A. PRGF and IDA Status

5. Following a successful Staff-Monitored Program (SMP), the IMF Executive Board approved on April 21, 2008, a three-year PRGF arrangement, the first since the mid-1990s. The PRGF-supported program, anchored in Togo’s I-PRSP, aims to revive economic growth and improve living standards within a stable macroeconomic environment by (i) bringing public debt to a sustainable level; (ii) facilitating the resumption of external assistance; (iii) increasing resources for infrastructure, health, and education; (iv) strengthening fiscal governance; (v) restructuring fragile banks; and (vi) reforming the business environment and state-owned enterprises. Performance under the PRGF arrangement has been good, with all performance criteria for the first review met and continued progress on fiscal governance reforms as well as steps to reform state-owned banks and enterprises. Total financing available under the three-year arrangement was augmented from SDR66.1 million to SDR84.4 million to help Togo mitigate the impact of global price shocks and recent flooding.

6. Togo is an IDA-only country with a gross national income (GNI) per capita of US$360 in 2007 (using the World Bank’s Atlas methodology). Following a re-engagement strategy discussed by the IDA Board in December 2004, an Interim Strategy Note was presented to the IDA Board on May 29, 2008. The note details a support program that is closely aligned with the government’s I-PRSP and aims 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. The program consolidates and mainstreams the work supported by the World Bank in the areas of economic governance, infrastructure rehabilitation, and community development. In May 2008, arrears to IDA were cleared through a bridge loan provided by a bilateral creditor. Togo then used the proceeds of a grant under a Development Policy Operation (DPO) to repay the bridge loan.

B. Poverty and Social Issues

7. Togo’s long political crisis had a significant impact on social indicators, many of which lag behind those of neighboring countries. The period of political instability and the related withdrawal of donor support have resulted in an economic decline that has reduced living standards for a large segment of the population. Expenditures on health, education and public investment are far below regional averages, largely reflecting low external assistance, weak expenditure management and lack of prioritization. Also, government budgets favored urban rather than rural areas; infrastructure investment in the rural areas was very limited, and there is high unemployment in the urban areas. Togo’s Human Development Index failed to improve in recent years and stood at 0.512 for 2007–2008, in contrast with a gradual improvement experienced in much of Sub-Saharan Africa.

Key Poverty & Social Indicators–2006

Note: Percent of total population, unless otherwise indicated. Source: World Development Indicators and Togo I-PRSP.

Key Poverty & Social Indicators–2006

Poverty (% below poverty line)	62
Adult literacy rate (%)	53
Female literacy rate (%)	38
Primary completion rate (%)	66
Female primary enrollment (%)	92
Under-five mortality (per 1,000)	75
Life expectancy at birth (years)	55
Child malnutrition (%; 2000)	25.1
HIV prevalence (%; 2005)	3.2

Note: Percent of total population, unless otherwise indicated. Source: World Development Indicators and Togo I-PRSP.

View Table

Key Poverty & Social Indicators–2006

Poverty (% below poverty line)	62
Adult literacy rate (%)	53
Female literacy rate (%)	38
Primary completion rate (%)	66
Female primary enrollment (%)	92
Under-five mortality (per 1,000)	75
Life expectancy at birth (years)	55
Child malnutrition (%; 2000)	25.1
HIV prevalence (%; 2005)	3.2

Note: Percent of total population, unless otherwise indicated. Source: World Development Indicators and Togo I-PRSP.

8. A survey on core welfare indicators carried out in 2006 indicated that about 62 percent of the population was poor.⁵ The poverty level was much higher in rural (about 74 percent) than in urban (about 37 percent) areas. There were also significant variances among regions, with a relatively low level in the Lomé area (about 25 percent) and a very high incidence in the northern region of Savanes (over 90 percent). A qualitative survey of the perceptions of poverty in Togo revealed that the population sampled attributed the worsening of living conditions between 2000 and 2006 mainly to economic difficulties and health problems. Weak public finance management, in particular due to weak financial management of key state-owned companies whose losses have been financed by the public treasury, has eroded resources for vital public services.

9. While some progress has been achieved toward reaching the MDGs, many of the goals are, on current trends, unlikely to be met by 2015. According to a recent assessment of the MDGs,⁶ progress has been most notable in reaching the goal of universal primary education: both the net primary enrollment and the primary completion rates improved between 1990 and 2005; the youth literacy rate also improved. In addition, there has been some progress toward the attainment of the goal of promoting gender equality. However, it would be difficult to achieve the goals of halving extreme poverty and hunger, as well as the goals of access to improved water and sanitation facilities and reducing maternal and infant mortality. The incidence of tuberculosis increased during the period and the prevalence of HIV/AIDS among the adult population was estimated at 3.2 percent in 2005.

C. Recent Political and Economic Developments

10. The 2007 parliamentary elections marked a milestone in Togo’s political reform and paved the way for donor reengagement. After the death in 2005 of President Eyadéma Gnassingbé, who had ruled Togo for 38 years, Togo undertook a national reconciliation process that culminated in multiparty parliamentary elections on October 14, 2007. International observers considered the elections, which led to the formation of a new government, to have been free and transparent. In September 2008, a new Prime Minister was appointed and the cabinet was reshuffled. During a Roundtable meeting in Brussels on September 18 and 19, 2008, donors pledged to step up their assistance significantly to help Togo implement its I-PRSP and forthcoming PRSP and address urgent spending priorities.

