institutions has declined, averaging 19.6 percent in 2009-10, before rising to 33.6 percent in 2011. During this period the subsidies applied mostly to financial services with the objective of supporting agricultural production. Experience has shown that "the full benefits of small scale agriculture development cannot be realized unless government support systems are created that provide the necessary incentives, economic opportunities, and access to needed credit and inputs to enable small cultivators to expand their output and raise their productivity." However, data constraints make it difficult to assess whether and to which extent the subsidies provided by the Government of Niger have achieved their objectives and whether the targeted public establishments and financial institutions have been effective in delivering the expected services has been limited. 7.30 Compared to agriculture, government subsidy and transfer expenditures in support of livestock have been very small and consisted mostly of transfers to households. These transfers aimed to promote economic activities that benefit households. however, these activities are not sufficiently well specified in the budget expenditure nomenclature to permit a more detailed analysis. Similarly, the subsidies are presented in very broad terms, although they appear to have provided support to public establishments such as cattle breeding centers and training centers for livestock management which, if well targeted, could contribute to the development of the livestock sector. 125 Table 80: Subsidies and transfers in agriculture and livestock, CFAF billions 2007 2008 2009 2010 2011 Subsidies 1.33 6.70 0.83 1.04 2.27 Public establishments 0.80 0.80 0.64 0.85 1.48 Industrial& commercial 0.00 0.00 0.00 0.03 0.03 Administrative 0.80 0.80 0.64 0.82 1.40 Financial institutions 0.52 5.90 0.19 0.19 0.80 Agricultural production 0.49 0.37 0.18 0.15 0.15 Central fertilizer procurement 0.00 5.00 0.00 0.00 0.60 Transfers 0.00 0.00 0.00 0.12 0.10 Households 0.00 0.00 0.00 0.12 0.10 Total Agriculture 1.33 6.70 0.83 1.16 2.38 Subsidies 0.02 0.03 0.02 -- -- Public establishments 0.02 0.03 0.02 -- -- Industrial & commercial 0.02 0.03 0.02 -- -- Administrative 0.00 0.00 0.00 -- -- Transfers 0.18 0.14 0.09 -- -- Households 0.16 0.12 0.09 Total Livestock 0.20 0.17 0.11 -- -- Grand Total 1.53 6.87 0.94 1.16 2.38 Source: Author's calculations based on Niger Boost. 7.31 The pattern of government expenditure on goods and services suggests that its effectiveness in supporting operations and maintenance in the agriculture sector has been limited. Table 13 below raises several questions about the quality of government expenditures on goods and services in the agricultural sector. First, spending on maintenance seems inadequate. Although the share of maintenance expenditures increased from 5.0 percent in 2008-09 to 10.0 percent in 2010-11, it is much less than the share allocated to the purchase of furniture, for example. Second, the breakdown of maintenance expenditures reveals a neglect of maintenance of rural roads, which are critical to facilitate the transport of agricultural products and inputs to markets and framers' access to them. Thirdly, detailed information is lacking on the category of expenditure "other purchases of goods and services" which, in principle, would support operations in the agricultural sector. It is broadly defined with scant information on its functional composition. Still, its share of government expenditure on goods and services declined sharply in the period 2008-10 from 65 percent in 2008 to 49 percent in 2010, suggesting that purchases of other goods and services less relevant for enhancing agricultural production and productivity had increased. A more efficient use of government expenditures on goods and services will help to enhance the productivity of spending in agriculture. Table 81: Government expenditures on goods and services in Agriculture, 2008-2011 Government expenditures on goods and services in Agriculture CFAF billion Share of total (%) 2008 2009 2010 2011 2008 2009 2010 2011 Purchase & repair of material & equipment 0.002 0.001 0.003 0.003 0% 0% 0% 0% Purchase of goods& services 1.06 1.13 1.60 1.71 Furniture 0.13 0.12 0.37 0.28 13% 11% 23% 16% Maintenance expenditures 0.06 0.06 0.16 0.17 5% 5% 10% 10% Buildings 0.02 0.01 0.06 0.05 2% 1% 4% 3% Transport material 0.02 0.04 0.08 0.10 2% 3% 5% 6% Rural roads 0.002 0.001 0.003 0.003 0% 0% 0% 0% Transport & mission expenses 0.04 0.07 0.06 0.08 4% 6% 4% 4% Other goods& services 0.83 0.88 1.01 1.17 78% 78% 63% 69% Other purchases of goods and services 0.69 0.71 0.78 0.94 65% 63% 49% 55% Grand Total 1.06 1.13 1.61 1.71 100% 100% 100% 100% Source: Author's calculations based on Niger BOOST. 126 7.32 Capital expenditures on agriculture fell sharply in 2009 and have only moderately increased since then. In 2008, the outturn on capital expenditures had improved fairly strongly compared to the previous year. However, the approved capital expenditure budget for 2009 was relatively modest, at CFAF 16.4 billion. Still, out of this budget, the outturn amounted to about CFAF2.5 billion, representing an execution rate of 15.2 percent, compared with about 89 percent in 2008. As Table 14 below shows, this low performance affected all the main components of capital expenditure, but investments in land improvements in particular fell sharply and spending on infrastructure was minimal. In assessing this performance, three factors need to be highlighted. First, as capital expenditures are financed in part through government own resources but mostly through donor funds, they are sensitive to fluctuations in donor aid programs. Second, given that a share of capital expenditures is executed directly by donor agencies and these expenditures are not captured in the normal budget execution process, it is likely that the data summarized in Table 13 underestimates the actual level of capital spending. Thirdly, in 2009, Niger faced a severe political crisis, which adversely affected economic activity in the country including the implementation of the government budget. Owing to the increased uncertainty around the political process planned budget resources were not released, which resulted in a low budget execution rate in that year. Nevertheless, the execution rate of the capital expenditure budget has not improved significantly since then, averaging 20 percent in 2010 and 15.4 percent in 2011, pointing to structural impediments in the expenditure chain. Table 82: Capital expenditures in Agriculture, 2008-2011 Capital expenditures in agriculture CFAF Billion Share of total (%) 2008 2009 2010 2011 2008 2009 2010 2011 Intangible assets 7.01 1.12 2.03 5.26 30% 44% 28% 62% Land development 14.63 1.13 2.50 1.85 62% 45% 34% 22% Plantations& forests 9.50 0.00 0.00 0.00 40% 0% 0% 0% Water plans 5.10 1.13 2.50 1.85 22% 45% 34% 22% Infrastructure development 0.57 0.0 1.28 0.01 2% 0% 21% 0% Purchase & rehabilitation of material & 1.50 0.27 0.24 0.24 6% 11% 17% 17% equipment Strategic or emergency stocks 1.45 0.25 0.18 0.17 6% 10% 21% 2% Total Agriculture 23.70 2.53 6.05 7.36 100% 100% 100% 100% Source: Author's calculations based on Niger Boost. 