## cr17379 - 1.4 percent of GDP in the first half of 2017, due primarily to expenditure rationalization and the ## Source details **Canonical URL:** [cr17379 - 1.4 percent of GDP in the first half of 2017, due primarily to expenditure rationalization and the](https://www.imf.org/-/media/files/publications/cr/2017/cr17379.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2017/cr17379.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2017/cr17379.pdf.json) --- ### Recent economic developments - Real GDP growth in 2017: 4.8 percent. - Headline inflation: - Around zero percent at end-2017. - Through September: -0.6 percent (average, y-o-y) and -0.8 percent (m-o-m). - Core inflation (excluding food and transportation): 1 percent (average, y-o-y). - Agricultural production boosted by exceptionally favorable rainfall; energy consumption and port and airport traffic indicate healthy activity. - Socio-political tensions since August 2017 are weighing on private investment decisions and may have contributed to a slight downward revision in growth projections. ### Fiscal consolidation, public investment, and debt trajectory - Public investment and prefinancing: - Capital expenditure averaged about 12 percent of GDP in 2013-16 with prefinancing of 3.4 percent of GDP. - January–June 2017 capital expenditure amounted to about 1.5 percent of GDP and prefinancing was stopped. - Fiscal balances (first half 2017 vs. 2013-16 averages): - Primary deficit (commitment basis including grants) improved from an annual average of about 6 percent of GDP to a surplus of about 1 percent of GDP. - Overall balance improved from a deficit of about 8 percent of GDP to a surplus of 0.7 percent of GDP (cash basis, including grants). - End-June 2017 outturns (percent of GDP): - Total revenue and grants: 9.3 - Total revenue: 8.9 - Grants: 0.5 - Expenditures and net lending: 9.0 - Current expenditures: 7.6 - Public investment: 1.5 - Domestic primary balance: -1.5 - Overall primary balance (cash basis, incl. grants): 1.4 - Overall balance (cash basis, excluding grants): 0.2 - Domestic financing (net): -0.6 - External financing (net): 0.4 - Public debt path (percent of GDP): - Total public debt projections: 77.3 (2017), 74.4 (2018), 70.2 (2019), 66.7 (2020), 63.0 (2021), 58.9 (2022). - Domestic public debt: 56.3 (2017), 51.0 (2018), 44.1 (2019), 40.1 (2020), 36.3 (2021), 32.3 (2022). - External public debt: 21.0 (2017), 23.4 (2018), 26.1 (2019), 26.6 (2020), 26.8 (2021), 26.6 (2022). - Fiscal targets and program performance: - All quantitative performance criteria at end-June 2017 were met; two indicative targets at end-June 2017 were missed. ### Box 1 — Phasing Out Investment Prefinancing (nature, scale, and corrective action) - Nature of prefinancing: - Private contractor obtained bank loan; Finance Ministry guaranteed loan and signed an unconditional and irrevocable substitution of debtor agreement; full liability rested with the government (MEFP ¶3). - Financial liabilities from prefinancing were not included in public debt stock prior to correction. - Corrective actions (end-2016 onward): - Authorities ceased all investment prefinancing practices. - Fiscal accounts and debt stock corrected to include related liabilities. - Commitment to undertake all new public investment via the regular budget process. - From 2017, no new prefinanced investments have been undertaken, in line with program performance criteria. - Fiscal impact and key statistics: - Practice began in 2013 and continued through 2016. - Debt surged from 46.1 percent of GDP in 2012 to 80.8 percent by end-2016. - Prefinanced expenditures averaged 3½ percent of GDP per year during 2013-16. - By end-2016 outstanding debt from prefinanced investments: CFAF198.3 billion (7.4 percent of GDP). - Following corrective measures public debt projected to decline to 77.3 percent of GDP by end-2017; projected to fall below WAEMU convergence criteria of 70 percent of GDP by end-2019 (excluding SOE debt); potential to fall below the NPV threshold of 38 percent by 2025 if policies sustained (subject to revision once bank recapitalization costs are included). - Replacement instruments and institutional steps: - Prefinancing instruments (2-3 year, ~7.5 percent) replaced by instruments with maturity of 7 years, grace period of 3 years, and interest rates of around 7 percent (MEFP ¶6). - Government obtained guarantee release letters and cancellation of irrevocable transfer orders issued to banks. - Commitment to orthodox, transparent financing (MEFP ¶22). - Implications: - Revisions to fiscal accounts now properly show prefinanced liabilities and their service. - Ceasing prefinancing from 2017 consistent with performance criteria under the ECF-supported program. ### External sector - Current account balance: -9.7 percent of GDP (2016) to -8.2 percent of GDP (projected 2017). - Trade balance: trade deficit projected to improve from 22.4 percent of GDP (2016) to 20.9 percent of GDP (2017). - WAEMU reserves: about 4 months of region-wide imports at end-2016. - Exports and imports (percent of GDP): - 2016 exports: 34.9; 2016 imports: -54.9 - 2017 exports: 33.9; 2017 imports: -52.3 ### Monetary and financial sector - Broad money (M2) growth (beginning-of-period, percentage change): - 2016: 12.6; 2017 projection: 5.7; 2018: 6.6; 2019: 6.9; 2020: 7.4; 2021: 8.2; 2022: 9.0. - Credit to nongovernment sector (beginning-of-period, percentage change): - 2016: 10.1; 2017 projection: 11.2; 2018: 10.6; 2019: 8.9; 2020: 11.1; 2021: 11.0; 2022: 13.1. - Net credit to government (beginning-of-period, percentage change): - 2016: -2.3; 2017 projection: -4.0; 2018: -2.3; 2019: -0.6; 2020: -2.3; 2021: -1.6; 2022: -2.9. - Bank restructuring: - Restructuring of weak banks should be accelerated; finalize and adopt comprehensive restructuring plan, including measures to restore financial viability and a business plan for the newly-merged bank. ### Financial sector — Restructuring the ailing banks (key points and timeline) - Banking sector challenges: - Capital adequacy significantly improved in H1 2017 and provisions built up for NPLs, but credit concentration and exposure to sovereign risk remain. - Banks must prepare for Basel 2 and 3 capital requirements effective January 2018. - Two state-owned banks account for 19 percent of total assets of the financial sector in 2016; the weakest (~6 percent of assets) under provisional administration since 2008. - Restructuring progress and plan: - Comprehensive restructuring plan expected as structural benchmark (June 2017); only first steps met by that deadline. - Detailed outline with measures to restore financial viability and business plan produced (prior action). - Comprehensive plan to be finalized by February 2018 (structural benchmark February 2018). - Seek WAMU banking commission approval during March 2018 session to allow legal transfer by June 2018 (structural benchmark June 2018). - Box 3 — Bank Restructuring Plan (key points): - Guiding principles include legal consistency, adequate recapitalization, minimize cost for the State, no bailout of minority shareholders, dedicated NPL collection unit, strengthened governance and internal control. - Preliminary cost estimates: 2-4 percent of GDP. - Comprehensive plan to include business plan, financial projections, measures to improve profitability, NPL collection strategy, internal control, and IT reorganization. ### Medium-term outlook and risks - Growth projections (Real GDP): - 2017: 4.8; 2018: 5.0; 2019: 5.2; 2020: 5.3; 2021: 5.4; 2022: 5.6. - Consumer price index (average) projections: - 2017: -0.1; 2018: 1.2; 2019: 1.4; 2020: 2.0; 2021: 2.0; 2022: 2.0. - Risks: - Risks are tilted to the downside. - If recent tensions persist, private investment boost may not materialize and could weaken program implementation. - External vulnerabilities remain with a high current account deficit placing pressure on regional reserves. ### Policy priorities and recommendations - Fiscal policy and management: - Pursue in 2018 the fiscal consolidation initiated in 2017 to put debt firmly on a downward path while accommodating tighter domestic and external constraints. - Strengthen fiscal institutions and debt management; improve cash management and adopt prudent borrowing policies to lower government borrowing costs. - Require public investment projects to follow established procurement and budgetary processes to improve spending efficiency. - Verify the stock of government payment arrears, proceed with its clearance, and strengthen public financial management to prevent new arrears accumulation. - Revenue and social spending: - Enhance controls to broaden the taxpayer base and improve revenue collection. - Create room for additional social spending to support poverty reduction while maintaining sustained fiscal efforts. - Financial sector: - Finalize and adopt a comprehensive restructuring plan for the two ailing public banks, including a business plan and measures to restore financial viability. - Restructuring should be guided by sound principles to support the operations of the newly-merged bank and prevent reemergence of risks to the state budget. - Structural reforms: - Advance reforms to enhance revenue collection, improve public financial management, improve the business climate, and open-up key sectors to private investment to boost productivity, competitiveness, and inclusive growth. - Regional and external policy: - Progress toward adherence to the WAEMU convergence criteria to