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© 2010 International Monetary Fund

July 2010

IMF Country Report No. 10/216

Togo: Fourth Review Under the Three-Year Arrangement Under the Extended Credit Facility and Requests for Waivers of Performance Criteria and Augmentation of Access—Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Togo

In the context of the fourth review under the three-year arrangement under the extended credit facility and requests for waivers of performance criteria and augmentation of access, the following documents have been released and are included in this package:

• The staff report for the Fourth Review Under the Three-Year Arrangement Under the Extended Credit Facility and Requests for Waivers of Performance Criteria and Augmentation of Access, prepared by a staff team of the IMF, following discussions that ended on April 15, 2010, with the officials of Togo on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 10, 2010. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

• A staff statement of June 25, 2010 updating information on recent developments.

• A Press Release summarizing the views of the Executive Board as expressed during its June 25, 2010 discussion of the staff report that completed the request and/or review.

• A statement by the Executive Director for Togo.

The documents listed below have been or will be separately released.

• Letter of Intent sent to the IMF by the authorities of Togo*

• *Also included in Staff Report

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

Copies of this report are available to the public from

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INTERNATIONAL MONETARY FUND

TOGO

Fourth Review Under the Three-Year Arrangement Under the Extended Credit Facility and Requests for Waivers of Performance Criteria and Augmentation of Access

Prepared by the African Department

(In consultation with other departments)

Approved by Michael Atingi Ego and Thomas Dorsey

June 10, 2010

ECF arrangement:	Togo’s three-year ECF arrangement was approved in April 2008, in an amount of special drawing rights (SDR) 66.06 million (90 percent of quota). An augmentation of access of SDR 18.35 million (25 percent of quota) was approved in September 2008. The HIPC decision point was reached in November 2008. Togo could qualify for the HIPC completion point as early as the end of 2010.
Mission team:	Mr. Mills (head), Ms. Ocampos, Mr. David (all AFR), Ms. Gicquel (SPR), and Mr. Sarr (resident representative).
Discussions:	Lomé, March 31–April 15, 2010. The mission met with President Gnassingbé; Prime Minister Houngbo; Minister of Economy and Finance Ayassor; Minister of Cooperation, Development and Regional Planning Bawara; and other senior officials. It also met with parliamentarians, as well as representatives of civil society, labor unions, donors, the private sector, and the media.
Program review:	Program implementation has generally remained on track, despite the impact of the global recession and program slippages. For the first time under the program, the authorities are requesting waivers for nonobservance of two fiscal performance criteria (PC) for end-December and a continuous performance criterion on nonconcessional external debt. They are also requesting an augmentation of access in an amount equivalent to SDR 11 million (15 percent of quota) to help close a residual financing gap for 2010. The authorities are taking substantial corrective actions. Progress on structural benchmarks was generally satisfactory. Staff supports waivers for the missed PCs, as well as the augmentation of access, and recommends completion of the review.

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ECF arrangement:	Togo’s three-year ECF arrangement was approved in April 2008, in an amount of special drawing rights (SDR) 66.06 million (90 percent of quota). An augmentation of access of SDR 18.35 million (25 percent of quota) was approved in September 2008. The HIPC decision point was reached in November 2008. Togo could qualify for the HIPC completion point as early as the end of 2010.
Mission team:	Mr. Mills (head), Ms. Ocampos, Mr. David (all AFR), Ms. Gicquel (SPR), and Mr. Sarr (resident representative).
Discussions:	Lomé, March 31–April 15, 2010. The mission met with President Gnassingbé; Prime Minister Houngbo; Minister of Economy and Finance Ayassor; Minister of Cooperation, Development and Regional Planning Bawara; and other senior officials. It also met with parliamentarians, as well as representatives of civil society, labor unions, donors, the private sector, and the media.
Program review:	Program implementation has generally remained on track, despite the impact of the global recession and program slippages. For the first time under the program, the authorities are requesting waivers for nonobservance of two fiscal performance criteria (PC) for end-December and a continuous performance criterion on nonconcessional external debt. They are also requesting an augmentation of access in an amount equivalent to SDR 11 million (15 percent of quota) to help close a residual financing gap for 2010. The authorities are taking substantial corrective actions. Progress on structural benchmarks was generally satisfactory. Staff supports waivers for the missed PCs, as well as the augmentation of access, and recommends completion of the review.

