This paper reviews economic developments in Togo during 1990–94. In 1990, the economic situation deteriorated, with an overall growth of real GDP of only 0.1 percent. Growth in the primary sector decelerated, in comparison with the previous year, largely because of late rains, but remained appreciable (3 percent), despite the decline in the production of food crops. Output in the secondary sector fell by 4.4 percent. In 1991, real GDP contracted by 0.9 percent, marking the beginning of a three-year decline.


This paper reviews economic developments in Togo during 1990–94. In 1990, the economic situation deteriorated, with an overall growth of real GDP of only 0.1 percent. Growth in the primary sector decelerated, in comparison with the previous year, largely because of late rains, but remained appreciable (3 percent), despite the decline in the production of food crops. Output in the secondary sector fell by 4.4 percent. In 1991, real GDP contracted by 0.9 percent, marking the beginning of a three-year decline.

I. Production and Income

1. Introduction

Togo is a small, open economy based mainly on agricultural production (cotton, coffee, cocoa, and foodcrops), mining (phosphates), and regional trade. Agricultural production, which is mainly small-scale, accounted for about 49 percent of gross domestic product (GDP) and supported approximately 80 percent of the population in 1993. The secondary sector contributed 18 percent of GDP, with manufacturing industries representing about 7 percent, construction and utilities about 7 percent, and phosphate mining some 4 percent. The tertiary sector accounted for 33 percent of GDP, of which 13 percent was in commerce and tourism. The production costs of phosphate should be among the lowest in the world, while cotton production costs also compare favorably with world averages, although they are relatively high by regional standards. Lomé has a modern harbor and a relatively sophisticated banking system, key factors behind Togo’s well-developed commercial sector, which also serves neighboring countries.

The prosperity of Togo is largely dependent on the evolution of world commodity prices and on the economies of neighboring countries. The population, estimated at 3.9 million in 1993, experienced a rapid increase in real per capita income during most of the 1970s when commodity prices were favorable and the Government undertook a major program to expand public investment and the role of public enterprises. The decline in commodity prices at the end of the 1970s and the burden of the external debt compelled the authorities to undertake a sustained adjustment process during the 1980s. The pursuit of the adjustment effort improved Togo’s financial situation significantly by the end of the 1980s, although growth remained relatively modest. This progress, however, was reversed when the social and political unrest that had started in 1991 led the country to a virtual standstill by end-1992 and throughout 1993. As a result, per capita GDP plummeted by around 25 percent between 1991 and 1993.

2. Overview of developments, 1989-93

Economic and financial developments in Togo were broadly satisfactory in 1989; real GDP grew by 3.9 percent, as the primary and secondary sectors experienced strong growth (Table 1 and Appendix II, Table I). Value added in the primary sector rose by 5.5 percent on account of an increase in the volume of production of foodcrops, which more than offset a drop in cash crops. The secondary sector’s value added increased by 6.7 percent, reflecting a surge in the manufacturing and energy sectors (17 percent and 11 percent, respectively), while the mining and construction sectors were relatively stagnant. The tertiary sector grew by a modest 1.5 percent.

Table 1.

Togo: Gross Domestic Product by Sector of Origin, 1989–93 1/

(In billions of CFA francs)

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Sources: Ministère du Plan et de l’Aménagement du Territoire, Direction de la Statistique Générale; Central Bank of West African States (BCEAO); and staff estimates.

At market prices.

Includes forestry, fishing, livestock, and hunting.

In 1990, the economic situation deteriorated, with an overall growth of real GDP of only 0.1 percent. Growth in the primary sector decelerated, in comparison with the previous year, largely because of late rains, but remained appreciable (3 percent), despite the decline in the production of foodcrops. Output in the secondary sector fell by 4.4 percent. Although manufacturing maintained a steady growth (13.8 percent), mining production plunged by 27 percent, owing to a loss of phosphate export markets. The situation in the tertiary sector was characterized by anaemic growth (0.2 percent), owing mainly to a 0.7 percent decline in output of the commerce sector.

In 1991, real GDP contracted by 0.9 percent, marking the beginning of a three-year decline. This outturn reflected mainly the adverse impact of the social and political unrest that had emerged late in the previous year, when pressures to establish a multiparty political system began to build up. Against this background of political uncertainty, the tertiary sector was particularly hard hit; economic activity in the construction and services sectors fell by 13.5 percent and 4.6 percent, respectively. Moreover, poor weather conditions depressed agricultural output, which fell by 1.2 percent. In contrast, the secondary sector’s value added experienced a significant increase (6.9 percent), on the strength of a 21.6 percent recovery in phosphate production.

There was a further sharp deterioration of the economic and financial situation in 1992. Social unrest intensified over the course of the year, reaching a peak with the declaration of a general strike in November 1992, which persisted throughout the first half of 1993. Consequently, real GDP declined by 8.8 percent, reflecting a broad weakness in all economic sectors. The secondary and tertiary sectors suffered the most, contracting by 12.8 percent and 14.4 percent, respectively, whereas value added in the primary sector improved by 0.8 percent. In the secondary sector, mining output decreased by 28.2 percent because of a 29.8 percent drop in phosphate production, which was due mainly to the loss of many export markets, while manufacturing declined by 9.8 percent. The political turmoil also provoked an exodus of traditional regional services activity previously concentrated in Togo to neighboring countries, causing commerce, tourism, and transport and communications value added to fall by 20.5 percent and 17.3 percent, respectively.

The economic paralysis related to the general strike aggravated the situation dramatically in 1993. Production in the secondary and tertiary sectors fell by 30.1 percent and 32.7 percent, respectively. In contrast, agricultural production improved by 16.5 percent as a result of favorable weather conditions and increased cultivation during the strike.

3. Agricultural production 1/

a. Food crops

The value added of food crops--primarily cassava, yams, maize, and sorghum--represents more than 80 percent of agricultural production. Overall production increased from 1.9 million tons to 2.2 million tons in 1993. After having dropped by 5 percent in 1991, food crop production in real terms remained broadly stable in 1992 but soared in 1993 (23.0 percent), owing mainly to an increase of the labor force in the sector that followed the return of government employees to their native villages during the general strike.

b. Cash crops

Production of cotton, the most important cash crop (whose share in the total volume of production varied between 59 percent and 72 percent in the period 1989-93), decreased by 10 percent from 1990 to 1992, and by a further 9 percent in 1993, to 82,000 tons. The last decline is attributable to the strike-related delay in the payment for the cotton crop in the 1992/93 crop year, which appears to have weakened farmers’ confidence in the efficiency of the marketing system; this decline is expected to be reversed in the crop year 1994/95. Official producer prices were cut for the 1992/93 crop year for cotton, coffee, and cocoa to reflect weak international prices; they were adjusted upwards for the 1993/94 crop year, and even further for the 1994/95 crop year (Appendix II, Table V). Data on official marketing operations for the export crops are reported in Appendix II, Tables VI-VII and discussed further in Chapter VII.

c. Livestock, forestry, and fishing

The livestock, forestry, and fishing sectors contributed about 11 percent to GDP on average during the period 1989-93 (Appendix II, Table I). Given the steady real growth of these sectors --which averaged 7.2 percent over the period, despite the overall slackening of economic activity--their share in GDP increased continuously, from 8.7 percent in 1989 to 15.1 percent in 1993.

4. Industrial production

a. Overview

In 1991, before the political disturbances, the industrial sector accounted for about 24 percent of GDP (Appendix II, Table I), including mining, primarily of phosphates (6 percent); industrial manufacturing (10 percent); construction (3 percent); and energy and water (5 percent). The sharp contraction in industrial production in 1992 and 1993 (of some 40 percent) adversely affected the performance of the secondary sector, which had previously been strengthened by the privatization program for state enterprises and by the improvement of incentives for small- and medium-scale industrial manufacturing, in particular through the creation of an export processing zone.

b. Mining

The production and marketing of phosphates is undertaken by the phosphate mining company (Office Togolais des Phosphates, OTP). Phosphate production costs should be among the lowest in the world, owing to the geological characteristics of the deposits and the coastal location of the processing plant.

Since the mid-1980s, exports of phosphates have been hampered by marketing and, later, by production problems. First, phosphate exports suffered from environmental concerns in the European markets. Changes in the environmental laws of the European Union (EU) prohibited the use of phosphate from Togo as fertilizer because of its high cadmium content. This development made it necessary to find new trading partners for phosphate exports; Togo was able to sharply increase exports to North America, Asia, and Eastern Europe in 1988-89, so that the total export volume expanded from an average of 2.5 million metric tons in 1986-87 to 3.3 million tons in 1988-89. After a decline in 1990, owing to difficulties in the Australian markets and economic changes in Togo’s key Eastern European markets, export volume rose by 24 percent to 3.1 million metric tons in 1991. Since 1992, disruptions in production have compounded marketing difficulties and led to a collapse in export volume, which fell to 2.1 million metric tons in 1992 and 1.6 million metric tons in 1993.

As a consequence of social unrest in 1991 and 1992, the OTP wage bill increased by 50 percent from CFAF 6 billion in 1990 to CFAF 9 billion in 1993. Combined with low international prices for phosphates (a decrease of 28 percent between 1990 and 1993), this led to losses amounting to CFAF 8 billion in 1992 and CFAF 6 billion in 1993 (Appendix II, Tables XI and XII).

c. Manufacturing industry

During 1989 and 1990, manufacturing industries’ output grew by an average of 15 percent a year (Appendix II, Table XIII). This performance reflected in part improved efficiency, reactivation of privatized enterprises, and development of the export processing zone. Between 1991 and 1993, industrial capacities plunged because of the cessation of activity in many enterprises.

Manufacturing activity is concentrated in less than two dozen companies, which account for some 80 percent of output, and are mostly located in the Lomé area. Natural constraints to industrial development are a small domestic market and the lack of a trained industrial labor force. However, Togo has certain advantages for further development because of its relatively low labor costs and a well-developed transportation and financial infrastructure. In conjunction with the IDA-supported Private Enterprises Development Project initiated in 1987, the Government focused on the promotion of small- and medium-scale manufacturing industry through a reform of industrial incentives. At end-1989, the Government passed a new law governing the establishment of an export processing zone, a project that was elaborated in cooperation with the U.S. Overseas Private Investment Corporation, which also sponsored investment seminars in the United States and in Lomé. In 1993, about 55 enterprises had been approved but only 11 were active. The export processing zone also suffered from the political crisis of 1992-93, as illustrated by the decline in the number of employees (1,060 in 1993 compared with 1,300 a year earlier).

d. Construction and energy

Construction activity declined at the end of the 1980s with the completion of the Nangbéto power plant project on the Mono River, undertaken jointly with Benin, and several other large construction projects in Lomé. In 1990, it expanded by 7.9 percent, in line with growth in the Government’s investment budget. However, after 1990, construction activity was adversely affected by the decline in public and private investments.

