On behalf of my Togolese authorities, I would like to thank the Board, Management and staff for the constant support to their policy efforts, both under or off Fund-supported programs, throughout the years. This support is most valuable in the current challenging external environment. They are especially appreciative of the candid discussions and the policy advice provided by staff during the Article IV consultation discussions.
Following a decade and a half of socio-political crisis and economic stagnation, Togo was able to improve its macroeconomic performance under Fund-supported program and on the path towards the HIPC completion point. The implementation of the ECF-supported program has been generally satisfactory, with the completion of all six reviews. Real GDP growth in 2012 and 2013 averaged more than 5 percent with inflation at about 2 percent. Moreover, under the ECF-supported program, the authorities realized strong budget execution, with revenue collection often exceeding targets thanks to actions in broadening the tax base and administrative reforms, and current expenditures kept within program ceilings.
The authorities have, among other reforms, improved public financial management, established a treasury cash management committee which needs to be revamped, initiated steps towards a single treasury account, and completed a financial and organizational audit and an actuarial study of the civil service’s pension fund. The authorities also started the establishment of a one-stop window at the Port Autonome de Lomé (PAL), supported the financial restructuring of problem banks and privatized two of them. More broadly, the program’s general objectives of macroeconomic stability and growth were achieved despite significant exogenous shocks (global economic crisis, floods, political and social unrests, etc.). The growth performance has translated into per capita income rising—albeit modestly—finally reversing a downward trend during the country’s long crisis of the 1990s and early 2000s.
The Remaining Medium-term Agenda
The Togolese authorities are well cognizant that much more needs to be done in several structural areas. The record on this front up to now has been mixed due to technical capacity constraints and lengthy consultative and legal processes. In the financial sector, although progress was made as regards financial deepening, the privatization process has fallen short of plans. In the energy sector, considerable liabilities weigh on the government budget while actual and potential supply shortages impede potential growth. On infrastructure, there are still gaps to be bridged to boost potential growth, and more efforts are required in the broader area of business environment.
My authorities are committed to tackle these structural problems over the medium term and intend to remain closely engaged with the Fund and other partners to this end. As Togo remains a fragile state, continued policy advice, technical assistance and financial support will be key to the Togolese authorities’ efforts to succeed in these endeavors while pursuing revenue-enhancing measures to ensure fiscal sustainability and tackling poverty. The second-generation PRSP embodied in the authorities’ Stratégie de Croissance Accélérée et de Promotion de l’Emploi (SCAPE), which builds on the first poverty reduction strategy, aims at making growth stronger, more sustainable and more inclusive. My authorities are in the process of implementing an adjustment program that meets these objectives while also ensuring macroeconomic stability.
Ensuring Fiscal Sustainability and Preserving Debt Sustainability
The authorities have expressed their firm commitment to pursue the fiscal reforms and ensure that fiscal policy remains on a sustainable path. Going forward, the objectives are to increase significantly revenue mobilization and contain current expenditure so as to finance much-needed infrastructure and social needs. Fiscal policy targets a return to positive primary domestic fiscal balance and a reduction of the overall fiscal deficit by 2014. The intended medium-term (2013-2016) fiscal adjustment will be frontloaded. Already, the revised 2013 budget is better aligned with execution capacity, leans on more realistic revenue projections, and provides more sensible allocations for fuel subsidies.
Efforts on the revenue side will build on ongoing reforms to rationalize import and other exemptions through tighter monitoring of those entitlements. The authorities will push forward programmed reforms in tax and customs administrations with the view to raise revenue further.
On the expenditure front, the authorities reiterated their intention to resist wage increase pressures from unions that would bring the budget envelopes beyond the current medium-term spending framework. On fuel subsidies, the authorities see merit in eliminating these generalized assistance measures, with the exception of kerosene which is mostly used by the poor. However, they continue to believe that the removal of those subsidies should be done in a gradual manner to maintain social stability, as previous attempts to remove the subsidies have been met by strong social resistance with damages to property. My authorities will continue the efforts in trimming subsidies which are set to be reduced by an amount equivalent to 1 percent of GDP as early as 2014 after having secured an agreement with labor union partners on pay and tax packages notably for transporters.