rebuild regional reserves. ### Key numeric indicators (selected) - Real GDP (percent change): - 2014: 5.9; 2015: 5.3; 2016: 5.0; 2017: 4.8; 2018: 5.0; 2019: 5.2; 2020: 5.3; 2021: 5.4; 2022: 5.6. - GDP (CFAF billions): - 2017: 2,779; 2018: 2,962; 2019: 3,166; 2020: 3,400; 2021: 3,680; 2022: 4,012. - Total revenue and grants (percent of GDP): - 2017: 25.3; 2018: 25.6; 2019: 25.4; 2020: 25.5; 2021: 25.4; 2022: 25.4. - Total expenditure and net lending (percent of GDP): - 2017: 27.6; 2018: 28.0; 2019: 25.1; 2020: 26.2; 2021: 26.7; 2022: 26.5. - Gross domestic investment (percent of GDP): - 2017: 31.8; 2018: 32.1; 2019: 29.1; 2020: 31.0; 2021: 31.9; 2022: 31.8. - Current account balance (percent of GDP): - 2017: -8.2; 2018: -8.2; 2019: -7.3; 2020: -6.4; 2021: -5.4; 2022: -5.0. ### Program modalities, financing, and IMF engagement - Program review and disbursements: - Program reviewed semi-annually based on quantitative performance criteria, indicative targets, and structural benchmarks. - Schedule of ECF disbursements (Table 7): SDR 25.17 million on May 5, 2017; subsequent disbursements conditional on observance of performance criteria and completion of successive reviews with scheduled dates including September 15, 2017; March 15, 2018; September 15, 2018; March 15, 2019; September 15, 2019; and SDR 25.14 million on December 15, 2019. - Financing: - Program is fully financed. - Financing needs for remainder of 2017 and 2018 covered by World Bank, European Union and African Development Bank; programmed ECF disbursements will close remaining needs. - ECF-supported program emphasizes using grants and concessional financing—within program limits—for priority investment projects. - IMF repayment capacity: - Obligations to the Fund would peak in 2025 at 2.4 percent of government revenue or 0.5 percent of GDP. - Safeguards assessment: - Latest BCEAO safeguards assessment (December 2013) found a strong control environment; all recommendations implemented. - An updated safeguards assessment is planned in the coming months. ### Staff appraisal, projections, and recommendations - Macroeconomic projections: - Economic growth expected to hover around 5 percent in 2017-19. - Inflation expected to remain within the WAEMU convergence criteria and to progressively move from zero to 2 percent during the program period. - Current account deficit expected to gradually narrow from 8.2 percent to 7.3 percent of GDP during this period. - Staff recommendations: - Complete bank restructuring swiftly to prevent re-emergence of risks to financial stability and the State budget. - Pursue debt reduction and fiscal consolidation to reduce debt below WAEMU convergence criterion by 2019 and below the threshold of heightened risk of overall public debt distress by 2025. - Implement tax policy measures in 2018 and strengthen tax administration and public financial management. - Improve business environment, including opening key sectors to private investments. ### Annex I — Risk Assessment Matrix (highlights) - External risks: - Tighter global financial conditions: Likelihood: High; Nature of Impact: High. - Weaker-than-expected global growth: Likelihood: High/Medium; Nature of Impact: Medium. - Retreat from cross-border integration: Likelihood: Medium; Nature of Impact: High. - Regional and domestic risks: - Surge of insecurity in the region: Likelihood: High; Nature of Impact: Medium. - Continued political unrests: Likelihood: High/Medium; Nature of Impact: High. - Delays in fiscal adjustment and reforms: Likelihood: Low/Medium; Nature of Impact: Medium. - Power-supply shortfalls: Likelihood: High; Nature of Impact: High. - Recommended policy responses include adjusting fiscal balance, implementing competitiveness-enhancing structural reforms, ensuring prudent budgetary management, accelerating measures toward growth-inclusiveness, and investing in power generation capacity. ### Annex II — Debt Sustainability Analysis (summary) - Updated DSA conclusions: - Confirms moderate risk of external debt distress and heightened risk of overall public debt distress (unchanged from April 2017 DSA). - PV of debt-to-GDP currently about twice the prudential level of 38 percent and remains above the indicative benchmark through 2024. - Inclusion of bank recapitalization costs (estimated at 2-4 percent of GDP) would worsen the debt profile. - External debt indicators (baseline): - PV of PPG external debt: 16.5 (2016), 17.8 (2017), 18.4 (2018), 19.2 (2019), 19.0 (2020), 18.7 (2021), 18.2 (2022), 16.6 (2027), 16.7 (2037). - PV of PPG external debt in percent of exports: 47.3 (2016), 52.4 (2017), 56.0 (2018), 57.0 (2019), 55.6 (2020), 53.3 (2021), 52.8 (2022), 51.3 (2027), 60.6 (2037). - Public sector debt path (percent of GDP): - 2014: 65.1; 2015: 75.6; 2016: 81.5; 2017: 77.3; 2018: 74.4; 2019: 70.2; 2020: 66.7; 2021: 63.0; 2022: 58.9; 2023: 54.7; 2024: 50.2; 2025: 45.7; 2026: 42.9; 2027: 41.6. - Stress tests: - Under combination shocks, export shocks, or a one-time 30 percent nominal depreciation in 2018, several external debt indicators breach thresholds in outer years. - Policy implications: - Need for sustained fiscal consolidation, improved debt management, and macro policies supporting growth to reduce vulnerabilities. ### Appendix I — Letter of Intent (selected commitments and program monitoring) - Government requests completion of the first review under Togo’s ECF arrangement based on satisfactory implementation. - End-June 2017: all performance criteria met; two indicative targets missed. - Fiscal policy commitments: - Reach end-December 2017 primary deficit target: primary deficit of 2.7 percent of GDP. - Cabinet adopted 2018 budget consistent with program: plan to achieve a primary deficit (cash basis) of 0.2 percent of GDP in 2018. - Prepare to reach a primary surplus target of 2 percent of GDP in 2019. - Composition of consolidation to rely more on revenue measures; reduced VAT rates introduced by 2017 Finance Law will not be included in 2018 Finance Law. - Introduce a turnover tax for telecom companies (deductible from corporate tax) in 2018 Finance Law. - Institutional reforms and structural benchmarks (selected): - Reorganize Ministry of Economy and Finance (decree): structural benchmark December 2017. - Strengthen OTR, issue secondary legislation, carry out general taxpayer census, implement controls to detect and tax evasion in phosphate, clinker, cement, and iron (structural benchmark end-December 2017). - Reduce stock of pending customs transit cases by 60 percent (structural benchmark June 2018). - Strengthen public investment management: adopt methodologies for project selection by end-June 2018; include in 2019 budget only projects selected through cost-benefit or cost-effectiveness analyses. - Arrears management: develop arrears clearance plan; end-June 2018 performance criterion on net domestic financing includes adjustor to allow arrears clearance of up to about 2 percent of GDP. - Cash management/TSA: submit annual cash plan for 2018 by end-December 2017; close 32 accounts of general government entities and transfer balances to TSA (structural benchmark June 2018). - Prior actions met: - Produce detailed outline of restructuring plan of the two state-owned banks. - Verify 30 percent of revenue foregone from customs exemptions in 2016 through post-clearance audit (End-June 2017). - Submit methodology to identify and verify domestic arrears (End-June 2017). - Centralize all debt management functions and reorganize the debt department (End-September 2017). - Conduct independent audit of domestic arrears (End-September 2017). - Prior action not met: - Approve a comprehensive, timebound restructuring plan for the two public banks and, if required, submit application to the WAMU Banking Commission (End-June 2017) — Not met; structural benchmark timelines reset. ### Program quantitative definitions and reporting (selected) - Debt contracting timing: - A debt is considered contracted when a “no objection” by the Supreme Court is issued if required by domestic law; otherwise when it enters into effect. - Quantitative performance criteria and indicative targets set for: - end-December 2017; end-March 2018 (indicative); end-June 2018. - Key definitions: - Domestic primary fiscal balance: government fiscal revenue less total fiscal expenses, net of interest and capital spending financed by donors and lenders; reported monthly within eight weeks. - Net domestic financing: net credit from banking sector + net domestic nonbank financing + unidentified financing; ceiling adjusted for gaps in external financing subject to caps; reported monthly within eight weeks. - Nonconcessional external debt: debt with grant element < 35 percent (discount rate 5 percent); continuous performance criterion: no new nonconcessional external debt. - Total fiscal revenue: includes tax and nontax revenue; excludes external grants, revenue of autonomous agencies, and privatization income; reported monthly within four weeks. - Domestically financed social spending: current and capital social spending financed with domestic resources across specified ministries and programs; reported monthly. ### Relations with the Fund and statistical issues (selected) - Relations with the Fund (as of October 31, 2017): - Quota: 146.80 (SDR million) — 100.00 percent of quota. - ECF Arrangements outstanding: 67.31 (SDR million) — 45.85 percent of quota. - Recent ECF arrangement: Date of Arrangement May 05, 2017; Expiration Date Dec 31, 2019; Amount Approved 176.16 (SDR million); Amount Drawn 25.17 (SDR million). - Statistical issues — overview (As of October 2017): - Data provision broadly adequate for surveillance, but weaknesses in quality and timeliness hamper analysis. - National accounts: compiled with limited information; base year for constant price GDP is 2007. - Fiscal statistics: derived from weak accounting and reporting systems; timely and accurate tracking of government arrears inadequate. - Balance of payments: reported annually with long lags; coverage incomplete with consistency issues. - Monetary data: reported by BCEAO within 45 days; BCEAO tracking of public sector accounts inadequate. - Prepared by the African Department (in consultation with other departments); November 30, 2017. *Source: IMF staff report and Togolese authorities (cr17379).