7.33 The composition of capital expenditures in agriculture suggests, however, that budgetary resources were allocated to investments that can raise agricultural productivity. Investments in land improvements and water resource management systems, which contribute to building natural capital for agricultural production, accounted for about 47 percent of government capital expenditures on agriculture over the period 2008-10. These investments, financed mostly by donors, were expected to contribute to enabling a sustainable management of ecosystems in the Niger River basin, rehabilitating irrigation systems, and popularizing crops that are suitable for irrigation. Sustaining and appropriately scaling up these investments will be needed to help improve agricultural production and productivity but it is unclear whether they have been effective in achieving their objectives. Capital expenditures were also appropriately directed at the development of intangible assets, which also contribute to agricultural development by promoting legal and regulatory institutions that form part of the enabling environment for private investment. These expenditures included projects and programs aimed at strengthening the institutional framework for agricultural development, resilience to changing climatic conditions, research and development to improve agricultural productivity, and local initiatives to enhance food security. In 2008-10, these expenditures accounted for 34 percent of government capital expenditures in agriculture on average. but their share increased to 72 percent in 2011 as the share of investments in land improvement and irrigation fell to 25 percent. Strategic food stocks absorbed 10 percent of capital 127 expenditures in agriculture in 2009, but their share has since declined, accounting for about 6 percent of capital expenditures over the 2008-10 period. Expenditures on infrastructure were very limited, accounting for about 7 percent of capital expenditures over the same period. 7.34 The composition of government capital expenditures on livestock also shows that budgetary resources were broadly in line with sector needs. About 51 percent of capital expenditures on livestock were devoted to activities designed to protect the health of the livestock population, principally vaccination and parasitic control. In 2004, many animals died not just because of the drought but also because of diseases, which effective vaccination and de-infestation campaigns could help prevent. However, Table 15 also shows that a significant share of capital expenditures in the livestock sector was allocated to the acquisition and rehabilitation of fixed assets, principally administrative buildings, which may not directly contribute to enhancing production and productivity in the sector. It is unclear whether these expenditures included the rehabilitation of slaughterhouses and investments in other much needed infrastructure, such as electrification, appear to have been limited as well. Table 83: Capital expenditures in livestock, 2008-2011 Capital expenditures in livestock CFAF Billion % share of total 2008 2009 2011 2008 2009 2011 Average 2008-09 Intangible assets 0.26 0.01 -- 2% 0.2% -- 1% Research& development 0.00 0.00 -- 0% 0.0% -- 0% Other tangible assets 0.26 0.01 -- 2% 0.2% -- 1% Purchase & rehabilitation of fixed assets 6.00 2.00 -- 47% 48% -- 48% Administrative building 6.00 2.00 -- 47% 48% -- 48% Infrastructure 0.00 0.00 -- 0% 0% -- Purchase & rehabilitation of material & 6.58 2.13 1.75 51% 51% -- 51% equipment Livestock 6.55 2.12 1.75 51% 51% 51% 51% Vaccination & de-infestation 6.55 2.12 1.75 51% 51% 51% 51% Total Livestock 12.84 4.14 1.75 100% 100% 100% 100% Source: Author's calculations based on Niger Boost. Budget execution 7.35 The budget execution rate in agriculture and livestock remained low throughout the period under review, which suggests limited impact and effectiveness of government expenditures. After reaching a high of 87 percent in 2008 the budget execution rate in agriculture and livestock declined progressively. It averaged about 62 percent over the period 2008-10 and fell to 28 percent in 2011. The main reason for the declining trend lies in the budget execution rate for capital expenditures, which has been considerably low. The low budget execution rate on capital expenditures may be due to a number of factors, including weak cash management and inadequate procurement procedures, which need to be addressed. 128 Table 84: Budget execution in agriculture and livestock Government Expendit re on Agriculture and Livestock Approved budget (CFAF Budget execution rate (%) billions) 2008 2009 2010 2011 2008 2009 2010 2011 Average 2008-10 Wages& salaries 2.36 1.83 3.07 4.30 100% 152% 100% 89% 117% Goods& services 1.52 1.59 1.93 2.00 70% 71% 83% 85% 75% Transfers& subsidies 6.95 1.33 1.70 2.43 96% 62% 68% 98% 76% Capital expenditure 26.73 16.43 36.54 55.79 89% 15% 20% 15% 41% Total Agriculture 37.56 21.18 43.24 64.52 90% 34% 31% 26% 52% Wages& salaries 0.91 0.98 -- -- 38% 17% -- -- -- Goods& services 0.37 0.39 -- 0.28 75% 60% -- 79% -- Transfers& subsidies 0.27 0.28 -- -- 62% 39% -- Capital expenditure 15.20 10.50 -- 2.28 84% 39% -- 77% -- Total Livestock 16.75 12.15 -- 2.56 81% 38% -- 77% -- Grand Total 54.31 33.33 43.24 67.08 87% 36% 31% 28% 62% Source: Author's calculations based on Niger Boost. H. WATER, ENVIRONMENT AND FIGHT AGAINST DESERTIFICATION 7.36 Ensuring adequate food and water to the population and achieving sustainable rural development and livelihoods for current and future generations will hinge upon the sustainable management of natural resources. This will require that public investment be directed