Energy use is divided between the traditional sector, which uses wood, waste, and other available resources, and the modern sector, which depends on electricity and oil. The use of wood as a source of energy is still quite widespread; and the ODERF (Office de Développement et d’Exploitation des Ressources Forestières) is trying to coordinate reforestation efforts to meet both the need for energy and the need for hardwood for construction and furniture production. Imported petroleum products (Appendix II, Table XV) are used throughout the country as a source of energy. With the opening of Nangbeto, nearly all towns in Togo have access to electricity. 1/

5. Commerce, tourism, transport, and communication

The commerce and tourism sector accounted for 20 percent of GDP in 1991 (13 percent in 1993). Togo is traditionally a regional trading center and, consequently, commercial activities depend to a large extent on economic developments in the neighboring countries. Regional trade has benefitted from Togo’s traditional open-door trading policy and from an efficient port; about a third of the country’s imports are re-exported to neighboring countries. The private trading sector was dominated by five major companies located in Lomé. However, the abolition of trade restrictions and monopolies resulted in an increase in the number of private trading companies and improved efficiency in the sector.

The transport and communications sector accounted for about 6 percent of GDP in 1991 but dropped markedly thereafter, to 3.9 percent in 1993. The activities in this sector benefit from a modern deep-water harbor, an airport that can accommodate wide-bodied jets, and a relatively good road network. The autonomous Port of Lomé is a free port, which, in addition to servicing Togo, also services neighboring countries, particularly landlocked Burkina Faso, Mali, and Niger. There was a 27 percent increase in tonnage handled over the 1986-90 period, but activity collapsed by 35 percent between 1991 and 1993 (Appendix II, Table XIV). The port has a warehouse capacity of about 55,000 square meters, of which 20 percent is reserved for Burkina Faso, and 10 percent each for Mali and Niger.

The number of travelers handled by the airport fell by 3 percent between 1986 and 1989, increased by 32 percent in 1990, and then declined dramatically during the crisis. The volume of goods, which had risen steadily up to 1990 plummeted thereafter to one sixth of its 1990 level. Togo’s road system includes 1,600 kilometers of paved roads and 800 kilometers of dirt roads that are maintained by the Government.

6. Use of resources

During the 1989-91 period, aggregate demand was characterized by relatively stable shares in GDP of private consumption (about 72 percent), and of government consumption (about 15 percent) (Appendix II, Tables II-IV). In 1992, the share of private consumption started to increase sharply, whereas the share of government consumption rose slightly. In 1993, the share of private consumption increased to 86 percent and government consumption to 17 percent, mainly because of the severe contraction in GDP. Reflecting the consumption ratio, gross domestic savings dropped sharply from about 13 percent of GDP during 1989-91, to minus 2.4 percent in 1993. Meanwhile, total investment fell sharply from about 25 percent of GDP in 1990 to about 20 percent of GDP in 1991, before collapsing to 6 percent in 1993.

As a result, the resource gap which averaged minus 9.6 percent of GDP during 1989-91, increased to minus 10.6 percent in 1992, before decreasing to minus 8.4 percent in 1993.

II. Prices, Wages, and Employment

1. Prices

Two consumer price indices are compiled in Togo; one for the household consumption of African families in Lomé based on 1963 prices (low-income households), while the other covers the household consumption of European families living in Lomé based on 1961 prices (expatriate or high-income households). New urban and rural household surveys were carried out during 1987-89, but they have not yet been used for a new price index. The food component in the index relating to low-income households has a weight of about 50 percent and consists mainly of domestically produced goods (Table 2), and about 30 percent in the high-income household index.

Table 2.

Togo: Consumer Price Indices, 1989–93 1/

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Source: Ministère du Plan et de l’Aménagement du Territoire, Direction de la Statistique Générale.

Because the social unrest, no data were gathered during the period October 1992–October 1993.

Average for the first six months of the year.

Average for the last three months of the year for low income households CPI. and data are available only for December 1993 for high income households CPI.

The CPI for low-income households remained broadly constant between 1989 an 1991, reflecting relatively low demand pressures on prices (Table 2). Estimates for 1992 and 1993 are difficult since no data was gathered between October 1992 and October 1993. The GDP deflator increased on average by 2.3 percent a year during 1989-91, decelerated to 1.9 percent in 1992, and was negative in 1993 owing to a sharp drop of export prices that year.

Prices of domestic goods are virtually free of control, except for a few key items, such as petroleum products, cement, reinforcing bars, and wheat flour. For a number of imported goods the Ministry of Commerce sets markups over import costs plus tariffs, with the objective of protecting consumers against excessive margins. The trading monopolies of the state enterprise, SONACOM, were eliminated in 1988, which exerted a downward influence on prices of several essential consumer goods. Utility rates for electricity and water are adjusted regularly to reflect cost developments and to finance part of the cash flow for ongoing investment projects.

2. Wages and labor income

By law, all workers in Togo are guaranteed a minimum wage: the SMAG (salaire minimum agricole garanti) for the agricultural sector, and the SMIG (salaire minimum interprofessionnel garanti) for other sectors. The minimum wages are adjusted occasionally, but do not closely follow the developments in prices. During 1989-93 nominal minimum wages were increased only once by 5 percent in 1990. Thus, given the relatively low rate of inflation, real minimum wages increased slightly during this period (Appendix II, Tables XVI and XVII).

In the formal private sector, the salary structure is determined by collective bargaining between trade unions, employers, and the Government. Unskilled workers in this sector are on average paid 50 percent above the minimum wage, while skilled workers are paid 2.5 times the minimum wage. Employees in the urban, private, and public enterprise sectors earn on average about twice as much as their counterparts in the Government. In the informal sector, most workers are self-employed and the incomes are often at or below the minimum level. A 1984 study 1/ by the International Labor Organization (ILO) found that among entrepreneurs in Lomé, only 17.5 percent earned incomes below the minimum wage in 1978; in contrast, a 1977 ILO study indicated that one third of the workers in the informal sector earned less than the minimum wage. The minimum wage is normally considered the poverty limit.

Farm incomes benefited from the increases in producer prices during the 1980s and the traditional foodcrop farmer took advantage of the expansion of the cotton sector, with 1 million people deriving a living from this sector (see Section II). However, real incomes in rural areas since 1989, have been eroded by the sharp drop in world prices for coffee and cocoa, which have been passed on to producers.

The average civil service salary in Togo is roughly comparable to that in other countries in the West African Monetary Union (WAMU), except in Côte d’Ivoire and Senegal, where respective salaries are three and two times higher than in Togo.

Salaries in the Government are classified according to a salary scale based on educational background and seniority. There are two main categories: civil servants (fonctionnaires). covered by the general code of civil service employment and the treasury-managed pension fund (Caisse de Retraite), and other government employees (agents permanent, with a much lower juridical status and covered by the ordinary social security fund (Caisse Nationale de Sécurlté Sociale).

3. Employment

Togo’s population increased by a yearly average of about 3.2 percent and was estimated at 3.9 million in 1993. The growth of the labor force has followed the same trend.

While firm data on employment are unavailable, estimates place the rate of unemployment in the range of 16-28 percent. About three fourths of the new entrants to the job market find employment, the majority of them in the informal sector. However, since 1991, a program of employment and training for graduates without jobs has been in operation; it provides jobs for a two-year period for half of the reference salary. In 1993 some 3,000 young graduates were participating in this program.

The formal sector, excluding the agricultural sector, employed an estimated 70,000 persons in 1990 (less than 5 percent of the labor force), of which about 22,000 were in the private sector, about 32,000 in the Government, and about 17,000 in the public enterprises. It is estimated that during 1991-93, employment in the formal sector particularly the private sector has declined reflecting the impact of the sociopolitical instability.

The agricultural sector employs about two thirds of the labor force and also absorbs, to a certain extent, laid-off workers from the modern sector. Commerce is by far the most important activity in the informal sector, accounting for over 80 percent of the informal operations in Lomé. Most foodstuffs are sold through the informal market and a large share of imported goods also finds its final distribution through this market.

III. Development Planning and Government Investment

1. Background

Since the beginning of the adjustment process in Togo, the authorities have pursued a policy of indicative investment planning, which allows only selective government intervention and leaves an important role for the private sector. During this period, a total of 30 public enterprises were privatized or liquidated, imports were liberalized (effective early 1989), the tax and tariff reform system was reformed (January 1990), and a new investment code and free trade zone law were adopted (end-1989).

2. Institutional arrangements

The Ministry of Planning is the main agency responsible for drawing up the three-year Public Investment Program (PIP). The total level, composition, and content of the PIP are determined yearly in agreement with the World Bank, which also carries out annual and quarterly reviews with the authorities on the implementation of the PIP, thereby assuring sectoral priorities and adequate rates of return of the approved projects. In collaboration with the World Bank, the procurement and contract award procedures were simplified in 1990 in anticipation of the adoption of the new procurement code in 1991; at end-1990, the threshold governing presidential approval for public sector projects was raised to CFAF 50 million.

Nevertheless, there remain a number of institutional and other weaknesses, which are currently being addressed with support from the World Bank. There are four different investment budgets, each ruled by its own procedures: (i) the general investment budget (BIE-BG), financed by general budgetary resources and inscribed in the budget as prepared by the Ministry of Economy and Finance and presented to Parliament; (ii-iii) the investment budgets, financed by foreign project loans and program grants; and (iv) the investment budget, financed by foreign program loans or general budgetary resources. The last three items are the responsibility of the Ministry of Planning. This subdivision, and the existing lack of transparency and heavy administrative procedures, hamper efficient preparation and financial monitoring of investment expenditure.

Another institutional problem is that the nomenclature of the PIP differs from that of the current budget, and the administrative procedures are also different. The unification of the current and investment budgets is presently under study.