Contents

• Executive Summary

• I. Recent Economic Developments and Program Performance

  1. Growth below Potential Following Global Recession

  2. Economic Policy Broadly on Track despite Slippages

  3. Satisfactory Progress on Structural Reforms but Challenges Remain

• II. Outlook and Policies for 2010

  1. Growth Still Modest in spite of Fiscal Measures

  2. Continued Countercyclical Fiscal Stance for 2010

  3. Pushing Structural Reforms to Fruition

  4. Program Risks Merit Enhanced Monitoring

  5. Good Progress toward HIPC Completion Point

• III. Staff Appraisal

• Boxes

• 1. Improving Togo’s Level of Public Investment

• 2. Domestic Arrears Clearance Strategy Well Advanced

• Figures

• 1. Recent Macroeconomic Developments

• 2. Togo: Moderate Negative Impact of Adverse External Environment

• 3. WAEMU and Togo: Capital Investment (as a percentage of GDP)

• 4. Togo: Public Investment Planned and Executed 2007–10

• Tables

• 1. Selected Economic and Financial Indicators, 2008–11

• 2. Balance of Payments, 2008–11

• 3. Central Government Financial Operations, 2008–11

• 4. Monetary Survey, 2008–11

• 5. Proposed Schedule of Disbursement under ECF Arrangement, 2009–12

• 6. Indicators of Capacity to Repay the Fund

• 7. Triggers for the Floating Completion Point

• Appendix I. Letter of Intent

  • Table 1. Quantitative Performance Criteria and Indicative Targets

  • Table 2. Status of Structural Reforms through 2009

  • Table 3. Structural Conditionality for 2010

• Appendix II. LIC Debt Sustainability Analysis

• Appendix III. Joint Management Action Plan on Bank-Fund Collaboration (JMAP)

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Abbreviations

Executive Summary

Togo’s macroeconomic situation remains difficult, despite some modest improvements. Economic growth is expected to be around 3 percent for 2009 and 2010, somewhat higher than 2008. However, the persistent impact of the global recession has kept growth below its estimated potential of 4 percent and has delayed recovery following Togo’s protracted domestic crisis. The global recession has also increased balance of payments pressures, with current account deficits of 7–7½ percent of GDP in 2009 and 2010. Inflation has fallen back to around 2 percent, where it is expected to stabilize.

Despite the impact of the global recession, program implementation has generally been satisfactory, although corrective actions are necessary for recent slippages. For the first time under the program, waivers are required—for the PCs for fiscal balance and domestic financing for end-December, as well as the continuous PC for nonconcessional external borrowing. Corrective actions justifying these waivers include an adjustment of the fiscal framework in 2010, cancellation of the external borrowing, tighter monitoring of budget execution and strengthened debt management. Structural reforms under the program are also advancing satisfactorily—bank restructuring is proceeding on schedule; domestic arrears clearance has progressed substantially; and a reform strategy was adopted for the phosphate sector, albeit with a delay.

Given the macroeconomic situation, the 2010 fiscal stance under the program remains countercyclical, giving rise to exceptional financing needs. Domestically financed investment will remain high, which also helps address the legacy of the long domestic crisis, and the overall deficit (excluding grants) will rise to 5.4 percent of GDP (from 4.4 percent in 2009 and 2.3 percent in 2008). Despite increased revenue targets and disciplined spending plans, the authorities face a residual financing gap of around 1 percent of GDP. In addition to obtaining exceptional financing from the World Bank, they have applied for additional exceptional assistance from the European Union and are seeking an augmentation of access under the ECF arrangement of SDR 11 million (15 percent of quota) to close the remainder of the gap.

Staff supports the authorities’ requests for waivers, as well as the augmentation, and recommends completion of the fourth review, based on Togo’s program performance since 2008 and its policy commitments.

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June 25, 2010

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Press Release No. 10/258

FOR IMMEDIATE RELEASE

June 25, 2010

International Monetary Fund

Washington, D.C. 20431 USA

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June 25, 2010