Togo: Sixth Review Under the Extended Credit Facility Arrangement and Request for Augmentation of Access—Press Release; Staff Report; and Statement by the Executive Director for Togo
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International Monetary Fund. African Dept.
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Publication Date:
16 Apr 2020
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9781513540719
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English
Keywords:
ISCR; CR; financing; deficit; disbursement; ECF arrangement; augments disbursement; disbursement of SDR; executive board discussion; authorities intent; Debt sustainability analysis; Debt sustainability; Global; Sub-Saharan Africa; Europe; Africa; spending needs; debt ratio; accounts payable; concentration ratio; headline inflation; Fiscal stance; Government debt management; financing gap
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Sixth Review under the Extended Credit Facility Arrangement and Request for Augmentation of Access-Press Release; Staff Report; and Statement by the Executive Director for Togo

Abstract

Sixth Review under the Extended Credit Facility Arrangement and Request for Augmentation of Access-Press Release; Staff Report; and Statement by the Executive Director for Togo

Context and Recent Developments

A. Context

1. Togo experienced a volatile political situation during the implementation period of the Fund-supported program. In August 2017, at the start of the ECF arrangement, Togo experienced its most serious political protests in a decade as the opposition demanded political reforms, including a retroactive two-term limit to presidential mandates. This crisis disrupted economic activity and performance. The socio-political tensions have receded since mid-2018. The ruling party won large majorities in recent legislative and local elections. The newly elected Parliament approved a political reform bill that introduced two-term limits to the presidential and parliamentary mandates but not applied retroactively. Presidential elections took place in February 2020 without much disruption or violence; the incumbent President won a fourth term.

2. Despite the volatile socio-political context, the authorities’ commitment to reforms under the Fund-supported program has been strong in most areas, with remaining challenges in some others (Annex I). The authorities halted the non-orthodox financing of public investment (pre-financing). They carried out a major fiscal consolidation and debt reduction. Much progress has also been accomplished on structural reforms with the implementation of revenue administration and PFM measures. Togo has been among the best performers in improving the business environment. However, measures to addresses the weaknesses of the two ailing public banks have been delayed with changes in the strategy; public investment and social spending have been constrained below optimal levels.

B. Recent Economic Developments

3. The economic recovery was firming up but has recently been hindered by the COVID-19 pandemic (Text Figure 1). Following a sharp deceleration in 2017 due to socio-political tensions, economic activities regained momentum in 2018–19. Economic growth is estimated to have accelerated from 4.9 percent in 2018 to 5.3 percent in 2019. Building and construction activities accelerated as cement production and sales expanded; traffic at the port and the airport continued to grow; electricity consumption was 27 percent higher at December 2019 relative to the same period in 2018. Credit to the private sector expanded by 4 percent at end-2019 (y-o-y). Meanwhile, there are signs of weaknesses in the export-oriented sectors; coffee and phosphate production has been markedly lower since the second quarter of 2019 compared to the same period in 2018. The trade balance is expected to have deteriorated slightly in 2019, as a result of less dynamic exports and sustained imports related to the National Development Plan, which should revert in the medium term. Headline inflation declined to -0.3 percent (y-o-y) in December 2019 due primarily to an abundant supply of agricultural products and a drop in communication costs, while core inflation dropped to 0.1 percent (y-o-y). Togo witnessed its first case of COVID-19 in early March 2020. The number of cases is increasing (Annex II).

Text Figure 1
Text Figure 1

Indicators of Economic Activity, 2017–19

Citation: IMF Staff Country Reports 2020, 107; 10.5089/9781513540719.002.A001

Sources: Togolese authorities.

4. The fiscal consolidation and public debt reduction continued in 2019 (Text Table 1). The overall fiscal deficit was reported at 1.7 percent of GDP at end-September 2019 (the program review test date) and 1.2 percent of GDP at end-December 2019 (excluding the transaction with the Social Security Fund, CNSS).1 With this fiscal deficit outturn, Togo has been complying for three consecutive years—during the ECF-arrangement period—with the WAEMU convergence criterion of a fiscal deficit not exceeding 3 percent of GDP. Tax revenue collection improved by 0.7 percentage points of GDP from 2018 to 2019 but was below target due to lower-than-expected domestic tax collection. Current spending did not fall as much as envisaged in 2019, but it declined by 0.7 percentage points of GDP relative to 2018 as the authorities started to implement measures identified through a recently completed spending review. Also, capital spending (excluding the transaction with the Social Security Fund, CNSS) did not increase as much as planned in 2019, but it improved by 0.6 percentage points of GDP relative to 2018. Public debt declined from 76.2 percent of GDP at end-2018 to 70.9 percent of GDP at end-2019, driven mostly by the fiscal consolidation and repayment of debt arrears to CNSS. This end-year debt ratio includes external borrowing by the government in December 2019, in the context of a debt reprofiling operation. The related early repayment of domestic loans is expected to have reduced the debt ratio by 1.9 percentage points in January 2020. The subscription rate of government bonds in the regional market was favorable at an average of 224 percent in 2019 (Text Figure 2).

Text Table 1:

Fiscal Developments 2018–19

(percent of GDP)

article image
Sources: Togolese authorities; and IMF staff estimates.
Text Figure 2
Text Figure 2

Treasury Bills Coverage Rate, 2018–20

(percent)

Citation: IMF Staff Country Reports 2020, 107; 10.5089/9781513540719.002.A001

Sources: UMOA Titres; and IMF staff estimates.
Text Figure 3
Text Figure 3

Overall Balance, 2016–19

(percent of GDP)

Citation: IMF Staff Country Reports 2020, 107; 10.5089/9781513540719.002.A001

Note: Excludes transaction with the Social Security Fund, CNSS.Sources: World Economic Outlook; Togolese authorities; and IMF staff estimates.

C. Outlook and Risks

5. Macroeconomic performance in 2020 is being impacted significantly by the COVID-19 pandemic (Annex II). The baseline economic growth projection for 2020 has been revised downward from 5.5 percent before the pandemic outbreak to 3 percent now, as airport traffic is hindered by various bans and economic activity suffers from disruptions. Private consumption is expected to decline significantly in 2020, affecting more acutely the poor given their already-low level of consumption. The 2020 fiscal deficit and external financing gap are also larger in the current baseline scenario relative to previous projections, by 1.7 percentage points of GDP. Although lower goods exports might be offset by lower goods imports (especially as oil prices effects are favorable for oil importers), the fall in exports of services and FDI/portfolio inflows are expected to be large, thereby increasing external financing needs. More broadly, the COVID-19 could hamper further economic activity through a mix of confidence effects, containment efforts, supply disruptions, and behavioral changes (such as social distancing). These macroeconomic projections are subject to a high degree of uncertainty given the rapidly evolving impacts of the COVID-19.

6. For the medium term, as the impacts of COVID-19 dissipate and the authorities pursue current policies, the outlook is generally favorable, but risks remain skewed to the downside (Text Table 2 and Annex III). The medium-term growth is projected at around 5½ percent as the recent upgrading of public infrastructure and the steady improvement in the business environment are expected to boost productivity and motivate private investment. Driven by supply constraints, inflation is likely to approach 2 percent in 2020 and then remain at this level over the medium term. The overall fiscal deficit would remain within the WAEMU deficit criterion. The external current account deficit is projected to stabilize around 4 percent of GDP. Public debt would fall below 70 percent of GDP starting in 2020 and decline below the benchmark for countries with medium debt carrying capacity starting in 2022 (net present value of public debt of 55 percent of GDP). However, this medium-term outlook is subject to risks beyond COVID-19. At the national, the socio-political situation remains uncertain; at regional level, security and terrorism threats remain elevated; and global levels, protectionism and weak global growth may hinder Togo’s performance.

Text Table 2.

Selected Economic Indicators, 2016–24

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

Excluding transaction with the Social Security Fund, CNSS.

Includes central government domestic arrears and state-owned enterprises debt.

Program Performance

7. Program performance is satisfactory in most sectors, except on the bank privatization:

  • All end-September 2019 quantitative performance criteria (QPCs) were met, including the domestic primary balance and net domestic financing (Table 6). The indicative targets (ITs) on total fiscal revenue and non-accumulation of net domestic arrears were also met. The IT on social spending was missed by 0.6 percent of GDP. The authorities met all continuous QPCs.

  • At end-December 2019, all ITs except one were met based on preliminary data, including the domestic primary balance and net domestic financing. The IT on social spending was also met as the corrective measures introduced recently seem to have started bearing results. The ambitious revenue target for 2019 was missed, although tax revenue collection improved relative to 2018.

  • All five end-October structural fiscal benchmarks (SBs) were met, including those on revenue administration, steps towards program budgeting, and the public investment plan (Table 9).

  • The end-December SB on a milestone for the privatization of the two state-owned banks was not completed; reforms in this area have been delayed during the program period (please see section D below).

Table 1.

Togo: Selected Economic and Financial Indicators, 2016–24

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

Excluding transaction with the Social Security Fund, CNSS.

Includes state-owned enterprise external debt.

Includes prefinancing debt, domestic arrears and state-owned enterprise domestic debt.

Includes prefinancing debt, domestic arrears and state-owned enterprise debt.

Includes prefinancing debt and domestic arrears.

Table 2a.

Togo: Central Government Financial Operations, 2018–24

(Billions of CFA Francs)

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Sources: Togolese authorities and IMF staff estimates and projections.
Table 2b.

Togo: Central Government Financial Operations, 2018–24

(Percent of GDP)

article image
Sources: Togolese authorities and IMF staff estimates and projections.
Table 3.

Togo: Balance of Payments, 2017–24

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

In line with WAEMU BoP methodology, includes commercial bank NFA and Togoloese public sector NFA holdings at the BCEAO.

Table 4.

Togo: Monetary Survey, 2017–24

article image
Sources: Central Bank of West African States and IMF staff estimates and projections.
Table 5.