11. Togo’s economy has been severely affected by the surge in global food and fuel prices as well as heavy flooding in the summer. The flooding destroyed roads and bridges along Togo’s main traffic artery from the Port of Lomé to the landlocked countries in the north, paralyzing Togo’s vital trade and transport sector and disrupting exports of goods and services. Togo has also been among the most adversely affected economies by the global price shocks, reflecting the high fuel imports of Togo’s transport, industry, and power sectors. While Togo is nearly self-sufficient in food production, surging food prices have created social tensions and severely eroded real incomes for urban dwellers.

12. The combined impact of these shocks has brought economic growth to a near halt. Real GDP growth is projected to be just ¾ percent in 2008, while inflation is expected to reach 9 percent, driven by higher food and fuel prices. The current account deficit is projected to widen from 6½ percent of GDP in 2007 to 11 percent of GDP in 2008. A modest economic recovery is expected for 2009, driven by higher investment and the resumption of regional transport, while inflation is projected to ease significantly as local food prices are expected to decline from their recent peak.

D. Policy Track Record and Governance Developments

13. Togo is emerging from more than a decade of political crisis, interruption in foreign assistance and economic decline. Togo’s growth performance has been among the weakest in sub-Saharan Africa, with per capita income declining by an average of one percent a year since the early 1980s. The long-lasting socio-political crisis and withdrawal of donor support took a toll on Togo’s economy, infrastructure and institutions. Traditional export sectors suffered from adverse terms of trade and mismanagement of state-owned enterprises. Governance problems and banking sector difficulties inhibited private investment. A heavy external debt burden and weak fiscal management led to the rapid accumulation of arrears. Recent political and economic reforms have paved the way for donor reengagement.

14. In 2006, the Togolese authorities launched an ambitious economic reform program, initially supported by an IMF Staff-Monitored Program (SMP). Performance under the SMP was good: all quantitative targets were comfortably met and progress was made on governance-related structural reforms. Administrative reforms initiated by the new tax and customs directors appointed in May 2006 helped broaden the tax base and recover arrears, boosting fiscal revenues from 15¾ percent of GDP in 2005 to 17 percent in 2007. Despite election pressures and new outlays to address the energy crisis, expenditures were kept somewhat below the target. As a result, the primary fiscal position for 2007 was broadly balanced, compared to a 2006 primary deficit of 1 percent of GDP, allowing a net reduction in domestic arrears.

15. Fiscal policies have continued to be prudent under the new PRGF arrangement, despite the adverse impact of the global price shocks. The 2008 budget targets a broadly balanced primary position and a reallocation of resources toward education, health, infrastructure, and the restructuring of state-owned banks and enterprises. First-half 2008 revenues were higher than projected. Spending was very restrained, reflecting an emphasis on fiscal discipline and sharply reduced recourse to accelerated spending procedures, but also slower-than-expected implementation of domestic investment projects, partly reflecting capacity constraints. This resulted in a large primary fiscal surplus and a substantial accumulation of government deposits, while wage and pension arrears were reduced. All relevant performance criteria for the first review under the PRGF-supported program were met. Preliminary data through end-September 2008 indicate that program implementation has remained broadly on track.

16. Significant progress has been made on strengthening governance under the IMF- and IDA-supported programs. The Togolese authorities have implemented a wide range of public financial management reforms, including the phasing out of payment orders without budget line identification. A new mechanism for monthly monitoring of budget execution has been made fully operational, significantly shortening the time lag for analyzing fiscal data and providing policymakers with the ability to make timely and informed spending decisions. A new General Inspectorate of Finance has been set up to conduct ex-post inspections of agencies that handle public resources. Following an external audit of Togo’s large domestic arrears, the authorities are finalizing a strategy for clearing these arrears. Also, an action plan for public procurement reforms has been adopted. Two financial audits of the state-owned cotton company, a strategic audit of the sector, clearance of the cotton company’s arrears to farmers as well as strengthened internal controls and cost savings, have strengthened the cotton sector management and paved the way for broader sector reform. The authorities have prepared a strategy to strengthen Togo’s fragile state-owned banks and placed the largest bank under new management and oversight. The authorities have also established a Board of Directors for the electricity utility, adopted new statutes harmonized with WAEMU corporate law and appointed a new general manager.

A. Reform Agenda and I-PRSP Strategy

17. Togo faces daunting institutional and economic challenges. Togo’s economic growth record is among the worst in the region, reflecting a combination of factors including: (i) poor governance and low administrative capacity, after a long period of sociopolitical conflict, mismanagement of public resources, and lack of foreign assistance; (ii) excessive external public debt and domestic arrears; (iii) undercapitalized state-owned banks, with the highest nonperforming loan ratio in the WAEMU area; (iv) a severe region-wide energy crisis, resulting in frequent power outages; (v) loss-making state-owned cotton and phosphate enterprises after decades of mismanagement; (vi) a poor business environment; and (vii) deteriorated social conditions because of mismanagement of public resources.

18. The I-PRSP sets out an ambitious poverty reduction strategy to revive economic growth and improve basic living conditions. It is defined along three strategic axes: (i) strengthening political and economic governance, with a focus on institutional reform and fiscal governance; (ii) promoting economic recovery and sustainable development, with measures to reform state-owned enterprises and financial institutions, improve the business environment, strengthen regional integration and trade, revive agricultural production, rehabilitate infrastructure, and improve management of natural resources and the environment; and (iii) developing social sectors, human resources and employment, with a focus on improving access to and the quality of basic education and health services. The I-PRSP presents the ongoing policy reforms, which remain a priority in the near term, and outlines an expanded reform agenda going forward.