toward enhancing production in ways that are environmentally sustainable. The Ministry of Water, Environment and the Fight against Desertification is responsible for promoting a sustainable management of natural resources in Niger. This section reviews government expenditures in the rural sector that this Ministry executed over the period 2008-2011, and assesses whether and to which extent these expenditures contributed to sustainable rural development. Table 85: Expenditures of the Ministry of Water, Environment and Fight against Desertification Expenditure of Ministry of Water, Environment and Fight against Desertification CFAF Billions % of government expenditure in rural sector 2008 2009 2010 2011 2008 2009 2010 2011 Average 2008-10 Wages & salaries 2.15 2.14 2.26 3.08 43% 42% 42% 44% 42% Goods & services 0.50 0.69 0.67 0.67 22% 28% 27% 23% 25% Transfers & subsidies 0.34 0.26 0.24 0.34 5% 21% 16% 12% 14% Total recurrent expenditure 2.98 3.10 3.17 4.10 20% 35% 34% 32% 30% Capital expenditure 17.15 12.50 5.34 17.10 24% 55% 42% 61% 40% Grand Total 20.13 15.60 8.51 21.20 23% 49% 38% 52% 37% Source: Author's calculations based on Niger Boost. Composition of government expenditure 7.37 First, budget data suggests that the government appears to have paid meaningful attention to the need for sustainable rural development. Over the period 2008-10 the Ministry of Water, Environment and the Fight against Desertification accounted for 37 percent of government expenditures in the rural sector. In 2011, this share rose to 52 percent, slightly more than the combined share for agriculture and livestock. Table 17 provides the relative share of government expenditure in the rural sector executed by the Ministry of Water, Environment and the Fight against Desertification according to 129 the economic classification of expenditure. It shows that on average the ministry executed 40 percent of government capital expenditures in the rural sector over the period 2008-10, compared with 34 percent in agriculture and livestock. But, as Table 85 also shows, this was less than the share of wages and salaries executed by the Ministry over the same period, indicating that there is a need to balance recurrent and investment expenditures to ensure that needed investments for environmental sustainability are adequately financed and implemented. 7.38 The composition of capital expenditures executed by the Ministry of Water, Environment and the Fight Against Desertification indicates that budgetary resources were allocated to expenditure items that can promote sustainable natural resource management. Sustainable rural development would conserve land and water, and ensure that investments are not environmentally degrading. The composition of capital expenditures executed by the Ministry of Water, Environment and the Fight against Desertification seems broadly consistent with these objectives. Table 18 below shows that on average about 49 percent of capital expenditures executed by the Ministry over the period 2008-10 was devoted to land management and plans. This category of expenditure covers soils, lands, forestry and water management systems. Within this category about 38 percent of this sector's expenditures went to investments in water. These investments focused on a range of important activities including upgrading water supply systems and sanitation facilities in urban and rural areas, strengthening resilience to changing climatic conditions, integrated management of water resources and ecosystems to prevent the extension of farmland into fragile areas, promoting conservation, and preventing soil degradation and erosion. Besides these investments in water, about 25 percent of the capital expenditures executed by the Ministry were allocated to studies, research and development, and institutional development for natural resource management. and 25 percent of these expenditures were also allocated to infrastructure, mostly in water supply and sanitation. Table 86: Capital expenditure in the Ministry of Water, Environment and Fight against Desertification Composition of capital expenditures CFAF Billion Share of total (%) 2008 2009 2010 2011 2008 2009 2010 2011 Average 2008-10 Intangible assets 7.43 2.49 0.63 3.16 43% 20% 12% 18% 25% Research & development 6.41 0.55 0.00 0.00 37% 4% 0% 0% 14% Other 1.02 1.94 0.63 3.15 6% 16% 12% 18% 11% Land management & Plans 7.80 7.44 2.27 7.83 46% 60% 42% 46% 49% Lands 0.42 0.40 0.12 0.29 2% 3% 2% 2% 3% Water plans 6.54 5.20 1.83 1.05 38% 42% 34% 6% 38% Other lands 0.47 1.82 0.04 6.49 3% 15% 1% 38% 6% Purchase & rehabilitation of 1.86 2.56 2.37 5.01 11% 20% 44% 29% 25% fixed assets Administrative buildings 0.00 0.00 0.00 0.00 0% 0% 0% 0% 0% Infrastructure 1.86 2.56 2.37 5.00 11% 20% 44% 29% 25% Acquisition & rehabilitation 0.01 0.01 0.07 0.11 0% 0% 1% 1% 0.5% of equipment Construction& 0.04 0.01 0.00 1.00 0% 0% 0% 6% 0.1% rehabilitation of military equipment Grand Total 17.15 12.50 5.34 17.10 100% 100% 100% 100% 100% Source: Author's calculations based on Niger Boost. 7.39 Although the composition of capital expenditures executed by the Ministry of Water, Environment and the Fight against Desertification was consistent with the sector's needs it is unclear whether these expenditures have been effective in promoting sustainable rural 130 development. In order for the government to link its capital expenditure allocation to outputs and outcomes, the expenditure management system should be improved to ensure adequate monitoring and evaluation. However, in addition to this, the budget also needs more complete information in order to allow analysis by rural development programs. At present these programs are described only in a very general manner, providing little guidance into how to reallocate expenditure or change expenditure categories towards more efficient categories. Budget execution 7.40 The low budget execution rate indicates that improving the effectiveness of capital expenditure will also require improving budget implementation significantly. As table 19 below shows, the budget execution rate of the expenditures carried out by the Ministry averaged about 50 percent over the period 2008-10, reaching a high of about 74 percent in 2008 and a low of 29 percent in 2010. As in the other sectors, the execution rate on wages and salaries has been the strongest, averaging 95 percent over the period 2008-10 and exceeding budget allocation in 2011. The budget execution