Togo: Financial Soundness Indicators of the Banking System, 2014–18

(In Percent)

article image
Source: BCEAO * Year of first reporting in accordance with Basel II / III and Revised Chart of Accounts. CAR ratio excludes the two banks with negative shareholders’ equity.□

Raw data collected from the banking system

Data reported from June 2018.

Credits reported to the Central Risk Office

Income statement items at semi-annual frequency

Excluding tax on banking transactions

Including savings accounts

Table 6.

Togo: Quantitative Performance Criteria and Indicative Targets, September and December 2019

(Billions of CFA Francs)

article image
Sources: Togolese authorities; and IMF staff estimates.

Fiscal balance excl. transaction with the Social Security Fund, CNSS.

Continuous performance criterion and cumulated from the approval of the arrangement on May 5, 2017.

Performance criteria and indicative targets for 2019 are adjusted upwards to offset deviations from projected external program financing, subject to a cap of CFAF 10 billion.

Financing in December 2019 excluding debt reprofiling operation.

Nonconcessional borrowing in 2019 part of a debt reprofiling operation as allowed under the program.

Indicative targets calculated cumulatively from the beginning of 2019. Indicative targets will be adjusted for one half of the deviation from projected external program financing.

Table 7.

Togo: Indicators of Capacity to Repay the Fund, 2020–341

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Sources: IMF staff estimates and projections.

Includes proposed extension and augmentation of access.

Total debt service includes IMF repurchases and repayments.

Includes state-owned enterprises debt.

Table 8.

Togo: Schedule of Disbursements Under ECF Arrangement 2017–19

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Sources: Togolese authorities; and IMF staff estimates.

In addition to the generally applicable conditions under the Extended Credit Facility

Table 9.

Togo: Structural Benchmarks for the 6th Review

article image

Policy Discussions

Policy discussions for the sixth and final program review focused on safeguarding the hard-won gains under the current Fund-supported program while addressing the implications of COVID-19 in the near term. Prior to the COVID-19 outbreak, the following key areas were covered: (i) pursuing fiscal consolidation to reduce debt vulnerabilities while addressing the spread of COVID-19 and protecting social spending; (ii) implementing measures recommended by the recent TADAT and PIMA; (iii) advancing program-based budgeting and strengthening the public investment program, and (iv) completing the privatization of the two public banks. Since the start of the COVID-19 outbreak, discussions focused on immediate measures to mitigate its human and economic implications.

A. Fiscal Policy

8. The 2020 fiscal framework builds on the hard-won fiscal achievements in recent years. The 2020 budget approved by Parliament on December 18, 2019 aims at an overall fiscal deficit of 1.9 percent of GDP. This target is supported by both revenue and expenditure measures. On the revenue side, the authorities expect significant yields (about 0.4 percent of GDP) from the recently introduced property tax, motor vehicle tax, and import lump sum deposits.2 In addition, tighter customs controls and the recovery of tax arrears will support tax revenue. On the spending side, the recently completed spending review suggested potential long-term savings (up to 1.1 percent of GDP) from the clean-up of unduly paid salaries and pensions, better prioritization of subsidies and of spending on goods and services, and reduced prices on goods and services. Furthermore, the strengthening of public procurement, with support from World Bank technical assistance, could also generate fiscal savings.3 The 2020 fiscal target reflects a continuation of the fiscal consolidation efforts and is expected to reduce public debt below 70 percent of GDP by end-2020.

9. At the same time, the spread of the COVID-19 to Togo requires additional high priority healthcare spending for mitigation purposes (Annex II). Given its position as a regional transportation hub (serving as a base of a pan-African airline company) and strong trade ties with China, Togo is particularly exposed to the COVID-19. Togo was among the first sub-Saharan African countries where the virus was detected. As the country has limited health care capacity, it is highly vulnerable to a spread of the virus. Beyond the human tolls, a spread of the virus can cause significant macroeconomic disruptions. The authorities have developed an action plan against COVID-19 and are seeking support from development partners. The authorities’ plan comprises three main pillars: prevention, detection, and treatment. Prevention includes controls at airport/port/borders, communication, training, and social distancing. Detection consists of tests and identification of potential cases. Treatment covers confinement, dedicated hospitals, mobile clinics, and special equipment. The immediate and direct costs of this plan is estimated at CFAF 21 billion (about $35 million or 0.6 percent of GDP). Beyond this near-term plan, the authorities also intend to improve key health infrastructure to strengthen resilience against pandemics and chronic diseases. The overall financing need is estimated at about CFAF 70 billion (about $130 million or 2 percent of GDP). The authorities are in discussions with development partners to cover some items under this plan and has currently secured financing of about CFAF 7 billion; they also plan to partly cover the costs of this plan with own resources. To accommodate the COVID-19 spending needs (1.3 percent of GDP) and the revenue loss linked to slower economic growth (0.4 percent of GDP), the projected overall fiscal deficit for 2020 has been revised by 1.7 percentage points of GDP, from 1.9 to 3.6 percent of GDP. The revised debt path remains on a downward trend, from 70.9 percent of GDP in 2019 to a projected 67.1 percent of GDP at end-2020.

10. Measures to improve the execution of social protection programs are advancing, which will also help protect the vulnerable population against the implications of COVID-19. The recent overhaul in the management of a key social program is expected to accelerate its implementation.4 The deployment of a monitoring system for social expenditure is being accelerated and the data processing capacity strengthened. A coordination process was initiated among various stakeholders (i.e. ministry of finance, line ministries, development partners). A manager is being appointed at the ministry of finance to monitor the execution of social spending. Monthly coordination is underway between the sectoral ministries and the ministry of finance on commitment plan, procurement plan, and cash plan, including on social spending. The execution of social spending is being prioritized among investment spending. Those measures will also cushion the fall in income and consumption for the vulnerable population due to the COVID-19.

11. Beyond 2020, the medium-term fiscal framework aims at continuing debt reduction to preserve long-term fiscal and external sustainability (Text Table 3). Togo is assessed at moderate risk of external debt distress and high risk of overall debt distress, unchanged from the last ECF review (DSA Appendix). The medium-term projections are anchored on a primary surplus of 1 percent of GDP, which would keep the overall deficit below 2 percent of GDP. By the end of the projection period, the combination of continued fiscal consolidation and sustained GDP growth is expected to substantially reduce total public debt, which would decline below the benchmark for countries with medium debt carrying capacity starting in 2022. Nonetheless, weaknesses in the financial sector could create fiscal costs that would delay the decline in the debt path by about one year.

Text Table 3:

Compliance with the WAEMU Convergence Criteria, 2016–24

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Sources: Togolese authorities and IMF staff estimates and projections.

Excluding transaction with the Social Security Fund, CNSS.

Includes central government domestic arrears and excludes debt by state-owned enterprises.

B. Structural Fiscal Reforms

12. The authorities plan to pursue necessary reforms to boost and ensure the durability of domestic resource mobilization.

  • Implementing the reform measures identified in the recent Tax Administration Diagnostic Assessment Tool (TADAT) assessment. The August 2019 TADAT evaluation identified the main strengths and weaknesses in Togo’s tax administration. Significant progress has been made on the creation and the harmonization of tax identification numbers, efforts towards voluntary compliance, tele-procedures to reduce compliance cost, withholding and provisional deposits to secure revenue collection, and internal controls. Moreover, the recent launch of a new electronic payment system for large and medium-sized companies will help improve overall management. Online reporting is progressively extended to all companies, which will allow online telepayment and online request for tax clearance in order to reduce the time spent by taxpayers on tax obligations and support the private sector. The main weaknesses are related to the following areas: the current system does not allow an automatic processing of some key functions, such as filing, tax control, disputes, and tax arrears recovery. The revenue authority (OTR) does not assess tax collection against potential. It does not have an automated accounting system. An IMF technical assistance team is currently working with the authorities to design a plan and start implementation of corrective measures in these areas.

  • Addressing deficiencies in essential customs functions. The authorities are in the process of finalizing the action plan for the complete dematerialization of customs declarations and supporting documents and the activation of the corresponding ASYCUDA World functionality. Further progress will be made to improve customs valuations procedures, including cross checks with international databases to prevent customs under-valuations, advance/early declaration procedures, internalization of the valuation function, and use of the transaction value.

  • Bolstering voluntary compliance to ensure strong permanent revenue while improving services to private sector agents. The modernization of OTR is expected to continue, while fully exploiting the synergies from the merger of tax and customs entities. The revenue authorities’ priorities for 2020 are aligned with the main TADAT recommendations. Moreover, advancing the land reform will require immediate bold measures on the OTR side, including (i) estimate the cadastral values of the properties surveyed; (ii) digitize cadastral plans; and (iii) set up a land information system. The tax base can be further broadened by identifying and formalizing informal operators as well as identifying and registering overnight taxpayers who are not registered. Finally, tax expenditures need to be assessed, appended to the budget law, and contained, thus contributing to increase the level and permanency of revenue.

13. The authorities plan to build on the strong PFM progress accomplished in recent years and embark on a next wave of reforms.

  • Implementing key recommendations of the 2016 PIMA and 2019 PIMA follow-up assessments. The recent PIMA follow-up assessment recommends to better align the public investment program (PIP) to realistic medium-term resource envelopes; continue applying the cost-benefit methodology to select investment projects; integrate decision-making structures of PPPs into those of conventionally-funded projects; and gradually extend the scope of the PIP to coordinate the investment policy of the central government and other public sector entities such as local authorities and public enterprises. A PIP committee was set up and is operational. Medium-term PIPs were prepared for 2019–21 and 2020–22. For 2020–22, an investment project can be included in the PIP and the budget under the condition that it has been selected through the recently developed cost-benefit methodological guide. The authorities are taking the necessary measures to improve the execution rate of the investment budget, which has been improving but remains relatively low.