* ### 1.4 percent of GDP in the first half of 2017, due primarily to expenditure rationalization and the ### cr17379 - 1.4 percent of GDP in the first half of 2017, due primarily to expenditure rationalization and the ### Recent economic developments - Real GDP growth in 2017: 4.8 percent. - Headline inflation around zero percent at end-2017; headline inflation through September: -0.6 percent (average, y-o-y) and -0.8 percent (m-o-m). - Core inflation (excluding food and transportation): 1 percent (average, y-o-y). - Agricultural production boosted by exceptionally favorable rainfall; energy consumption and port and airport traffic indicate healthy activity. - Socio-political tensions since August 2017 are weighing on private investment decisions and may have contributed to a slight downward revision in growth projections. ### Fiscal consolidation, public investment, and debt trajectory - Public investment and prefinancing: - Capital expenditure averaged about 12 percent of GDP in 2013-16 with prefinancing of 3.4 percent of GDP; January–June 2017 capital expenditure amounted to about 1.5 percent of GDP and prefinancing was stopped. - Fiscal balances (first half 2017 vs. 2013-16 averages): - Primary deficit (commitment basis including grants) improved from an annual average of about 6 percent of GDP to a surplus of about 1 percent of GDP in the two periods compared. - Overall balance improved from a deficit of about 8 percent of GDP to a surplus of 0.7 percent of GDP (cash basis, including grants). - Public debt path: - Public debt projected to decline from a peak of 81.5 percent of GDP at end-2016 to 77.3 percent of GDP by end-2017. - Total public debt projections: 77.3 (2017), 74.4 (2018), 70.2 (2019), 66.7 (2020), 63.0 (2021), 58.9 (2022). - Domestic public debt: 56.3 (2017), 51.0 (2018), 44.1 (2019), 40.1 (2020), 36.3 (2021), 32.3 (2022). - External public debt: 21.0 (2017), 23.4 (2018), 26.1 (2019), 26.6 (2020), 26.8 (2021), 26.6 (2022). - Fiscal targets and program performance: - All quantitative performance criteria at end-June 2017 were met; two indicative targets at end-June 2017 were missed. - End-June outturns (percent of GDP): Total revenue and grants 9.3; Total revenue 8.9; Grants 0.5; Expenditures and net lending 9.0; Current expenditures 7.6; Public investment 1.5; Domestic primary balance -1.5; Overall primary balance (cash basis, incl. grants) 1.4; Overall balance (cash basis, excluding grants) 0.2; Domestic financing (net) -0.6; External financing (net) 0.4. ### External sector - Current account balance: -9.7 percent of GDP (2016) to -8.2 percent of GDP (projected 2017). - Trade balance: trade deficit projected to improve from 22.4 percent of GDP (2016) to 20.9 percent of GDP (2017). - WAEMU reserves at about 4 months of region-wide imports at end-2016. - Exports (goods and services) and imports (goods and services) (percent of GDP): 2016 exports 34.9; 2016 imports -54.9; 2017 exports 33.9; 2017 imports -52.3. ### Monetary and financial sector - Broad money (M2) growth (beginning-of-period, percentage change): 2016: 12.6; 2017 projection: 5.7; 2018: 6.6; 2019: 6.9; 2020: 7.4; 2021: 8.2; 2022: 9.0. - Credit to nongovernment sector (beginning-of-period, percentage change): 2016: 10.1; 2017 projection: 11.2; 2018: 10.6; 2019: 8.9; 2020: 11.1; 2021: 11.0; 2022: 13.1. - Net credit to government (beginning-of-period, percentage change): 2016: -2.3; 2017 projection: -4.0; 2018: -2.3; 2019: -0.6; 2020: -2.3; 2021: -1.6; 2022: -2.9. - Bank restructuring: Restructuring of weak banks should be accelerated; timely finalization and adoption of a comprehensive restructuring plan, including measures to restore financial viability and a business plan for the newly-merged bank, are priorities. ### Medium-term outlook and risks - Growth projections (Real GDP): 2017: 4.8; 2018: 5.0; 2019: 5.2; 2020: 5.3; 2021: 5.4; 2022: 5.6. - Consumer price index (average) projections: 2017: -0.1; 2018: 1.2; 2019: 1.4; 2020: 2.0; 2021: 2.0; 2022: 2.0. - Risks are tilted to the downside; if recent tensions persist, the expected private investment boost may not fully materialize and could weaken program implementation. ### Policy priorities and recommendations - Fiscal policy and management: - Pursue in 2018 the fiscal consolidation initiated in 2017 to put debt firmly on a downward path while accommodating tighter domestic and external constraints. - Strengthen fiscal institutions and debt management; improve cash management and adopt prudent borrowing policies to lower government borrowing costs. - Require public investment projects to follow established procurement and budgetary processes to improve spending efficiency. - Verify the stock of government payment arrears, proceed with its clearance, and strengthen public financial management to prevent new arrears accumulation. - Revenue and social spending: - Enhance controls to broaden the taxpayer base and improve revenue collection. - Create room for additional social spending to support poverty reduction while maintaining sustained fiscal efforts. - Financial sector: - Finalize and adopt a comprehensive restructuring plan for the two ailing public banks, including a business plan and measures to restore financial viability. - Restructuring should be guided by sound principles to support the operations of the newly-merged bank and prevent reemergence of risks to the state budget. - Structural reforms: - Advance reforms to enhance revenue collection, improve public financial management, improve the business climate, and open-up key sectors to private investment to boost productivity, competitiveness, and inclusive growth. - Regional and external policy: - Progress toward adherence to the WAEMU convergence criteria to rebuild regional reserves. ### Key numeric indicators (selected) - Real GDP (percent change): 2014: 5.9; 2015: 5.3; 2016: 5.0; 2017: 4.8; 2018: 5.0; 2019: 5.2; 2020: 5.3; 2021: 5.4; 2022: 5.6. - GDP (CFAF billions): 2017: 2,779; 2018: 2,962; 2019: 3,166; 2020: 3,400; 2021: 3,680; 2022: 4,012. - Total revenue and grants (percent of GDP): 2017: 25.3; 2018: 25.6; 2019: 25.4; 2020: 25.5; 2021: 25.4; 2022: 25.4. - Total expenditure and net lending (percent of GDP): 2017: 27.6; 2018: 28.0; 2019: 25.1; 2020: 26.2; 2021: 26.7; 2022: 26.5. - Gross domestic investment (percent of GDP): 2017: 31.8; 2018: 32.1; 2019: 29.1; 2020: 31.0; 2021: 31.9; 2022: 31.8. - Current account balance (percent of GDP): 2017: -8.2; 2018: -8.2; 2019: -7.3; 2020: -6.4; 2021: -5.4; 2022: -5.0. *Sources: Togolese authorities and IMF staff estimates and projections.* ### Box 1. Phasing Out Investment Prefinancing ### Box 1. Phasing Out Investment Prefinancing ### Nature of investment prefinancing and corrective action - Investment prefinancing was a non-orthodox method used by the government whereby: - A private company awarded a single-source public works contract obtained a loan from a domestic commercial bank or a group of commercial banks. - The Finance Ministry guaranteed the loan and signed an unconditional and irrevocable substitution of debtor agreement to service all principle and interest, paid automatically from the Treasury account at the BCEAO—so the full liability rested with the government (MEFP ¶3). - The financial liabilities from prefinanced investment were not included in the public debt stock prior to the correction. - At end-2016: - The Togolese authorities ceased all investment prefinancing practices. - They corrected fiscal accounts and debt stock to accurately reflect the related liabilities. - They committed to undertake all new public investment via the regular budget process. - The authorities provided Fund staff with data to revise fiscal accounts for 2013-2016, showing prefinanced investment execution and interest above the line and showing prefinancing disbursements. The end-2016 public debt stock was revised to include outstanding prefinancing investment liabilities and their service is being reflected in the fiscal accounts. From 2017, authorities confirmed no new prefinanced investments have been undertaken, in line with program performance criteria. ### Fiscal impact and key statistics - Timeline and scale: - The practice began in 2013 and continued through 2016. - Debt surged from 46.1 percent of GDP in 2012 to 80.8 percent by end-2016. - Prefinancing volumes and contribution: - Prefinanced expenditures averaged 3½ percent of GDP per year during 2013-16. - By end-2016 outstanding debt from prefinanced investments stood at CFAF198.3 billion (7.4 percent of GDP). - Prefinancing contributed to the increase in public debt both directly (liabilities incurred) and indirectly (obscuring the government’s