Togo
2002 Article IV Consultation and Review of the Staff-Monitored Program-Staff Report; and Public Information Notice on the Executive Board Discussion
Author: International Monetary Fund
Publication Date:
08 Dec 2003
eISBN:
9781451836578
Language:
English
Keywords:
ISCR; CR; government; deficit; cement production; financing; privatization program; CFA franc; government sector; debt service; Togolose authorities; money stock
Download PDF (1.9 MB)

Togo's macroeconomic situation remained difficult owing to its political uncertainty, falling cotton prices, and continued problems in phosphate production under the Staff-Monitored Program. Executive Directors stressed the need to improve fiscal stance, address structural issues, and reinforce the role of cotton producers. They urged the authorities to press ahead with efforts to improve the compilation of economic and social statistics, and considered that Togo's participation in the General Data Dissemination System would help establish a framework for broad-based improvements in the country's statistical systems.

Abstract

Togo's macroeconomic situation remained difficult owing to its political uncertainty, falling cotton prices, and continued problems in phosphate production under the Staff-Monitored Program. Executive Directors stressed the need to improve fiscal stance, address structural issues, and reinforce the role of cotton producers. They urged the authorities to press ahead with efforts to improve the compilation of economic and social statistics, and considered that Togo's participation in the General Data Dissemination System would help establish a framework for broad-based improvements in the country's statistical systems.

I. Introduction

1. Togo’s 2002 Article IV consultation discussions were conducted against a background of domestic political uncertainty. Legislative elections, scheduled to take place in October 2001, have been now postponed to an unspecified date, leading to an unsettled political situation and further delays in the resumption of normal financial relations with external multilateral and bilateral donors. Performance under the staff-monitored program (SMP) covering the period April-December 2001 was mixed. Although significant progress was made on the structural front, most of the quantitative benchmarks were not met. The authorities have prepared in close collaboration with the staff an economic program, covering 2002, that will serve as a basis for continued economic policy dialogue with the Bretton Woods institutions, pending a full resolution of the present political situation and resumption of external assistance. The thrust of the authorities’ economic program is outlined in Section III and Box 2 of this report.

2. Togo is on the standard 12-month consultation cycle. The last Article IV consultation was concluded in April 2001 (EBM/01/40; 4/20/01). At that time, Executive Directors welcomed the new government’s determination to address weaknesses in economic policy and performance and to accelerate structural reforms in 2001 under an SMP monitored. They stressed that efforts to regain control over the execution of the budget, make concrete progress in restructuring the banking system and the public enterprise sector, and improve relations with external creditors would help lay the foundation for sustained growth and poverty alleviation over the medium term. Directors also emphasized that establishing a credible track record of policy implementation would be critical for Togo to mobilize rapidly the financing assurances necessary for a program that could be supported by a Poverty Reduction and Growth Facility (PRGF) arrangement.

3. In August 2001, Togo cleared all arrears to the World Bank (CFAF 5.7 billion, or about US$8 million), and disbursements resumed on five ongoing projects and three Institutional Development Fund (IDG) grants. However, on January 1, 2002, the World Bank again suspended disbursements to Togo owing to a renewed accumulation of arrears (CFAF 2.1 billion or $3 million). Togo’s relations with the Fund and World Bank are summarized in Appendices I and III.

II. Recent Developments and Performance Under the Staff-Monitored Program

4. On the political front, legislative elections initially scheduled to take place in October 2001 were postponed, reportedly owing to a lack of financing and inadequate preparation by the Independent National Electoral Commission (CENI) in charge of organizing the elections. Following mediation by international facilitators and the UN, a compromise was reached among all political parties to reschedule the October 2001 elections for March 2002. However, in February 2002, the authorities’ announcement of a series of unilateral amendments to the electoral code led opposition parties to announce that they would not participate in the elections. The Secretary-General of the UN and key bilateral partners voiced serious concerns over this unilateral decision and appealed to the authorities to resume the political dialogue and reach a consensus on the holding of free and fair parliamentary elections. The European Union (EU) and UN temporarily suspended their support of the electoral process in Togo, and the authorities announced that elections were postponed again, to an unspecified date. The holding of free and fair legislative elections is the condition set by Togo’s main donors for the resumption of their financial assistance.

5. On April 20, 2001, the Executive Board was informed of an SMP covering initially the period April-September 2001. The SMP was subsequently extended to December 2001. The main objectives of the program were to strengthen public finances, accelerate structural reforms, and normalize relations with the international community. Performance under the SMP was mixed. While significant progress was made in implementing structural reforms, most of the quantitative benchmarks under the SMP were not met. In particular, because of persistent political uncertainties and the lack of external financial support, fiscal management became difficult, causing cash-flow pressures for the government. Quantitative benchmarks on net credit to the government, the nonaccumulation of new domestic and external arrears, and the phased reduction of payment arrears to multilateral institutions were missed (Table 6).

6. The Togolese economy recovered somewhat in 2001, achieving real GDP growth rate of 2.7 percent, compared with a contraction of 1.9 percent in 2000. The recovery was driven by solid growth in cash crop production, reflecting favorable climatic conditions and, in the case of cocoa, higher international prices. Despite robust growth in cement production, the secondary sector was hampered by a major contraction of phosphate production, caused by a decline in the capacity of the Togolese Phosphate Company (OTP) and a further deterioration of its financial situation. Growth in the service sector remained modest as a result of a slowdown in public sector investment and continued political uncertainty. The average annual rate of inflation picked up to 3.9 percent, mainly reflecting higher transportation costs (Table 1 and Figure 1).

Table 1.