rate for goods and services was moderately high, suggesting that operations were not severely resource constrained. however, the budget execution rate for capital expenditures was notably low, averaging 45 percent over the period 2008-10, with a high of 73 percent in 2008 and a low of 21 percent in 2010. Table 87: Budget execution ratios Government expenditures at Ministry of Water, Environment and Fight against Desertification Executed budget (CFAF Bill.) Approved budget (CFAF Budget execution rate (%) Bill.) 2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011 Average 2008-10 Wages& 2.15 2.14 2.26 3.08 2.44 2.23 2.26 2.59 88% 96% 100% 119% 95% salaries Goods& 0.50 0.69 0.67 0.67 0.63 0.78 0.81 1.05 79% 88% 83% 64% 83% services Transfers& 0.34 0.28 0.24 0.34 0.49 0.51 0.30 0.39 71% 55% 79% 87% 68% subsidies Capital 17.15 12.50 5.34 17.10 23.52 29.21 25.87 46.92 73% 43% 21% 36% 45% expenditure Total 20.13 15.60 8.51 21.10 27.07 32.73 29.25 50.96 74% 48% 29% 42% 50% Source: Author's calculations based on Niger Boost. 7.41 The low budget execution rate on capital expenditures was concentrated on investment expenditures that are critical for sustainable rural development. The average low budget execution rate hides significant variations among expenditure categories. The execution rate on infrastructure expenditures was relatively high, averaging 77 percent over the period 2008-10 and reaching 97 percent in 2011. In contrast, the budget execution rate on expenditures on lands, soils, and water systems was modest, averaging about 41 percent over the same period, with a low of 14 percent in 2009. Going forward, an important challenge for the government will be to improve significantly the budget execution rate of capital expenditures. This would be necessary to ensure progress towards sustainable rural development. 131 Table 88: Budget execution rate of capital expenditures Budget execution of capital expenditures Approved budget (CFAF Billion) Budget execution rate (%) 2008 2009 2010 2011 2008 2009 2010 2011 Average 2008-10 Intangible assets 8.94 8.44 5.91 9.11 83% 30% 11% 35% 41% Research & development 6.74 3.10 1.00 0.17 95% 18% 0% 1% 38% Other 2.20 5.33 4.91 8.94 46% 36% 13% 35% 32% Land management & Plans 12.17 16.78 16.60 31.35 64% 44% 14% 25% 41% Lands 0.87 0.40 0.30 0.29 48% 100% 40% 100% 63% Plantation & forests 0.70 0.30 0.88 0.17 53% 6% 31% 4% 30% Water plans 9.69 13.89 14.94 24.40 68% 37% 12% 4% 39% Other lands 0.92 2.20 0.49 6.50 51% 83% 9% 100% 48% Purchase & rehabilitation of fixed 2.30 3.59 2.95 5.18 81% 71% 80% 97% 77% assets Infrastructure 2.30 3.59 2.95 5.18 81% 71% 80% 97% 77% Acquisition & rehabilitation of 0.06 0.37 0.40 0.29 17% 2% 17% 38% 12% equipment Construction& rehabilitation of 0.04 0.04 0.00 1.00 100% 25% 0% 99% 42% military equipment Grand Total 23.52 29.21 25.87 46.92 73% 43% 21% 36% 45% Source: Author's calculations based on Niger Boost. I. OFFICIAL DEVELOPMENT ASSISTANCE TO THE RURAL SECTOR 7.42 Official Development Assistance (ODA) contributed to public investment in the rural sector in Niger. ODA commitments to the rural sector in Niger peaked in the 1990s. As Table 89 shows Niger was a large recipient of ODA commitments to agriculture in the sub-region both in absolute terms, measured in constant prices, and as a share of total ODA to the country. Since then, however, ODA commitments to the rural sector have declined continuously. In the mid-2000s, renewed international attention to agriculture and concerns about rising international food prices led to a partial recovery in the level of ODA to agriculture and its share in total ODA, but both remain well below earlier levels. In 2010, agriculture accounted for about 8.1 percent of all ODA allocated to the country compared with 20.7 percent in 2000 and 51.1 percent in 1990. 132 Table 89: Official Development Assistance to the rural sector in Niger, 1980-2010 Official Development Assistance To Agriculture41 Agriculture share of ODA to all sectors (Million Constant 2005 US$) (Percentage) 1980 1990 2000 2010 1980 1990 2000 2010 Benin 1 16 45 21 0.6 8.1 10.9 3.6 Burkina Faso 98 66 127 71 31.8 21.0 23.8 8.7 Chad 1 21 27 9 4.5 11.2 6.2 1.8 Cote d'Ivoire 66 98 37 93 52.1 11.1 6.4 12.8 Mali 40 116 137 223 24.7 34.1 19.4 24.9 Niger 70 115 81 43 25.2 51.1 20.7 8.1 Nigeria 11 11 16 69 75.5 2.2 1.6 5.5 Senegal 51 104 60 256 16.6 11.5 7.2 19.7 Togo 41 33 6 36 19.4 13.1 6.5 7.6 Source: FAO: The State of Food and Agriculture 2012. 7.43 Despite its decline, Official Development Assistance remains an important source of public investment in the rural sector in Niger. During the period under review, ODA played a significant role in supporting investments in intangible assets, including the development of the legal and institutional framework and human capacity that form part of the enabling environment for agricultural development, and natural capital, which can promote environmental sustainability. However, cuts or postponements in the release of donor aid have contributed to the declining levels of capital expenditures in agriculture. J. CONCLUSIONS AND POLICY RECOMMENDATIONS Main findings 7.44 Government expenditure on agriculture and rural development has declined in recent years. In 2007 and 2008 government expenditure on agriculture and rural development averaged 10.9 percent of total government expenditure, attaining the target of 10 percent adopted by African Heads of States in the 2003 Maputo Declaration. Since then, however, government expenditure on agriculture and rural development has declined, representing 7 percent of total government expenditure in 2011. Government expenditure on agriculture and livestock in particular has been low and declining. The composition of government expenditure on agriculture and rural development has been broadly in line with sector needs, however there were important deficiencies. Most notably, govemment investment expenditures executed by the Ministry of agriculture were lower than recurrent expenditures. they were also marked by limited spending on rural roads and other infrastructure that can generate high retums in terms of agricultural productivity. Similarly the pattern of government spending on goods and services in agriculture raises doubts about its effectiveness in supporting operations and maintenance in the sector. Budget execution, especially on capital expenditures, has been very low. While the poor performance on budget execution is not specific to agriculture, it points to the limited effectiveness and impact of government expenditures in a context where hunger remains alarming and agricultural production and productivity are declining. Finally, the uneven quality and limited availability of data, including inadequate information about the functional areas of public expenditure on agriculture, hinder a more detailed analysis of the trends, composition, and effectiveness of government expenditures in agriculture and rural development. 