true financial position and the need to restrain spending). - Context within debt dynamics: - Togo’s debt soared during 2013-16 from 56 percent to 81 percent of GDP, driven primarily by a surge in domestic debt which includes public investment prefinancing (Text Table 6). - Following corrective measures and the start of fiscal consolidation, public debt was projected to decline to 77.3 percent of GDP by end-2017; by end-2019 debt was expected to fall below the WAEMU convergence criteria of 70 percent of GDP (excluding SOE debt), with potential to fall below the NPV threshold of 38 percent by 2025 if policies are sustained (subject to revision once bank recapitalization costs are included). ### Replacement of prefinancing and institutional steps - Replacement debt instruments: - Prefinancing instruments with maturity of 2-3 years and interest rates of around 7.5 percent have been replaced with debt instruments with maturity of 7 years, grace period of 3 years, and interest rates of around 7 percent (MEFP ¶6). - Bank guarantees and payment orders: - The government requested and received guarantee release letters from commercial banks that had participated in prefinancing arrangements, testifying that the government has withdrawn the loan guarantees previously extended. - The government also sent to the BCEAO cancellation of irrevocable transfer orders that were issued for the related banks. - Commitment to orthodox financing: - The government resolved to use more orthodox and transparent means to finance public sector investment (MEFP ¶22). ### Implications for fiscal management and program enforcement - Accounting and transparency: - Revisions to fiscal accounts and public debt stock now properly show prefinanced investment liabilities and the service of those liabilities. - Program compliance: - Ceasing new prefinanced investments from 2017 is consistent with performance criteria under the ECF-supported program. - Broader fiscal context: - Prefinancing contributed to a marked increase in public debt in recent years and its elimination is part of broader fiscal consolidation measures to curb rapid debt build-up and restore transparency in the government’s financial position. *Source: IMF staff compilation from Box 1, "Phasing Out Investment Prefinancing."* ### 19. The authorities intend to pursue prudent borrowing policies (MEFP ¶21). The debt ### 19. The authorities intend to pursue prudent borrowing policies (MEFP ¶21) ### Debt management and borrowing policies - The debt management unit has been reorganized in front, middle, and back offices (structural benchmark September 2017); this reorganization is expected to improve efficiency. - Authorities replaced costly debt related to investment prefinancing with government bonds at more favorable conditions. - Given the structure of the debt stock and cost differences, authorities intend to make efforts to use concessional external financing within the program limit. - Performance criteria: - Continue to avoid arrears on external public debt. - Avoid contracting or guaranteeing non-concessional external debt. - Refrain from resuming prefinancing and from guaranteeing domestic loans to suppliers and contractors as well as guaranteeing bank prefinancing for public investments. ### Debt stock (selected figures) - Total Public Debt: - 2016: 1,193.5 billion CFAF — 56.4 percent of GDP - 2013: 2,142.3 billion CFAF — 81.5 percent of GDP - External Debt: - 2016: 295.9 billion CFAF — 14.0 percent of GDP - 2013: 534.9 billion CFAF — 20.4 percent of GDP - Central Government External Debt: - 2016: 294.9 billion CFAF — 13.9 percent of GDP - 2013: 518.8 billion CFAF — 19.7 percent of GDP - External Debt by creditor type (2016 / 2013): - Multilateral: 146.5 billion CFAF — 6.9 percent of GDP (2016); 168.2 billion CFAF — 6.4 percent of GDP (2013) - Bilateral: 124.8 billion CFAF — 5.9 percent of GDP (2016); 42.8 billion CFAF — 1.6 percent of GDP (2013) - Commercial Banks: 23.6 billion CFAF — 1.1 percent of GDP (2016); 307.8 billion CFAF — 11.7 percent of GDP (2013) - SOEs: 1.0 billion CFAF — 0.0 percent of GDP (2016); 16.1 billion CFAF — 0.6 percent of GDP (2013) - Domestic Debt: - 2016: 897.6 billion CFAF — 42.4 percent of GDP - 2013: 1,607.4 billion CFAF — 61.2 percent of GDP - Domestic composition (2016 / 2013): - T-Bills + Bonds: 324.2 billion CFAF — 15.3 percent of GDP (2016); 761.7 billion CFAF — 29.0 percent of GDP (2013) - Domestic Arrears: 249.1 billion CFAF — 11.8 percent of GDP (2016); 294.9 billion CFAF — 11.2 percent of GDP (2013) - Others: 324.3 billion CFAF — 15.4 percent of GDP (2016); 550.8 billion CFAF — 21.0 percent of GDP (2013) - Sources: Togolese authorities and Staff calculations. - Note: The 2010 and 2013-16 debt stocks are not fully comparable due to some differences in coverage; figures provide indications on debt developments. - Footnote: For 2013, borrowing from some lenders that was subsequently classified as commercial was instead reported as bilateral. ### Financial Sector: Restructuring the Ailing Banks - Banking sector challenges: - Capital adequacy significantly improved in the first half of 2017 and provisions have been built up for non-performing loans, but credit concentration and exposure to sovereign risk remain. - Banks must prepare for Basel 2 and 3 capital requirements, which will apply from January 2018. - State-owned banks: - Two state-owned banks account for 19 percent of total assets of the financial sector in 2016. - The weakest of the two banks (about 6 percent of total assets) has been under provisional administration since 2008. - Restructuring progress: - A comprehensive restructuring plan was expected as a structural benchmark (June 2017); only first steps were taken by that deadline: completion of an analysis by an independent external firm of the financial situation and merger options. - Other components (measures to restore financial viability and a business plan with financial projections) remained to be completed. - Recent measures and timeline (MEFP ¶24-26): - Cabinet and banks’ shareholders decided to proceed with restructuring; a team of experts appointed to lead the process. - A detailed outline, including measures to restore financial viability and a business plan with financial projections, was produced based on sound principles and international best practice (prior action). - Comprehensive plan to be finalized by February 2018 (structural benchmark February 2018). - Authorities will seek the WAMU banking commission’s approval during its March 2018 session to allow legal transfer to be completed by June 2018 (structural benchmark June 2018). Box 3. Bank Restructuring Plan (key points) - Preliminary detailed outline prepared; based on sound principles and international best practice; comprehensive plan expected to be finalized by end-February 2018. - Guiding principles: - Ensure consistency with legal requirements and regulations. - New merged bank will be adequately recapitalized. - Merger option chosen to minimize cost for the State while preserving financial stability. - Minority shareholders will not be bailed out. - Dedicated unit to collect nonperforming loans. - New bank given a clear public interest mandate; governance, management, and internal control strengthened; loss-making activities eliminated; organizational efficiency improved. - Cost estimates: - Preliminary estimates indicate 2-4 percent of GDP. - Values of buildings, land lots, and other immovable assets will be revisited. - Cost of structure reorganization will be estimated to determine overall cost and cost for the State of each merger option, taking into account liquidity of the newly merged bank. - Comprehensive plan contents: - Business plan and financial projections. - Measures to improve profitability covering human resources policies, market segments and products, distribution and commercial strategy, NPL collection strategy, internal control, and IT system reorganization. - Designed to ensure newly merged bank will show solid financial projections and prevent re-occurrence of risks to financial stability and the state’s budget. ### Structural reforms and business environment - National Development Plan: - New National Development Plan is under preparation (successor to Strategy for Accelerated Growth and Promotion of Employment, 2013-17). - Plan structured around: (i) combating poverty and improving social wellbeing; (ii) promoting sustained, inclusive economic growth; (iii) exploiting growth potential of key sectors; (iv) sustainably managing the environment and reducing spatial inequality; and (v) strengthening governance and peace. - Preparation has started but is taking longer than anticipated to ensure government priorities are reflected. - Business climate challenges: - 2018 World Bank’s Doing Business Survey: Togo had slight improvement in 2017 but ranks below WAEMU neighbors. - Progress in 2017: facilitating resolution of insolvent businesses, trading across borders, getting electricity. - Needed improvements: ease of getting credit, paying taxes, dealing with construction permits. - Policy recommendations: - Open up closed sectors such as telecommunications, energy, and mining to private investments. - Improve property title registration and legal framework to allow use of property as collateral for SME loans. ### Program modalities and financing assurances - Program review: - Program reviewed semi-annually based on quantitative performance criteria, indicative targets, and structural