  • Testing program budgeting in 2020 to prepare for a full shift in 2021. Good progress has been made on this vast reform.5 The authorities are committed to preparing the 2021–23 budget directly in program-based format. The full shift in 2021 requires to swiftly finalize rewriting the information system to make it operational.6 Meanwhile, the decentralization of oversight functions should be completed through the appointment of controllers delegated to sectoral ministries.

  • Strengthening further cash management and expanding the TSA. The authorities’ efforts to synchronize the commitment, procurement, and cash plans have resulted in a marked reduction of payment arrears. Such efforts should be strengthened to address remaining issues such as procurement delays and deviation of actual spending from forecasts. Moreover, the TSA reform should be completed.7

C. Borrowing Policies and Debt Management

14. Pursuing a prudent borrowing policy and strengthening debt management capacity are necessary to safeguard debt sustainability. The medium-term fiscal framework aims at bringing the present value (PV) of total public debt below the threshold for countries with medium debt-carrying capacity of 55 percent of GDP by 2022. The Medium-Term Debt Management Strategy will be refined with more detailed guidelines for specific indicators (interest rates, refinancing, foreign-currency risks, etc.). The authorities will also establish a more systematic exchange of information between all stakeholders and debt service forecasts will be fully integrated with budget forecasts to reduce discrepancies between forecasts and performance.

15. The authorities have carried out a first tranche of a debt reprofiling operation, reducing slightly the net present value (NPV) of total public debt while preserving the external debt risk rating, in line with the Fund-supported program. With a guarantee from the African Trade Insurance Agency, they borrowed EUR 103.6 million (CFAF 68 billion) externally in December 2019 at an interest rate of 4.68 percent, maturity of 10 years, and grace period of 2 years; they used the proceeds to repay CFAF 66.6 billion of domestic and regional debt in January 2020 with interest rates of about 7 percent and maturity of 3 and 8 years. Based on information received from the authorities, the operation reduces the NPV of total public debt marginally, smoothens debt service payment in the near future, alleviates the risk of fiscal crowding out, and strengthens the regional foreign exchange reserves at the time of the transaction. It also entails risks, including higher external debt indicators and higher rollover risk in international markets, which will need to be appropriately managed. The recent turbulence in global financial markets is likely to narrow the room for additional external financing in the near future.

D. Financial Sector Policies

16. The privatization of the two state-owned banks encountered delays but the authorities remain committed to this reform. Following the prequalification notice published in September 2019, the authorities received prequalification proposals in early December 2019. As some information was missing in some proposals, the interested bidders were given until mid-January 2020 to provide the required information. The authorities’ transaction advisors reviewed the proposals to select the prequalified bidders who will be allowed to participate in the final tendering process. Whereas the tendering process was envisaged to be pursued in December 2019 (structural benchmark), the transaction advisors recommended waiting until after the Presidential elections in February 2020, as the uncertainty surrounding the elections may interfere with the potential bidders’ decisions. After the Presidential elections, the privatization tender still could not be launched as the global financial uncertainty stemming from the COVID-19 is deemed unfavorable for such a tender. Instead, the authorities sent a confidentiality agreement to the pre-qualified buyers in March 2020 allowing access to the data room. This approach allows moving the process forward while mitigating risks under the current global environment. In collaboration with the BCEAO and the WAMU Banking Commission, it would be paramount to ascertain that the selected buyer is fit and proper; the banks’ liquidity situation should also be monitored closely; and the senior management of the two public banks should keep all stakeholders informed of developments.

17. Efforts should be stepped up to reduce NPLs and assess banks’ compliance with the Basel II-III regulatory standards. The system’s NPL ratio remains elevated at 17 percent at end-June 2019 (and about 13 percent excluding the two state-owned banks), above the WAEMU average of 11.7 percent. The NPL resolution mechanism is weak; the recovery rate by the state-owned entity SRT (Société de Recouvrement du Togo) of NPLs from previous rounds of privatization was less than 10 percent during the last decade. The legal and institutional frameworks for NPL recovery should be strengthened, including enforcing the BCEAO instruction on the accounting and reporting of NPLs, finalizing the full application of the revised accounting framework for banks (such as writing off of NPLs not recovered after 5 years), and designing a strategy to improve the efficiency and governance of the publicly-owned debt collection agency (SRT). A strategy needs to be designed to address the potential implications of COVID-19 on the financial system, particularly NPLs. The loan concentration ratio of the banking system was 169 percent at end-2018, significantly above the regulatory ceiling of 65 percent and the WAEMU average 82.6 percent. The overall capital adequacy ratio dropped to 5.9 percent in 2018 due primarily to the significant regulatory capital needs at the two state-owned banks; excluding the two state-owned banks, this ratio sits comfortably at 16.1 percent. The move to Basel II/III since January 2018 has revealed more strikingly existing weaknesses in the two public banks. Furthermore, the credit Information Bureau (BIC) and capacity building for commercial courts should be strengthened. The BIC’s coverage of adult population (currently at 16 percent) could further be expanded by encouraging customers, through communication campaigns, to give their prior consent to the sharing of their credit information; and by setting up a collaborative work forum for banks and BIC to provide relevant information.

E. Business Environment and Governance

18. While business environment indicators have improved significantly, there is potential for further gains. Togo’s World Bank Doing Business indicators, which were in line with the WAEMU average ten years ago, are now well ahead among low income countries (Text Figure 4). The overall score has improved from 48.9 in the 2018 report to 62.3 in the 2020 report. The performance is particularly strong in registering property (time reduced from 283 to 35 days), starting a business (cost reduced by 88 percent), getting electricity (cost reduced by 58 percent), and dealing with construction permits (cost reduced by 29 percent). This progress shows the authorities’ strong commitment to undertake the reforms necessary for the implementation of the National Development Plan, which puts private sector at the core of the structural transformation of the economy for inclusive growth and sustainable job creation. Nevertheless, several obstacles to private sector development need to be addressed, including by strengthening insolvency resolution (for instance, informal debt restructuring, or the regulation of insolvency professionals), and improving legal frameworks. According to the OECD trade facilitation indicators, Togo is below best practice on automation of border procedures, appeal procedures, and advance rulings.8

Text Figure 4
Text Figure 4

Togo: Doing Business Indicators, 2010–20

(0 = lowest, 100 = best performance)

Citation: IMF Staff Country Reports 2020, 107; 10.5089/9781513540719.002.A001

Sources: Doing Business Database.

19. Strengthening governance institutions and reducing corruption vulnerabilities remain important. Governance surveys indicate generally weak market trust in Togo’s judiciary and divergence between the existing legal framework and actual practice. Three governance laws are under preparation: a law on asset declaration (adopted by the Cabinet in November 2019 and pending Parliamentary approval), a framework law on the fight against corruption that will expand the definition of corruption, and a code of conduct for civil servants. The new law on asset declaration should be fully implemented, while ensuring international good practice, including on comprehensiveness of disclosed information and its publication and verification.9 The authorities would be well advised to swiftly adopt the legal framework for the United Nations (UN) Convention Against Corruption, as well as the code of ethics and conduct. Several recommendations of the 2018 report of the UN Counter-Terrorism Executive Directorate remain to be implemented, including the protection of whistleblowers, the recovery of assets, and international cooperation. It will also be important to fully operationalize the anti-corruption agency HAPLUCIA and all commercial courts to deal with business conflicts.

20. Actions to fight money laundering/financing of terrorism (ML/FT) will be pursued, in accordance with the regulatory provisions in force within WAEMU. A workshop in December 2019 validated and amended the national risk assessment on ML/FT that has been carried out with World Bank support. Togo is assessed to have a high level of overall ML vulnerability because of: (i) the non-adoption of certain essential texts for the appropriate application of the uniform WAEMU law on AML/CFT; (ii) capacity weaknesses in the institutions responsible for the fight against ML; (iii) the ignorance of the vast majority of financial institutions and all of the designated non-financial businesses and professions of the anti-money laundering system and their obligations; (iv) insufficient AML/CFT supervision of the financial sector and non-existing supervision of the non-financial sector; and (v) a large informal sector with widespread use of cash for transactions, which makes illicit financial flows easier. The Inter-Governmental Action Group Against Money Laundering in West Africa (GIABA) launched a mutual evaluation of Togo’s AML/CFT regime in December 2019.

Program Modalities and Other Issues

21. The authorities request, and staff supports, an augmentation of access. The authorities have requested an augmentation of access under the current ECF arrangement by 48.7 percent of quota (SDR 71.49 million) to address the urgent financing need stemming from their plan to control the spread of the COVID-19 and mitigate its economic implications. They have requested that this amount be disbursed upon completion of this 6th review of the ECF arrangement. Staff supports this request. The program is fully financed.

22. Development partners are collaborating with the Togolese authorities to address their challenges. In particular, the World Bank is currently preparing a financial package of CFAF 7 billion to address some of the most urgent items under the authorities’ COVID-19 plan. Further support, including from other partners, will also likely come.

23. Safeguards assessment. The last safeguards assessment of the BCEAO completed in 2018 found that the central bank had maintained a strong control environment, audit arrangements were in broad conformity with international standards, and the financial statements were prepared in accordance with International Financial Reporting Standards (IFRS). The BCEAO enhanced the oversight role of its audit committee and is making progress to strengthen its risk management function in line with the recommendations of the assessment. The central bank’s financial statements continue to be published on a timely basis.

24. Togo’s capacity to repay the Fund is adequate. Obligations to the Fund, including the proposed augmentation, would peak in 2026 at 3.3 percent of government revenue or 0.7 percent of GDP (Table 7).

25. Capacity development in fiscal year 2020 is focused on revenue administration, fiscal policy, public financial management, and statistics. Technical assistance from the IMF is supporting the reform agenda under the Fund-supported program and beyond (Annex IV). On revenue administration, near-term technical assistance will support the authorities in designing and implementing measures based on the recent TADAT as well as provide capacity building on tax policy issues. PFM technical assistance will primarily support the authorities on a parallel testing of the program-based budgeting in 2020 and a full shift in 2021. Staff is also preparing a framework to respond to the authorities’ request for a resident advisor on debt management.

