Togo: First Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, and Requests for Modification of Performance Criteria and Augmentation of Access—Informational Annex
Author: International Monetary Fund
Publication Date:
21 Oct 2008
eISBN:
9781451836646
Language:
English
Keywords:
ISCR; CR; Togo; PRGF arrangement; clearance strategy; authority; PRGF loan; reform agenda; government finance high frequency data; governance Reform TA project; public finance; financial support; Customs administration core functions; Fiscal accounting and reporting; Government finance statistics; authorities' effort
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This paper discusses key findings of the First Review Under the Poverty Reduction and Growth Facility for Togo. All relevant performance criteria for the first review were met, some by wide margins. Implementation of the structural reform program was satisfactory. Good revenue collection and restrained spending resulted in a large primary surplus in the first half of 2008. A moderate revision to the end-2008 fiscal primary balance target is proposed to reflect the revenue losses and new expenditures resulting from the price shocks and flooding.

Abstract

This paper discusses key findings of the First Review Under the Poverty Reduction and Growth Facility for Togo. All relevant performance criteria for the first review were met, some by wide margins. Implementation of the structural reform program was satisfactory. Good revenue collection and restrained spending resulted in a large primary surplus in the first half of 2008. A moderate revision to the end-2008 fiscal primary balance target is proposed to reflect the revenue losses and new expenditures resulting from the price shocks and flooding.

Appendix I—Relations with the Fund

(As of August 31, 2008)

I. Membership Status: Joined August 1, 1962; Article VIII

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Financial Arrangements:

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VI. Projected Payments to the Fund1 (SDR million; based on existing use of resources and present holdings of SDRs)

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VII. Exchange Arrangement

Togo is a member of the West African Economic and Monetary Union (WAEMU) and has no separate legal tender. The exchange system, common to all WAEMU countries, is free of restrictions on the making of payments and transfers for current international transactions. The union’s common currency, the CFA franc, is pegged to the euro at a rate of CFAF 655.957 = EUR 1, consistent with the official conversions rate of the French franc to the euro and the previous fixed rate of the CFA franc to the French franc of CFAF 100= F 1. On April 28, 2006, the rate of the CFA franc in terms of SDR was CFAF 769.68 = SDR 1.0. Effective January 1, 2007, the exchange arrangement of the WAEMU countries has been reclassified to the category of conventional pegged arrangement from the category of exchange arrangement with no separate legal tender. The new classification is based on the behavior of the common currency, whereas the previous classification was based on the lack of a separate legal tender. The new classification thus only reflects a definitional change, and is not based on a judgment that there has been a substantive change in the exchange regime or other policies of the currency union or its members

VIII. Safeguards Assessments

The Central Bank of West African States (BCEAO) is the common central bank of the countries of the West African Economic and Monetary Union, which includes Togo. The most recent safeguards assessment of the BCEAO was completed on November 4, 2005. The assessment indicated progress has been made in strengthening the bank’s safeguards framework since the 2002 assessment and identified some areas where further steps would help solidify it.

The BCEAO now publishes a full set of audited financial statements and improvements have been made to move financial reporting closer to International Financial Reporting Standards (IFRS). Furthermore, an internal audit charter has been put in place, mechanisms for improving risk management have been established, and follow-up on internal and external audit recommendations has been strengthened.

The results of continuous safeguards monitoring indicate that while certain vulnerabilities remain in internal control systems and legal structure, there has been some progress in other areas, including through: (i) improving the external audit process by adopting a multi-year audit program; (ii) establishing an audit committee; (iii) expanding disclosures on financial positions of WAEMU countries with the Fund in the notes to the annual financial statements; and (iv) further strengthening of the effectiveness of the internal audit function.

IX. Article IV Consultation

Togo is on the standard 12-month Article IV consultation cycle. The Executive Board completed the 2007 Article IV consultation on June 8, 2007.