Public financial management reforms will focus on pursuing efforts towards establishing a single treasury account, further improving cash and treasury projections and management, and simplifying the expenditure circuit. My authorities also agree on the need to better prioritize, execute and monitor investment projects which they intend to do with technical assistance from partners.
Capacity constraints are also acute in the area of debt management. Therefore, measures to strengthen the technical and operational capacity of the debt management unit (Direction de la Dette Publique) within the Ministry of Economy and Finance are being envisaged. The authorities have requested additional technical assistance in this area. Debt sustainability also requires the contracting of highly concessional financing packages. While noting that concessional financing is not available in amounts required to meet development needs, my authorities will do their utmost to seek financing on terms consistent with debt sustainability as guided by the DSA.
Enhancing the Financial Sector
The authorities appreciate the analysis of staff on the financial sector vulnerabilities, and agree with the recommendations to address them as well as improve the regulatory and supervisory frameworks. They remain committed to tackling the management difficulties faced by some banking and microfinance institutions, along the lines suggested by staff, with the view to preserve financial stability. My authorities intend to step up the capacity of the specialized unit within the Ministry of Economy and Finance (CAS-IMEC) to monitor under-regulated institutions and close illegal entities in the microfinance sector. They continue to work closely with the regional Banking Commission within the Western African Economic and Monetary Union (WAEMU) to require banks to comply with prudential standards. At the same time, it is to be noted that only decisions at the WAEMU level can change and simplify the banking regulatory framework.
There is full agreement between the authorities and staff on the medium-term policies for the financial sector, which is to support growth through greater financial intermediation. This requires ensuring that banks, microfinance institutions as well as pension funds become and remain financially sound.
Toward Stronger and More Inclusive Growth
The authorities have made stronger, sustainable, and inclusive growth a priority objective in their SCAPE (2013-2017) which benefited from a large consultative process, including the 2012 National Economic Forum which involved all domestic stakeholders and developments partners. The strategy is articulated around five pillars: developing sectors with high growth potential; economic infrastructure; human capital and employment; governance; and participatory, inclusive and durable development.
Making growth stronger and sustainable requires addressing the weaknesses of the energy and other infrastructure sectors. The authorities are aware that financial difficulties faced by national power companies and the rapid increase of demand for electricity could lead to power shortages, especially as external sources of electricity may face supply constraints, thereby undermining growth prospects. To address this challenge, the Togolese authorities intend to implement measures to clear the accumulated arrears to the electricity companies and to avoid their re-emergence through a diagnostic and action plan. Closing the infrastructure gaps in this sector as well as in the transportation sector (roads, airport, and port) is also essential to boosting potential growth.
Strengthening competitiveness and the business environment through governance reforms is also a cornerstone of the authorities’ medium term growth agenda. The authorities welcome the findings that Togo’s external sector risks are generally manageable and that the real effective exchange rate is broadly in line with economic fundamentals. However, they view seriously the deficiencies in non-price competitiveness and the business climate. They will strive to improve the business environment and the quality of governance, notably through contract enforcement, protection of investors’ rights, and access to finance.
The authorities put emphasis on ensuring that economic growth benefits the larger population. Specific measures to reduce poverty and make growth more inclusive, especially in rural areas, include constructing small dams and increasing access to water to enhance productivity; expanding feeder roads to increase market access; and addressing youth unemployment through targeted support to young entrepreneur projects. They take good note of the recommendation for—and will reflect on—urban planning as a way to increase poverty reduction gains brought about by internal migration to the cities.
Important and concrete progress has been achieved in the past five years in the area of macroeconomic sustainability and also in terms of reversing the decline in per capita GDP. Real GDP has been growing at a high rate and many critical reforms have been initiated under the previous ECF-supported program.
Going forward, my Togolese authorities remain committed to pursue the reforms started and address the bottlenecks that still constrain the development of the economy. My authorities place a very high importance on measures that will create private sector-led employment and reduce poverty while ensuring fiscal sustainability. However, Togo remains a fragile state with significant capacity constraints. Thus, my authorities look forward to the continued support from the international community, including the Fund, to assist them in their efforts to implement the needed wide-ranging reforms.