26. Successor program: the Togolese authorities expressed intention to request a successor program after the completion of this sixth and last program review.

Staff Appraisal

27. The economic recovery was firming up but has recently been hindered by the COVID-19 pandemic. Economic growth is estimated to have accelerated from 4.9 percent in 2018 to 5.3 percent in 2019. For 2020, due to the adverse impacts of the COVID-19 on economic activity, the growth projection has been revised downward to 3 percent. The fiscal deficit and the balance of payments financing gap are also projected to widen by about 1.7 percentage points of GDP relative to previous baseline projections, based on information available at this stage. These macroeconomic projections are subject to a high degree of uncertainty given the rapidly evolving impacts of the COVID-19. If COVID-19 persists and spreads further, the 2020 macroeconomic performance may worsen even more. In the medium-term, as the COVID-19 dissipates, economic growth is projected to hover around 5½ percent, supported by recent public infrastructure upgrades and business environment improvement. Nonetheless, medium-term risks remain tilted to the downside due to local socio-political uncertainty, regional security threats, and global weak growth.

28. Staff commends the authorities’ broadly satisfactory performance under the Fund-supported program. Most quantitative performance criteria (QPCs), indicative targets (ITs), and structural benchmarks (SBs) were met. The overall fiscal deficit (excluding the transaction with CNSS) is estimated at 1.2 percent of GDP at end-2019; Togo has been complying for a third consecutive year—i.e. during the ECF-arrangement period—with the WAEMU convergence criterion of a fiscal deficit not exceeding 3 percent of GDP. Structural reforms on revenue administration and public financial management are progressing as planned, including tax arrears collection, online submission of customs declaration, and key steps towards program-based budgeting. However, reforms related to the state-owned public banks encounter delays.

29. Staff welcomes authorities’ plan to address the human and economic implications of the COVID-19 pandemic and commitment to build on the hard-won fiscal achievements of the last few years. Based on information available at this stage, the 2020 fiscal deficit is forecast to widen to 3.6 percent of GDP to accommodate additional healthcare spending related to COVID-19 and other adverse impacts on the economy. Public debt is projected to decline below 70 percent of GDP by end-2020. Beyond 2020, the medium-term projections are anchored on a primary surplus of 1 percent of GDP, which would keep the overall deficit below 2 percent of GDP. This fiscal framework is expected to reduce public debt below the benchmark for countries with medium debt-carrying capacity starting in 2022 and keep debt on a downward path thereafter.

30. Staff welcomes authorities’ commitment to pursue revenue administration and PFM reforms and urges the authorities to accelerate reforms in the financial sector. The revenue authority (OTR) will design and implement measures identified in a recent Tax Administration Diagnostic Assessment Tool (TADAT), address deficiencies in essential customs functions, and bolster voluntary compliance to ensure strong permanent revenue. The authorities will follow up on key recommendations from the 2016 and 2019 PIMA assessments to improve the efficiency of public investment programs. Staff encourages parallel testing of program-based budgeting in 2020 and a full shift in 2021. It would be important to build on the significant achievements in the improvement of the business environment and implement the reforms outlined in the National Development Plan. Finally, it would be paramount to complete the reforms of the two state-owned banks to safeguard financial stability and prevent risks to the state budget; this reform encountered multiple delays during the ECF arrangement

31. Staff recommends the completion of the sixth and final review of the ECF arrangement and supports the request for augmentation of access. Program performance has been broadly satisfactory. Going forward, the LOI/MEFP sets out appropriate policies. The capacity to repay the Fund is adequate. The augmentation of access would help the authorities address the human and economic implications of the COVID-19 pandemic.

32. Staff also recommends that Togo be placed on the standard 12-month cycle for Article IV Consultations.

Figure 1.
Figure 1.

Togo: Real Sector Developments

Citation: IMF Staff Country Reports 2020, 107; 10.5089/9781513540719.002.A001

Sources: INSEED;PAL; BCEAO;Togolese authorities; and IMF staff estimates.
Figure 2.
Figure 2.

Togo: External Sector Developments

Citation: IMF Staff Country Reports 2020, 107; 10.5089/9781513540719.002.A001

Sources: Togolese authorities; and IMF staff estimates.
Figure 3.
Figure 3.

Togo: Fiscal, Monetary, and Banking Sectors Developments

Citation: IMF Staff Country Reports 2020, 107; 10.5089/9781513540719.002.A001

Sources: UMOA Titres; BCEAO;Togolese authorities; and IMF staff estimates.* Year of first reporting in accordance with Basel II/ III and Revised Chart of Accounts (Interim Data)
Figure 4.
Figure 4.

Togo: Medium-Term Economic Prospects, 2011–24

Citation: IMF Staff Country Reports 2020, 107; 10.5089/9781513540719.002.A001

Sources: Togolese authorities; World Economic Outlook;and IMF staff estimates.

Annex I. Assessment of Progress under the ECF Arrangement 2017–20

Togo achieved a major fiscal consolidation and debt reduction under the Fund-supported program. Significant progress has also been made on revenue administration and public financial management. Furthermore, Togo has been amongst the best improvers of business environment in recent years. However, reforms in the financial sector have been delayed and economic growth has remained below initial expectations.

1. The fiscal deficit narrowed by 8.3 percentage points of GDP during the program period. This magnitude of fiscal consolidation is remarkably large from a cross-country perspective. While the overall fiscal deficit reached 9.5 percent of GDP in 2016, it is estimated to have dropped to 1.2 percent of GDP in 2019 (excluding the transaction with the social security fund, CNSS). Spending was curtailed significantly, including by the phasing out of pre-financing of public investment, which is a non-orthodox practice that led to a surge of public debt before the Fund-supported program. As a result, public debt declined from 81 percent of GDP at end-2016 to 70.9 percent of GDP at end-2019, which is close to the objective at program approval (69 percent of GDP), especially as the early reimbursement of domestic loans in January 2020 (as part of the debt reprofiling operation that was initiated in December 2019) should reduce the debt ratio further by almost 2 percentage points of GDP. Apart from the external loan related to the reprofiling operation, the authorities have refrained from contracting new non concessional external debt.

2. The revenue administration made good progress to strengthen revenue collection and improve taxpayer services. Foregone revenue, mostly through tax and customs duty exemptions, have been reduced from 4.3 percent of GDP to 2.3 percent of GDP during 2016–2019. The progress was accomplished through a customs post-clearance audit program and a stricter control in key sectors such as phosphate, clinker, cement, and iron. The recovery rate of tax arrears improved from 66 to 71 percent for the large taxpayers’ unit and from 48 to 72 percent for the medium-sized taxpayers’ unit during the same period. A closer collaboration has been pursued between the tax and customs administration to ensure that economic agents comply with their obligations at both collection entities; customs clearance is prohibited for importers with outstanding tax arrears and a lump sum clearance deposit is required for importers deemed inactive with the tax administration. Electronic processing of customs clearance is progressing to minimize human interference and corruption opportunities as well as improve taxpayer services and reduce compliance costs.

3. Bold PFM measures have been implemented. Following an independent audit and an aggressive reimbursement plan, the stock of government payment arrears was reduced significantly. As the authorities developed and coordinated monthly commitment, procurement, and cash plans, no new arrears have been accumulated in 2019. A manual was prepared for a cost-benefit analysis of public investment projects; only projects that have been selected and prioritized through this analysis can be included in the public investment program and in the budget. Several government accounts in commercial banks have been transferred to the Treasury Single Account to improve treasury management, reduce idle resources, and minimize borrowing costs. Debt management has been centralized to a new Directorate; a new procedure manual has been introduced and the medium-term debt strategy (MTDS) is updated on a regular basis. Preparations for program-based budgeting are underway.

4. The business environment has markedly improved but economic growth has remained below initial program projections. Togo’s overall score according to the World Bank’s Doing Business Indicators has improved from 48.9 in the Doing Business 2018 report to 62.3 in the 2020 report, which made Togo one of the top-ten improvers in the 2020 report and the top reformer in Sub-Saharan Africa. One of the two newly established commercial courts (for Lomé) has started operations. On governance, the anti-corruption agency HAPLUCIA became operational in 2018 and three new laws are under preparation: a law setting the conditions for the declaration of property and assets of high-ranked officials; a framework law on the fight against corruption; and a code of conduct for civil servants. However, economic growth averaged 4.9 percent during 2017–19, relative to the program’s target of 5.2 percent. The lower-than-envisaged growth was primarily attributed to the uncertainty stemming from the protracted 2017–18 socio-political tensions.

5. Reforms in the financial sector have been delayed and remain incomplete. Two state-owned banks have exhibited weaknesses for an extended period. The initial program envisaged merging these two banks, overhauling its governance, and recapitalizing by the government. After some actions had been undertaken towards this plan, the authorities decided to change their strategy and opted for a privatization of the banks, with a view to minimizing budgetary cost, withdrawing the government from banking sector operations, and providing the private sector the opportunity to fully play its role. The process has not been completed yet and the weaknesses in the two state-owned banks persist.

Annex I. Figure 1.
Annex I. Figure 1.

Togo: Program Indicators, 2016–20

Citation: IMF Staff Country Reports 2020, 107; 10.5089/9781513540719.002.A001

Source: Togolese authorities;and IMF staff estimates.1/ Excluding transaction with the Social Security Fund, CNSS.

Annex II. Implications of COVID-19

The Facts:

1. COVID-19 is the latest in a series of diseases that have moved from animals into human populations, rapidly spreading and causing serious outbreaks across all continents. On March 11, the World Health Organization (WHO) declared COVID-19 a pandemic, changing the global focus from containment to mitigation. The first case in Togo was recorded on March 6, 2020, which has now increased to about twenty cases.

