Abstract
Togo’s economic performance continued its gradual improvement, marking progress in overcoming the legacy of its protracted domestic crisis. The program has broadly achieved its objectives for growth and macroeconomic stability. The improving economic performance and sound policies have continued, despite the adverse impact of the global oil price shock, particularly on fiscal policy. The discussions focused on fiscal and structural policies to achieve higher economic growth while maintaining stability. Accelerated structural reforms are key for robust, sustained, and quality growth.
I. Introduction
I would like to thank the Executive Board, Management and Staff for their continued support to my Togolese authorities in their efforts to implement sound policies and far-reaching reforms under the ECF-supported program. Fund’s support and my authorities’ firm commitment to the program led Togo to meet the HIPC completion point requirements and to receive debt relief under the HIPC and MDRI initiatives in 2010. In addition, Togo has reengaged with the international community and restored macroeconomic stability while broader economic performance is improving. My Togolese authorities are particularly pleased by the successful completion of their first three-year (2008-2011) economic program supported by the ECF.
Going forward, my authorities remain determined to persevere with prudent policies and deepen structural reforms while continuing to benefit from the support of the Fund and other partners. In this regard, the authorities request the opening of discussions for a new IMF-supported program in order to further strengthen their current reform agenda, enhance public finance management, and promote the development of a strong financial sector.
II. Recent developments and program implementation
The Togolese economic performance has continued to improve despite the difficult external environment, which includes regional instability, the slow recovery of the world economy, and the surge in international fuel and food prices. Real GDP growth has increased to reach 3.7 percent in 2010 and is projected to increase further to 3.9 percent in 2011, reflecting, among others, the recovery in the cotton sector coupled with buoyant activity at the Port Autonome de Lomé and public investments in infrastructure. Inflation declined to 1.4 percent in 2010 from 1.9 percent in 2009. The current account deficit increased slightly to 7.2 percent of GDP from 6.6 percent in 2009 following the drop in phosphate exports and the rising international fuel and food prices. Significant increase in imports of intermediate and capital goods for infrastructure projects has also contributed to widening the external deficit.
In the fiscal area, performance in 2010 was strong, as targets set out in the program were met with considerable margins. Total revenue increased by 17.6 percent in 2010, exceeding the program’s objectives owing to the economic recovery and improved efficiency of tax administration. Public expenditure was executed within the program’s ceilings. No external arrears were accumulated and no nonconcessional external debt contracted. Payments of commercial arrears due to domestic creditors have also been pursued. Considerable progress has been made in the fiscal reform area since the last program review in December 2010, which was instrumental in meeting the objectives of the ECF-supported program. In December 2010, the authorities have established the treasury committee that has become operational since then.
On structural reforms, the authorities have completed a financial and organizational audit of the public sector workers’ pension fund, as well as the subsequent actuarial study on it, with the view to tackling the pension system sustainability problem. Regarding the privatization process of state-owned banks, my authorities have very recently issued a call for expressions of interest. Other structural measures—notably the adoption of a roadmap for the establishment of a one-stop window at the Port and the setting up of a mechanism to recover non performing loans—have seen progress in implementation. A few measures encountered delays, mostly due to technical capacity constraints, as well as legal and consultative process requirements taking longer than initially envisaged. These processes are nevertheless necessary to establish firm legal ground and broad public support for reform.
Based on the continued good performance of Togo in implementing its program and the authorities’ strong commitment to pursue implementing structural reforms to accelerate growth and preserve macroeconomic stability, I request Directors’ support for the completion of the sixth review of Togo’s program under the ECF arrangement.
III. Policies and reforms for 2011
Fiscal policy
My Togolese authorities will continue to build on the strong record of fiscal policy and structural reform implementation. In this respect, the basic framework of the 2011 budget discussed with staff will guide their policy measures and reforms despite the difficult environment marked by the rising international oil and food prices.
Mindful of the need to stem the budgetary strains resulting from the global changes in the fuel prices in particular, the authorities have begun implementing an automatic petroleum price adjustment mechanism to reflect the market prices and preserve government finances. The decision to implement this adjustment mechanism was reached after a far-reaching social dialogue on the impact of this policy and accompanying measures notably in favor of the most vulnerable segments of the population. Accordingly, pump prices were adjusted in June. More recently, significant social demands—reminiscent of the movements that led to violent protests in 2009—have risen, including demands for greater government support to vulnerable populations in face of the unprecedented costs of petroleum products. My authorities favor a pragmatic approach to responding to these social demands. To offset partially the budgetary cost of the delay in passing through changes in international oil prices, the authorities have identified, in consultation with staff, expenditures that could be deferred to the 2012 budget.