Investment spending, excluding phosphate countertrade transactions, fell from an average of CFAF 27 billion in 1989-90 to CFAF 8.2 billion in 1993 (Appendix II, Table XIX). Most spending was concentrated in rural development projects (43 percent of the total excluding phosphate counterpart funds) on average in 1989-92, followed by projects for administration and social sectors (about 33 percent) and economic infrastructure (about 20 percent). External project loans and grants accounted for 51 percent of total financing over the 1989-92 period, while foreign program grants and loans earmarked for the investment budget fell from 27 percent of the total financing in 1989-91 to less than 2 percent in 1992. 1/

IV. Public Finance

1. Institutional arrangements

The consolidated government sector in Togo consists of the Central Government, including decentralized agencies, and a number of local governments. Decentralized agencies include the Retirement Fund (Caisse de Retraite du Togo--CRT), the University Hospital Center (Centre Hospitalier Universitaire--CHU), the University (Université du Bénin), and the National School of Public Administration (Ecole Nationale d’Administration--ENA). The Social Security Fund (Caisse Nationale de Sécurité Sociale--CNSS) has been kept separate from the consolidated government operations since 1986. This was done in view of the considerable time lag in CNSS data availability, the autonomous nature of the CNSS and its tripartite management (government, employers, and employees), and the need for proper monitoring of the Government’s financial operations. Bank deposits held by CNSS are also not considered to be part of government deposits. 2/

The Treasury executes the general and investment budgets of the Central Government. It receives some contributions for external debt service from certain public entities and channels them to the agency in charge of external public debt, Société Nationale d’Investissement. SNI). In addition to its role as the Central Government’s financial agent, the Treasury acts as a deposit bank for the local governments and a number of public enterprises. 1/ The Treasury maintains its liquid assets with the deposit money banks and with the Central Bank, from which it also receives credit. Under the statutes of the Central Bank (Banque Centrale des Etats de l’Afrique de l’, BCEAO), credit to the Treasury during a given year is subject to a limit of 20 percent of the tax revenues of the previous year. The credit ceiling applies to direct advances by the BCEAO and national treasury paper holdings by the BCEAO, as well as the Treasury’s indebtedness vis-à-vis deposit money banks and other financial institutions using the BCEAO’s rediscount facilities. The last two items are of minor importance to Togo. A number of public enterprises and national public entities hold non-interest bearing deposits with the Treasury. Recently, with its increasing financial difficulties, the Treasury has drwn on these deposits.

Local governments (collectivités locales) consist of regions (préfectures) and municipalities (communes), which are entities under public law with a certain degree of financial autonomy. Local governments derive their revenue from shares of various central government taxes in addition to the taxes and service charges that they themselves levy, including taxes on land and on salaries (earned in the area of jurisdiction), and taxes on waste disposal services. Moreover, local governments receive special subsidies from the Central Government.

2. Background

After almost ten years of structural adjustment efforts and despite intermittent setbacks, related in particular to a sharp decline in the terms of trade in 1986-87 and some delays in the policy response thereto, Togo’s financial situation had improved significantly by the end of the last decade. Substantial progress in implementing structural reforms and a significant degree of financial adjustment were achieved in 1988-89 under Togo’s Fund-supported the adjustment program. As a result, in 1988-89 the current budget recorded a surplus equivalent to 1.6 percent of GDP and the overall fiscal deficit declined sharply, to 5.8 percent of GDP.

Togo’s financial performance began to weaken in 1990, and it deteriorated markedly in 1991, following the social and political unrest that began in midyear and severely affected revenue collection. The overall economic and financial situation deteriorated further in 1992-93, with the deepening of the social and political crisis, (notably including a general strike in effect for a significant part of 1993), and the ensuing sharp decline in economic activity and exports.

3. Fiscal performance, 1990-93

In 1990 the Government effected a comprehensive tax reform (described in detail in Section 3.a., below) aimed at rationalizing the tax system, including, inter alia, reducing the number of import taxes and simplifying the structure of the fiscal import duty, restructuring the turnover tax (TGA) to make it similar to a value-added tax, and reducing exemptions. While these reforms were designed to have a broadly neutral effect on revenue, the Government’s financial position nevertheless weakened in 1990, following shortfalls in tax revenue from the phosphate company (OTP) and the Petroleum Fund, owing to lower phosphate export volumes and higher world oil prices. Revenue increased by a modest 2.9 percent, to CFAF 100.4 billion (22.5 percent of GDP) from CFAF 97.6 billion (22.6 percent of GDP) in 1989. Although investment expenditure stagnated at CFAF 32 billion and the interest on public debt declined by CFAF 3.8 billion, total expenditure and net lending increased by 2.9 percent, owing to a surge in primary current expenditure which totaled CFAF 80.4 billion, or 9.1 percent more than in 1989. As a result the overall deficit on commitment basis (excluding official grants) remained at CFAF 27 billion, or 6.0 percent of GDP.

Togo’s fiscal performance was negatively affected by the social and political unrest that developed in 1991. Government revenue fell by more than 21 percent to CFAF 79 billion (17 percent of GDP), owing in part to a sharp decline in customs revenue following the interruption of operations by a number of customs offices, and to the financial difficulties faced by several public enterprises, which resulted in a decline in the payments of their external debt obligations. Current expenditure remained constant at CFAF 95 billion, despite a 15 percent increase in the wage bill (including a 25 percent increase in the military wage bill), because of a significant decline in nonwage outlays (Table 3). The surge in the wage bill resulted from the unfreezing of civil service promotions from the previous years, as well as promotions and special premia granted to the military. As a result the current fiscal balance shifted to a deficit equivalent to 3.4 percent of GDP, from a surplus of 1.2 percent of GDP in 1990. Investment expenditure declined by 37 percent owing to the political situation, which led to delays in the disbursement of external financing. Overall, expenditure and net lending declined by 10 percent to CFAF 115 billion, and the overall budget deficit, excluding grants, widened by 1.9 percent of GDP to 7.9 percent. The budget deficit was financed essentially through the repatriation of part of the Treasury’s deposits held abroad and the accumulation of domestic and external arrears. At end-December 1991, arrears to Paris Club creditors amounted to CFAF 3.9 billion and arrears to commercial banks, CFAF 1.2 billion.

Table 3.

Togo: Consolidated Government Operations, 1989-93

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Sources: Data provided by the Togolese authorities; and staff estimates and projections.

Excess financing in 1992 and 1993 results from unrecorded extra budgetary expenditure

In 1992, the authorities, aware of the critical economic and financial situation of the country, decided to resume the adjustment process. In that respect, an adjustment program was elaborated, which focused primarily on a comprehensive tax reform with strengthened tax administration and an overhaul of the public sector. However, with the worsening of the social and political situation, culminating in mid-November 1992 in a general strike that was pursued intensely until March 1993 and with decreasing intensity in the next several months, 1/ economic and financial management deteriorated further and the implementation of the program came to a halt.

Fiscal performance in 1992-93 was severely affected by these developments. In 1992, revenue and total expenditure decreased by 8 percent and 14 percent, respectively, causing the overall budget deficit to actually narrow by 1.7 percentage points of GDP to 6.2 percent; however, financing difficulties led to a further accumulation of domestic and external arrears, estimated at CFAF 8.2 billion, 2/ and CFAF 6.6 billion, respectively. Revenue decreased by more than CFAF 6 billion, to a level of CFAF 72.6 billion, owing mainly to the decline in indirect taxes, and customs receipts, in connection with the decline in economic activity; indirect taxes dropped by 27 percent to CFAF 32.7 billion and direct taxes fell by 8 percent to CFAF 22 billion; in contrast, nontax revenue soared to CFAF 17.8 billion from CFAF 10 billion in 1991, reflecting higher payments of dividends made by public enterprises (CFAF 5.4 billion). Total expenditure dropped by CFAF 16.1 billion to CFAF 98.8 billion, owing to declines in both current and investment outlays. Current expenditure dropped by 12.3 percent to CFAF 83.0 billion, reflecting both a contraction in the wage bill related to the general strike of 1992-93 and cuts in nonwage expenditure in an effort by the authorities to limit the budget deficit. Investment expenditure declined by 23 percent, to CFAF 15.7 billion, owing essentially to a sharp reduction in foreign financing, which plunged to less than CFAF 9 billion from CFAF 18 billion in 1991.

In 1993, the fiscal situation worsened dramatically, reflecting the adverse effects of the prolonged general strike on economic activity. Conscious of the urgent need to enhance revenue collection and improve the public finance situation, the authorities introduced several measures with the 1993 budget, which was passed in July 1993. However, actual implementation of some key measures was delayed because of the still-unsettled sociopolitical climate, in particular the lingering effect of the general strike; as a result, the impact of these measures was modest. Moreover, while revenue collection was severely affected by the economic and political crisis, the Government had limited success in curtailing expenditure. Consequently, for the year as a whole, revenue fell by 47 percent to CFAF 38.2 billion, while expenditure amounted to CFAF 93 billion, or 5.9 percent less than in 1992, despite a 48 percent drop in investment expenditure. The wage bill absorbed the entirety of revenue collected and the other primary expenditure, including outlays on materials and supplies, remained constant at CFAF 31.6 billion.

The overall deficit for 1993 thus widened to 15.5 percent of GDP; and was financed through arrears accumulation (CFAF 48.9 billion, including CFAF 10.5 billion on the amortization of the external debt), exceptional advances by large public enterprises (CFAF 11.0 billion), further borrowing from the Central Bank (CFAF 3.2 billion) and repatriation of the Treasury’s remaining deposits held abroad (CFAF 4.9 billion). New domestic arrears at the level of the Treasury totaled CFAF 28 billion, including CFAF 15 billion in salaries, reflecting three months of unpaid wages to non-striking personnel. External payments arrears to multilateral institutions, which are nonreschedulable, reached CFAF 6.8 billion at end-1993; arrears to Paris Club creditors amounted to CFAF 18.7 billion.

a. Revenue trends

Over the 1989-93 period, the tax/GDP ratio (which had averaged 20 percent of GDP in 1986-88) fell dramatically, from 19.4 percent in 1989 to 12.9 percent in 1992, and to 8.7 percent in 1993 (Appendix II, Tables XX and XXI). In relation to GDP, the fall was most acute for direct taxes, which fell from 8.5 percent in 1989 to 3.3 percent in 1993, while indirect taxes fell from 10.9 percent in 1989 to 5.4 percent in 1993. While these declines reflected a general weakening of revenue performance, mainly as a result of the economic and financial consequences of the social and political disruptions that began in 1990, the exceptionally poor 1993 outcome was also attributable to the effect of the prolonged general strike of 1992-93.

Direct taxes declined in each year over the 1989-93 period. The direct contribution of public enterprises dropped to CFAF 2.3 billion in 1993, from CFAF 20.0 billion in 1989. Receipts from the phosphate company (OTP) fell from CFAF 7 billion in 1989 (when production was 10 percent above normal levels) to less than CFAF 500 million in 1991, and were nil thereafter; the OTP contribution was adversely affected by a sharp drop in phosphate export earnings, as both the volume and unit value of phosphate exports plummeted in 1992 and 1993. Meanwhile, the direct contribution of the agricultural marketing company (OPAT) averaged less than CFAF 1 billion over the 1989-92 period and were nil in 1993, compared with an average of CFAF 5.5 billion over the 1983-87 period, as a result of the persistent weakness of world prices for its main exports. Finally, the revenue from the petroleum product stabilization fund, which had averaged CFAF 7.6 billion over the 1989-92 period, dropped to only CFAF 2.3 billion in 1993, reflecting mainly a decline in domestic consumption. Direct taxes on income and profits of individuals, which had remained relatively buoyant through 1992, fell by 64 percent in 1993 because of the stagnation of economic activity and a significantly reduced collection effort, whereas the profits tax for enterprises fell steadily from CFAF 8.5 billion in 1990 to CFAF 3.7 billion in 1992 and to CFAF 1.6 billion in 1993, given the steady erosion of companies’ profitability with the onset of the social and political disruptions.