Potential Implications in Togo:

2. Togo is vulnerable to an outbreak due primarily to its position as a regional logistical hub, its strong trade ties with China, and its insufficient preparedness. A local outbreak will weaken economic activity from both supply and demand sides. On the supply side, activities in the services sectors, primarily those related to airport, port and tourism, will be the most affected. Lomé is the hub of an important pan-African airline company; traffic at Lomé airport will likely fall following travel bans across the region and across continents. The port of Lomé is also an important transit for merchandises to land-locked neighboring countries; the reduced trade flows across the world will hinder the port activity. The retails industry sector will also be affected as China is the main origin of Togo’s imports, accounting for about a quarter of total imports; the current disruptions in China will undermine Togolese importers’ ability to supply local markets. On the demand side, the resulting loss of income and the uncertain business environment will affect the private sector through lower consumption and investment. More broadly, the COVID-19 could cause further disruptions to economic activity through the combination of confidence effects, containment efforts, supply disruptions, and behavioral changes (such as social distancing). In the health sector, according to the Global Health Security Index, Togo is ranked among the countries that are the least prepared for outbreaks such as the COVID-19. An outbreak will widen the fiscal deficit and worsen balance of payments.

Authorities’ Plan and Financing Need

3. The Togolese authorities set up a committee and developed an action plan to tackle the COVID-19. The plan aims primarily at revamping the health system and containing/mitigating the spreading of the virus. At this stage, the direct cost of this plan is estimated at CFAF21 billion (about USD35 million or 0.6 percent of GDP) (see table below). Including some other costs, such as the strengthening of the resilience of the health system and the adverse impacts on economic activity, the authorities estimate the overall financing need at about CFAF70 billion (about USD130 million or 2 percent of GDP). The authorities are in discussions with development partners to cover some items under this plan and has currently secured financing of about CFAF 7 billion. To accommodate the additional spending needs, the projected overall fiscal deficit for 2020 has been revised by 1.7 percentage points of GDP, from 1.9 to 3.6 percent of GDP. The COVID-19 pandemic is also weakening Togo’s external balance. While lower domestic demand and lower oil prices will reduce imports, higher health-related purchases are expected to increase imports by a larger magnitude. Moreover, lower growth and external demand in trading partners will weaken exports, FDI, and portfolio flows, compared to the baseline. The additional balance of payments financing need is estimated at about CFAF 58 billion (or 1.7 percent of GDP). Accordingly, the access under the ECF arrangement could be augmented by this amount, which corresponds to about 48.7 percent of Togo’s quota.

Annex II. Table 1.

Togo: COVID-19 Measures

(billion CFAF)

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Annex III. Risk Assessment Matrix1

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Annex IV. Capacity Development Strategy

1. The CD strategy is aligned with the authorities’ policy objectives. The policy priorities, set out at the start of the ECF arrangement in 2017, are to reduce the overall fiscal deficit substantially to ensure long-term debt and external sustainability; refocus policies on sustainable and inclusive growth through targeted social and infrastructure spending; and resolve existing financial sector weaknesses, especially in the two public banks. The current CD strategy gives priority to measures that aim to (i) improve fiscal revenue and particularly domestic revenue generation, which is weaker than projected at the start of the ECF arrangement in 2017; (ii) strengthen budget preparation, particularly to improve efficiency and safeguard fiscal space for social spending and public investment; (iii) build capacity at the new Debt Directorate and develop a medium-term debt strategy in line with best international practice; and (iv) improve economic data compilation and dissemination. Capacity building in customs administration will both support revenue generation and help Togo keep its position as an efficient and competitive regional transportation hub. While the current CD strategy is mainly a continuation of the previous strategy, the financial sector TA needs will be covered by the 2020 WAEMU FSAP.

Key overall CD priorities going forward

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Main risks and mitigation

2. The implementation of the TA recommendations has been somewhat uneven so far, due mostly to capacity constraints and lack of resources. To mitigate these risks, Fund staff will discuss the importance and the sequencing of TA both with technical counterparts and political decision makers. Resident advisors in key areas would be essential to help relax capacity constraints; outreach to Togo’s development partners could help increase available TA funding, including for long-term resident advisors. The authorities have requested a resident advisor in debt management.

Authorities’ views

3. The authorities agree with the thrust of the CD strategy. They see the CD as being aligned with their reform agenda. The CD from the IMF has helped in the design and implementation of their reform agenda by providing specific measures and supporting the roll-out. The implementation and absorption of the recommendations could be improved through more training and outreach.

Appendix I. Letter of Intent

MINISTRY OF ECONOMY AND FINANCE

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OFFICE OF THE MINISTER

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N°………………./MEF/CAB

REPUBLIC OF TOGO

Travail-Liberté-Patrie

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Lomé, March 25, 2020

To

Ms. Kristalina Georgieva

Managing Director

International Monetary Fund

Washington, D.C. 20431

Dear Ms. Georgieva:

1. The government requests the completion of the sixth and last review under Togo’s ECF arrangement and requests augmentation of access to address the impacts of COVID-19. The implementation of the program was satisfactory. We met all continuous and quantitative performance criteria (QPCs) at end-September 2019 as well as the five structural fiscal benchmarks (SBs). We met seven out of nine indicative targets at end-December 2019. Despite delays in financial sector reforms, we keep our commitment to move forward on the privatization of the two public banks. We remain committed to continue reducing public debt level and bolster permanent revenues while stepping up health spending to address the effects of the ongoing COVID-19 pandemic. Furthermore, we will continue to focus our policies on sustainable and inclusive growth, including the protection of social spending despite the fiscal consolidation.

2. We remain committed to decisively advance the structural reform agenda. Following up on a recent TADAT, we will pursue measures to improve further revenue collection, modernize core customs procedures, and reduce vulnerabilities to corruption. We will continue to broaden the tax base, encourage voluntary compliance, and improve taxpayer services. Building on progress in recent years, we will embark on the next phase of PFM reforms. We will conduct a parallel test of program-based budgeting in 2020 and will make the full shift in 2021. We will follow up on measures proposed by the 2016 and 2019 PIMAs.

3. We are pursuing our efforts to restore financial stability by finalizing the privatisation of the two public banks as soon as the international financial conditions become favorable. A prequalification notice for the privatization of the two public banks was announced in international financial news outlets. We received prequalifying offers and are in the process of allowing shortlisted bidders to access the datarooms of the two banks to allow them to prepare offers. We are committed to a successful completion of this privatization to ensure financial stability, minimize costs to the State budget, and allow the private sector to fully play its role. Meanwhile, we will closely monitor the liquidity situation of these banks as well as the broader financial sector developments and take corrective actions as needed.

4. Building on our progress, we will continue to implement several structural reforms to improve the business environment, attract investment, and support growth. We will accelerate the implementation of the reforms included in the National Development Plan (NDP) and Compact with Africa (CwA) to bolster private investment and promote inclusive growth. We will continue to address the obstacles to private sector development. We will accelerate institutional reforms to strengthen governance and reduce corruption vulnerabilities.

5. We will continue a prudent borrowing policy to safeguard debt sustainability. We have carried out a debt reprofiling operation to reduce the present value of the public debt stock and mitigate the rollover risk while preserving the external debt risk rating, in line with the ECF-supported program. We recognize the risks involved in this operation and will take the necessary safeguards measures. We will continue the debt reprofiling operation only if it reduces the NPV of total public debt and does not worsen the external debt risk rating. At the same time, we are strengthening our debt management capacity.

6. We are requesting an augmentation of access of 48.7 percent of our quota (SDR 71.67 million) under the current ECF arrangement to address the urgent financing need stemming from our efforts and plans to control the spread of COVID-19 and mitigate its economic impact in Togo, as outlined in the attached letter. We are also discussing with other partners potential financial support amounting to an expected immediate disbursement of about CFAF4 billion at this stage.

7. We are confident that the policies set out in the attached MEFP will enable us to achieve our program objectives. However, we will take any further measures that may become necessary for this purpose. We will consult with IMF staff on the adoption of such measures, and in advance of revisions to the policies contained in the MEFP, in accordance with the IMF’s policies on such consultations. We will provide such information as the IMF may request in connection with progress in implementing our economic and financial policies. We authorize the publication of the staff report for the sixth review under the ECF arrangement, this letter of intent, and the attached MEFP and technical memorandum of understanding.

Very truly yours,

Minister of Economy and Finance

/s/

Sani Yaya

Attachment I. Memorandum of Economic and Financial Policies

1. This Memorandum sets out our economic program for the remainder of the ECF arrangement and provides indications on our policies thereafter. Our program, based on the National Development Plan and supported by the IMF, focuses on (i) reducing the fiscal deficit to safeguard debt and external sustainability; (ii) supporting sustainable and inclusive growth; and (iii) resolving the existing weaknesses in the financial sector, especially in the two state-owned banks.

2. We made significant progress since the ECF-supported program started. The ECF arrangement has succeeded in addressing large macroeconomic imbalances by means of a significant fiscal consolidation. This continued effort resulted in an overall fiscal consolidation of 8.3 percentage points of GDP (from a deficit of 9.5 percent in 2016 to 1.2 percent of GDP in 2019, excluding the transaction with the Social Security Fund). Public debt is on a firm downward path. The external position is broadly consistent with fundamentals and desirable policy settings; while the current account may have deteriorated in 2019, it is expected to gradually improve over the medium term, as a result of increasing exports, gradually offsetting the effect of sustained imports related to the implementation of the 2018–2022 National Development Plan. Structural reforms in tax and customs administration, public financial and investment management, and business climate have progressed well. Challenges remain in financial sector reforms, particularly on the two state-owned banks.

3. The measures outlined in this final-review memorandum aim at preserving the hard-won gains under the ECF-supported program while addressing the implications of the Covid-19 pandemic. Our fiscal policy will aim at pursuing fiscal consolidation to reduce debt vulnerabilities while stepping up health spending to address COVID-19 and protecting social spending. On structural fiscal policies, we will implement measures recommended by the recent TADAT and PIMA to strengthen tax and customs administration and public investment processes; we will advance program-based budgeting. In the financial sector, we will complete as soon as feasible the privatization of the two public banks to restore their financial viability, safeguard the stability of the financial system, and minimize risks to the State budget. The significant progress in the improvement of the business environment will be pursued further to foster private sector dynamism and promote higher and inclusive private sector-led economic growth.