Togo: Selected Economic and Financial Indicators, 1997-2002

article image
Sources: Togolese authorities, and staff estimates and projections.

In percent of broad money stock at beginning of period.

Figure 1.
Figure 1.

Togo; Selected Economic Indicators 1/

(In percent of GDP, unless indicated otherwise)

Citation: IMF Staff Country Reports 2003, 383; 10.5089/9781451836578.002.A001

Sources: Togolose authorities; and staff estimates and projections.1/ Data for 2002 are projections.

7. In the fiscal area, government revenue performance in 2001was hampered by continued problems in the collection of taxes from key public enterprises and a shortfall in petroleum excise tax receipts, as the automatic adjustment mechanism was not implemented as envisaged.1 The revenue shortfall was offset somewhat by cuts in current expenditure. However, substantial expenditure pressures emerged in the last quarter of 2001, notably as regards extrabudgetary spending, including travel abroad. The wage bill was smaller than programmed, as recruitment in the social sectors was delayed. Investment spending was also below target owing to a delay in foreign project disbursements. While the overall deficit, on a payment order basis and including grants, was limited to 2.0 percent of GDP (compared with 3.8 percent of GDP under the program), there was a substantial accumulation of domestic and external payment arrears on debt service (about 3.5 percent of GDP). The resulting overall surplus was 1.5 percent of GDP on a cash basis (compared with 5.3 percent deficit under the program). With limited domestic financing and a substantial shortfall in external financing, further arrears were accumulated on amortization payments (Table 2).

Table 2.

Togo: Financial Operations of Central Government, 1997-2002

article image
Sources: Togolese authorities: and staff estimates and projections.

Social sector expenditure includes wages and goods and services costs for the education and health sectors.

The figure for on-related expenditure.

Defined as fiscal revenue minus current expenditure.

Defined as revenue excluding grants minus expenditure, excluding interest payments and foreign-Financed investment.

8. Broad money decreased by 7.5 percent in 2001 on account of a decline in both net domestic and net foreign assets. Net domestic assets fell by 4.4 percent (of beginning-period money stock), owing to the decline in net claims on the government sector (Table 3). The financial system has continued to be affected by the overall economic environment, and most banks are not in compliance with prudential ratios. At end-December 2001, only three banks out of seven complied with the risk-adjusted capital adequacy ratio. Two banks had negative capital equity, and four banks were in violation of the liquidity ratio. Most of these banks are under close surveillance by the banking commission.

Table 3.

Togo: Monetary Survey, 1997-2002

article image
Sources: Central Bank of West African States (BCCAO); and staff estimates and Projections.

Deposits from Social security funds.

Deposits in post office agencies.

9. The external current account deficit (including official transfers) widened to about 16 percent of GDP in 2001 from 14 percent in 2000, as the improvement in the terms of trade was more than offset by a larger volume of imports and a deterioration in the services (Table 4). Both the capital account and the financial account surplus narrowed, largely owing to a marked decline in loan disbursements and in medium- and long-term investment resulting from the unsettled political situation. The overall balance of payments deficit thus widened to about 5.6 percent of GDP in 2001 from 2.6 percent in 2000. While the nominal effective exchange rate depreciated further in 2001, with the strengthening of the U.S. dollar against the euro, to which the CFA franc is pegged, the real effective exchange rate appreciated by about 2 percent on account of the surge in inflation (Table 1 and Figure 3).

Table 4.

Togo: Balance of Payments, 1999-2007

Sorry-the quality of the source document is insufficient to render this image into text.

article image
Sources: Togolose authorities; and staff estimates projections.

Assumes clearing of all multilateral arrears in 2003, and other non-rescheduable arrears beyond 2003.

Figure 2.
Figure 2.

Togo: Investment and Savings, 1992-2002 1/

(In percent of GDP)

Citation: IMF Staff Country Reports 2003, 383; 10.5089/9781451836578.002.A001

Sources: Togolese authorities; and staff estimates and projections.1/ Data for 2001-2002 are projections.
Figure 3.
Figure 3.

Togo: Nominal and Real Effective Exchange Rates, January 1993-November 2001

(1990=100)

Citation: IMF Staff Country Reports 2003, 383; 10.5089/9781451836578.002.A001

Source: IMF, Information Notice System (INS).

10. Since the expiration of the Paris Club rescheduling arrangement in 1998, Togo has continued to accumulate external payment arrears. During 2001, the government signed two debt-rescheduling agreements—one with the Kuwait Fund for Arab Economic Development and the other with the Arab Bank for Economic Development in Africa (BADEA)—as well as a debt-cancellation protocol with the People’s Republic of China. The cancellation amounted to CFAF 9.3 billion out of a total of CFAF 29.6 billion owed to the People’s Republic of China. Togo’s total external debt stock at end-2001 is estimated at about US$1,293 million (103 percent of GDP), of which US$171 million is payments arrears. The total amount of debt includes US$649 million to multilateral creditors and USS298 million to official bilateral creditors (of which US$257 million is owed to Paris Club creditors) (Table 5).

Table 5.

Togo: Public Sector External Debt and Debt Service by Creditor, 1999-2002

article image
Sources: Togolese authorities; and staff estimates and projections.
Table 6.

Togo. Quantitative and Structural Benchmarks Under the SMP, April-December 2001

(In billions of CFA (fanes)

article image

Excluded expenditures related to the legilative elections and capital spending externally financed.

These ceiling represent the maximum of monthly expenditures.

The actual expenditure level will be adjusted in the with cash revenue collected.

Includes interest and authorization.

This stock of commercial bank net credit to the government should remain constant or decrease at best.