Indirect taxes manifested a decreasing trend over the period, with a pattern consistent with the accelerating decline in the overall level of economic activity. Thus, total indirect tax receipts declined by 11.4 percent in 1991, 27.2 percent in 1992, and 41.7 percent in 1993, as Togo’s economic and financial situation progressively worsened under the impact of the sociopolitical disturbances. Taxes on international trade, which had reached CFAF 38 billion (8.5 percent of GDP) in 1990, fell each year thereafter, declining to CFAF 13.5 billion (3.8 percent of GDP) by 1993. Indirect taxes on domestic goods and services remained relatively buoyant through 1991 (averaging CFAF 9.9 billion) before plunging to less than a third of this level (CFAF 3.2 billion, or less than 1 percent of GDP) by 1993.

Faced with persistent declines in tax revenue, the Government increasingly relied on nontax revenue. The share of nontax revenue in total revenue increased from an average of 14.9 percent in the 1989-91 period to 21.9 percent in 1992-93. These transactions cover mostly dividends, parastatals, revenue from the sale of Government assets, and transfers from public enterprises for the payment of their debt and service obligations.

In January 1990, the authorities introduced a series of tax and tariff reforms designed to have a broadly neutral effect on revenues. The reforms, which aimed at rationalizing the tax system, involved (a) reducing the number of import taxes, in particular by merging the transaction tax and the general turnover tax (TGA) and aligning the rates of the TGA levied at the customs frontier with domestic rates; (b) simplifying the structure of the fiscal import duty with only four rates--5 percent for capital goods, unprocessed raw materials, and agricultural imports; 10 percent for intermediate inputs and essential consumer goods; 20 percent for ordinary consumption goods; and 35 percent for luxury goods; (c) restructuring the TGA to make it similar to a value-added tax, with three rates--a regular rate of 14 percent, a reduced rate of 5 percent, and a peak rate of 30 percent; and (d) reducing the number of exemptions. However, their introduction coincided with the onset of the sociopolitical crisis.

As the fiscal situation deteriorated further, a series of revenue-enhancing measures were introduced in 1992 and 1993. 1/ These additional measures included (a) the generalized use of procedures for voluntary and spontaneous payment of income and profits taxes, (b) improved taxpayer identification and registration procedures, (c) a simplified business tax on small enterprises, (d) improved collection of taxes from the informal sector through the application of a withholding tax at the source to transactions at the level of customs and at the time of wholesale purchases, with the proceeds being applied to the income and profits tax liabilities of the taxpayers, (e) introduction of a tax on the purchase of airline tickets, and (f) increased rates for various stamp taxes. However, the withholding tax entered into effect only in July 1994 owing to delays in finalizing the necessary implementing measures, in particular the registration of taxpayers. Moreover, the effect of the other measures was only partially felt in 1993 because of the persistent sociopolitical disruptions.

b. Expenditure trends

Over the 1989-92 period, total expenditure in relation to GDP declined, from an average of 28.7 percent of GDP in 1989-90 to 23.3 percent in 1992; however, in 1993 the ratio to GDP increased to 26.3 percent even though total expenditure in nominal terms fell by 5.9 percent, as GDP in current CFA francs dropped by 16.5 percent (Appendix II, Tables XXII and XXIII). The declining trend was mainly due to the collapse of investment spending over the last three years (1991-93) because of the sharply reduced level of foreign-financed investment as a result of the political uncertainties. During 1989-90, investment spending averaged CFAF 32.2 billion (equivalent to 7.3 percent of GDP), of which CFAF 29 billion was foreign financed; however, by 1993, investment outlays had fallen to less than CFAF 9 billion or, about 2.3 percent of GDP.

Meanwhile, current expenditure, excluding interest on external debt, increased to an average of CFAF 81.8 billion in 1990-91, from CFAF 75 billion in 1989, before falling to an average of CFAF 71.6 billion in 1992-93. Nevertheless, reflecting the exceptionally low level of investment outlays, current expenditure including interest on external debt, reached 90 percent of total expenditure in 1993, compared with an average of 73 percent in 1989-90.

Regarding the structure of current expenditure, the share of wages and salaries in the total increased from about 38 percent on average in 1989-90 to an average of over 45 percent in 1991-93. This was due to the impact of the substantial wage concessions granted in 1991 to meet demands associated with the heightened political activism of the civil service. In order to partially compensate for this increase, the government cut back on spending for materials and supplies, which declined by about 11 percent and 25 percent in 1991 and 1992, respectively; thus, the share of the latter in total current expenditure fell to less than 15 percent in 1992-93, from over 19 percent in 1989-90. In relation to GDP, wages and salaries increased from some 8 percent in 1989 to nearly 11 percent in 1993, whereas spending on materials and supplies fell from about 4 percent of GDP in 1989 to about 3.5 percent in 1993. Interest on external debt decreased from CFAF 16.9 billion in 1989 to about CFAF 13 billion in 1990 and 1991, and to about CFAF 11.5 billion in 1992, reflecting the impact of debt cancellation under the French Dakar initiative in 1989, and subsequent Paris Club reschedulings on Toronto terms. Interest on external debt increased by almost CFAF 2 billion in 1993 in the absence of a Paris Club rescheduling agreement.

V. Public Enterprises

1. Overview

Since the mid-1980s, the Government has been undertaking a major reform program aimed at reducing the size of the public enterprise sector and enhancing its efficiency.

Most of the public enterprises--that is, companies in which the Government has a majority or substantial share--are in the public utilities and other services sectors. Of a total of 45 public enterprises in mid-1993, 13 were public utilities or technical assistance and research agencies, 5 were involved in commerce or transport, 7 were hotels, 9 were financial institutions, and only 11 were in the directly productive sectors.

The most important public enterprises in terms of turnover and value added are the wholly state-owned enterprises--OTP (phosphate mining), OPAT (agricultural trading), CNSS (social security), SONACOM 1/ (import and domestic trade), CEET (electricity), SOTOCO (cotton), OPTT (postal services), and Togopharma (medicine distribution). These eight enterprises had an estimated total turnover in 1992 of over CFAF 99 billion, a value added of CFAF 28 billion, or 7 percent of GDP, and a total employment of about 8,300 persons (Table 4). For the whole group of 45 public enterprises, some of which have only a small government participation, the total turnover in 1992 was about CFAF 190 billion and value added amounted to 16 percent of GDP; approximately 15,300 persons were employed therein. With respect to the financial results, total net profits before taxes of the 45 public enterprises in the Government’s portfolio in 1992 amounted to about CFAF 16 billion.

Table 4.

Togo: Key Data on Public Enterprises, 1990-92

(In billions of CPA franc)

article image
Source: Ministry of Industry and public enterprises.

SE: Société d’Etat; and SEM: Société d’Economic Mixte.

Number of persons employed includes both permanent and temporary employees.

Value added excluding import tax.

Operating profits (résultat d’ exploitation) plus net other results gives net profits before taxes (résultat avant impôt)

Referring to budget year ending September.

2. The reform program

Between 1982 and May 1991, the Government successfully implemented a first comprehensive privatization and liquidation program aimed at reducing the Government’s portfolio (which included 73 enterprises in 1982), by 30 enterprises and increasing the efficiency of remaining public enterprises. The program has resulted in the liquidation of 15 enterprises, the leasing of 2 enterprises, and the sale of assets of an additional 2; for 11 enterprises the liquidation is still in process; 12 liquidations included the sale of assets to a new entity (Appendix II, Table XXVI). In particular, in early 1990, the Government sold to foreign investors the two textile mills (ITT and TOGOTEX) and part of the assets of the oil refinery (STH). Most of the enterprises that were liquidated or targeted for privatization tinder the program were in the industrial sector.

The privatizations have been an important means of attracting foreign capital, as foreign investors have participated in the capital of eight of the privatized enterprises. The sale of public enterprises has provided the Government with some CFAF 10.7 billion in sale revenue, and CFAF 6.3 million in lease revenue. Of this amount, CFAF 3.5 billion remains to be collected, of which CFAF 1.4 billion is considered difficult to recover. In six liquidated enterprises, the Government has large liabilities to the creditors (CFAF 8.4 billion), which have not been settled because the assets (mainly buildings) have been used for public purposes, rather than being sold to satisfy creditors. The sale of assets of two important enterprises has not been concluded for several reasons. In the case of STH, the petroleum refinery, studies have demonstrated that the refinery is economically nonviable, and that the best use would be its transformation into a regional deposit center. Accordingly, the deposit facilities were sold in 1990 to a foreign private enterprise; bidders for the refinery include companies who intend to rehabilitate it and others who intend to dismantle it. The final choice between the bidders has not yet been made by the Government.

In the case of the steel company SNS, the Government has decided in favor of liquidation; however, in September 1993, it proceeded to lease the factory to a foreign company. Operations have not yet resumed, pending rental and tax concessions requested by the bidder.

In 1991 the Government embarked on an additional liquidation/privatization program, involving 18 enterprises; this includes the liquidation of the rural credit bank CNCA, the conduct of diagnostic studies to determine the modalities for divestiture of 6 companies (BALTEX, banking, SATAL, livestock, SONAPH, oil palm, SOTONAM, shipping, SONACOM, commerce, and GTA, insurance), and the establishment of the procedures for selling the government shares in 8 companies (cement, brewery, banks, gas distribution, industrial holding, and the flour mill).

This program has been implemented only in part. The liquidation of the CNCA started in June 1990; reimbursement of deposits is not yet complete because of lack of funds, and because of the difficulty in collecting overdue claims. The hotels Miramar and Tropicana were offered for sale in late 1991; the first was effectively sold in mid-1992, while for the second interested bidders did not honor the offer because of disagreements within members of the bidding consortium. Five diagnostic studies have been concluded for SONAPH, SONACOM, BALTEX, GTA, and SATAL, but some delays have been incurred in the case of the shipping company SOTONAM. The studies have recommended the privatization of SATAL, SONAPH, and SONACOM; for BALTEX, a capital increase is necessary. The privatization program has been enlarged to three enterprises not originally covered; SOTOMA (tiles and marbles) will shortly finalize the sale of one of its plants; S0T0T0LES (metal roofing) has been sold through a bidding system; for SRCC (coffee and cocoa) dissolution has been announced.

Apart from the extensive privatization program and specific restructuring actions for loss-making enterprises, the Government has since 1989 undertaken global actions to improve the financial situation of public enterprises. These include (a) the extension of the management information system of the Ministry of Industry and State Enterprises (MISE), which consists of a standard presentation of profit and loss accounts, balance sheets, and financial ratios; (b) the elaboration of a national uniform accounting scheme for enterprises (Plan comptable national); (c) the establishment of performance contracts between the Government and selected public enterprises concerning production and profitability (already in place for the water and electricity companies, RNET and CEET); and (d) the improvement of the organizational structure and the monitoring and training functions of the MISE.