X. Technical Assistance

A. AFRITAC West

Customs Administration

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Tax Administration:

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Public Expenditure Management:

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Debt Management and Financial Markets:

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Macroeconomic Statistics

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Real Sector Statistics

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Microfinance Supervision:

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B. Headquarters

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XI. Resident Representative

In September 2005, Mr. Koffi Yao became resident representative for Benin and Togo.

Appendix II—Relations with the World Bank

(Updated July 22, 2008)1

A. Partnership in Togo’s development strategy

1. Over the last decade and a half, Togo has been trapped in a cycle of political instability, economic decline, rising poverty, and donor disengagement. Togo has been in non-accrual status with the International Development Association (IDA) since May 2002, with arrears of US$146 million as of end-May 2008. During the non-accrual period, the Bank has continued to conduct analytical and advisory activities (AAA) on key aspects of socioeconomic development. Together with other partners, the Bank also supported the Government’s efforts to prepare its I-PRSP and development strategies in such sectors as health, education, agriculture and rural development, and HIV/AIDS.

2. Since the Board discussion of the Country Re-engagement Note on December 14, 2004, political developments have been broadly positive. Successful implementation of initial political and economic reforms since 2005–06, including good performance under an IMF Staff Monitored Program, have laid the foundation for strengthening donor assistance to support the process of clearing Togo’s arrears to IDA and other major creditors and thereby of full resumption of the Bank’s operations in the country. Other donors are also seeking to increase their activities in support of Togo’s recently completed its I-PRSP which was adopted by the Government on March 7, 2008. On May 29, 2008, the Bank’s Board discussed the Interim Strategy Note and approved a development policy operation (the Economic Recovery and Governance Grant, ERGG) that enabled Togo to clear its arrears to IDA and thereby normalize its relations with the Bank.

B. World Bank Group strategy

3. The Bank’s May 2008 Interim Strategy Note (ISN) sets out the Bank Group’s plan to help Togo recover from its long period of instability and suspension of aid and begin laying the foundations for sustained, shared growth over the medium term. This will be achieved through support for the normalization of relations with the World Bank Group through the clearance of arrears (achieved at end-May 2008), and assistance to address critical social needs on the ground. The ISN aims to set realistic expectations with regard to the progress and achievements that can be realized from June 2008 through FY10. ISN support is under three main pillars in line with the I-PRSP priorities: (i) improve governance and transparency; (ii) promote the return to private sector-led growth; and (iii) provide for urgent social needs. The ISN builds on a Development Policy Needs Review (DPNR) prepared and discussed with the Government in early 2008.

4. The three pillars will be supported through: (i) assistance for the clearance of Togo’s arrears to IDA, a requisite step for restoring normal relations between the country and the World Bank Group; (ii) investment projects, development policy operations and LICUS TF grants to provide financial and technical support for the Government’s reform program under the three pillars; and (iii) analytical and advisory activities to inform the policy dialogue and the Government’s reform agenda, including preparation of the full PRSP. This support will be complemented by ongoing and new World Bank regional activities in the areas of transport and transit facilitation, energy and mining.

5. Under pillar 1 (Improve Governance and Transparency), particular focus will be on supporting the Government’s own reform program to improve governance, transparency and efficiency in public expenditure management as well as advance structural reforms aimed at improving governance and transparency in the key sectors of the economy (phosphates, energy, cotton and financial sector). This approach would lead over time to strengthened fiscal sustainability, enhanced transparency of State institutions and processes, improved economic governance and increased economic growth. Support would be provided through two annual development policy operations and a Financial Sector and Governance Reform TA project, in addition to the ERGG approved in May 2008. Ongoing analytical and advisory work includes a Trust Fund for Statistical Capacity Building grant and an update Public Expenditure Management and Financial Review (PEMFAR).