19. To revive the economy and reduce poverty, the Togolese authorities are seeking to consolidate macroeconomic stability and advance priority structural reforms, while securing stepped-up technical and financial assistance from development partners. The main medium-term policy objectives include:

• Bringing public debt to a sustainable level through gradual fiscal adjustment, regularization of domestic arrears, and comprehensive external debt relief;

• Reengaging with development partners to support a significant increase in financial and technical assistance for priority projects and to support reforms;

• Increasing resources for health, education, agriculture, and infrastructure (especially energy and transport) by reallocating domestic spending and using the expected increase in external assistance effectively;

• Strengthening fiscal governance to raise revenues and make spending more efficient and transparent;

• Restructuring state-owned banks to strengthen the financial position, reduce risks to macroeconomic stability, and allow the private financial sector to develop; and

• Initiating growth-oriented structural reforms to improve the business environment and reform public enterprises, especially in the cotton and phosphate sectors.

B. PRSP Process

20. The I-PRSP was prepared in two phases, and was adopted in March 2008. In both phases, the process was inclusive, involving government and civil society organizations. Donors engaged at the beginning of the second phase (August 2006) and have since played an important role in advising the Togolese authorities and helping to carry out a number of quantitative and qualitative poverty surveys. In the second phase of preparing the I-PRSP, emphasis was placed on priority measures, notably in the areas of public financial management and governance of key public enterprises and banks.

21. The authorities plan to complete the full PRSP in the first half of 2009. The PRSP is to be prepared with broad stakeholder participation and clear prioritization of reforms. Given Togo’s capacity and financing constraints, a critical challenge will be to identify specific development partners to support priority reforms. The September 2008 conference of Togo’s development partners was an important step in that direction.

C. Macroeconomic Framework

22. Following this year’s downturn, economic growth is projected to pick up over the medium term as donors reengage and confidence returns. The I-PRSP’s medium-term framework envisages real GDP growth of almost 4 percent. The initial recovery is expected to be driven by donor-financed public investment, improved business confidence, growing regional trade, and a rebound in cotton and phosphate production. Over the medium term, growth should be sustained by higher foreign direct investment (e.g. in banking, telecoms and phosphate sectors, and the port), improved financial intermediation and upgrades to public infrastructure, especially electricity, which would alleviate bottlenecks that previously stymied private sector growth.

23. A prudent fiscal policy is expected to support macroeconomic stability and debt sustainability. A domestic primary surplus of about 1 percent of GDP, combined with comprehensive external debt relief and higher foreign aid, would result in a broadly sustainable fiscal position and an improved debt outlook that avoids renewed arrears. The authorities plan to achieve the required fiscal adjustment by gradually raising revenues to about 18 percent of GDP over the medium run while holding domestic spending broadly constant in relation to GDP. Spending in priority areas (health, education, infrastructure, and restructuring of state-owned banks and enterprises) is to be increased significantly by: (i) reallocating domestic spending away from non priority sectors, particularly untargeted subsidies and transfers; (ii) bringing external assistance (US$12 per capita in the period 2004–06, according to the World Development Indicators database) to the regional average (US$43 per capita); and (iii) using resources to be freed up after the completion point by HIPC and MDRI debt relief. The wage bill, though projected to rise modestly after a decade-long salary freeze, should remain in line with WAEMU convergence criteria⁷.

24. Despite the global price shocks, inflation is expected to be contained over the medium term, anchored in the WAEMU currency union and fiscal prudence. Nonetheless, inflation can be erratic in case of unfavorable weather conditions (droughts or the recent heavy floods) or further volatility in world food and oil prices.

25. External conditions are likely to remain very challenging. The first-round impact of the global financial crisis is expected to be limited, as lower oil prices are projected to offset weaker export demand. Nonetheless, Togo’s current account deficit is projected to remain high, with imports projected to increase as foreign aid is absorbed and FDI picks up. Exports are expected to increase despite weaker global growth, largely on account of the expected recovery of Togo’s phosphate sector. Long-term export growth will remain somewhat constrained by limited competitiveness and Togo’s poor business environment. External financing is expected to come primarily from debt relief and a recovery in FDI flows.

26. Despite successful reforms over the past two years, Togo still faces significant political and economic risks, including the possibility of a prolonged global downturn caused by the financial crisis. Capacity constraints resulting from decades of political conflict and donor disengagement severely limit the authorities’ ability to implement reforms. Reform efforts aimed at improving governance of the public sector, public enterprises and banks could falter under the weight of the significant challenges each of these faces, or in the event of possible political tensions that could slow the current reform momentum. Fragile banks could jeopardize macroeconomic stability and weakened public enterprises in key sectors could hamper growth. Furthermore, exogenous shocks could stymie an economic recovery, including a longer-than-expected global downturn caused by the global financial crisis, which could depress export demand, remittances, and FDI. Other possible shocks include terms of trade deterioration, euro appreciation, a worsening regional energy crisis, bad weather affecting agriculture, and loss of confidence that could cause capital outflows. Delays in rebuilding the transport infrastructure destroyed by the recent flooding could also hinder the economic recovery.

Table 1:

Medium- to Long-Term Macroeconomic Framework, Selected Indicators, 2007-27

Sources: Togolese authorities; and IMF and World Bank staff estimates and projections.