In December 1990, the Government promulgated the Law on the Institutional and Legal Framework of the Public Enterprises, which provides for a greater autonomy in their decision making and basically brings public enterprises under normal contract, labor, and tax laws. The statutes of all public enterprises are being brought into conformity with the law, in particular concerning the nomination by the Government of the Board of Directors and commissaires aux comptes, their responsibilities vis-à-vis the Board of Governors (Conseil de surveillance), as well as the reporting obligations and monitoring mechanisms. In the case of SNI, a development bank, and CET, the national savings bank, some delays have occurred in the reforms; the main issue to address is the nonrespect of the prudential ratio of the Central Bank in regard to the level of capital and reserves.

The budget law for 1990 reinstated the normal tax regime for the public enterprises that had previously been exempted from the income tax (OPAT, OTP, PAL, OPTT).

As regards the Government’s divestiture of the eight companies in which it is a minority shareholder (brewery BB, cement company CIMTOGO, gas company TOGOGAS, banks BTD, UTB, and BTU, industrial holding SIT, and flour mill SGMT), the law regulating the framework for privatization and establishing a privatization commission was enacted in June 1994, and the divestiture operations are scheduled for 1995.

3. Profiles of main state enterprises

a. OTP (Office Togolais des Phosphates) produces and exports phosphates. Production costs are among the lowest in the world. Apart from phosphate, OTP has a number of other activities and has contributed in the past to the investment activities of the Government through its barter trade operations, whereby phosphate is exchanged for trucks, fertilizer, and other investment and intermediate goods. Production of phosphate has been in the range of 2-3 million metric tons a year, with a peak in 1988 of 3.3 million metric tons. As a consequence of the high cadmium content in Togolese phosphate, exports to the EC declined sharply in 1986-88 because of changes in environmental laws, but OTP was able to find new trading partners in North America, Asia, and Eastern Europe. In 1993, however, because of the strike that paralyzed the country, and changes in the ownership of customers’ enterprises abroad, important markets were again lost in Asia and Latin America; to offset these losses, a marketing diversification effort is under way.

The total turnover of OTP declined from CFAF 44.0 billion in 1989 to CFAF 21.0 billion in 1992 and CFAF 15.9 billion in 1993. Following the devaluation in early 1994, and a pickup of production from 1.8 million tons in 1993 to about 2.1 million tons in 1994, turnover in 1994 is projected to increase to CFAF 39 billion. This increase, together with the cut in labor costs achieved in 1993, is expected to help the company to return to profitability, following losses in 1993 of CFAF 5.9 billion, and in 1992 of CFAF 8.2 billion (Appendix II, Tables XI and XII).

b. OPAT (Office des Produits Agricoles du Togo) was established to facilitate the export of Togo’s major crops (coffee, cocoa, cotton, palm products, and groundnuts). During the 1970s, OPAT expanded its operations to include some directly productive activities (irrigated rice and palm oil plantations) and a number of nonagricultural activities (hotels and condominiums). Most of these additional activities proved unprofitable and the Government decided to limit OPAT’s operations to its original purpose, namely, the marketing of the major export crops. As part of a comprehensive program of cost reduction and restructuring, the personnel was reduced from 1,188 at the beginning of 1988 to 227 by October 1988. Several of the intermediate functions, such as transporting the crops from producers to the Lomé harbor, have been taken over by private entrepreneurs and the production and nonagricultural activities have been sold or placed under other management. During 1988, as part of its restructuring efforts, OPAT considerably reduced its indebtedness to the domestic banking system, which amounted to CFAF 4.3 billion at the end of 1988, mainly for purposes of crop financing. Despite these actions, OPAT continues to have excessive costs; its intervention in the cotton sector together with S0T0C0, the cotton extension and processing company, is increasing overall production costs unnecessarily. As a result, a decision was taken in 1992, and was formalized in 1994, to transfer the full responsibility for cotton processing and marketing to S0T0C0, effective from the 1994/95 crop year. OPAT’s activity will remain limited to coffee and cocoa. OPAT’s projects declined significantly between 1990 and 1993 (see Appendix II, Table VII), in connection with depressed international prices for cotton, coffee, and cocoa. The cotton campaign recorded losses in 1992 (CFAF 0.4 billion) but returned to profitability in 1993 (CFAF 1.3 billion), as part of the crop was sold after the devaluation of January 1994. A large profit on cotton of about CFAF 7.8 billion is expected in 1994. Similarly, the coffee campaign recorded a deficit in 1992, returned to equilibrium in 1993, and a substantial profit of about CFAF 2.8 billion is projected for 1994. The cocoa sector recorded profits of CFAF 800 and CFAF 600 million, respectively, in 1992 and 1993. Profits for 1994 are projected at CFAF 900 million.

c. PAL (Port Autonome de Lomé) is a deep-sea harbor with modern facilities for loading and unloading. It is a free port and a large storage area facilitates re-exportation to and from neighboring countries. Several of the warehouses are owned by the landlocked neighbors, Mali, Burkina Faso, and Niger. The port handled a total of 1.6 million tons in 1989 and 1990, and 1.9 million tons in 1992. Because of the general strike in early 1993, the tonnage handled declined to 1.1 million tons in 1993 (Appendix II, Table XIV). The turnover declined from CFAF 6.4 million in 1992 to CFAF 3.2 million in 1993. Before 1990, PAL did not pay a profit tax, but budgetary transfers were fixed every year.

d. CEET (Compagnie d’Energie Electrique du Togo) is in charge of the distribution of electricity in Togo. CEET purchases the electricity from the Communauté Electrique du Bénin, CEB, a company jointly owned by Togo and Benin, which distributes the electricity to the Togolese and Beninese electricity companies. CEB’s electricity is mainly bought from Ghana’s Volta River Authority (VRA), which operates from the Akosombo Dam; the rest is produced by the Nangbéto Dam in Togo, which entered into activity in 1987. CEET’s turnover averaged CFAF 15.4 billion in the period 1990-92. Purchases of electricity by CEET from CEB amounted to 270 million kwh in 1991, 308 million kwh in 1992, and 245 million kwh in 1993. The company recorded a profit of CFAF 550 million in 1991 and CFAF 470 million in 1992. It has large claims outstanding for unpaid bills on the public administration (ministries, armed forces, hotels owned by the State, and public agencies); these amount to approximately two years of consumption. With the devaluation of the CFA franc in January 1994, CEB faces higher charges on its imports from Ghana, as the import cost in local currency doubled from CFAF 15 per kwh to CFAF 30. Up to the end of 1993 CEB sold electricity to CEET at the price of CFAF 23 per kwh. This price increased in mid-1994 to CFAF 38 per kwh which requires a commensurate adjustment of the electricity rate for consumers. To ensure a gradual increase of the rates for consumers, the Government has decided to pay a subsidy to CEET for a transitional three-year period.

e. RNET (Régie Nationale des Eaux du Togo) is in charge of the supply of water in Togo. RNET’s turnover amounted to CFAF 3.7 billion in 1991 and 1992. The company recorded losses in 1991 and 1992, and has large claims for unpaid bills on the public administration, amounting to about CFAF 3.8 billion at end-1993. These are offset by liabilities for a similar amount to the public administration for taxes and debt service unpaid, and unpaid electricity bills to the electricity company.

f. S0T0C0 (Société Togolaise du Coton) is involved in developing the cotton sector in connection with the World Bank projects in this area. S0T0C0 had a turnover of CFAF 17.3 million in 1991 and CFAF 17.8 billion in 1992. As mentioned earlier, S0T0C0 sells the ginned cotton to OPAT, and will be in charge of cotton marketing operations for the ongoing 1994/95 crop year.

VI. Money and Credit

1. Introduction

Togo is a member of the Vest African Economic and Monetary Union (WAEMU), together with Benin, Burkina Faso, Côte d’lvoire, Mali, Niger, and Senegal. The WAEMU was established with a treaty signed in January 1994 and ratified in early August 1994, which extends the institutional purposes of the Western African Monetary Union, established in 1962, to encompass free trade, capital movements, and harmonization of policies in the areas of taxation, human resources, urban and rural development, transportation and telecommunications, environment, agriculture, energy, industry, and mining. As under the WAMU, the present Union provides for centralized foreign currency reserves and a single currency, the CFA franc, issued by a common Central Bank--the Central Bank for West African States (BCEAO), with headquarters in Dakar, and national agencies in each of the member countries. The WAEMU has a common interest rate structure and there are no restrictions on capital transactions within the Union. France provides support for the maintenance of the free convertibility of the CFA franc into French francs by providing overdraft facilities through an operations account 1/ with the French Treasury, into which the BCEAO deposits the equivalent of at least 65 percent of its foreign exchange holdings (balances are maintained for each member country). Togo’ s balance in the operations account, which was quite large until 1991, worsened significantly in 1992 and 1993.

2. The banking system

Togo financial sector is relatively well developed compared with other sub-Saharan countries. It includes the national agency of the BCEAO and nine deposit money banks with access to the BCEAO’s rediscount facilities, two of which specialize in development financing: the Banque Togolaise de Développement (BTD) and the Société Nationale d’Investissement (SNI). Details of the size, capital base, and financial structure of individual deposits money banks are given in Appendix II, Table XXIX. Other financial institutions include the Treasury, the Post Office, the Savings Bank of Togo, and two nonbank financial institutions that have access to the Central Bank’s rediscount facilities. The Treasury performs certain banking operations through its acceptance of customs duty bills, which may be rediscounted at the Central Bank.

3. Coverage of monetatary aggregates

The monetary survey includes data on the Central Bank, the seven non-specialized deposit money banks, the banking operations of the Treasury, and the Post Office (Appendix II, Tables XXVII-XXVIII). Other private financial agencies are considered part of the private sector. Since end-1985, the bank deposits of the CNSS (Caisse Nationale de Sécurité Sociale) and the FNI (Fonds National d’ Investissement) have been classified under deposits of nonbank financial institutions, as part of the private sector. 1/

The net foreign asset position of a BCEAO member country like Togo, as recorded by the monetary statistics, is not directly measured in the accounts, but is determined residually on the basis of an estimate of the amount of CFA francs in circulation in Togo, and of recordings of the other items on the balance sheet. The amount of currency in circulation is estimated by subtracting from the amount of CFA franc notes issued by Togo (marked “T”) the estimated amounts of Togolese currency in the vault of the Central Bank’s national agencies of each of the member countries. 2/

4. Monetary and credit policies

The fundamental objectives of the monetary policy of the WAEMU as a whole are twofold: to manage its overall reserve position and to avoid a debtor position vis-à-vis the operations account; and to achieve price stability. In order to attain these objectives, annual targets are set for net domestic assets of the banking system and net claims on the public sector for each member country, respectively. To reach these targets, the BCEAO is now using more intensively indirect Instruments of monetary control and is gradually abandoning direct ceilings on credit.