Based on these changes, the expenditure and revenue targets have been revised for 2011. The authorities will make every effort to collect all the budgeted nontax revenue while remaining vigilant with regard to the performance of the state-owned enterprises. Despite the considerable time required to put in place an adequate regulatory framework, the authorities plan to complete the sale of the third mobile telephone license.
Based on these measures, the domestic primary deficit was also revised. Nevertheless, this budgetary framework remains consistent with the authorities’ objectives for growth and the sustainability of public finances. Strongly determined to continue improving the monitoring of budget execution, the authorities have updated the quarterly indicative targets on the execution of the 2011 budget. They will also continue to ensure strict compliance with the ceilings on projected current investment expenditure while paying due attention to the consistency of the budget execution with the availability of financing.
Borrowing and public debt management strategy
In order to further enhance the sustainability of Togo’s external indebtedness, the authorities will pursue a prudent fiscal policy. They also remain committed to prudent borrowing and sound public debt management. In this regard, they will continue to rely on grants and concessional loans for external financing. In addition, the SOEs have begun to report regularly information on their external borrowing to the Ministry of Economy and Finance with a view to ensuring that their borrowing is consistent with the government’s external loan policy.
Financial sector reform
My authorities agree with the need to develop a vibrant and sound financial system to further increase the financing of the private sector development. To this end, they have initiated, with the support of development partners including the Fund, a process for developing a financial sector development strategy. In order to discuss and validate this strategy, a national workshop is planned to take place in September 2011.
The Togolese authorities remain committed to privatizing the four state owned-banks as reflected by the issuance of a presidential decree stating the government’s privatization strategy. Under this strategy, the majority of banks’ capital will be allocated to strategic investors. Following this important step in the banks’ privatization process, the authorities published on July 7, 2011 in the national and international press a pre-qualification notice in the form of advertisement for the privatization of the four banks namely BIA-Togo, BTCI, BTD and UTB. The demands for the pre-qualification should be transmitted to the Privatization National Commission by September 9, 2011. The authorities intend to use the receipts from the bank privatization to repay the domestic debt, in particular, the securities issued as part of the bank restructuring process. In the meantime, they will continue maintaining strict control over the management of these banks, in close collaboration with the WAMU Banking Commission and until the completion of the privatization process.
Furthermore, following the workshop held in March 2011 to validate the financial and organizational audit as well as the actuarial study of the Togo Retirement Fund (CRT), the authorities are analyzing the recommendations of the reports with a view to ensuring their adequate implementation.
Structural reforms and competitiveness
The Togolese authorities will continue focusing their efforts on needed structural reforms to sustain macroeconomic stability, increase growth and reduce poverty, and preserve competitiveness.
Efforts to establish a single treasury account are underway, and technical assistance from the IMF and the collaboration of development partners will be required, given the impact of the measure on the projects’ accounts. The reforms of Togo’s public finance systems are continuing with the support of the African Development Bank, the European Union and the IMF. The action plan drawn to implement these reforms is now being implemented and the transposition of WAEMU directives on public financial management into national legal provisions is underway. The government will adopt the new customs code by end-2011.
In their efforts to simplify the procedures at the Port Autonome de Lomé, the authorities have decided to accelerate the creation of the “one stop window”. Despite the delays experienced in this endeavor, the authorities remain committed to completing this measure as soon as the roadmap identifying the steps necessary for this initiative and related recommendations are available by end-July 2011.
With regard to the Compagnie Energie Electrique du Togo (CEET), the authorities are committed to completing an electricity tariff-setting policy taking into account the company’s cost and aiming to maintain its financial viability and to minimize fiscal risks. In this respect, a tariff increase by a weighted average of 20 percent was introduced in January 2011. In addition, the authorities will pursue their efforts to further improve the governance of the company.
Given the need to improve the country’s infrastructure and meet its development challenges, the authorities plan to speed up the implementation of their public investment program while preserving macroeconomic stability and strengthening the business environment.
IV. Conclusion
My Togolese authorities appreciate the constructive cooperation with the IMF, which under the implementation of the ECF-supported program has played a decisive role in enhancing the public finance management, restoring economic growth and confidence in Togo, and deepening structural reforms. They are strongly committed to consolidate the gains made under the ECF-supported program. In this respect, they look forward to opening negotiations for a new Fund-supported arrangement. They intend to hold a high-level seminar to draw lessons from the current program, with the broad participation of all and the support of the Fund. My authorities are also hopeful that the Fund, other international financial institutions and development partners will continue to assist them in their efforts.