I. Recent Economic Developments and Outlook

4. The economic recovery is well underway supported by domestic demand-led pickup, albeit with signs of weaknesses in the export-oriented sectors in 2019 and the impacts of the COVID-19 in 2020. Following a sharp deceleration in 2017 due to socio-political tensions, economic activities regained momentum in 2018–19. Building and construction activities have accelerated as evidenced by an expanding cement production; traffic at the port and the airport continues to grow; and electricity consumption exceeds levels in previous years. Credit to the private sector expanded by 4.1 percent in December 2019 (y-o-y). However, coffee production and extraction of phosphate may have been lower than in 2018. The trade balance is expected to have deteriorated in 2019, as a result of less dynamism in some export sectors and sustained imports, which should revert in the medium term. Headline inflation declined to -0.3 percent (y-o-y) in December mainly as a result of lower food prices following abundant agricultural supply and a drop of communication costs.

5. Fiscal consolidation efforts continued through September and December 2019. The overall fiscal deficit is estimated at 1.7 percent of GDP at end-September 2019 and 1.2 percent of GDP at end-December 2019 (excluding the transaction with the social security fund). Togo has been complying for three consecutive years—during the ECF program period—with the WAEMU convergence criterion on the fiscal balance. At end-December 2019, tax revenue collection improved relative to 2018 but underperformed the ambitious target, due primarily to lower-than-expected collection of domestic taxes. Overall expenditure was below projected levels; current expenditure was reduced relative to 2018 as we started implementation of measures identified through the recent spending review. Capital expenditure (excluding the transaction with the Social Security Fund) increased. The subscription rate of government bonds in the regional market remained favorable at an average of 224 percent in 2019.

6. Growth is expected to hover around 5½ percent over the medium term but has recently been clouded by uncertainty around the impact of the covid-19 pandemic. We foresee the ongoing growth momentum to continue beyond 2020, provided the impact of covid-19 pandemic is contained. The recent upgrading of the public infrastructures, and major improvements in the business environment will boost productivity, support investment and private sector development. Inflation is expected to hover around 2 percent in the medium term, and the fiscal deficit to remain within the WAEMU deficit criterion. The external current account deficit is projected to be around 4 percent of GDP in the medium term, with both imports and exports recovering from the Coronavirus crisis and increasing exports gradually offsetting sustained imports related to the PND. While the overall risk of public debt distress remains high, debt indicators are improving, and the risk of external debt distress remains moderate.1 We recognize that our economic program faces domestic and external risks.

II. Program Implementation

7. We met all continuous and end-September 2019 quantitative performance criteria (QPCs) as well as the indicative target (IT) on total fiscal revenue. As of September 2019, we achieved a domestic primary fiscal surplus of 1.2 percent of GDP, outperforming the programmed floor by 1.7 percentage points of GDP. We also managed to contain the net domestic financing under the ceiling. Moreover, we did not issue any guarantees to domestic suppliers or contractors, nor did we pre-finance any public investment. Furthermore, we have met the indicative target for total fiscal revenue and have not accumulated any domestic arrears. Nevertheless, the indicative target for social expenditure was missed again by 0.6 percent of GDP. At end-December 2019, we met eight out of nine ITs, including the domestic primary balance, net domestic financing, and social spending. The ambitious revenue target for 2019 was missed, although revenue collection improved relative to 2018. We have not accumulated any external arrears and have not contracted or guaranteed any non-concessional external debt apart from the external borrowing linked to the debt reprofiling operation.

8. We met the five end-October structural fiscal benchmarks (SBs), including those on revenue administration, the transition to program budgeting, and the public investment plan. To step up the recovery rate of tax arrears, we established the Revenue Collection and Receivables Recovery Unit and reinforced its risk-analysis mandate. As a result of this measures, the recovery rate of tax arrears increased from 66 percent in 2017 to 71 percent at end-September 2019 for the large taxpayers’ unit and from 48 percent in 2017 to 72 percent at end-September 2019 for the medium-sized taxpayers’ unit. At end-November 2019, CFAF 25 billion (0.8 percent of GDP) of tax arrears were collected. We took measures to reduce non-paying VAT returns, including deploying hardware and software for the setting-up of the first 31 cash registers, formulating a strategy for the selection of risk-based spot checks; and appointing focal points in the large and medium-sized taxpayers’ unit to centralize the results of spot checks. To improve customs duty collection and border procedures, we made mandatory the online submission of declarations and supporting documents for customs clearance of imports for the 30 largest importers or filers. In preparation for the shift to program budgeting, we developed a standard framework of performance indicators to define guiding principles and trained stakeholders in ministries and institutions. Important measures were taken to revise and enforce the multi-year public investment program (PIP) in 2019. An inter-ministerial PIP committee is operational. The revised PIP for 2020–2022 is integrated into the budget preparation schedule. We met the SB on ensuring the coherence of the multi-year public investment program with the realistic envelopes of the medium-term 2020–2022 budgetary framework. Efforts were made to make the 2020–2022 medium-term budget framework envelopes consistent with the 2020–2022 PIP. These efforts will continue for the next PIPs. We continue to work with TA experts to better ensure the credibility and effectiveness of the PIP and accelerate the implementation of PIMA recommendations.

9. In the financial sector, the reforms to address the weaknesses of the two public banks encountered delays but we are committed to finalize their privatization. The process for the two privatization tenders was initiated in September 2019. An international prequalification notice was posted in financial news outlets. We received prequalifying offers in December 2019. Following the Presidential elections in February 2020, a confidentiality agreement was sent to prequalified bidders in March 2020 to allow them secured access to the data rooms of the two banks and meetings with management. The launch of the final tender and submission of final/binding offers by the shortlisted bidders are planned in the coming months as soon as the context becomes favorable.

III. Economic Policies

A. Fiscal Policy

10. We pursued our fiscal consolidation efforts in 2019 by strongly enforcing revenue measures and controlling current spending to safeguard the program targets. Budget execution outturns in September and December 2019 were in line with program targets. Based on preliminary data, the overall fiscal deficit at end-December 2019 stood at 1.2 percent of GDP (excluding the CNSS transaction), outperforming the deficit ceiling of 2.9 percent of GDP. The revenue measures recently adopted (property tax collections based on the land survey, import deposits, cross-checks between tax and customs administrations, and stricter customs valuations controls) and the recovery of tax arrears started to strengthen revenue collection in the second half of 2019. Although we did not reach the tax collection target at end-December 2019, it improved relative to 2018. Non-tax revenue declined due to a substantial one-off collection in 2018. We reduced current spending below its 2018 level as we started to implement the package of measures proposed by the recently completed spending review. Among these measures, priority has been given to those that can yield the largest savings in the near term: reduced reference prices for most procurement contracts; centralized negotiation and management of building rental contracts and centralized purchases of air travel tickets and fuel; medical purchases channeled through the Global Fund; better prioritization of spending on goods and services and subsidies; and a payroll clean-up based on the civil servants’ census. We will operationalize the fiscal policy unit at the Ministry of Finance, responsible for collecting information (tax and customs administration), studies, and proposals for tax reforms.

11. For 2020, our primary focus is to preserve the hard-won fiscal achievements in recent years while allowing room for additional health expenditure to address the adverse impacts of Covid-19. The 2020 budget approved by Parliament envisaged continued fiscal consolidation to achieve an overall fiscal deficit of 1.9 percent of GDP. This budget would limit primary current spending at 13.6 percent of GDP (1.8 percent of GDP less than in 2019) through (i) discontinuing urgent spending of 0.9 percent of GDP (from 1.2 to 0.3 percent of GDP) in 2020; (ii) savings from measures in the recently completed spending review; and (iii) actions to strengthen the quality and efficiency of public procurement with technical assistance from the World Bank. This budget plans on improving tax revenue by about 0.6 percent of GDP to reach 17.8 percent of GDP in 2020, with customs collections stabilizing at around 8 percent of GDP and domestic tax collections supported by continuing tax administration reforms, tax policy measures, and continued recovery of part of the large stock of tax arrears (please see below).

12. We will need to adjust the above 2020 fiscal framework to accommodate additional health spending related to COVID-19. Given Togo’s position as regional logistic hub, our strong commercial ties with the affected countries (China, EU), and the weaknesses in our healthcare system (low access of population to medical services and the lack of specialized care), we are putting emphasis on prevention and preparedness. We set up a high-level committee and developed an action plan that includes multi-sectoral coordination; public awareness; epidemiological surveillance (border health screening, COVID-19 hotline); and patient care at entry points (gear and isolation facilities). We are facing challenges related to diagnostic testing, availability of emergency personnel and equipment, and the detection/isolation of virus carriers. So far, twenty infected cases have been detected in Togo and we are trying to prevent further transmission. At this stage, the required additional health spending is estimated at about CFAF 20 billion. We also plan to improve the health system to strengthen resilience against pandemic and chronic diseases. The total cost is estimated at about CFAF70 billion (or about 2 about 2 percent of GDP). We envisage that the 2020 fiscal deficit may widen to about 3.7 percent of GDP.

13. Beyond 2020, we will persevere in fiscal consolidation to reduce public debt, by keeping the overall fiscal deficit below 2 percent of GDP, well within the WAEMU convergence criterion (a deficit ceiling of 3 percent of GDP). This will help keep the debt trend on a downward path, falling below 70 percent of GDP (including SOEs) starting in 2020 and declining below the benchmark for countries with medium debt carrying capacity (net present value of public debt of 55 percent of GDP) starting in 2022. Once debt has declined to a sufficiently low level, the fiscal balance will gradually be relaxed to address development needs.