The BCEAO uses the following instruments: (a) monetary and credit targets; (b) limits on access to central bank financing; and (c) intervention on the interbank money market. Since October 1989, the BCEAO has implemented significant reforms in monetary policy instruments with a view to developing a market-oriented system of monetary control. In October 1993, the Central Bank introduced reserve requirements of 1.5 percent against short-term deposits and 1.5 percent against short-term credits, and profoundly reformed the money market as described below. The Central Bank also liberalized interest rates on bank deposits and credits.

a. Monetary and credit targets

In order to coordinate the monetary and fiscal policies and attain the balance of payments target, the National Credit Committee of each WAEMU member prepares, in October of each year, a set of targets for the money supply and total central bank credit on the basis of projected growth rates of economic activity and prices, on the assumption of constant velocity, and the targeted evolution of the external sector in the following year. Given projections for government financing requirements, the annual targets for government and financial institutions’ access to central bank credit are set.

b. Credit targets

The global targets for central bank financing is specified for the Government and the deposit money banks. Credit to the Government in any given year is limited by statute to the equivalent of 20 percent of the fiscal receipts collected during the preceding budget year; however--given delays in data availability--in practice the lag is two years. The ceiling covers: (i) direct advances at the preferential rediscount rate by the Central Bank to the Treasury and the deposits of the Central Bank with the postal checking system; (ii) the discount or rediscount (at the preferential rate) of government securities presented to the Central Bank by the Government or financial institutions of the WAMU. The second item (ii) has been negligible in the case of Togo; the only other relevant form of central bank credit to the Togolese Government is the discount of customs duty bills (claims of the Government on the private sector). This rediscount is not possible when direct advances are above the statutory limit. The global annual ceiling on access of the deposit money banks to refinancing is determined as a residual from the global ceiling on central bank financing, after deduction of the statutory limit on credit to the Government and the projected discount of customs duty bills of the Government.

c. Rediscount and other credit policies

Until the recent introduction of more indirect instruments of monetary control, the BCEAO influenced the expansion of credit to the public and private sectors through setting of annual ceilings described above. With regard to the public sector, these objectives were pursued chiefly through the deposit money banks’ access to rediscounting.

In October 1989, as part of the financial reform aimed at moving to more indirect credit control, the BCEAO abolished the preferential discount rate, applicable to crop credit and certain other credits. Since then, the BCEAO has applied a uniform discount rate (taux d’escompte, TES) for all its lending operations throughout the Union, with the exception of a preferential rate, about 1 percentage point below the normal rate, applied to the Treasury’s borrowing under the statutory credit ceiling until October 1993. All other interest rates applied by the BCEAO and the deposit money banks were derived from the discount rate, with a maximum lending rate of 5 percentage points above the current discount rate. Since October 1993, lending and deposit rates are free, with the exception of the rate on saving deposits and small time deposits (less than CFAF 5 million), which is set by the Central Bank. In December 1988, with a view to bringing real interest rates in the Union to levels high enough to compete with foreign money markets, the BCEAO raised the normal rediscount rate by 1 percentage point, to 9.5 percent. Further increases of half a percentage point each followed in March, September, and October 1989. The discount rate remained unchanged at 11 percent until August 1992 when it was raised by 2 percentage points. In November 1992, it was brought back to 12.5 percent, and in December 1993 it was further reduced to 10.5 percent. On January 17, 1994, the rate was increased by 4 percentage points in the aftermath of the devaluation of the exchange rate, to 14.5 percent. Thereafter, responding to the large increase in bank liquidity in the Union during the first half of 1994, resulting from capital inflows, the discount rate was reduced in two steps, in June and August to 11 percent. The rate on savings deposits was set at 7 percent between 1989 and August 1992, and was raised to 8.5 percent in November 1992; after a reduction in October 1993, it was raised again to 8 percent on January 19, 1994; it was lowered to 5 percent in July 1994. As a result of this flexible interest policy of the BCEAO, and with the GDP deflator fluctuating between 0.3 percent and 3 percent, real interest rates were very high in Togo during most of the 1988-93 period. Rediscounting by the BCEAO is relatively unimportant in Togo, reflecting the high liquidity of the deposit money banks. However, the refinancing ratio, after having declined steadily from 1984 to 1989, has increased since then (Appendix II, Table XXXII).

The reform initiated in October 1989 included measures aimed at improving the quality of the deposit money banks’ loan portfolio. As of October 1989, the BCEAO abandoned the system of selective credit controls and credit is no longer allocated by sectors. It also decided to progressively replace the system of prior authorization of individual loans by a system based on classification of borrowers according to credit rating, distinguishing rediscountable and nonrediscountable credit. Furthermore, the prudential ratios for commercial banks and other financial institutions, such as the Treasury and liquidity coefficients, are being strengthened.

Bank supervision has been strengthened with the creation of the supranational banking commission (Commission supranationale des banques de l’UMOA), which came into operation in October 1990. Each commercial bank in the Union is being audited at least once every two years.

d. Money market and Interest rate management

From 1975 to 1993, the BCEAO operated a union-wide money market to efficiently rechannel excess liquidity within the monetary union. The Central Bank had the roles of intermediary between commercial banks and of lender of last resort. Interest rates in the money market were set by the BCEAO at a level related to the call money rate in Paris. The BCEAO announced rates for deposits and advances, which were held at a small spread and absorbed the excess supply or demand at the announced rate. In the context of the 1989 reform, direct interbank lending was liberalized, and access to advances from the BCEAO-intermediated money market was extended to nonbank financial institutions.

The money market was substantially restructured in October 1993. The new money market is still operated by the Central Bank, but financial institutions must now submit bids to lend their excess liquidity or to borrow funds. Submissions are made on a weekly basis and can comprise several tranches, each at a different interest rate. An equilibrium rate of interest is obtained from the matching of all orders, including those of the Central Bank. As a result, banks are no longer certain that they will be able to place all their excess liquidity in the money market, or to meet all their liquidity needs. Banks are free however, to enter into bilateral transactions between themselves in an interbank market, which is expected to become more important over time.

The interest rates in the money market are normally close to the discount rate, except in situations of excess liquidity where the money market rates would fall below it. This has been the case since the beginning of 1993, when money market rates fell rapidly while discount rates remained fixed at a high level (Appendix II, Table XXXIII). Specifically, the money market rate for overnight advances fell from 12 percent during the fall of 1992 to about 7 percent at the end of 1993, following the decrease in interest rates in France (See Chart 1). While money market rates in the WAMU fluctuated in concert with the French interest rates from the creation of a money market in 1975 until the mid-1990s, in recent years the spread between WAMU money market rates and those in France has increased significantly, from about 1 percentage point in 1990 to 3 percentage points at the end of 1993, reflecting the Central Bank’s tightening policy in the face of strong capital outflows linked to devaluation expectations. In the first half of 1994, with a reflow of capital in a number of countries in the zone, the liquidity of commercial banks increased sharply; few banks were bidding in the money market auctions, while the Central Bank maintained at a high level the rate at which offers and demands were retained; thus, the amount intermediated in the market declined sharply; as a result, banks had to leave large unremunerated balances with the Central Bank’s national agencies (Appendix II, Table XXVIII). 1/



Citation: IMF Staff Country Reports 1994, 003; 10.5089/9781451836523.002.A001

Sources: Togolese authorities; and IFS.

Traditionally, the Togolese deposit money banks are relatively liquid as Togo has attracted substantial amounts of capital inflows from neighboring countries, owing to its traditional role of regional trading center (partly through a net inflow of CFA franc currency notes) and also because of the strong financial position of institutional investors such as the Social Security Fund (CNSS) and the Savings Bank (CET); this has led to both a high level of broad money (relative to GDP) and to a favorable net foreign assets position, as the banks place excess liquidity in the WAMU money market. The ratio of money market deposits and other reserves to total deposits held with the banks (the cash ratio) continued to improve from 41.4 percent in 1988 to 45.9 percent at the end of 1992 and then declined to 40 percent at end-1993 as deposits declined faster than credit to the economy. Despite the economic difficulties of 1992-93, Togo’s financial system liquidity position, albeit declining, has continued to be comfortable (Appendix II, Tables XXXII and XXVIII).

5. Monetary developments. 1988-93

Over the period 1989-90 monetary developments were characterized by broadly stable credit to the Government, moderate expansion of credit to the economy, and an increase in money demand in excess of the expansion of domestic assets, so that net foreign assets increased significantly.

This situation was reversed in 1991-93 as a sharp deterioration in the financial situation of public and private agents and devaluation expectations led to a significant increase in credit to the Government and to certain public enterprises, and at the same time to a decline in the money stock (Appendix II, Tables XXX and XXXI).

In 1991, net domestic assets increased by 4.4 percent. Credit to the Government declined from CFAF 19.2 billion in 1990 to CFAF 12.5 billion (Table 5). Deposits accumulated abroad by the Treasury were reduced by CFAF 3 billion partly to repay the Fund. Credit to the economy was mainly boosted by credit to OTP, which rose from CFAF 17.8 billion in 1990 to CFAF 22.0 billion in 1991. However, the liquidity of commercial banks remained healthy as deposits kept growing, and net foreign assets were broadly stable.

Table 5.

Togo: Monetary Survey, 1988–93

(In billions of CFA francs; end of period)

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Sources: Central Bank of West African States (BCEAO); and staff estimates and projections.

Deposits related to foreign–financed projects.

Computed as the ratio of GDP (in the current year) to the average of broad money at the end of the preceding year and the current year.

The monetary situation worsened significantly in 1992-93. Money balances began to shrink in 1992 and the decline accelerated in 1993 as the political crisis deepened, some of the population began leaving the cities, and expectations of an exchange rate adjustment were growing. Broad money contracted by 14 percent in 1992 and 15 percent in 1993. Currency balances were reduced by two thirds between end-1991 and end-1993 (from CFAF 36.3 billion to CFAF 10.5 billion), while bank deposits shrank from CFAF 162.0 billion at the end of 1991 to CFAF 134.8 at the end of 1993. As a result, net foreign assets dropped by CFAF 22.7 billion in 1992 and by CFAF 35.4 billion in 1993. In an effort to alleviate pressures on reserves resulting from an outflow of bank notes from the whole CFA zone, the BCEAO, in conjunction with the Central Bank of Central African States (BEAC), suspended in August 1993 the repurchase of CFA bank notes circulating outside their respective zones of issue.