^1/Excludes interest payments, foreign-financed investment, and grants.

^2/In percent of exports of goods and non-factor services before traditional debt relief.

Table 1:

Medium- to Long-Term Macroeconomic Framework, Selected Indicators, 2007-27

			2007	2008	2009	2010	2008–27 (avg.)
			(Annual percentage change)
National income and prices
	GDP at constant prices		1.9	0.8	3.0	4.0	3.5
	GDP at current prices		3.2	5.5	4.1	6.0	5.6
	GDP deflator		1.3	4.8	1.2	2.0	2.1
	Consumer prices (yearly average)		1.0	9.1	1.9	2.5	2.8
External sector
	Export volume		7.3	1.4	12.6	10.8	6.5
	Import volume		12.8	12.0	8.6	5.1	5.7
	Terms of trade (U.S. dollar basis)		6.7	5.0	0.3	-2.0	-0.1
Money and credit
	Domestic credit		14.9	…	…	…	…
	Broad money		18.2	…	…	…	…
			(In percent of GDP)
Central government finance
	Total revenue (including grants)		18.7	18.4	21.1	21.9	22.2
		of which: Tax and nontax revenue	17.0	16.6	17.3	17.6	18.0
	Total expenditure		20.6	21.3	23.7	23.9	23.4
	Overall balance (including grants)		-1.9	-2.9	-2.6	-2.0	-1.2
	Domestic primary balance 1/		0.2	-0.6	0.0	0.6	0.9
External current account balance (including grants)			-6.4	-10.9	-9.2	-7.1	-5.1
	Exports of goods and services		41.9	40.4	43.6	44.9	46.9
	Imports of goods and services		62.5	67.5	70.6	70.0	68.9
Net present value of external debt 2/			190.6	170.9	151.9	135.9	89.3

Sources: Togolese authorities; and IMF and World Bank staff estimates and projections.

^1/Excludes interest payments, foreign-financed investment, and grants.

^2/In percent of exports of goods and non-factor services before traditional debt relief.

View Table

Table 1:

Medium- to Long-Term Macroeconomic Framework, Selected Indicators, 2007-27

			2007	2008	2009	2010	2008–27 (avg.)
			(Annual percentage change)
National income and prices
	GDP at constant prices		1.9	0.8	3.0	4.0	3.5
	GDP at current prices		3.2	5.5	4.1	6.0	5.6
	GDP deflator		1.3	4.8	1.2	2.0	2.1
	Consumer prices (yearly average)		1.0	9.1	1.9	2.5	2.8
External sector
	Export volume		7.3	1.4	12.6	10.8	6.5
	Import volume		12.8	12.0	8.6	5.1	5.7
	Terms of trade (U.S. dollar basis)		6.7	5.0	0.3	-2.0	-0.1
Money and credit
	Domestic credit		14.9	…	…	…	…
	Broad money		18.2	…	…	…	…
			(In percent of GDP)
Central government finance
	Total revenue (including grants)		18.7	18.4	21.1	21.9	22.2
		of which: Tax and nontax revenue	17.0	16.6	17.3	17.6	18.0
	Total expenditure		20.6	21.3	23.7	23.9	23.4
	Overall balance (including grants)		-1.9	-2.9	-2.6	-2.0	-1.2
	Domestic primary balance 1/		0.2	-0.6	0.0	0.6	0.9
External current account balance (including grants)			-6.4	-10.9	-9.2	-7.1	-5.1
	Exports of goods and services		41.9	40.4	43.6	44.9	46.9
	Imports of goods and services		62.5	67.5	70.6	70.0	68.9
Net present value of external debt 2/			190.6	170.9	151.9	135.9	89.3

Sources: Togolese authorities; and IMF and World Bank staff estimates and projections.

^1/Excludes interest payments, foreign-financed investment, and grants.

^2/In percent of exports of goods and non-factor services before traditional debt relief.

A. Debt Reconciliation Status

27. The DRA below was prepared jointly by the Togolese authorities and IDA and IMF staffs. It draws on data provided by the authorities and creditors for the public and publicly guaranteed external debt disbursed and outstanding as of end-2007. The reconciliation process was completed jointly by the IMF, IDA and the authorities in March 2008. All multilateral and 90 percent of bilateral and commercial debt were reconciled.

B. Structure of External Debt

28. At end-2007, Togo’s public and publicly-guaranteed external debt (including arrears) before traditional debt relief was estimated at US$2.2 billion in nominal terms. The corresponding NPV (US$1.8 billion) equals about 72 percent of GDP, 191 percent of exports, and 396 percent of fiscal revenues. Multilateral creditors accounted for around half of the total debt in nominal terms, with liabilities to IDA alone constituting more than one third of total external debt. Other multilaterals with substantial claims on Togo are AfDF (6.7 percent of total external debt), BOAD (3.4 percent), EU/EIB (2.4 percent), IsDB (1.8 percent), IFAD (1.2 percent) and OFID (0.6 percent). BADEA, FEGECE and the IMF only held minor claims on Togo (amounting to 0.2 percent combined). Among the bilateral and commercial creditors, the Paris Club accounted for almost 44 percent of total nominal debt at end-2007, with France being the largest creditor. The non-Paris Club creditors were China, Kuwait and Saudi Arabia, together representing 4 percent of total external debt. About 1.5 percent of debt was held by 11 commercial creditors of which CBAO Senegal is the major one.