benchmarks. - Second and third reviews will be based on performance criteria and structural benchmarks at end-December 2017 and end-June 2018, respectively (see Tables 1 and 3 of the MEFP). - Financing: - Program is fully financed. - Development partners have not modified committed financial assistance; some donors have started disbursing. - ECF-supported program emphasizes using grants and concessional financing—within program limits—for priority investment projects. - For the rest of 2017 and for 2018, financing needs covered by the World Bank, European Union and African Development Bank; programmed ECF disbursements will close remaining financing needs. - Safeguards assessment: - Latest BCEAO safeguards assessment (December 2013) found a strong control environment; all recommendations implemented. - An updated safeguards assessment is planned in the coming months, in line with a four-year cycle for regional central banks. - IMF repayment capacity: - Togo’s capacity to repay the Fund remains adequate. - Obligations to the Fund would peak in 2025 at 2.4 percent of government revenue or 0.5 percent of GDP. ### Staff appraisal, projections, and risks - Macroeconomic projections: - Economic growth expected to hover around 5 percent in 2017-19. - Inflation expected to remain within the WAEMU convergence criteria and to progressively move from zero to 2 percent during the program period. - Current account deficit expected to gradually narrow from 8.2 percent to 7.3 percent of GDP during this period. - Risks: - Risks are tilted to the downside. - If recent tensions persist (the most serious unrest in a decade), the private investment boost expected to compensate for public investment retrenchment may not fully materialize. - Recent tensions may erode social support necessary for structural reforms; indications of hesitations by private investors exist. - Some government bond issuances have been undersubscribed in recent months; underlying factors need scrutiny. - Staff commendations and recommendations: - Commends authorities’ good performance under the ECF-supported program and delivery of fiscal adjustment early in the program. - Notes that non-orthodox financing of public investment was stopped and replaced with bonds at more favorable conditions. - Encourages continued efforts to: - Pursue debt reduction. - Complete bank restructuring swiftly to prevent re-emergence of risks to financial stability and the State budget and to timely implement the Banking Commission’s rulings. - Strengthen institutions and implement measures to improve competitiveness. - Pursue fiscal consolidation to address high debt level; consolidation envisaged under the program would reduce debt below the WAEMU convergence criteria by 2019 and below the threshold of heightened risk of overall public debt distress by 2025. - Implement tax policy measures in 2018 and measures to strengthen tax administration and public financial management. - Improve business environment, including opening up key sectors to private investments. *Source: IMF staff report (Togo) as provided in the supplied content.* ### 33. Staff recommends the completion of the first review of the program. This ### 33. Staff recommends the completion of the first review of the program ### Program recommendation and authorities' request - Staff recommends the completion of the first review of the program. - Recommendation is based on the authorities’ good performance to date under the program. - Staff supports the authorities’ request for the modification of the end-December 2017 indicative target on the total fiscal revenue floor. ### Recent economic developments (highlights) - Economic activity expanded at a moderate pace in 2017. - Merchandise traffic at the Port Autonome de Lomé (Jan-16–Jun-17) expanded mainly due to higher exports and transshipment (chart data). - Energy consumption has gone up by about 7 percent y-o-y, on average, over January–June 2017, relative to the same period in 2016. - Industrial production in manufacturing and food industries has expanded through July 2017. - The tertiary sector has been the largest contributor to growth; the primary sector has been slightly accelerating. - Banking system mobilization: credit to the private sector expanded sharply in the second half of 2016 and stabilized in the first half of 2017. ### Fiscal stance and projections (selected figures from Table 1) - Real GDP: 2017 est. 4.8; 2018 proj. 5.0; 2019 proj. 5.2; 2020 proj. 5.3; 2021 proj. 5.4; 2022 proj. 5.6 (percent change). - Consumer price index (average): 2017 est. -0.1; 2018 proj. 1.2; 2019 proj. 1.4; 2020–2022 proj. 2.0, 2.0, 2.0. - GDP (CFAF billions): 2017 est. 2,779; 2018 proj. 2,962; 2019 proj. 3,166; 2020 proj. 3,400; 2021 proj. 3,680; 2022 proj. 4,012. - Total revenue and grants (percent of GDP): 2017 est. 25.3; 2018 proj. 25.6; 2019 proj. 25.4; 2020–2022 proj. 25.5, 25.4, 25.4. - Total expenditure and net lending (percent of GDP): 2017 est. 27.6; 2018 proj. 28.0; 2019 proj. 25.1; 2020–2022 proj. 26.2, 26.7, 26.5. - Overall balance (cash basis) (percent of GDP): 2017 est. -4.8; 2018 proj. -4.6; 2019 proj. -1.1; 2020 proj. -0.8; 2021 proj. -1.3; 2022 proj. -1.0. - Public investment (percent of GDP): 2017 est. 11.0; 2018 proj. 10.6; 2019 proj. 7.1; 2020–2022 proj. 8.5, 8.5, 8.4. - Domestic primary balance (percent of GDP): 2017 est. -4.5; 2018 proj. 2.3; 2019 proj. 3.5; 2020 proj. 5.3; 2021 proj. 3.9; 2022 proj. 3.7. - Overall primary balance (cash basis) including grants (percent of GDP): 2017 est. -2.7; 2018 proj. -2.2; 2019–2022 proj. 2.0 each year. ### External sector (highlights and projections) - Current account balance (percent of GDP): 2017 est. -8.2; 2018 proj. -8.2; 2019 proj. -7.3; 2020 proj. -6.4; 2021 proj. -5.4; 2022 proj. -5.0. - Trade balance (percent of GDP): 2017 est. -20.9; 2018 proj. -20.4; 2019 proj. -19.5; 2020 proj. -18.7; 2021 proj. -17.7; 2022 proj. -17.3. - Exports (goods and services) (percent of GDP): 2017 est. 23.0; 2018 proj. 22.2; 2019 proj. 22.9; 2020 proj. 23.1; 2021 proj. 24.0; 2022 proj. 23.5. - Imports (goods and services) (percent of GDP): 2017 est. 43.9; 2018 proj. 42.5; 2019 proj. 42.4; 2020 proj. 41.8; 2021 proj. 40.8; 2022 proj. 40.8. - WAEMU Reserves (2010–2017, in months of next year's imports) show a decline historically; Togo's high current account deficit has contributed to pressures on regional reserves. - Drivers of recent trade improvement: strengthening trade balance driven by lower costs of oil and the reduction of capital imports as public investment projects slowed. ### Monetary and banking sector indicators (selected) - Broad money (M2) annual change: 2017 est. 5.7; 2018 proj. 6.6; 2019 proj. 6.9; 2020 proj. 7.4; 2021 proj. 8.2; 2022 proj. 9.0 (percent change of beginning-of-period broad money). - Credit to nongovernment sector (percent change): 2017 est. 11.2; 2018 proj. 10.6; 2019 proj. 8.9; 2020 proj. 11.1; 2021 proj. 11.0; 2022 proj. 13.1. - Net credit to government (percent change): 2017 est. -4.0; 2018 proj. -2.3; 2019 proj. -0.6; 2020 proj. -2.3; 2021 proj. -1.6; 2022 proj. -2.9. - Money supply (M2) levels (bn CFAF): 2017 est. 1,514.9; 2018 proj. 1,614.5; 2019 proj. 1,725.6; 2020 proj. 1,853.4; 2021 proj. 2,006.3; 2022 proj. 2,187.2. - Banking system: deposits and credit mobilization increased; credit to private sector expanded (see charts and Table 4). ### Banking system soundness (selected indicators, Table 5) - Non-performing loans to total gross loans: 2014 15.4; 2015 16.6; 2016 15.4; 2017 H1 16.7 (percent). - Bank provisions to non-performing loans: 2014 74.0; 2015 69.2; 2016 77.3; 2017 H1 75.9 (percent). - Regulatory capital to risk-weighted assets: 2014 8.5; 2015 6.8; 2016 3.9; 2017 H1 7.9. - Return on assets (ROA): 2014 0.9; 2015 0.7; 2016 2.6; 2017 H1 -2.8. - Loan to deposit ratio: 2014 93.0; 2015 94.1; 2016 94.5; 2017 H1 88.8. ### Debt, financing, and IMF program disbursements - Total public debt (percent of GDP): 2017 est. 77.3; 2018 proj. 74.4; 2019 proj. 70.2; 2020 proj. 66.7; 2021 proj. 63.0; 2022 proj. 58.9. - External public debt (percent of GDP): 2017 est. 21.0; 2018 proj. 23.4; 2019 proj. 26.1; 2020 proj. 26.6; 2021 proj. 26.8; 2022 proj. 26.6. - External public debt service (percent of exports): 2017 est. 4.2; 2018 proj. 3.7; 2019 proj. 3.9; 2020 proj. 4.7; 2021 proj. 4.9; 2022 proj. 5.3. - Table 6 indicators of capacity to repay the Fund: Principal repayments (in millions of SDRs) 2016 17.3; 2017 19.1; 2018 17.8; 2019 11.0; 2020 7.5; 2021 1.8; 2022 2.5; and outstanding IMF credit projections (in millions of SDRs) decline from 57.1 in 2016 to 12.1 in 2028. - Schedule of disbursements under ECF Arrangement (Table 7): SDR 25.17 million disbursements on May 5, 2017 (following Executive Board Approval), September 15, 2017 (observance of continuous and end-June 2017 performance criteria and completion of the first review), March 15, 2018, September 15, 2018, March 15, 2019, September 15, 2019, and SDR 25.14 million on December 15, 2019 (each conditional on observance of performance criteria and completion of successive reviews). ### Analysis and program implications (drawn from staff findings) - Good performance under the program to date supports completion of the first review and continued disbursement under the ECF subject to meeting performance criteria. - The authorities’ request to modify the end-December 2017 indicative target on the total fiscal revenue floor is supported by staff given program performance. - Continued fiscal consolidation is reflected in projected improvements in domestic primary balance and overall primary balance from 2018 onward. - External vulnerabilities remain, with a high current account deficit that is projected to gradually narrow but continue to place pressure on regional reserves. - Bank soundness indicators show elevated non-performing loans and mixed profitability trends, underlining the importance of banking sector oversight and potential recapitalization costs (noted elsewhere as estimated at 2-4 percent of GDP). *Source: IMF staff report and associated tables and figures (excerpt provided).