41 Agriculture on this table is broadly defined to include crops, livestock, aquaculture and agroforestry. 133 Recommendations 7.45 In view of the strategic importance of agriculture and rural development for economic growth, poverty reduction, and environmental sustainability the government should consider allocating more resources to the sector, targeting the level recommended in the Maputo Declaration on Agriculture and Food Security in Africa. Given the fiscal constraints facing Niger, in the short run, emphasis should be placed on improving the performance of public expenditures so as to create fiscal space in the budget. This will require: * Government efforts to improve the planning, targeting and efficiency of its expenditures, including more transparent and inclusive budget processes; and * Raising the budget execution rate, especially on the capital expenditures budget to ensure resources are fully utilized. this may entail important procurement reforms. 7.46 In allocating budgetary expenditures, the government should channel resources towards the provision of public goods that yield strong returns in agricultural growth and poverty reduction. The provision of public goods is a crucial part of the enabling environment for agricultural investment. Evidence from many countries over many decades shows that public investment in agricultural research and development and rural infrastructure yields higher returns than other expenditure such as subsidies. For Niger, two areas need greater attention: * The composition of capital expenditures executed by the Ministry of Agriculture indicates a need for channeling more resources towards the rehabilitation and maintenance of rural roads; * The formation of natural capital such as land and other natural resources should be promoted to support agricultural production and environmental sustainability more effectively. 7.47 Priority should be given to improving internal systems for tracking, recording and disseminating information about public spending in the rural sector. * Improved data are necessary to validate the levels and trends in agricultural investments and to enable more robust analysis of the impacts of different types of investments on agricultural growth, food security and poverty reduction. 134 CHAPTER 8: STRENGTHENING NIGER'S PUBLIC EXPENDITURE REVIEW PROCESS A. INTRODUCTION 8.1 Improved management of public resources and economic governance are cornerstones of the Government of Niger's economic policy platform. This reflects awareness of the important role played by the quality of public expenditures and credible public financial management (PFM) including public procurement systems in achieving high and sustained economic growth, significantly reducing poverty and making progress towards the MDGs. 8.2 Over the last decade, several public expenditure reviews, at global and sectoral level, were conducted. They aimed at informing the authorities on reform actions to step up the impact and effectiveness of public expenditure. This chapter first summarizes public expenditure management analytical work conducted since 2004 and reviews its impact. Later, it recommends actions aimed at improving the development impact of public expenditure reviews while reducing transaction costs and moving towards the "one process - one assessment" approach consistent with the OECD aid effectiveness guiding principles advocated in the Paris Declaration and detailed in the Accra Agenda. B. PERs IN THE RECENT PAST AND THEIR IMPACT 8.3 In view of the lack of detailed analysis to guide public expenditure management reforms efforts, the preparation of the first Public Expeniditure and Financial 42 Accountability Review (PEMFAR) was completed in 2004. This PEMFAR examined recent budget outcomes, assessed existing PFM systems and summarized key findings in a priority action plan to address the identified weaknesses. Since the Bank had just completed a County Procurement Assessment Review, procurement was excluded from the first PEMFAR analysis. At that time, it was also agreed that PEMFARs would be conducted periodically to review progress and identify remaining weaknesses of public expenditure management and assist the Government's reform efforts. 8.4 Overall, implementation of the PEMFAR I priority action plan was mixed. Building on the report's findings and recommendations, the government adopted a detailed reform action plan for the period 2005-2008. Overall, mixed progress was achieved in strengthening public expenditure management and financial accountability. An estimated 53 percent of this PEMFAR's 32 recommended key actions were fully or substantially completed, 28 percent registered some initial progress and 19 percent were poorly or not initiated. Overall, budget consistency with the PRSP priority sectors was not evident and while key sectors (education, health and rural development) prepared their sectoral strategies and medium-term expenditure programs, these were not anchored on a realistic overall budget envelope due to the lack of an overall medium-term expenditure framework (MTEF). Also, budget comprehensiveness, its 42 World Bank Country Study, Public Expenditure Management and Financial Accountability Review, October 2005. 135 execution and reporting remained inadequate. The Government carried out several key actions proposed in the 2004 CPAR. Notably, encouraging progress was made in strengthening the legal and regulatory framework of public procurement. In order to support the implementation of the country's public expenditure management system reforms, donors committed important resources. However, stronger political commitment to reform was considered necessary to successfully implement the public expenditure management reform program. Table 90: Sector PERs, 2006-2011 Rural Sector Health Sector Basic Education Sector Budget Date of Budget Date of Budget Date of report report report 2006 2006 - 2006 - 2007 - December 2007 March 2008 2007 January 2009 2008 2009 2009 Not available 2008 - February 2008 - Not Sectoral PERs 2009 2011 2009 conducted September Conducted.Not 2010 2010 Report being 2010 Not 2011 fiaie.conducted finalized. 