14. We will aim to further reduce fiscal risks and will prepare contingency measures as needed. Weaknesses in the financial sector, including those related to the two weak public banks, could create fiscal costs. We will take all necessary measures to mitigate such risks and will undertake a thorough analysis of the modalities of such measures to ensure minimizing costs to the budget, not only in the short run but also overtime. Moreover, as agreed at the time of the fifth review, we will also establish a legal and institutional framework for Public-Private Partnership (PPP) management, including the preparation of a specific PPP legislation (PPP Act) to ensure that PPPs do not pose risks to public finances. We will ensure that the PPP unit is provided with the necessary legal and institutional tools and becomes operational. The PPP projects will gradually be included in the PIP, following a positive decision taken in the budget process and the application of the same review standards as conventionally funded projects.

15. We are strengthening our social protection programs while supporting the most vulnerable groups of the population. We have redesigned the management of a key social development program (the Programme d’Urgence de Développement Communautaire); its management has been shifted from a centrally-based non-government entity to decentralized elected officials. This management change is expected to accelerate the execution rate and improve the targeting of this program. We will accelerate the deployment of a monitoring system for social expenditure and strengthen the data processing capacity. A coordination process was initiated among various stakeholders (i.e. ministry of finance, line ministries, development partners), to identify and implement further corrective measures, such as such as the appointment of a manager dedicated to monitoring the execution of social spending at the level of the Ministry of Finance; the monthly coordination between the sectoral ministries and the Ministry of Finance of the commitment plans, procurement plans, and cash plan; and prioritizing the execution of social spending among investment spending.

B. Structural Fiscal Policies

16. We are pursuing strong reform measures to further boost the level and permanency of domestic resource mobilization. This work continues to be supported by IMF technical assistance and the recent deployment of the Tax Administration Diagnostic Assessment Tool (TADAT). We have made significant progress on revenue administration, including the creation and harmonization of tax identification numbers, voluntary compliance, tele-procedures to reduce compliance cost, withholding and provisional deposits to secure revenue collection, and internal controls against corruption. Moreover, we expect that OTR substantially increases the number of compliant taxpayers following the implementation by the customs administration of the 15-percent deposit on imports by inactive taxpayers at the tax administration as well as the customs clearance restriction on imports belonging to tax debtors to support the recovery enforcement. The recent launch of the new electronic payment system for the large and medium-sized companies will be very important to improve the overall management. By end-December 2019 we expect that 200 large enterprises use the electronic payment. We will extend the online reporting to all companies, make online telepayment and online request for tax clearance to reduce the time spent by taxpayers on tax obligations and support the private sector. We will also propose a solution to collect revenue directly on the treasury single account in collaboration with the central bank (BCEAO), the Directorate General of the Treasury and Public Accounting (DGTCP), and the international trade one-stop shop (SEGUCE).

17. We will address deficiencies in essential customs functions. We will finalize the action plan for the complete dematerialization of customs declarations and supporting documents and the activation of the corresponding ASYCUDA World functionality. We will tackle the deficiencies related to the risk-based selection of merchandise to improve the efficiency of controls and the accuracy of declarations. All customs clearance procedures will be progressively automated to reduce opportunities for corruption and strengthen traceability of goods placed in the free port. We will also cross check with international databases to prevent customs under-valuations. We will further improve customs valuation procedures by implementing advance declaration procedures; internalizing the valuation function; and applying the transaction value.

18. To ensure strong permanent revenue in the medium and long run, we will bolster voluntary compliance. We will continue to modernize the tax and customs administrations and fully exploit the synergies from merging tax and customs. Our priorities for 2020 will focus on (i) automatic processing of some key functions of revenue administration, such as filing, tax control, disputes, and tax arrears recovery; (ii) development of a model for forecasting tax and customs revenues; (iii) advance the land reform; (iv) broaden the tax base; (v) an automated accounting system that ensures the accuracy and completeness of the accounting of tax revenue; (iv) audits of operational and financial activities by an external state auditing entity; (vi) conduct a study of the perception of corruption across the OTR (vii) publication of financial and operational reports and the strategic plan. On land reform, we will estimate the cadastral values of the properties surveyed, digitize cadastral plans and set up a land information system. We will conduct a tax census; control and approve the remainder of the area plans during the transitional period of the one-stop shop (Guichet foncier unique, GFU) et continue land surveys on Greater Lomé by calculation of the cadastral values of the buildings of Greater Lomé. We will continue to broaden the tax base by identifying and formalizing informal operators as well as identifying and registering overnight taxpayers who are not registered. We are also making efforts to contain tax expenditures, which are expected to contribute to increase the level and permanency of revenue. We will assess tax expenditures and append this assessment as an annex to the budget law.

19. On the PFM front, we will now focus on getting ready to switch to program budgeting starting with 2021. We will prepare the 2021–23 budget directly in program-based format while strengthening the multi-year public investment program. The prerequisites for the shift to program budgeting are in place at the technical level and we will reinforce the drive to complete this PFM reform. We will swiftly finalize rewriting the information system to make it operational for the shift to the program-based budget in 2021. In case the rewritten information system is not ready by June 2020, we will use the upgraded IS for the transition, while finalizing rewriting it in parallel. We will provide the required human resources capacity and decentralize oversight functions through the appointment of controllers delegated to sectoral ministries.

20. We will accelerate implementation of key recommendations of the 2016 PIMA and the recent PIMA follow-up report on how to rationalize the public investment program (PIP). A PIP committee was set up and is operational. Medium-term PIPs were prepared for 2019–21 and 2020–22. For 2019–21, a circular mandated that only investment projects in the PIP can be included in the budget. In addition, for 2020–22, another circular mandated that the cost-benefit analysis in the recently developed methodological guide should be strictly applied before a project can be considered into the PIP. Moreover, we are taking the necessary measures to improve the execution rate of the investment budget and will make efforts to better align the PIP to realistic medium-term resource envelopes. We will integrate decision-making structures of PPPs into those of conventionally funded projects. We will gradually extend the scope of the PIP to coordinate the investment policy of the central government and other public sector entities such as local authorities and public enterprises.

21. We will further strengthen cash management and gradually expand the coverage of the Treasury Single Account (TSA). Cash management will be strengthened by fully anchoring the cash flow plan with the commitment plan and procurement plans of the line ministries. The collaboration among the various line ministries will be strengthened to significantly reduce delays in public procurement and respect the procurement and commitment plans so that the spending forecasts (as reflected in the cash flow plans) are in line with actual spending by the line ministries. Moreover, we will complete, after appropriate studies, the integration of Treasury bank accounts at BCEAO, including those of autonomous bodies and local authorities accounts as well as donor project accounts (in consultation with donors).

C. Borrowing Policies and Debt Management

22. We will continue a prudent borrowing policy to safeguard debt sustainability. Due to the high level of domestic debt, we will aim at bringing total public debt below 70 percent of GDP starting in 2020 and below the benchmark for countries with medium debt carrying capacity (net present value of public debt of 55 percent of GDP) starting in 2022. In addition, we will not contract any non-concessional external debt, except for the purpose of a possible debt reprofiling operation (see below), and we will continue to meet all our debt service obligations. We will not issue any guarantees to domestic suppliers or contractors, nor will we pre-finance any public investment. We will continue repayment of domestic arrears and will strive to not accumulate any new domestic arrears.

23. We have carried out the first tranche of a debt reprofiling operation, reducing slightly the net present value (NPV) of total public debt while preserving the external debt risk rating. With a guarantee from the African Trade Insurance Agency, we borrowed EUR 103.6 million (CFAF 68 billion) externally in December 2019 at an interest rate of 4.68 percent, maturity of 10 years, and grace period of 2 years. With the proceeds, we repaid CFAF66.6 billion of domestic and regional debt with interest rates of about 7 percent and maturity of 3 and 8 years in January 2020. This operation has reduced the NPV of total public debt marginally and will smoothen debt service payments in the near future, alleviate the risk of fiscal crowding out, and strengthen the regional foreign exchange reserves at the time of the transaction. Nonetheless, we recognize the risks involved in this operation and will take the necessary safeguards measures.

24. We are strengthening our debt management capacity. We will continue to improve the Medium-Term Debt Strategy, including refining the guidelines for the preferred direction of specific indicators (interest rates, refinancing, foreign currency risks, etc.). We will maintain a systematic exchange of information on project loan disbursements between all stakeholders. We will strive to make the new Debt Management Directorate fully operational and strengthen its debt management practices. Debt service forecasts will be fully integrated with budget forecasts in order to reduce discrepancies between forecasts and performance.

D. Financial Sector Policies

25. We are pursuing our efforts to strengthen financial stability by completing the privatization process of the two state-owned banks. After receiving the prequalifying offers, given that some information is missing on some offers, prequalifying bidders were given until mid-January to add the required information. We will evaluate these initial bids to select the prequalified bidders who will be allowed to participate in the final tendering process. Given the Presidential election period in February 2020 and the uncertainty created by the COVID-19 on the global financial conditions, the final tendering process could not be launched yet. Instead, we sent to the prequalified bidders the confidentiality agreement, which is a condition to access the data room. We will pay attention to the fit-and-proper requirement for successful privatization bids, given the systemic importance of the two public banks combined (i.e., 17.5 percent of market share at end-September 2019). We will closely monitor the liquidity situation of banks in close collaboration with the BCEAO and the WAMU Banking Commission. We will ensure that the senior management of these two public banks keep BCEAO and the Banking Commission informed of any developments.