Net domestic assets declined from CFAF 123.6 billion at the end of 1991 to CFAF 118.2 at the end of 1992 despite a slight increase in credit to the Government. In 1993, net domestic assets rose because of a large expansion in the banking system claims on Government as well as some reduction in bank capital and reserves, owing to the need for provisioning for bank loans. In 1992-93, credit to the economy decreased sharply from CFAF 118.7 billion at the end of 1991 to CFAF 114.4 at the end of 1992, and to CFAF 103.9 billion at the end of 1993. This decrease, which reflects a sharp decline in economic activity and in investment, occurred even though credit to OTP surged to CFAF 28.1 billion at end-1993 from CFAF 22 billion at end-1991. Credit to the Government rose in 1993 to CFAF 23.6 billion, from CFAF 12.6 billion at end-1992. External assets of the Treasury were totally liquidated in March 1993 after having already been reduced by CFAF 4.9 billion in 1992. In December 1993, the overdraft at the BCEAO exceeded the legal ceiling by CFAF 2.9 billion. At the same time the claims of commercial banks on Government remained broadly stable.

6. Restructuring of banks

During the first half of the 1980s, the Banque Togolaise de Développement(BTD), the Caisse Nationale de Crédit Agricole (CNCA), and the Banque Arabe-Libyenne-Togolaise du Commerce Extérieur (BALTEX) experienced serious difficulties.

The BTD is a public enterprise in which the Government holds 43 percent of the shares, with the BCEAO as the second largest shareholder, at 20 percent. The restructuring process started in 1986 under the auspices of a special National Ad Hoc Committee for Monitoring and Controlling the Rehabilitation Program of the Banks in Difficulty. A first program for restructuring and rehabilitation was adopted in January 1988. It included the consolidation of litigious and doubtful loans, a step-up in efforts to recover bad loans, and the improvement in the administrative and management structure with reinforced internal and external control. In order to compensate for cumulative losses of the past, in particular the writing off of certain loans in 1987 that had effectively rendered the BTD’s capital position negative, new share capital was mobilized by end-June 1990, of which almost CFAF 1 billion came from the Togolese Government. A reinforced restructuring program was launched for the fiscal years 1991-93. In April 1991, the BCEAO provided BTD with a supplementary consolidation loan of CFAF 3 billion. This was accompanied by strong measures to reduce costs and improve the financial position. At the end of 1992, BTD was in a much better situation, with net 1992 profits of nearly CFAF 3 billion. However, with the 1992-93 general strike, defaults on loans rose; as most of these can be attributed to civil servants, there are expectations that they will return to performing status once salaries are again paid on a regular basis.

The restructuring of the CNCA--a public agency created in 1967 and specializing in loans for agricultural production and commercialization with 20 local agencies--began in 1981, and since 1986 has been conducted under the supervision of the banks’ rehabilitation committee. The liquidation process is now almost completed. The financial viability of this bank was impaired by deficiencies in management (lack of skilled manpower and insufficient loan preparation and control), by a concentration of loans in risky and insufficiently guaranteed activities, and finally, by a too-wide dispersion of the loans. Hence, despite the very high interest margin, on the order of 6 percent, costs were excessive, while litigious and doubtful loans amounted to half of total credit outstanding in 1986, which was CFAF 16 billion. The addition of past losses, in part owing to provisions for bad loans, and the consolidation of remaining loans not provisioned for, led to a negative capital position of the CNCA of CFAF 8.8 billion at end-1988. The liquidation decree was signed on June 13, 1990, and the liquidation procedure started by end-September. Between September 1990 and September 1991, deposits in an amount of CFAF 8.5 billion were reimbursed. To cover the cash liabilities of the CNCA and finance its liquidation, domestic and foreign financing sources were obtained. The financial support originated from the BCEAO (CFAF 2.0 billion), the World Bank (CFAF 2.5 billion under SAC IV), the Caisse Centrale deCoopération Economique (CFAF 3.3 billion), and earmarked counterpart funds corresponding to an earlier loan from the African Development Bank (CFAF 1.0 billion). At the end of 1993, only CFAF 600 million of deposits remained outstanding, with the liquidation close to completion.

The third institution in difficulty is BALTEX. Its nonperforming portfolio has been hovering to 80 percent of total credit outstanding. The Togolese authorities and the Libyan Government decided in August 1990 to increase the capital base by CFAF 3 billion with a contribution of 50 percent from each, to be paid during 1991-92. The Libyans have paid up their share but the Togolese Government has not yet done so.

VII. Balance of Payments

1. overview

The external sector of the Togolese economy is characterized by three features: a reliance on primary commodity exports and consequent dependency on exogenous climatic and price developments; large, but decreasing, debt service requirements, and a traditional role as a trade center for the region. Adverse terms of trade developments through most of the 1980s and political developments from 1990 to 1993 led to deep current account imbalances in recent years.

The main export commodities are phosphates, cotton, coffee, and cocoa. Together these commodities accounted for 35.2 percent of total exports of goods and nonfactor services (GNFS) in 1990, a share that has declined gradually from an estimated 44.2 percent in 1985; in 1993, exports of these four main commodities decreased somewhat less than the other exports, and thus their share rose to 41.3 percent (Table 6 and Appendix II, Table XXXIV). Of these commodities, phosphates are the most important, representing 18.6 percent of total export receipts in 1993 compared with 18.9 percent in 1990 and 25.9 percent in 1985. Cotton exports have increased substantially during the 1980s and the early 1990s (Chart 2). Whereas cotton represented less than 5 percent of the total exports of goods and nonfactor services before 1985, its share climbed to some 7 percent in 1988 and 1989 and exceeded 10 percent in the early 1990s (17.6 percent in 1993). Cocoa and coffee are far less important, averaging together 6 percent of exports of goods and nonfactor services from 1989 to 1993, compared with some 10 percent from 1984 to 1988.

Table 6.

Togo: Balance of Payments, 1988–93

(In billions of CFA francs)

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Sources: Data provided by Togolese authorities; and staff estimates.

TOGO Volume and Unit prices of Main Exports, 1983–93

Citation: IMF Staff Country Reports 1994, 003; 10.5089/9781451836523.002.A001

Sources: Togolese authorities; and stoff estimates.

Togo is also an important center of regional trade and finance, in part because of its port facilities. Re-exports, particularly of consumer goods, increased substantially between 1985 and 1990, rising from 12.6 percent of exports of goods and nonfactor services to 27.5 percent in 1990 and to an average of 27 percent in 1991-93. In spite of severe disruptions in late 1992 and early 1993, the expansion of this trade helped to soften the impact of declining primary commodity exports. However, part of the rapid growth is probably due to improved recording of this type of transaction. Re-exports are sensitive to the level of economic activity in the region and have been negatively affected by the sluggish growth in CFA countries in the early 1990s. The growing role of Togo as a service economy resulted in a declining deficit of the service balance up to 1990 (Chart 3). The share of services in total of exports of goods and nonfactor services rose from 21.1 percent in 1985 and 27.5 percent in 1990 to an average of 26 percent between 1991 and 1993.


Current Account Components, 1985–93

(In pcretnt of GDP)

Citation: IMF Staff Country Reports 1994, 003; 10.5089/9781451836523.002.A001

Sources: Togolese authorities; and staff estimates.

The weak export performance of the four main commodities in 1991-93 is attributable partly to worsening export prices (Appendix II, Table XXXV). The terms of trade index fell by 16 percent over 1985-93, as the prices of Togo’s main exports declined significantly; the U.S. dollar prices of coffee, cocoa, and phosphates declined by 70 percent, 50 percent, and 13 percent respectively, while those for cotton remained roughly stable (Appendix II, Table XXXVI). In the same period the real effective exchange rate (REER) appreciated by 3 percent; the bilateral REERs with Nigeria and Ghana, important regional trading partners, rose by 630 percent and 230 percent respectively, resulting in a growing import penetration of products of neighboring countries.

The trade balance worsened until 1990 and then improved somewhat in 1991-93, owing to the collapse of imports. While the value of imports changed little between 1985 and 1990, the value of exports decreased by 16 percent. After 1991, political unrest affected both imports and exports. From 1991 to 1993, imports were halved as economic activity shrank, while export value decreased by more than 40 percent (Appendix II, Table XXXIV). Consequently, the trade deficit, after having swelled from CFAF 9.8 billion in 1985 to CFAF 31.5 billion in 1990, dropped to CFAF 9.6 billion in 1993 (Table 6).

The services account is heavily influenced by interest payments on external debt and the decrease in net freight and insurance costs after 1990 owing to declining imports of goods (Appendix II, Table XXXVI). Interest payments declined gradually from 1985 to 1990 and more sharply after 1990 as a result of strong improvements in the terms and structure of external debt. External revenues from the BCEAO remained above CFAF 5 billion (nearly half the interest payments on external debt since 1990). Other service items, which were roughly balanced until 1990, worsened in the following years as tourism receipts declined dramatically. Overall, the net services accounts improved steadily until 1992.

Net transfers, as a percentage of GDP, declined quite steadily from 1985 onward (Chart 3). Suspension of aid in 1992-93 because of the political situation led to a curtailment of technical assistance and project grants.

The capital account recorded a sharp deterioration from 1988 onward despite shrinking amortization payments. As a regional financial center Togo traditionally benefits from net capital inflows; these net flows were strongly positive between 1988 and 1990. Growing political uncertainties and devaluation expectations led, however, to significant private capital outflows in 1992 and 1993. Project loans declined over that period, while program loans (excluding IMF disbursements) stopped after 1991. Amortization payments dropped from more than CFAF 30 billion in 1985-87 to CFAF 15.7 billion in 1992, owing to rescheduling agreements.

After having improved from 1986 to 1988, the overall balance deteriorated in the following years. A worsening capital account and a halt in external assistance caused the overall balance deficit to increase to CFAF 45.0 billion in 1992 and to CFAF 61.8 billion in 1993. The deficit was financed by a decrease in gross reserves, which by end-1991 had reached the comfortable level of 7.5 months of imports, and by an accumulation of arrears.

2. Developments in 1988-91

The declining trend in export revenue that began in 1985 was reversed in 1988 as export prices for cotton and phosphates increased significantly. Exports of the four main export products expanded by 4 percent in 1988 and by 9.5 percent in 1989 despite declines in export prices and volumes for coffee and cocoa. Indeed, exports of these two commodities in 1989 were well below their 1985 levels, while exports of cotton and phosphates had recovered to slightly higher levels. Exports of phosphates dropped in 1990 as both volume and prices declined. Export value rebounded in 1991, thanks to better cotton and phosphate export earnings. Coffee and cocoa exports remained sluggish.

One of the most significant developments over the period was the continuous expansion of transit trade. Re-exports, primarily to neighboring countries, rose from 12.5 percent of total export revenue in 1985 to 18.6 percent in 1989 and 27 percent in 1991. This increase reflects the comparative advantage of Togo’s port facilities as well an attempt to diversify the export base.

Buoyed by rapid expansion of imports of intermediate goods and capital equipment, import values reached their highest level in 1990 (CFAF 139 billion) 1/, before beginning to decline in 1991.