2011 Not 2011 Workin 2011 Not conducted progress. conducted Source: Etude sur la conduit des revues des d6penses publiques au Niger, Rapport Provisoire, Ibrahim Mamane, August 2012. 8.5 In 2004, the Government indicated that PERs would be conducted in key sectors, on an annual or biennial basis. These exercises would enable close monitoring of allocation and execution of budgetary resources in PRSP priority sectors and assess their impact on poverty. In this context, the Government conducted several sectoral PERs, summarized in the table above. These PERs, mostly financed by the government's budgetary resources, are led by a sectoral comite ad-hoc and they do not involve decentralized entities other than at the data collection stage. 8.6 There is significant scope for enhancing the impact of sectoral PERs. This has been concluded by a UNICEF-financed review conducted in 2012.43 This review reports weak sectoral PER ownership and refers that their use in the definition of relevant sector policies and programs is unclear. The review also mentions that only a few sectors have conducted sectoral PERs, adding that the Ministry of Education has not conducted any exercise after the one focused on the 2007 budget and pointing out that in the rural development sector the preparation of the 2011 review was interrupted by the April 2012 dissolution of the Secretariat in charge of the exercise. 8.7 The findings of the review are based on the following facts: * Limited, irregular and late preparation of reports - reports are generally considered outdated because of the considerable time lag between their preparation and the period being reviewed. Only three sectors have carried out sectoral PERs and one (basic 43 Mamane Ibrahim and Saidou Souleymane. 2012. Atude sur la conduit des revues des ddpenses publiques au Niger - Rapport D finitif September 2012. 136 education) stopped it after the 2007 review was completed. High turnover of high-level staff (cadres), both in sectoral ministries and the Ministry of Economy and Finance, has reportedly been a major constraint to roll out sectoral PERs in a more systematic and timely manner. * Limited impact - findings and recommendations of sectoral PERs do not influence annual budget discussions with the Ministry of Economy and Finance. Reportedly, only the Ministry of Public Health indicates that, to a certain extent, its PERs inform strengthening of sectoral programs and dialogue with donors. * Insufficient quality of analysis - reports are very descriptive covering the following aspects: (i) key expenditure (current and investment) aggregates of the relevant sector; (ii) evolution of those aggregates over time (in percentage changes) and of their execution rates compared to the initial projections; and (iii) separate presentation of permanent resources (e.g. staffing by level and status, infrastructures and equipment). * Budget nomenclature issues - these have reportedly not facilitated an appropriate analysis of budgetary allocations and relate them to their development impact. This is related to the fact that the content of budget line items change from one year to the next due to factors such as ministerial instability, questionable criteria in defining the administrative classification or how to link some budget line items to programs under chapter V (investments by the State). * Poor dissemination - sectoral PERs, in general, would simply be transmitted to some stakeholders without an adequate explanation of their findings and also without follow up actions. The exception seems to be the rural development sector, which would ensure a wide dissemination of PERs to key leading government agencies, line ministries and donors. 8.8 The main contributing factors to the reported weak impact of sectoral PERs are identified as follows: * Lack of ownership - technical staff is the one in charge to design and conduct these exercises. Reports are prepared without active high-level leadership involvement, other than at the launching and validation stages. Not surprisingly, these exercises had little, if any, influence on each sector's budget decision-making processes. * Limited engagement of the Ministry of Finance - as mentioned above, preparation of sectoral PERs is led by a sectoral comite ad-hoc. However, except for the rural development sector, the Ministry of Finance does not play a very active role in this comite ad-hoc. * Inadequate alignment with the budget preparation process - ideally, such process should be timed in a manner to inform updating of the sectoral MTEF and the preparation of the sector's budget proposal. In reality, this is not the case and when the reports are published the information and conclusions are considered outdated. * Inadequate integration in an accountability process - they do not identify those responsible for the identified problems/issues, to assist them to improve their 137 performance, and are not disseminated to Parliament, NGOs, civil society and donors which could also influence better outcomes in the future. * Analysis is constrained by poor data - impacting negatively on the pertinence of key findings and operational recommendations, and scope for in-depth analysis of main sectoral developments. This is reportedly the result of (i) lack of availability of reliable and exhaustive budget information and data with their sources varying from sector to sector and problems being even more accentuated in what concerns extra-budgetary and donor-financed expenditures; (ii) lack of information on results and impact of public spending, particularly with regard to public investments due to the weak accountability of operational entities; and (iii) almost impossibility of tracking public expenditures on specific activities and services due to already mentioned classification issues. * Limited audience - it appears that sectoral PERs were mostly targeting an intra-sector audience. However, other government agencies (e.g finance, civil service, parliament), donors and civil society organizations would typically be interested parties on such exercises, provided their data and analysis "needs" would be taken into account. 