29. A large share of Togo’s external debt (about 39 percent) was in arrears at end-2007, though most of these arrears have since been cleared (Box 1). External arrears stood at US$851 million, of which US$200 million were owed to multilateral creditors, US$636 million to bilateral creditors, and US$15 million to commercial creditors. Togo has made major strides in regularizing its relations with other donors and creditors after more than a decade with limited external assistance.

Table 2:

Nominal Stocks and Net Present Value of Debt at end-2007 by Creditor Groups

Sources: Togolese authorities; and Fund and World Bank staff estimates.

^1/Includes arrears.

^2/Base situation for the calculation of HIPC debt relief; assumes a stock-of-debt operation on Naples terms at end-December 2007; and comparable action by other official bilateral and commercial creditors on eligible debt (pre-cutoff and non-ODA).

^3/Other multilaterals include IMF, IsDB, BADEA, FEGECE, IFAD and OFID. Togo has no arrears to the former three.

^4/The loans that have been cancelled by China in 2007 have been added back to the outstanding debt stock as of end-2007.

Table 2:

Nominal Stocks and Net Present Value of Debt at end-2007 by Creditor Groups

				Nominal Debt Stock 1/		Arrears Stock		NPV of Debt before traditional debt relief 1/		NPV of Debt after traditional debt relief 1/ 2/
				US$ million	Percent of total	US$ million	Percent of total	US$ million	Percent of total	US$ million	Percent of total
Total				2,208.2	100.0	851.2	100.0	1,804.5	100.0	1,410.8	100.0
	Multilateral			1,127.5	51.1	199.8	23.5	784.3	43.5	784.3	55.6
		IDA		764.8	34.6	129.1	15.2	511.7	28.4	511.7	36.3
		AfDF		148.9	6.7	19.7	2.3	90.4	5.0	90.4	6.4
		BOAD		75.9	3.4	-	-	70.1	3.9	70.1	5.0
		EU/EIB		52.6	2.4	32.6	3.8	47.8	2.7	47.8	3.4
		Others 3/		85.3	3.9	18.5	2.2	64.2	3.6	64.2	4.6
		Bilateral		1,048.1	47.5	636.0	74.7	988.8	54.8	595.4	42.2
			Paris Club:	964.3	43.7	634.9	74.6	922.7	51.1	511.2	36.2
			Other Official Bilateral:	83.8	3.8	1.1	0.1	66.1	3.7	84.1 4/	6.0
	Commercial			32.6	1.5	15.4	1.8	31.4	1.7	31.2	2.2

Sources: Togolese authorities; and Fund and World Bank staff estimates.

^1/Includes arrears.

^2/Base situation for the calculation of HIPC debt relief; assumes a stock-of-debt operation on Naples terms at end-December 2007; and comparable action by other official bilateral and commercial creditors on eligible debt (pre-cutoff and non-ODA).

^3/Other multilaterals include IMF, IsDB, BADEA, FEGECE, IFAD and OFID. Togo has no arrears to the former three.

^4/The loans that have been cancelled by China in 2007 have been added back to the outstanding debt stock as of end-2007.

View Table

Table 2:

Nominal Stocks and Net Present Value of Debt at end-2007 by Creditor Groups

				Nominal Debt Stock 1/		Arrears Stock		NPV of Debt before traditional debt relief 1/		NPV of Debt after traditional debt relief 1/ 2/
				US$ million	Percent of total	US$ million	Percent of total	US$ million	Percent of total	US$ million	Percent of total
Total				2,208.2	100.0	851.2	100.0	1,804.5	100.0	1,410.8	100.0
	Multilateral			1,127.5	51.1	199.8	23.5	784.3	43.5	784.3	55.6
		IDA		764.8	34.6	129.1	15.2	511.7	28.4	511.7	36.3
		AfDF		148.9	6.7	19.7	2.3	90.4	5.0	90.4	6.4
		BOAD		75.9	3.4	-	-	70.1	3.9	70.1	5.0
		EU/EIB		52.6	2.4	32.6	3.8	47.8	2.7	47.8	3.4
		Others 3/		85.3	3.9	18.5	2.2	64.2	3.6	64.2	4.6
		Bilateral		1,048.1	47.5	636.0	74.7	988.8	54.8	595.4	42.2
			Paris Club:	964.3	43.7	634.9	74.6	922.7	51.1	511.2	36.2
			Other Official Bilateral:	83.8	3.8	1.1	0.1	66.1	3.7	84.1 4/	6.0
	Commercial			32.6	1.5	15.4	1.8	31.4	1.7	31.2	2.2

Sources: Togolese authorities; and Fund and World Bank staff estimates.

^1/Includes arrears.

^2/Base situation for the calculation of HIPC debt relief; assumes a stock-of-debt operation on Naples terms at end-December 2007; and comparable action by other official bilateral and commercial creditors on eligible debt (pre-cutoff and non-ODA).

^3/Other multilaterals include IMF, IsDB, BADEA, FEGECE, IFAD and OFID. Togo has no arrears to the former three.

^4/The loans that have been cancelled by China in 2007 have been added back to the outstanding debt stock as of end-2007.

C. Possible Assistance under the HIPC Initiative

30. Togo qualifies for debt relief under the HIPC Initiative’s fiscal window based on end-2007 data; the common reduction factor is estimated at 19 percent.⁹ After full application of traditional debt relief mechanisms, Togo’s NPV of debt is estimated at US$1,411 million at end-2007, equivalent to 309 percent of fiscal revenues.¹⁰

31. The required debt relief needed to bring this ratio down to the 250 percent HIPC threshold is estimated at US$270 million in end-2007 NPV terms. Based on proportional burden sharing, multilateral assistance would amount to US$150 million, and bilateral and commercial assistance to US$120 million (both in NPV terms).