6. Under Pillar 2 (Promote the Return to Private Sector-led Growth), private-sector development will be critical to ensuring that Togo returns to a path of recovery and economic growth. In past decades, Togo demonstrated its capacity to be a vibrant private sector hub of West Africa. In this regard, the Bank will support the government in identifying the challenges and obstacles to, and the potential entry points for, private sector investment as a catalyst for growth in Togo through a Country Economic Memorandum on the Sources of Growth. Lending will include a Support to Growth-inducing Sectors Project and Togo’s participation in the regional Abidjan-Lagos Transit and Transport Facilitation Project and possible Adjarala Hydroelectric Project.

7. Under Pillar 3 (Provide for urgent social needs), the strategy will focus on increasing the supply of, and improving access to, basic social services for the most vulnerable groups, thereby helping the Government deliver visible results to the population. Activities will help rebuild minimal effectiveness of local basic services delivery systems and improve access to economic opportunities. This will be achieved by addressing urgent infrastructure rehabilitation needs in the poorest areas of Lomé, the capital city, and by scaling up, under the Community Development Project approved in June 2008, the approach implemented in Togo since 2004 through successive LICUS TF grants.

8. Prior to the May 2008 re-engagement, the principal means for the Bank to provide support to Togo was through grants under the Low Income Country Under Stress (LICUS) Initiative. Since 2005, six grants have been provided totaling US$5.11 million. The first and second phases of a community-driven Emergency Program for Poverty Reduction (EPPR) for a combined amount of US$2.8 million, focused on two of Togo’s five regions with the aim of helping to halt the decline into extreme poverty and the deterioration of social indicators. The first phase, approved in July 2005 and closed on June 30, 2007, was fully disbursed (US$1.1 million) and had particularly satisfactory results in terms of completed sub-projects, capacity building and improved access to priority services. The second phase, approved in July 2007, is under implementation. A third phase (US$1.4 million) approved in November 2007, is extending the EPPR to all of Togo’s five regions.

9. Three additional LICUS projects were also approved in November 2007, part of a comprehensive yet selective strategy aiming to (a) reform and revive the key sectors as well as create an environment for private sector-led growth (focusing on the sectors of phosphate, cotton, coffee, cocoa, energy and the Lomé port as well as on public procurement reforms); (b) preserve human capital (by minimizing the threat posed by Avian Influenza); and (c) achieve quick visible results on the ground (through an urban poverty infrastructure grant). These ongoing activities are critical for laying the ground for the Bank’s re-engagement with Togo.

10. On the analytical side, the Bank conducted a PEMFAR and a Financial Sector Review (FSR) in the last quarter of 2005. It also completed an Urban and Per-Urban Development and Policy Note in June 2006. The Bank is working closely with the IMF on a regional Financial Sector Assessment, following which an update Togo Financial Sector Assessment may be undertaken. In addition, the Bank has supported the Government in strengthening its poverty diagnosis, information systems, and statistical capacities. A Core Welfare Indicator Questionnaire survey was carried out in 2006 to provide for up-to-date and more reliable statistics. With a view toward possible provision of interim HIPC debt relief to Togo, the Bank is providing support to strengthen the country’s debt management capacity.

C. IMF-World Bank collaboration

11. In the course of the re-engagement process, the IMF and World Bank staffs have established a collaborative relationship in supporting the Government’s macroeconomic and structural reforms, in line with the guidelines for enhanced Bank-Fund collaboration. This includes participation of Bank staff in the Fund’s program review missions, and IMF staff participation in Bank internal review meetings on key operations or studies. The IMF takes the lead in discussions on macroeconomic stabilization and the World Bank on social and structural areas, with close collaboration on a few structural areas that have a critical impact on macroeconomic stability (notably financial sector reforms). The Fund’s dialogue and conditionality are consistent with the structural programs agreed with the Bank, and the Bank’s policy framework with Togo is elaborated consistent with the Governments’ macroeconomic framework agreed with the Fund.