* ### Annex I. Risk Assessment Matrix 1/ ### Annex I. Risk Assessment Matrix 1/ ### External Risks - Tighter global financial conditions: strengthening of US dollar and/or higher rates (ST) - Likelihood: High - Nature of Impact: High - Findings: - Stronger US dollar and/or higher rates would increase external debt servicing costs and import prices, putting pressure on the budget and inflation. - Recommended Policy Response: - Adjust the fiscal balance and implement competitiveness-enhancing structural reforms. - Weaker-than-expected global growth (ST, MT) - Likelihood: High/Medium - Nature of Impact: Medium - Findings: - Exports and growth would be adversely affected, particularly through the impact on key trading partners such as Ghana and Nigeria. - The impact would be somewhat mitigated as Togo’s exports are diversified by product and destination. - Recommended Policy Response: - Implement competitiveness-enhancing structural reforms. - Retreat from cross-border integration (ST, MT) - Likelihood: Medium - Nature of Impact: High - Findings: - Reduced global policy collaboration may limit international aid, FDI, trade flows, exports, and growth. - Recommended Policy Response: - Ensure prudent budgetary management to contain financing need; bolster regional policy coordination and regional trade. ### Regional and Domestic Risks - Surge of insecurity in the region (ST, MT) - Likelihood: High - Nature of Impact: Medium - Findings: - Private investments (domestic and foreign) and tourism would decline; growth of some trading partners would slow; security-related budgetary spending may increase; financing from the regional market may tighten. - Recommended Policy Response: - Ensure prudent budgetary management to contain financing need. - Continued political unrests (ST, MT) - Likelihood: High/Medium - Nature of Impact: High - Findings: - Economic activity and growth would slow down; spending pressure may intensify to address social demands; support for structural reforms may dwindle. - Recommended Policy Response: - Accelerate measures towards growth-inclusiveness; communicate and discuss structural reforms with key stakeholders. - Delays in fiscal adjustment and reforms (ST) - Likelihood: Low/Medium - Nature of Impact: Medium - Findings: - Pressures may arise from various interest groups to continue large public works and delay structural reforms such as the opening-up of key sectors to private investments. - Recommended Policy Response: - Persevere in fiscal consolidation and accelerate structural reforms. Put in place social programs to address potential adverse impact of reforms on the most vulnerable groups of the population. - Power-supply shortfalls (ST, MT) - Likelihood: High - Nature of Impact: High - Findings: - Planning and regulatory inaction, combined with poor management of utilities, may lead to widespread power cuts. This will create costs to the budget and inhibit economic growth. - Recommended Policy Response: - Invest in power generation capacity and reform pricing policies to promote private sector participation in the sector. Public sector entities should be current on their bills to prevent accumulation of arrears. ### RAM explanatory notes - 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. *Annex I. Risk Assessment Matrix 1/* ### Annex II. Debt Sustainability Analysis ### Annex II. Debt Sustainability Analysis ### Summary findings - The updated DSA confirms Togo’s moderate risk of external debt distress and heightened risk of overall public debt distress — unchanged from the previous DSA published in April 2017. - Significant downside risks to growth and fiscal prospects could lead to a deterioration of Togo’s risk of external debt distress. - External debt remains vulnerable to shocks on exports (low external demand or commodity price decline) and on non-debt creating flows. - Overall public debt dynamics present heightened vulnerabilities: the PV of debt-to-GDP is currently twice the prudential level of 38 percent and remains above the indicative benchmark through 2024. - Once costs of bank recapitalization, estimated at 2-4 percent of GDP, are realized and included in fiscal accounts, the debt profile will worsen. ### Baseline macroeconomic assumptions and fiscal posture - Real GDP growth: current-year and medium-term profile implies growth is lower in the medium-term and reverts slightly above the April 2017 forecast in 2022; table key series lists Real GDP growth as 5.9 (2014), 5.3 (2015), 5.0 (2016), 5.0 (2017), 2.3 (2018), 4.8 (2019), 5.0 (2020), 5.2 (2021), 5.3 (2022), and medium-term averages 5.4–6.0. - Inflation (GDP deflator): revised down by "1 and 0.5 percent in 2017 and 2018, respectively"; table shows inflation (GDP deflator) series including 2.9 (2017), 3.4 (2018), 0.9 (2019), and medium-term 4.0 percent assumptions. - Primary fiscal balance: anchored on a surplus of 2 percent by the end of the program and until 2025, when debt declines below the threshold of heightened risk of public debt distress. - Current account deficit: about 1 percent of GDP lower in 2017 due to a higher-than-expected decline in imports. - FDI: down 0.4 percent of GDP each year relative to the previous DSA vintage; Net FDI series shows 6.7 (2014), 2.2 (2015), 1.7 (2016), 2.3 (2017), 5.6 (2018), 1.7 (2019), 1.4 (2020), 1.0 (2021), 0.7 (2022), and later small/negative entries in projections. ### External debt indicators (baseline) - PV of public and publicly guaranteed (PPG) external debt: projected at 16.5 percent of GDP in 2016 and will stabilize around this level until 2037. - PV of PPG external debt (table): 16.5 (2016), 17.8 (2017), 18.4 (2018), 19.2 (2019), 19.0 (2020), 18.7 (2021), 18.2 (2022), 16.6 (2027), 16.7 (2037). - PV of PPG external debt in percent of exports: 47.3 (2016), 52.4 (2017), 56.0 (2018), 57.0 (2019), 55.6 (2020), 53.3 (2021), 52.8 (2022), 51.3 (2027), 60.6 (2037). - PV of PPG external debt in percent of government revenues: 87.6 (2016), 88.8 (2017), 85.1 (2018), 90.2 (2019), 88.8 (2020), 87.6 (2021), 85.3 (2022), 77.8 (2027), 78.1 (2037). - Debt service measures: debt service-to-exports ratio and PPG debt-service-to-exports ratio remain well below thresholds and broadly downward; table entries include Debt service-to-exports ratio 2.9 (2014), 3.1 (2015), 5.0 (2016), 4.3 (2017), 3.9 (2018–2020), 4.0 (2022), 3.1 (2027), 3.0 (2037). ### Overall public debt dynamics (baseline) - Public sector debt (total): forecast at 77.3 percent of GDP in 2017, falling below the 70 percent WAEMU convergence criterion by 2019. - Public sector debt path (selected entries): 65.1 (2014), 75.6 (2015), 81.5 (2016), 77.3 (2017), 74.4 (2018), 70.2 (2019), 66.7 (2020), 63.0 (2021), 58.9 (2022), 54.7 (2023), 50.2 (2024), 45.7 (2025), 42.9 (2026), 41.6 (2027), 38.4 (2037 average noted). - PV of public sector debt (table): 77.7 (2016), 74.1 (2017), 69.4 (2018), 63.3 (2019), 59.1 (2020), 54.9 (2021), 50.5 (2022), 46.0 (2027), 41.4 (2037). - Gross financing need: 20.6 (2014), 27.7 (2015), 19.6 (2016), and projected 9.7 (2017), 9.4 (2018), 6.8 (2019), with later-year profiles shown in table. ### Identified risks and stress-test outcomes - Under the baseline, all external debt indicators remain below policy-relevant thresholds through the projection period. - Under the historical scenario and several shock scenarios, several external debt indicators breach thresholds in outer years. - Sensitivity analysis (Table 1b and Table 2b) highlights key stress tests and outcomes: - PV of debt-to-GDP, PV of debt-to-exports, PV of debt-to-revenue, and debt-service ratios increase under alternative and bound tests (examples from Table 1b and 2b show higher values under A1, A2, B1–B6 scenarios). - Most extreme stresses include combination shocks, export shocks, and one-time 30 percent nominal depreciation in 2018. - Table excerpts show scenarios where PV of debt-to-GDP and PV of debt-to-exports rise materially relative to baseline projections (detailed percent-series per scenario are provided in the DSA tables and figures). - Figure notes: the most extreme stress test is defined as the test yielding the highest ratio on or before 2027; for specific indicators the most extreme shocks are identified (Combination shock, Exports shock, One-time depreciation shock). ### Key tables and illustrative figures (high-level) - Table 1a: External Debt Sustainability Framework, Baseline Scenario, 2014–2037 — includes external debt (nominal), identified net debt-creating flows, PV of external debt, debt service ratios, key macro assumptions (Real GDP growth, GDP deflator change, effective interest rate), government revenues, aid flows, and memorandum items (Nominal GDP, PV of PPG external debt in US$). - Table 2a: Public Sector Debt Sustainability Framework, Baseline Scenario, 2014–2037 — includes public sector debt composition, change in public sector debt, identified debt-creating flows, primary deficit, revenue and grants, primary expenditure, automatic debt dynamics, residuals, PV of public sector debt, gross financing need, and key macro-fiscal assumptions. - Figures 1–2: time-series charts comparing baseline, historical scenario, and most extreme shock for indicators such as PV of debt-to-GDP, PV of debt-to-exports, PV of debt-to-revenue, debt service-to-exports, debt service-to-revenue, grant-equivalent financing, rate of debt accumulation, and public-debt benchmarks. ### Policy implications and recommendations highlighted by the analysis - The analysis highlights the need for: - Sustained fiscal consolidation to lower public debt ratios over the medium term. - Improved debt management to increase resilience to shocks affecting debt-service needs. - Macroeconomic policies that support growth and reduce vulnerabilities associated with external shocks. - Recognition that realization of contingent fiscal costs (e.g., bank recapitalization estimated at 2-4 percent of GDP) would require policy adjustments to prevent deterioration in debt indicators. *Source: Country authorities; and staff estimates and projections.* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### Program request and overview - The government requests the completion of the first review under Togo’s ECF arrangement based on satisfactory implementation of the program. - All end-June 2017 performance criteria were met; the two end-June 2017 indicative targets were not met. - Four of the five structural benchmarks set for end-June 2017 and end-September 2017 have been met. - The government requests the modification of the end-December 2017 indicative target on the floor on total fiscal revenue. - The government requests the publication of the staff report for the first review under the ECF arrangement, this letter of intent, and the attached MEFP and technical memorandum of understanding. ### Recent economic developments (findings) - Economic activity expanded at a growth rate of about 5 percent in 2017, accompanied by low inflation. - Commercial bank credits remained broadly stable in the first half of 2017 following strong expansion in the second half of 2016. - Energy consumption increased by 11.2 percent in May 2017 (y-o-y). - Traffic at both port and airport increased, driven primarily by transshipment. - Some large companies’ turnover reportedly stagnated in the first half of 2017, particularly in the construction sector. - Trade balance: improved in Q1 2017 relative to the previous quarter; preliminary data for Q2 2017 point to a slight deterioration relative to Q1 2017. - Headline inflation at end-September was -0.6 percent (average, y-o-y) and -0.8 percent (m-o-m); core inflation (excluding food and transportation) was 1 percent (average, y-o-y). ### Fiscal performance and program implementation (findings) - The government ceased non-orthodox financing of investment expenditure, which had led to large public debt buildup in recent years. - During 2013-16, the primary fiscal balance averaged a deficit of about 6 percent of GDP per year, which included an average investment prefinancing of about 3.4 percent of GDP per year. - During the first half of 2017, the primary fiscal balance registered a surplus of 1.4 percent of GDP. - All end-June 2017 performance criteria (QPCs) were met; two end-June indicative targets (ITs) were not met. - The domestic primary balance and net domestic financing were met with large margins. - Zero-ceiling QPCs respected: non-accumulation of arrears on external public debt; government contracting or guaranteeing of nominal non-concessional external debt; government guaranteeing of domestic loans to suppliers and contractors; government guarantees on bank pre-financing for public investments. - Indicative target on fiscal revenue was missed by a very small margin. - Total domestically financed social spending fell by about 0.4 percentage point of GDP below target. - Overall primary balance exceeded projections by about 4 percentage points of GDP. - Concessional borrowing was lower by about 1 percentage point of GDP. - Strong fiscal consolidation led to an overperformance of 2.2 percentage points of GDP on the domestic primary fiscal balance. - Domestic primary expenditures were contained beyond the program path by 2.2 percentage points of GDP. - Net domestic financing was lower by about 3.5 percentage points of GDP; instead of programmed domestic borrowing of about 2.5 percent of GDP, liabilities were reduced by about 1 percentage point of GDP. - The Tax Authority completed verification of 30 percent of revenue foregone from customs exemptions in 2016 through a post-clearance audit program. - A methodology to identify and verify domestic arrears was developed by the Ministry of Economy and Finance. - A decree was issued to strengthen debt management, based on IMF technical assistance. - An independent audit of government arrears by a private company was completed. - The structural benchmark on restructuring the two remaining publicly owned banks was not fully completed, but progress and corrective measures are under way. ### Macroeconomic outlook and objectives - Growth forecasts for 2018 and the medium term may be slightly weaker than previously projected, but economic activity is expected to remain healthy. - Reasoning: recent upgrading of public infrastructure will likely boost productivity and motivate private investments; external concessional financing of public investments is projected to rise and offset negative fiscal impulse from consolidation. - Inflation expected to remain well anchored within the WAEMU regional policy framework. - External current account balance will gradually improve as imports of capital goods are reduced. ### Fiscal policy and targets (policy commitments) - The government is determined to reach in 2017 the primary balance target under the ECF-supported program. - End-December 2017 target: primary deficit of 2.7 percent of GDP (the government is confident this is within reach). - Policy approach: continue to contain investment expenditure and strengthen revenue collection while protecting priority social expenditures. - For 2018, the Cabinet adopted a budget consistent with the program: plan to achieve a primary deficit (cash basis) of 0.2 percent of GDP in 2018. - Prepare to reach a primary surplus target of 2 percent of GDP in 2019. - Public debt (including public enterprise debt) projected to decline from 81.5 percent of GDP in 2016 to 70.2 percent of GDP at end-2019 under the envisaged primary surplus path. - Sustaining a primary surplus of 2 percent of GDP post-program would bring the net present value of public debt below the threshold of 38 percent of GDP of heightened risk of public sector debt distress by 2025. - Composition changes to consolidation: rely more on revenue measures to accommodate tighter constraints. - The reduced VAT rates introduced by the 2017 Finance Law will not be included in the 2018 Finance Law. - A turnover tax for telecom companies, deductible from corporate tax, will be introduced in the 2018 Finance Law. - An intelligence and risk analysis unit and a case handling unit will be created. - On the expenditure side, continue to contain domestically financed expenditure and seek external concessional loans within program limits to create fiscal space for social transfers. ### Fiscal management and institutional reforms (policy commitments and structural benchmarks) - Reorganize the Ministry of Economy and Finance with essential elements: - Strengthen the debt management directorate. - Strengthen the budget directorate by encompassing budget preparation and monitoring and medium-term budget frameworks. - Establish a tax policy unit in charge of defining tax policy and related fiscal impact. - A decree to implement this reorganization (structural benchmark December 2017). - Strengthen the Office Togolais des Recettes (OTR): - Issue all secondary legislation of the revenue authority law to provide the OTR the legal framework to fully operate. - Continue performance contracts between the Chairperson of the Board of OTR and General Commissioner. - Carry out a general taxpayer census to broaden the taxpayer base and improve consolidation of the taxpayer file. - Step up fight against tax evasion beginning with resolution of detected potential evasion cases in specific sectors. - Implement controls to detect and tax inaccurate declarations and potential evasions in phosphate, clinker, cement, and iron (structural benchmark end-December 2017). - Effectively implement the recently revised segmentation of taxpayers. - Encourage voluntary compliance by improving tax procedures and taxpayer services. - Customs administration reforms: - Build on audit results of customs exemptions and address identified irregularities. - Enhance automation, reduce manual procedures and cash transactions. - Audit the entire automated processing of customs clearance from arrival to exit and include all steps in SYDONIA WORLD that are not processed therein. - Enhance import assessment and control of tax exemptions through improved risk analysis and transparent audit and control. - Restrict emergency clearance and prohibit its use for goods that have already exceeded the normal clearance period. - Reduce the stock of pending customs transit cases by 60 percent (structural benchmark June 2018). - Improve synergies between tax and customs and indirect tax directorates through exchange of information and