32. So far, 47 percent of HIPC relief has been delivered through multilateral arrears clearance and the cancellation of loans by China (Box 1). IDA and AfDB have already delivered their full share of HIPC assistance through arrears clearance operations in May and July 2008, respectively. Overall, creditors amounting to around 90 percent of total HIPC debt relief to be provided in NPV terms have indicated their willingness to provide debt relief under the HIPC initiative to Togo (see Table A11).

Table 3:

HIPC Initiative Assistance Under a Proportional Burden-Sharing Approach ^{1/ 2/}

(In millions of U.S. dollars, unless otherwise indicated)

Sources: Togolese authorities; and IMF and World Bank staff estimates and projections.

^1/The proportional burden sharing approach is described in “HIPC Initiative--Estimated Costs and Burden Sharing Approaches” (IDA/SEC M 97-306, 7/7/97).

^2/Includes a hypothetical stock-of-debt operation on Naples terms (end-December 2007) and comparable treatment by other official bilateral creditors.

^3/Each creditor’s NPV reduction in percent of its exposure at the reference date, end-December 2007, calculated as (A-B)/A.

^4/2007 central government revenues excluding grants.

Table 3:

HIPC Initiative Assistance Under a Proportional Burden-Sharing Approach ^{1/ 2/}

(In millions of U.S. dollars, unless otherwise indicated)

			Debt Outstanding (NPV terms) end-2007 (A)	Debt Outstanding (NPV terms) Post-HIPC (B)	Reduction of the NPV of Debt due to HIPC (A-B) /3
Total			1411	1141	270
		(as percent of revenue)	309	250	59
of which:
	Multilateral		784	634	150
	Bilateral		595	481	114
		Paris Club:	511	413	98
		Other Official Bilateral:	84	68	16
	Commercial		31	25	6
Memorandum Items:
	Common reduction factor (percent) 3/		19
	Revenue 4/		456
	Revenue/ GDP (3 year average)		17
	Exports/ GDP (3 year average)		42

Sources: Togolese authorities; and IMF and World Bank staff estimates and projections.

^1/The proportional burden sharing approach is described in “HIPC Initiative--Estimated Costs and Burden Sharing Approaches” (IDA/SEC M 97-306, 7/7/97).

^2/Includes a hypothetical stock-of-debt operation on Naples terms (end-December 2007) and comparable treatment by other official bilateral creditors.

^3/Each creditor’s NPV reduction in percent of its exposure at the reference date, end-December 2007, calculated as (A-B)/A.

^4/2007 central government revenues excluding grants.

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Table 3:

HIPC Initiative Assistance Under a Proportional Burden-Sharing Approach ^{1/ 2/}

(In millions of U.S. dollars, unless otherwise indicated)

			Debt Outstanding (NPV terms) end-2007 (A)	Debt Outstanding (NPV terms) Post-HIPC (B)	Reduction of the NPV of Debt due to HIPC (A-B) /3
Total			1411	1141	270
		(as percent of revenue)	309	250	59
of which:
	Multilateral		784	634	150
	Bilateral		595	481	114
		Paris Club:	511	413	98
		Other Official Bilateral:	84	68	16
	Commercial		31	25	6
Memorandum Items:
	Common reduction factor (percent) 3/		19
	Revenue 4/		456
	Revenue/ GDP (3 year average)		17
	Exports/ GDP (3 year average)		42

Sources: Togolese authorities; and IMF and World Bank staff estimates and projections.

^1/The proportional burden sharing approach is described in “HIPC Initiative--Estimated Costs and Burden Sharing Approaches” (IDA/SEC M 97-306, 7/7/97).

^2/Includes a hypothetical stock-of-debt operation on Naples terms (end-December 2007) and comparable treatment by other official bilateral creditors.

^3/Each creditor’s NPV reduction in percent of its exposure at the reference date, end-December 2007, calculated as (A-B)/A.

^4/2007 central government revenues excluding grants.

33. The following illustrative scenarios on the delivery of HIPC Initiative debt relief are based on the assumption that Togo reaches its HIPC decision point by end-November 2008 and its completion point by end-October 2010:

• IDA assistance would amount to approximately US$98 million in NPV terms and has been provided through the grant element imbedded in its concessional arrears clearance operation (Box 1). As such, there will be no interim relief from IDA.¹¹

• IMF assistance would total US$0.3 million in NPV terms. Immediately following the approval of the decision point by the Boards of IDA and the IMF, the IMF will extend interim assistance in the form of debt-service reduction. Since there will be no principal repayments falling due until October 2013, interim HIPC assistance of about US$0.1 million in NPV terms will be applied to cover a portion of PRGF interest obligations until the completion point, presently assumed in October 2010 (Table A8).

• AfDB assistance of US$17.3 million in NPV terms has been delivered through its concessional arrears clearance operation (Box 1).

• Other multilaterals are expected to deliver assistance amounting to US$35 million in NPV terms through concessional arrears clearance, concessional rescheduling and/or debt service reduction, to commence at decision or completion points.