After a sharp decrease in 1985-87, the terms of trade improved slightly between 1988 and 1991. Both import and export prices in CFA terms increased in 1989 and decreased in 1990-91, mainly following movements in the exchange rates. Overall, the purchasing power of exports was still lower in 1991 than it had been in 1985. The volume of exports and imports did not follow any clear trend over 1988-91.

Instability was the main feature of external balances over the period. As a consequence of the poor export performance and the rapid growth in imports, the trade deficit remained high in 1988 and 1989, nearly doubled in 1990 to CFAF 31.5 billion but dropped to CFAF 16.8 billion in 1991. With a significant decline in interest payments due, the services account deficit shrank between 1988 and 1990, from CFAF 33.1 billion to CFAF 29.4 billion, despite the fact that the increased trade deficit was accompanied by a larger deficit in freight and insurance services. Official transfers registered a significant decline between 1989 and 1991. As a result of these conflicting factors, the external current account deficit, including transfers, followed no clear trend; the current account deficit (including grants) was the equivalent of 6.4 percent of GDP in 1988, 3.6 percent in 1989, 6.1 percent in 1990, and 3.4 percent in 1991.

From 1988 to 1991, support from creditors in the form of debt service rescheduling contributed to strengthening net external assets despite the overall balance deficit. In 1991, however, arrears accumulated to CFAF 5.1 billion.

3. Developments in 1992-93

The vulnerability of the Togolese economy became evident in 1992-93 as an adverse terms of trade shock combined with a significant decline in phosphate export volumes was added to the effects of major political disturbances. Exports, net unrequited transfers and capital inflows fell dramatically in 1992-93. Despite a sharp reduction in imports, reserves decreased by CFAF 58.1 billion, and CFAF 25.5 billion of external arrears were accumulated over the two-year period.

Decreases in prices and volumes resulted in a large decline in export value over the period (Appendix II, Table XXXV). Prices for main exports recorded significant declines in 1992-93: cocoa prices fell by 51.3 percent, cotton price by 23.0 percent, phosphates by 16.9 percent, and coffee prices by 19.9 percent. Overall, the commodity export price index fell by 20 percent. In 1992, export volumes of all major commodities except coffee declined; in 1993, all except cotton did. Particularly significant was the sharp drop in phosphate exports from 3.1 million tons in 1991 to 2.1 million tons in 1992, and to 1.6 million tons in 1993, owing to the loss of significant export markets in Europe and to production difficulties linked to social unrest. The result of these adverse price and volume developments was a 43 percent decline in the value of exports excluding re-exports in CFA terms in 1992-93. Re-exports plummeted as port activities reached an almost complete standstill between November 1992 and March 1993. Consequently, total export revenues declined by 45 percent between 1991 and 1993.

The current account deficit ballooned despite reduced imports in 1992-93. Depressed domestic demand explains the dramatic decline of imports from CFAF 127.6 billion in 1991 to CFAF 70.4 billion in 1993. The import decline more than offset the fall of exports, so that the trade balance deficit improved in 1993 to CFAF 9.6 billion, from CFAF 16.8 billion in 1991. The services account deficit did not expand because reductions in services credits were matched by a decline in freight costs. Since the net transfers surplus declined by two thirds (from CFAF 29.8 billion in 1991 to CFAF 11.5 billion in 1993), the current account deficit, before transfers, reached the equivalent of 7.9 percent of GDP.

The capital account balance turned into a large deficit in 1992-93 as public external borrowing came to a virtual standstill and private capital outflows swelled. The capital account deficit was the equivalent of 3.9 percent of GDP in 1992 and 9.6 percent in 1993. To finance the large overall deficit, gross external reserves decreased by CFAF 22.7 billion in 1992 and CFAF 35.4 billion in 1993 (Appendix II, Table XL). In addition, external arrears amounted to CFAF 11.7 billion and CFAF 32.0 billion in 1992 and 1993, respectively.

4. Changes In the exchange and trade system

a. Exchange rate

Over the 1988-93 period the CFA franc, which was pegged to the French franc at a rate of CFAF 1 - FF 0.02, has appreciated against the U.S. dollar (Appendix II, Table XXXIX). In addition, the CFA franc also appreciated against most of the currencies of other industrial countries. This was reflected in an appreciation of the nominal effective exchange rate by 66 percent, which, however, was offset by a favorable movement in relative prices, as Togo’s inflation rate was lower than that of its main trading partners. As a result, the real effective exchange rates remained fairly stable overall during the 1988-93 period (Chart 3). However, the real appreciation that occurred in 1985-86 was not fully reversed.

b. Trade and payments system

Togo continues to maintain a liberal system of trade and payments, which is similar in most respects to that of other French franc area countries having an operations account with the French Treasury. The system is described in detail in the Fund’s Annual Report on Exchange Arrangements and Exchange Restrictions. 1993. There have been several important modifications to this trade system since 1988, mostly connected with the authorities’ structural adjustment program.

The Togolese authorities have continued to progressively liberalize the trade and payments system over the last five years. Effective March 1988, export licenses for industrial products are no longer required. In 1992 the remaining licensing requirement for certain agricultural exports outside the ECOWAS area (such as cereals and tubers) was abolished. In 1989 a general review of taxation and tariff policies was undertaken, which led to the implementation of a simplified and harmonized system of tariffs as of January 1990. Under the new system there are only four classifications of goods for tariff purposes. A tariff of 5 percent is charged on imports of agricultural goods and foodstuffs and of capital equipment. A rate of 10 percent is applied to intermediate goods, a rate of 20 percent is applied to most consumption goods, and the highest rate of 35 percent is reserved for luxury items.

In August 1993, Togo, together with the other member countries of the WAMU, took measures to stem capital outflows triggered by expectations of an imminent devaluation. Repurchases of CFA franc bank notes of the common Central Bank (BCEAO), in circulation outside the CFA zone, were suspended effective August 2, 1993. In December 1993, this measure was also applied to BCEAO notes circulating in the BEAC zone. The convertibility of the CFA franc remains guaranteed through authorized financial intermediaries. In connection with this measure, new regulations on travel allowances were issued.

The new regulations distinguish, as previously, between travel to franc zone countries and other countries. For the former group of countries, limits have been established on the amount of foreign currency that can be taken out in the form of bank notes (the equivalent of CFAF 2 million per trip); additional amounts can be taken out in the form of other means of payment without limit. The limit on allowances for travel outside the franc zone has been made uniform among all the countries of the WAMU, and, at the same time, has been raised significantly. The authorities have stated that the limits on travel allowances continue to be administered in a liberal fashion and bona fide exceptions are granted.

Finally, banks have been allowed by the BCEAO, with effect from December 1993, to levy a fee up to 2 percent on exchange transactions on French bank notes. This decision is a partial reversal of the abolition in 1990 of miscellaneous fees: the 0.10 percent commission on repatriation and the 2.5 percent commission on external payments and transfers that the BCEAO charges to the commercial banks, the 0.10 percent commission that banks charge clients on transfers; and a fixed CFAF 100 charge levied by the BCEAO on intra-WAMU transfers.

VIII. External Debt

1. The level and structure of outstanding debt

The Fonds National pour l’Administration de la Dette Publique (FNADP), an agency within the Société Nationale d’Investissement (SNI), is responsible for processing information on public and publicly guaranteed external debt. The SNI itself is responsible for the actual disbursements of public debt service payments. Public enterprises are required to disclose information about their external obligations to the FNADP. In many cases the Government has implicitly or explicitly guaranteed these loans.

At the end of 1993 the stock of Togo’s external debt, including principal and interest arrears, was CFAF 363.9 billion, of which CFAF 32.0 billion resulted from arrears (Table 7 and Appendix II, Table XLI). There has been a steady reduction in the ratio of debt to GDP from 94 percent in 1985 to 68 percent at end-1990. The ratio rose to 103 percent at end-1993 partly because of the contraction in GDP.

Table 7.

Togo: External Public Debt Service, 1988–93

(In billions of CFA francs)

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Sources: Société Nationale d’Investissement (SNI); and staff estimates.

Includes repurchases from the Fund and principal in arrears.

As a percentage of exports of goods and nonfactor services.

Including CFAF 1.9 billion representing debt service canceled by France under Option A of the Toronto terms.

Including CFAF 1.6 billion representing debt service canceled by France, Sweden, and the Netherlands under Option A of the Toronto terms.

Including CFAF 1.5 billion representing debt service canceled by France, Sweden, and the Netherlands under Option A of the Toronto terms.

Including CFAF 22 billion representing debt service canceled by France, Sweden, Germany and the Netherlands under Option A of the Toronto and Trinidad terms and a CFAF 3.7 billion payment that had been postponed from 1992 to 1993.

Including CFAF 1.5 billion representing debt service canceled by France, Sweden, Germany and the Netherlands under Option A of the Trinidad terms.

Of which CFAF 0.6 billion is owed to IMF.

Includes the cancellation of German ODA debt in 1988 and the cancellation of the French ODA debt in 1989,1990, and 1991.

The U.S. dollar and French franc remain the most important currency denominations of the debt (Appendix II, Table XLII). At end-1992, 27.7 percent of the debt stock was denominated in these currencies, down from close to 50 percent in 1985. This was largely due to the French Government’s cancellation of CFAF 47.2 billion of ODA debt at the end of 1988 under the Dakar initiative and the Federal Republic of Germany’s cancellation of the entire stock of ODA debt at the end of 1987, in an amount of CFAF 0.6 billion (Appendix II, Table XLII). Of the remaining debt, most (34 percent) of the total outstanding is denominated in SDRs. In 1985, SDR-denominated debt accounted for less than 25 percent of the total.

Debt structure by lenders has changed markedly since 1988. The proportion of debt from multilateral creditors increased from 46.0 percent of the total to 60 percent at end-1993. This has been mostly at the expense of the share of bilateral credit, although borrowing from the private banks also declined slightly. The increasing recourse to multilateral creditors has improved the average terms for new loans and has diversified the currency composition of the debt stock (Appendix II, Table XLIII).

2. Debt servicing and rescheduling

The high levels of borrowing in the late 1970s gave rise to heavy debt service obligations in the 1980s, which was compounded by the depreciation of the CFA franc in the early years of the decade. To obtain relief, Togo has negotiated nine rescheduling agreements with the Paris Club creditors since 1979. The debt service ratio declined in the period 1985-91 from 42.7 percent to 20.8 percent, partly because of continued debt rescheduling, as Togo obtained successive debt relief from the Paris Club in 1985, 1988, 1989, and 1990. The rescheduling of 1992 provided relief on enhanced concessional terms, implying a cancellation in net present value terms of 50 percent of the amount rescheduled, which excluded obligations rescheduled in 1989 and 1990. However, the debt service ratio rose to 25.1 percent in 1992 and further to 40.7 percent in 1993 on account of sharply lower exports (Table 7).

Togo: Recent Economic Developments
Author: International Monetary Fund