26. We remain aware of the importance of closely monitoring risks related to financial sector vulnerabilities. Such risks may primarily arise from compliance with the capital and liquidity requirements, risk management, together with an already high loan concentration. The system NPL ratio continues to be elevated at 17 percent in June 2019 (and at 13 percent excluding the two state-owned banks), above the WAEMU average of 11.7 percent. The NPL resolution mechanism is weak; the recovery rate by the state-owned entity SRT (Société de Recouvrement du Togo) of NPLs from previous rounds of privatization was less than 10 percent during the last decade. The loan concentration rate of the banking system at end-2018 was 169 percent, significantly above the regulatory 65 percent ceiling and the 82.6 percent WAEMU average. The overall capital adequacy ratio dropped to 5.9 percent in 2018 due primarily to the significant regulatory capital needs at the two publicly owned banks; excluding the two state-owned banks, this ratio is sits comfortably at 16.1 percent. The move to Basel II/III since January 2018 has revealed more strikingly existing weaknesses in the two public banks, compared to the past when more lenient standards were applied. Beyond the two state-owned banks, the WAMU Banking Commission issued injunctions in 2018 and made capital restoration calls toward two very small private banks which are currently undergoing restructuring in order to be taken over by private strategic investors. In the meantime, one of these small banks has restored compliance with regulatory standards.

27. We will put emphasis on reducing NPLs and assessing banks’ compliance with the Basel II-III regulatory standards. Priority will be given to strengthening the legal and institutional frameworks for NPL recovery, including enforcing the BCEAO instruction on the accounting and reporting of NPLs, finalizing the full application of the revised accounting framework for banks, including the item on the writing off of debts of NPLs not recovered after 5 years; and designing a strategy to improve the efficiency and governance of publicly-owned debt collection agency (SRT). We will further support the Credit Information Bureau (BIC) and capacity building for commercial courts. Regarding the credit bureau, we will continue to increase the adult population coverage ratio (currently at 16 percent) by encouraging customers, through communication campaigns, to give their prior consent to the sharing of their credit information; and we will set up a collaborative work forum for banks and BIC to provide relevant information.

E. Structural Policies

28. Building on our progress, we will continue to implement several structural reforms to improve the business environment, attract investment, and support growth. Our efforts to improve the business environment have been confirmed by Togo’s Doing Business Indicators and we are committed to staying this course. We have made great strides to improve the business environment and are amongst the countries with the largest improvement under the current Doing Business Indicators. Togo’s summary business score that was in line with the WAEMU average ten years ago is now well ahead. Our rankings have improved from 156 in 2017 to 137 in 2018 and to 97 in 2019. The largest improvements were in the areas of registering property and dealing with construction permits (gained 56 and 47 places, respectively), starting a business (49 places), and getting electricity (42 places). We will continue to address the obstacles to private sector development, including by accelerating land reforms, strengthening insolvency resolution (for instance, informal debt restructuring, or the regulation of insolvency professionals), and facilitating trading across borders. We will continue to improve access to credit by relaxing the constraints to financial inclusion for firms. We will accelerate the implementation of the reforms included in the National Development Plan (NDP) and Compact with Africa (CwA) to bolster private investment and promote inclusive growth.

29. We will accelerate institutional reforms to strengthen governance and reduce corruption vulnerabilities. We will ensure a fair and effective execution of existing laws and regulations and fully operationalize the new anti-corruption agency and the first two commercial courts to deal with business conflicts. We will also strengthen and enforce the legal framework for asset declaration-framework pertaining to the draft law adopted by the government as of November 27, 2019 setting the conditions for the declaration of property and assets of high officials, senior officials and other public officials- and will adopt the legal framework for the United Nations Convention on Corruption, as well as the code of ethics and conduct. These pieces of legislation will aim at meeting international good practices, including on comprehensiveness of disclosed information, its publication and verification.

30. We will continue the fight against money laundering/financing of terrorism (ML/FT), in accordance with the regulatory provisions in force within WAEMU. We will publish the summary of the multisectoral national risk assessment on ML/FT carried out with the support of the World Bank. We will implement the recommended action plan to address the identified vulnerabilities, particularly in preparation for the assessment by the Inter-Governmental Action Group against Money Laundering in West Africa (GIABA). We undertake to adopt all the implementing legislation related to the 2018 Act on Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) and to formalize the National Coordination Committee. We will also implement the recommendations of the 2018 report of the United Nations Counter-Terrorism Executive Directorate (CTED) and encourage the banks to strengthen their AML/CFT efforts.

IV. Program Financing and Monitoring

31. We will continue monitoring our policy implementation using the framework of the ECF-supported program. Even beyond the ECF-supported program, we will continue using the domestic primary balance and the net domestic financing as key indicators to guide our fiscal policy. We will also continue to monitor closely the revenue collection as well as social spending indicators.

32. We are requesting an augmentation of access under the current ECF arrangement to address the implications of COVID-19. We request that financial support equivalent to SDR 25.1 million plus an augmentation of this drawing of 48.7 percent of our quota be made available in the form of budget support under the sixth (and last) review of the program. The amount of the augmentation (SDR 71.67 million) will be used to fill in the financing gap stemming from the COVID-19 pandemic in Togo.

33. We will pursue the strengthening of our institutional capacity. The Permanent Secretariat for Reform Policies and Financial Programs (Secrétariat permanent chargé des politiques de réformes et des programmes financiers—SP-PRPF) will provide (i) technical monitoring of our policies and quarterly progress reports; (ii) liaison between national structures and technical and financial partners; and (iii) coordination of technical assistance. We will take remedial measures to improve the quality of statistics including by strengthening the staffing within the National Statistics and Accounting Institute (Institut national de la Statistique et des Études économiques et démographiques—INSEED). We have already reduced the lags in the production of final national accounts. In addition, efforts are being made to improve GDP estimates by rebasing the GDP according to the 2008 system of national accounts for the new base year (2016). First estimates will be available in the first half of 2020. We will continue to improve data quality. The presentation of fiscal data, particularly the government financial operations table (Tableau des Opérations Financières de l’Etat), has been refined and the quality of balance of payments data has improved.

34. We will make full use of technical assistance from various sources to strengthen our institutional capacity. Our capacity building efforts are consistent and in synergy with the objectives of the ECF-supported program. We work closely with IMF technical assistance in the following areas: tax and customs administration, public financial management (including program-based budgeting and selection of public investments), debt management, and the generation and publication of statistics.

35. We are confident that the economic policy measures outlined in this memorandum will achieve the objectives of our ECF-supported program. We stand ready, however, to take any further measures that may become necessary to ensure the success of its policies, after consultation with the IMF. For the remainder of the program period, we will neither introduce nor intensify restrictions on payments and transfers for current international transactions or introduce or modify any multiple currency practice without the IMF’s prior approval, conclude bilateral payment agreements that are incompatible with Article VIII of the IMF’s Articles of Agreement, or introduce or intensify import restrictions for balance of payments reasons.

Table 1.

Togo: Quantitative Performance Criteria and Indicative Targets, September and December 2019

(Billions of CFA Francs)

article image
Sources: Togolese authorities; and IMF staff estimates.

Fiscal balance excl. transaction with the Social Security Fund, CNSS.

Continuous performance criterion and cumulated from the approval of the arrangement on May 5, 2017.

Performance criteria and indicative targets for 2019 are adjusted upwards to offset deviations from projected external program financing, subject to a cap of CFAF 10 billion.

Financing in December 2019 excluding debt reprofiling operation.

Nonconcessional borrowing in 2019 part of a debt reprofiling operation as allowed under the program.

Indicative targets calculated cumulatively from the beginning of 2019. Indicative targets will be adjusted for one half of the deviation from projected external program financing.

Table 2.

Togo: Structural Benchmarks for the 6th (Final) Review

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1

In 2019Q4, the government sold (i.e. transferred the ownership) of some government buildings to the Social Security Fund (Caisse Nationale de Sécurité Sociale) to pay social security contributions arrears of government employees. This transaction is recorded as a negative investment spending and a reduction in arrears stock and debt. From the perspective of fiscal policy analysis, this transaction has been excluded to allow measuring accurately fiscal efforts.

2

Importers deemed to be inactive in connection with other taxes are requested to deposit an amount equal to 15 percent of the import value.

3

Furthermore, while capital spending is kept unchanged in the current projections relative to the adopted budget, the execution may be lower as the authorities focus their efforts on COVID-19.

4

The management of a social program, Programme d’Urgence de Développement Communautaire, has been shifted from a centrally-based non-government entity to decentralized elected officials.

5

The dedicated officials in line ministries have been trained; the 2020 budget was presented to Parliament under both the traditional and program-based format.

6

In case the rewritten information system is not ready by June 2020, the upgraded information system will need to be used for the transition, while finalizing the rewriting in parallel.

7

The immediate step involves integrating, following appropriate studies, the Treasury bank accounts at BCEAO, including those of autonomous bodies and local authorities accounts as well as donor project accounts (in consultation with donors).

8

The time needed for declaration and clearance is reduced when the Customs administration offers binding decisions in advance.

9

Draft law adopted by the government in Cabinet as of November 27, 2019 setting the conditions for the declaration of property and assets of high officials, senior officials and other public officials.

1

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short term (ST)” and “medium term (MT)” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.

1

The term debt distress refers to terminology used by the IMF and the World Bank in the context of debt sustainability analysis.

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Cover IMF Staff Country Reports
Togo: Sixth Review under the Extended Credit Facility Arrangement and Request for Augmentation of Access-Press Release; Staff Report; and Statement by the Executive Director for Togo
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2020: Issue 107
Publisher:
International Monetary Fund
ISBN:
9781513540719
ISSN:
1934-7685
Pages:
84
DOI:
https://doi.org/10.5089/9781513540719.002
Text Figure 1

Indicators of Economic Activity, 2017–19
Text Figure 2

Treasury Bills Coverage Rate, 2018–20

(percent)
Text Figure 3

Overall Balance, 2016–19

(percent of GDP)
Text Figure 4

Togo: Doing Business Indicators, 2010–20

(0 = lowest, 100 = best performance)
Figure 1.

Togo: Real Sector Developments
Figure 2.

Togo: External Sector Developments
Figure 3.

Togo: Fiscal, Monetary, and Banking Sectors Developments
Figure 4.

Togo: Medium-Term Economic Prospects, 2011–24
Annex I. Figure 1.

Togo: Program Indicators, 2016–20