• The Paris Club creditors are assumed to provide their share of HIPC debt relief (US$98 million in NPV terms) through a Cologne flow operation (i.e., a 90 percent NPV reduction) after Togo reaches its HIPC decision point. This would top up the Naples flow operation (i.e., a 67 percent NPV reduction) delivered in June 2008. The remaining HIPC assistance is projected to be delivered through a stock of debt operation at the completion point.

• Among the non-Paris Club official bilateral creditors and commercial creditors, China has already delivered its share of HIPC relief in 2007 through loan cancellation. For other bilateral and commercial creditors, Togo has agreed to seek comparable treatment to that given by the Paris Club creditors.

D. Assistance under MDRI and bilateral debt relief beyond HIPC

34. Upon reaching its HIPC completion point, Togo will qualify for MDRI debt relief from IDA and AfDF. MDRI relief from IDA would include all debt outstanding and disbursed before end-2003 and still outstanding at the beginning of the quarter following the date on which the country reaches completion point. Similarly, MDRI assistance from the AfDF would include cancellation of all debt outstanding and disbursed before end-2004 and still outstanding on the day following the completion point.

35. Assuming that Togo reaches the completion point in October 2010, preliminary estimates indicate that the MDRI debt relief could amount to US$753 million in nominal terms (US$404 million in NPV terms). Of this amount, US$618 million and US$135 million would be provided by IDA and the AfDF, respectively. Since Togo repaid its MDRI-eligible debt to the IMF in early 2008, it would not be eligible for MDRI debt relief from the IMF.

36. Upon reaching its HIPC completion point, Togo could also benefit from debt relief beyond-HIPC from some creditors. Togo could benefit from debt relief beyond HIPC under the EU’s specific Least Developed Countries (LDC) Initiative. Some Paris Club creditors are also expected to provide beyond-HIPC relief and cancel up to 100 percent of their claims against Togo after it reaches the completion point (see Table A9). The additional assistance from the Paris Club could amount to US$488.5 million in nominal terms (US$425.5 million in NPV terms).

E. Impact of HIPC and MDRI Debt Relief on Debt Ratios and Sensitivity Analysis

37. The application of both traditional debt relief and HIPC debt relief would bring the NPV of external public debt down to 211.1 percent of revenues by 2010, from 395.6 percent in 2007 (Table A5). The delivery of MDRI and additional bilateral debt relief beyond HIPC would further reduce Togo’s external debt. After the assumed completion point, Togo’s NPV of debt-to-revenue ratio would decline to 65.0 percent in 2010 with MDRI and additional bilateral debt relief beyond HIPC. Debt service ratios would also become substantially lower, especially in the period just following completion point. Debt service-to-exports and debt service-to-revenue in the period between completion point and the end of the projection period (2011 through 2027) would remain below 4 percent and 7 percent, respectively:¹² this represents a reduction of 40 percent over the period 2011 to 2027 and a reduction of over 70 percent in 2011, respectively, compared to a projection including only HIPC assistance (Table A5 and Figure 2).

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Togo: Composition of Stock of External Debt at End- 2007 by Creditor Group

Citation: IMF Staff Country Reports 2008, 370; 10.5089/9781451836653.002.A001

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Togo: Potential Costs of the HIPC Initiative by Creditor Group

Citation: IMF Staff Country Reports 2008, 370; 10.5089/9781451836653.002.A001

Sources: Togolese authorities, and IDA and IMF staff estimates.

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Togo: External Debt Indicators, 2007-27

Citation: IMF Staff Country Reports 2008, 370; 10.5089/9781451836653.002.A001

Sources: Togolese authorities and staff estimates.1/ Does not include arrears rescheduling from bilateral and commercial creditors.

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38. Sensitivity analysis indicates that Togo’s ability to service its external debt is particularly vulnerable to the use of borrowing to compensate for possible limited external grant assistance. Simulations under four scenarios were conducted to test the vulnerability of Togo’s external debt after unconditional delivery of HIPC Initiative assistance (Table A6 and Figure 3).¹³ Togo’s external debt situation would deteriorate under all scenarios, but would remain under a downward path over the projection period, except under the scenario with a combination of shocks.

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Togo: Sensitivity Analysis, 2007-27

Citation: IMF Staff Country Reports 2008, 370; 10.5089/9781451836653.002.A001

Sources: Togolese authorities and staff estimates.

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• The first scenario considers the sensitivity of the projections to permanently lower GDP growth and fiscal revenues. In this scenario, real GDP is assumed to grow by 2.5 percentage points less than in the baseline (baseline assumes average real growth of 3.5 percent 2008–2027) bringing real GDP growth to the historical average. The lower GDP in turn reduces government revenues and expenditures. Based on these assumptions, the NPV of debt-to-revenue ratio would gradually decline up to 137.4 percent by 2027, compared to 87.2 percent under the baseline scenario.

• The second scenario considers the sensitivity of the projections to lower export growth. Under this scenario, the average growth rate of exports falls by 2.5 percentage points relative to the baseline, based on possible adverse terms of trade or failure to rehabilitate the phosphate sector. Although the NPV of debt-to-exports declines gradually, reaching 53.5 percent in 2027 as compared to 34.9 percent in the baseline, the debt service-to-export ratio would be 60 percent higher than in the baseline scenario.