8.9 A second PEMFAR was conducted in 2009.44 This PEMFAR analyzed fiscal space issues, due to the country's expected mobilization of important oil and mining revenues, reviewed public expenditures, assessed PFM and public procurement issues and identified a set of priority reform actions. The preparation of the PFM and public procurement chapters was based on the findings of the 2008 PEFA assessment and the 2008 assessment of the national procurement system based on the OECD methodology, respectively. 8.10 Implementation of the PEMFAR II policy recommendations (Annex 1) gained momentum following the coup d'etat in February 2010, as one of the transition government's central objectives was to strengthen public financial management. Important reforms such as the establishment of the Supreme Audit Institution (Cour des Comptes), reorganization of the Treasury, procurement reform, and validation of the PEMFAR II were carried out by the transition government. 8.11 Subsequently, a democratically elected government took office in April 2011 and continued to emphasize the need for improved public financial management and resource mobilization. Building on the 2009 PEMFAR as well as other technical assistance advice, the new authorities developed the 2012-2014 Action Plan for PFM reforms which was adopted in December 2011. 8.12 Globally, encouraging progress has been made in 11 of the 18 PEMFAR II policy recommendations. The following reforms have either been completed or will be completed shortly: EITI, MTEF, priority to basic education funding, budget documentation, reform of Treasury structures, Court of Accounts, establish end of year financial accounts and procurement reforms. 44 World Bank, Second Public Expenditure Management and Financial Management Review, Report No. 50815-NE, October 2009. 138 8.13 However, credibility of the budget continues to pose a major challenge. The 2012 PEFA assessment, reports that aggregate expenditure and revenue outturns differ considerably from the originally approved budget plans. As a result, compared to the previous PEFA assessment of 2008, scores remained unchanged at the bottom (Ds) or deteriorated reflecting weaknesses in budget formulation and execution. It can be argued that political instability adversely affected public financial management practices during the period 2009-2011, covered by the latest PEFA assessment. However, credibility of the budget is a recurring weakness, because it was already problematic in the 2008 PEFA assessment which covered a politically stable period. 8.14 More generally, the recent PEFA assessment reports that progress during 2009- 2011 has been modest. Out of 31 indicators, scores of 20 remained unchanged or deteriorated and only 11 showed some progress. Importantly, the report stresses that progress was registered in areas benefiting from external assistance, namely, MTEF, public debt management and public procurement. 8.15 The authorities' current focus on increasing the budget's pro-poor focus and enforcing sound public financial management practices is reassuring and augurs well for improvements in the near future. The ongoing priority to improving basic budgeting, ensuring that its execution and reporting complies with regulations and internal controls, and strengthening public procurement systems is key to ensure that the budget is prepared and implemented in an orderly and predictable manner and it delivers appropriate value for money in the use of public resources. C. POLICY RECOMMENDATIONS 8.16 Effective and efficient public expenditures are crucial to assist Niger in achieving its growth and poverty reduction goals. Against the background described in previous chapters, the expected increase of domestic revenues from extractive industries coupled with the need to expand access to social and infrastructure services to move towards the MDGs, pressures for a considerable scaling up of public spending is likely to grow. The country's vulnerability to external shocks and regional insecurity is likely to create additional expenditure pressures. In order to complement internal resources, the Government intends to mobilize significant external resources. All parties involved will have an interest in ensuring the best value for money in the use of public resources. 8.17 The underlying institutional incentives and broader work practices are important factors in determining the behavior of different budget stakeholders. In taking stock of recent PER experiences, it seems that a number of underlying systemic issues have been undermining the incentives for addressing persistent public expenditure management weaknesses and that stakeholders' behavior has been a rational response to these underlying incentives. Chief amongst these incentives, which potentially have been inhibiting much needed progress, include: (i) the lack of broad high-level ownership of the budget process and reforms put in place to make it more effective. and (ii) the lack of accountability for results through the budget management chain. In this situation, the rational choice for different budget stakeholders is to pay insufficient attention to the execution of the current year's budget and its linkages to (a) the preparation of the following year's budget and (b) the country's development policy priorities. On the 139 development partners side, while periodic PEMFARs were major analytical pieces that informed the development of the government's action plans for PFM reform, the inability to satisfy adequately the regular and short term needs for up-to-date assessments of public expenditure and PFM developments led to a situation where independent and uncoordinated assessments were carried out. This has resulted in significant transaction costs for the authorities and further stretched their already limited human resource capacity. 8.18 Looking forward, an approach of "one process - one assessment" should be adopted. Such a process would include a harmonized process for regular information sharing and dialogue between the authorities and interested development partners and other stakeholders on budget and public financial management issues. This should ensure that development partners and other interested stakeholders have adequate, up-to-date information on public expenditure and financial management developments. Moreover, such a process should also minimize transaction costs for government by reducing the number of individual donor inquiries and analyses on budget issues. It would also provide a broad joint platform to review and fine tune provision of technical assistance to carry out priority reforms. 