Appendix III—Togo—Statistical Issues

1. Data provision is broadly adequate for surveillance, but weaknesses in the quality and timeliness of data hamper staff’s analysis. National accounts and balance of payments statistics are compiled based on very limited information, with only few surveys and scarce data on primary agriculture and private sector services. Moreover, government finance statistics are derived from a weak accounting system, and monetary data are reported by the BCEAO with a two-month lag.

2. The country has participated in the General Data Dissemination System (GDDS) since November 2001. Metadata on the national statistical system, including plans for improvement posted to the Fund’s Dissemination Standard Bulletin Board, were last updated in December 2004.

National accounts and consumer price index (CPI)

3. Activity in the informal and service sectors is likely underestimated due to the lack of reliable data sources. A full set of national accounts is currently compiled by extrapolating the results of the last comprehensive exercise in 1993. In late 2002, the country embarked on implementing the 1993 SNA and the first series of NA for 2000 were prepared and work on the 2001 NA was initiated. The program has been suspended since 2005 and the NA for 2001 have not been finalized. The National Statistics Office is willing to resume the implementation of the 1993 SNA and it is expecting technical and financial support from AFRISTAT and the West African Economic and Monetary Union Commission. AFRITAC West is also providing TA to help resume the preparation of the NA. The last AFRITAC West mission of December 2007 helped initiating an intensive training in the 1993 SNA concepts and methods, as well as training in the application of the ERETES software for the newly-recruited statisticians.

External sector statistics

4. Balance of payments statistics and international investment position data are compiled based on bank reports, a survey of enterprises, and customs data. Informal trade, trade in services, and remittances are underestimated. Statistics are compiled with a six-month delay and are revised twice a year. A STA technical assistance mission in balance of payments statistics is scheduled to visit Lomé in early FY 2009.

Government accounts and public debt data

5. Government finance statistics are derived from a weak accounting system. The monthly TOFE (Table of Central Government Financial Operations) is based on a mixture of administrative and accounting data and is sent to AFR with a two-month lag. Current budget nomenclature does not permit the economic and functional classification of expenditure. There are inconsistencies in domestic arrears records held by different units of the Ministry of Finance and the stock of domestic debt is in the process of being audited. The Government Finance Statistics Advisor of AFRITAC West conducted a one-week mission in October 2007 to develop an action plan to address, among other things, the above-mentioned weaknesses in the source data. Comprehensive external debt data and projections on a loan by loan basis are compiled regularly. Only budgetary central government data are reported for publication in the Government Finances Statistics Yearbook (GFSY), government finance high frequency data are not reported for publication in the IFS.

Monetary statistics

Monthly data for Togo, along with data for other members of the West African Monetary Union are regularly disseminated by the Central Bank of the West African Monetary Union (BCEAO) with a lag of about two months. Data on lending and borrowing rates, charged by domestic banks, are not compiled. In August 2006, as part of the authorities’ efforts to implement the methodology in the Monetary and Financial Statistics Manual, the BCEAO reported to STA monetary data for June 2006 for all member countries (including Togo) using Standardized Report Forms (1SR-central bank, 2SR-other depository corporations, and 5SR-monetary aggregates). In response to STA’s comments, the BCEAO recently provided a revised 1SR and indicated that 2SR was being revised.

Togo: Table of Common Indicators Required for Surveillance

(As of September 11, 2008)

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The general government consists of the central government (budgetary funds, extra-budgetary funds, semi-autonomous government agencies and institutions, and social security funds) and state and local governments.

Monthly (M), Quarterly (Q), Semi Annually (SA), Annually (A), on mission (OM).

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

1

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

1

This note is updated on an annual basis by World Bank staff, or as warranted by developments in the Bank’s program.

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Togo: First Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Modification of Performance Criteria and Augmentation of Access: Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Togo
Author: International Monetary Fund
Volume/Issue:
Volume 2008: Issue 346
Publisher:
International Monetary Fund
ISBN:
9781451836646
ISSN:
1934-7685
Pages:
51
DOI:
https://doi.org/10.5089/9781451836646.002