• The third scenario highlights the sensitivity of the projections to a substitution of grants for loans. In contrast to the baseline scenario, half of all project grants are substituted with new (concessional) borrowing (about 2 percent of GDP per year). Under this scenario, Togo’s debt indicators decline substantially less relative to the baseline scenario. In 2027, the debt service-to-exports and the debt service-to-revenue would be around 60 percent higher than the respective indicators in the baseline scenario. Similarly, the NPV of debt-to-revenue would be almost double the value in the baseline scenario, indicating the importance of external grant assistance to debt sustainability.

• The fourth scenario considers the sensitivity of the projections to a combination of shocks under the preceding three scenarios. Under this assumption, the NPV of debt-to-revenue ratio would decline gradually until 2017, but increase thereafter, reaching 235.7 percent by 2027, just below the HIPC threshold. All debt burden indicators would deteriorate substantially compared to the baseline.

A. Triggers for the Floating Completion Point

39. IMF and IDA staffs have reached understandings with the Togolese authorities on completion point triggers. In addition to standard triggers on macroeconomic stability and implementing a full PRSP, the triggers cover four areas critical for ensuring the effectiveness of debt relief (Box 2). The triggers are consistent with the authorities’ medium-term economic reform program described in the I-PRSP and monitored under the IMF’s PRGF program and IDA’s Development Policy Operations. Other than the trigger on health that was recently modified, and minor editorial refinements on the triggers regarding the Court of Accounts, procurement and governance, the triggers are the same as those presented in the preliminary document, which were broadly supported by the Executive Directors.

40. In public financial management, the central objective is to continue building institutions that support good governance and transparency, in particular in the areas of procurement, monitoring of budget execution and auditing. Following the recent implementation of a monthly monitoring template for budget execution, a key medium-term objective is to implement a functional expenditure classification that allows the monitoring and publication of data on poverty-reducing spending. To improve the efficiency and transparency of spending, another important goal is to further strengthen Togo’s public procurement system by creating a procurement regulatory agency and enhancing transparency of awarded contracts. This follows the current updating of the procurement code, expected in early 2009, to bring it in line with the WAEMU Directives. Finally, making the Court of Accounts (Cour des Comptes) operational would improve transparency and quality of reporting on budget expenditures by ensuring that public accounts are externally audited and certified annually.

41. On governance, a central goal is to sustain recent efforts to improve transparency in the phosphate sector, Togo’s key natural resource and one of its major exports. An external financial and strategic audit of the sector is under preparation. For the medium term, it will be important to regularly report publicly on the payment flows between the government and the enterprise, at least annually in an annual report, to inform the public about those flows in order to ensure the transparency of revenue from resource extraction.

42. The triggers also reflect the need to bolster the effectiveness and transparency of debt management. In particular, external and domestic debt data should be consolidated under a single unit charged with all public debt management tasks. Regular publication of public debt data will help support debt sustainability and strengthen relations with creditors and investors. For a discussion of Togo’s current debt management capacity, see Annex I.

43. In the social sectors, the objective is to strengthen health and education services. The Togolese authorities aim to improve health sector programs as well as the development and management of human resources in the sector, through costing and adoption of the medium-term National Health Development Plan and the medium-term Health Sector Human Resources Development and Management Plan, both consistent with the PRSP sectoral objectives.¹⁴ Another critical objective is to improve education quality, particularly through teacher recruitment and provision of teacher training.

B. Monitoring Public Spending Following Provision of HIPC Assistance

44. Debt relief under the HIPC Initiative and beyond HIPC (including MDRI) should be accompanied by a program that ensures the effective use of domestic and external resources and reflects the expenditure priorities of the PRSP. This will require continued efforts to strengthen the programming, management, control and monitoring of expenditures, and improved service delivery in key sectors. It will also require costing of PRSP priorities and developing a medium-term expenditure framework to efficiently allocate public resources for meeting PRS objectives.

45. With technical assistance from the IMF, IDA and other donors, major steps have been taken to improve public financial management (PFM).¹⁶ Budget discipline has improved with the closure of bank accounts used for off-budget operations, the unification of cash management under the Treasury, the near elimination of the use of exceptional payment authorizations without ex-ante authorization in the Finance Law, and the greater involvement of financial control staff in the review of expenditures processed through normal budget processing channels. Monthly monitoring of budget execution has been established, and strengthened tax and customs administration has enabled a significant increase in revenues.

46. Further efforts are needed to improve PFM, and the government is developing a medium-term PFM reform strategy. Key challenges include improving the quality and composition of public spending, streamlining the expenditure circuit, and strengthening the ex-post system of control over budget execution. Restoration of the regular budget preparation timetable is important during 2008. Implementation of a new procurement code and associated procedures is critical, as is greater transparency of the procurement process outcomes. A Public Expenditure Management and Financial Accountability Review (PEMFAR) being conducted in FY09 by the World Bank and other development partners will support these reform efforts, to complement an IMF technical assistance mission undertaken in September 2008 aimed at defining a strategy to strengthen the public accounting system. Progress of the reforms are being monitored by IDA and IMF staffs under the respective support programs (development policy operations and the PRGF, respectively), and selected actions in this area are among the proposed completion point triggers.

47. A basic monitoring mechanism for tracking expenditures is being implemented. The government plans to introduce a functional classification by end-2008 that can track poverty reduction expenditures, for implementation in the 2009 budget. The government intends to use this mechanism (a proposed completion point trigger) to track its total budget outlays against its medium-term expenditure priorities, as defined by its I-PRSP and successor PRSP. Possible medium-term expenditure priorities are in Box 3. These are indicative only and will be elaborated upon in consultation with the government as it develops its PRSP and expenditure plans.