8.19 In the near future, all stakeholders should focus on the preparation of an APER, the preparation of which is led by the Ministry of Finance. The APER plays a key role in the implementation of the new proposed approach, as it should serve as a common reference document with a shared pool of information and analysis on recent developments in the area of public expenditure and financial management. 8.20 The APER should cover the following topics: * Provide the government with timely feedback on budget performance through an "external assessment" of trends in budget allocations, and budget execution and the link to the PRSP; * Enrich the decision making process and reform agenda regarding overall allocative and operational efficiency of the budget and the strengthening of PFM systems; * Identify and help address bottlenecks in the budget process and potential budgetary weaknesses and risks that may affect the achievement of PRSP objectives; * Support the dialogue between the Ministry of Finance and spending ministries through the provision of relevant analysis; * Provide development partners and other interested stakeholders with up-to-date information; * Underpin and inform a process of regular dialogue and exchange of information between government, the providers of budget support, and other interested stakeholders. 8.21 The APERs will consist of three main parts. The first part will monitor public expenditure performance and the implementation of public financial management reforms. The second part would focus on sectoral public expenditure issues, and the third part will analyze selected public expenditure issues in detail. More in depth assessment of public financial management and procurement systems should be carried out every three to four years. 140 8.22 The APER process is also expected to contribute to an improvement in data on public expenditures and related outcomes and results. It creates demand for high quality public expenditure data. It is expected that the regular analysis of public expenditure data will contribute to identifying weaknesses and inconsistencies in public expenditure data and assist government in identifying key areas for improvement. It should be aligned with the country's budget process and inform its preparation to facilitate progress towards achievement of the country's key development goals. 8.23 As for sectoral PERs, the goal should be improving their development impact. The evaluation seems to suggest that sectoral PERs sought to describe generically the sector's use of public resources. However, their development impact could be enhanced if a more strategic approach were adopted. This would entail coverage of issues such as (i) adequacy of level and composition of the allocation and actual disbursement of budgetary resources and extent of appropriateness of their alignment with the country's PRSP key priorities and goals, (ii) extent to which expenditures are efficiently executed, and (iii) benefit incidence and poverty reduction impact analysis. 8.24 Looking forward, and to ensure their appropriate relevance and cost-effectiveness, sectoral PERs should be conducted as part of the APER process. This would contribute to widen the audience and actors actively involved in the exercises and to define a realistic approach to make the best use of available data and information, either at sector ministries' level or in other government agencies. This approach would also provide a joint platform to inform the dialogue on key sectoral policy issues while taking into consideration the country's overall development goals and resources. Finally, if sectoral PERs were conducted in close coordination with the APERs, in terms of timeline alignment, scope and periodicity of each exercise, this would surely contribute to improve the value for money of public resources allocated to these exercises. 141 Annex 1: PEMFAR 2009 - Key Policy Recommendations AREA POLICY RECOMMENDATIONS TIME FRAME IMPLEMENT. STATUS 1. Fiscal Space Improve the predictability and level of tax 2011 Some progress Outlook revenues by implementing DGD and DGI medium term action plans. Design the sovereign fund as a stabilization 2011 Not pursued fund to cope with mining and oil prices 2. Public Expenditure volatility. Accelerate implementation of EITI. 2011 Achieved Prepare an overall MTEF, allocating the 2010 Substantial Progress resource envelopes between ministries, following the procedure of distinguishing on-going policies/programs and new initiatives. Increase budget credibility by reducing 2011 Not Achieved deviation between voted and executed budget, ensuring the timely release of budget resources to the PRSP priority 3. Public Finance sectors and protecting them from Management expenditures cuts. Adopt a comprehensive strategy to 2011 Not Achieved strengthen Public Investment Management in Niger. Increase resources devoted to improve 2011 Substantial Progress quality of basic education. Adopt measures for improving incentives 2011 Substantial Progress to attract qualified health workers in rural areas. 3. Public Procurement Adopt a strategy for promoting rural 2010 Achieved Systems savings and financial intermediation with the aim of increasing crops culture productivity. Limit the use of simplified expenditure 2010 Under procedures only to cases allowed by the Implementation regulations and clear, on a monthly basis, operations charged to provisional and non- regularized accounts. Put in place new Treasury structures 2010 Achieved (DGTCP, ACCT, PGT and RGT). 142 AREA POLICY RECOMMENDATIONS TIME FRAME IMPLEMENT. STATUS Publish timely comprehensive quarterly 2011 Limited Progress budget execution reports. Establish at end of year the General 2012 Initial Progress Financial Administration Accounts based on the model used by countries in the sub- region (C6te d'Ivoire for example). Improve the presentation of budget 2011 Initial Progress documentation. Put in place the Court of Accounts to 2010 Achieved replace the Chamber of Accounts and recruit staff in accordance with the law. Conform procurement Code and standard 2010 Substantial Progress bidding documents with WAEMU guidelines. Entrust control of compliance and 2010 Achieved opportunity of directly negotiated contracts to the DGCMP. Launch procurement audits for year 2008 2011 Achieved and 2009 budgetary exercises. 143