interconnection of SYDONIA and SGIO. - Public investment management: - Continue to refrain from guaranteeing any new bank prefinancing for public investments (performance criteria). - Adopt a budget for FY 2018 consistent with the Fund-supported program. - Strengthen preparation and selection of projects via new methodologies by end-June 2018; include in the 2019 budget only investment projects selected through cost-benefit or cost-effectiveness analyses (structural benchmark June 2018). - Enhance dedicated units to improve preparation, selection, and follow-up of public investment projects. - The dedicated unit will prepare and publish a comprehensive multi-year public investment program (PIP) aligned with the medium-term budget framework, showing for each project lifecycle cost, yearly commitment, and financing source. - The unit will produce a methodology for preparing and prioritizing investment projects for future budgets. - The execution directorate will ensure procurement processes are followed and payments to private sector are made after verification of completion of works. - The dedicated directorate will prepare ex-ante assessments and status-of-execution reports; at year-end, prepare reports for completed major projects with ex-ante and ex-post assessments. - Arrears management and prevention: - An independent audit of domestic arrears was carried out (structural benchmark September 2017). - Develop an arrears clearance plan based on prioritization of selected sectors. - The end-June 2018 performance criterion on net domestic financing includes an adjustor to allow arrears clearance of up to about 2 percent of GDP. - Issue circulars to financial services of all government entities providing directives to prevent arrears accumulation (structural benchmark June 2018) that will, at minimum: - Request a commitment plan. - Establish robust reporting of payables. - Clarify that contracts signed outside the legal expenditure chain will lead to sanctions against officials who illegally created the liability. - Aggregate and centrally revise commitment plans in line with a treasury plan to prevent arrears accumulation. - Cash management and Treasury single account (TSA): - Strengthen cash management to avoid liquidity-induced spending bottlenecks, help prevent arrears, and reduce borrowing costs. - Submit to the Fund by end-December 2017 an annual cash plan for 2018 consistent with the 2018 public procurement plan and the quarterly commitments plan for 2018 (structural benchmark December 2017). - Adopt an annual plan for issuing bonds in 2018 consistent with the related cash plan. - Close 32 accounts of general government entities in commercial banks and transfer the balance to the Treasury Single Account (TSA), taking into account impact on the banking system (structural benchmark June 2018). - Sign an agreement establishing the TSA with the central bank (BCEAO), including accounts of the Togolese Revenue Authority (OTR). - Sign two other agreements for the state cashier function with Union Togolaise des Banques and Centre des Chèques Postaux. *Attachment: Memorandum of Economic and Financial Policies (MEFP) and Technical Memorandum of Understanding referenced in the Letter of Intent.* ### 21. The government remains committed to reducing public debt, including public enterprise ### cr17379 - 21. The government remains committed to reducing public debt, including public enterprise debt, to about 70 percent of GDP by 2019 ### Debt reduction commitment and borrowing limits - Commitment to reduce public debt, including public enterprise debt, to about 70 percent of GDP by 2019 to reduce the risk of overall debt distress. - Continuous performance criterion: no new contracting or guaranteeing of nominal external nonconcessional debt. - Ceiling on the contracting or guaranteeing of nominal concessional external debt. - Borrowing plans will seek to: - reduce debt vulnerabilities; - avoid an excessive buildup of short-term debt; - consider potential rollover and foreign exchange risks. ### Actions to stop indirect bank borrowing and guarantees - Prefinancing arrangements (indirect bank borrowing for public investments) were ended since early 2017. - Commitment not to provide any guarantees of bank prefinancing of public investments or guarantees of domestic loans to suppliers and contractors (performance criteria). ### Strengthening debt management - Operationalizing a decree to centralize all debt management functions in one entity. - Organizing the debt department unit into front, middle, and back offices. - Strengthening debt recording/monitoring capacity and training staff. - Ensuring the budget is in line with the medium-term debt strategy. ### Financial sector policy — public banks restructuring - Independent audit of the two publicly-owned banks (Banque Togolaise pour le Commerce et l’Industrie (BTCI) and Union Togolaise des Banques (UTB)) conducted by an international firm. - Six merger options identified by the audit: - (i) merger-acquisition (fusion absorption) whereby UTB takes over BTCI; - (ii) reverse merger-acquisition (fusion absorption à l’envers) whereby BTCI takes over UTB; - (iii) typical merger, creating a new entity (fusion reunion); - (iv) sale of main BTCI assets and debts to UTB, followed by dissolution/liquidation of BTCI (cession); - (v) transfer of the BTCI state ownership to UTB (fusion renonciation); - (vi) purchase by the government of minority shares in BTCI followed by a merger of the two banks (fusion simplifiée). - Government inclination: option (vi) — purchase of minority shares in BTCI followed by a merger (fusion simplifiée). - Preliminary estimated budget cost of restructuring: about 2-4 percent of GDP (to be refined based on valuation of assets and liabilities). - Comprehensive restructuring plan principles: - adequate capitalization of the merged and restructured bank; - no bailout of minority shareholders; - minimization of costs for the state while preserving financial stability; - active collection of nonperforming loans by a dedicated unit within the bank; - a clear public interest mandate and strengthened governance free from political interference; - strengthened management and internal control in the merged bank; - elimination of loss-making activities; - improved organizational efficiency. - Prior action: produced a detailed outline of the restructuring plan (Prior Action Met). - Timetable and structural benchmarks: - full-fledged restructuring plan to be completed by the project manager and approved by the government by end-February 2018 (structural benchmark February 2018); - legal transfers required in the restructuring plan to be completed by June 2018 at the least cost possible to the government (reset structural benchmark for June 2018). - Commitment to strengthen enforcement of prudential regulations and timely comply with the WAMU Banking Commission rulings. ### Structural reforms and inclusive growth - Prepare a plan addressing key shortcomings in the Doing Business Indicators, including actions to improve: - access to electricity; - access to credit; - paying taxes; - dealing with construction permits. - Improve property title registration and legal framework to allow property as collateral for SME loans. - Plan to open key sectors to enhance competition: energy, telecom, and mining sectors. - Focus on sustainable and inclusive growth through targeted social spending and sustainably financed investment under programs: - Emergency Program for Community Development (Programme d’Urgence de Développement Communautaire – PUDC); - Support Program for Vulnerable Populations (Programme d’Appui aux Populations Vulnérables – PAPV). - Indicative target: set a floor on domestically financed social spending, in particular for projects with high impact on poverty reduction. - Strengthen monitoring and targeting of social spending; establish a reporting system for social expenditure. - Preparation of the National Development Plan (PND) for 2018-22 to replace the Strategy for Accelerated Growth and for Promoting Employment (2013-17). PND built on five pillars: - (i) combating poverty and improving social well-being; - (ii) promoting sustained and inclusive economic growth; - (iii) building the potential of growth sectors; - (iv) sustainably managing the environment and reducing spatial inequality; - (v) strengthening governance and peace. ### Program monitoring, reviews, and data strengthening - Program reviews: semi-annual based on quantitative performance criteria, indicative targets, and structural benchmarks. - Performance criteria proposed for end-June 2018 and indicative targets for end-March 2018. - Second and third reviews scheduled on or after March 15, 2018 and September 15, 2018 respectively. - Institutional strengthening for monitoring: - Permanent Secretariat for Reform Policies and Financial Programs (Secrétariat permanent chargé des politiques de réformes et des programmes financiers – SP-PRPF) to provide technical program monitoring, produce quarterly progress reports, and serve as liaison with partners. - Statistical improvements: - reduce lags in national accounts production by improving preliminary GDP data production; - strengthen staffing within the National Statistics and Accounting Institute (INSEED); - progress made in compiling and producing fiscal reports, particularly the government financial operations table (“Tableau des Opérations Financières de l’Etat”); - ensure next-year budget projections are based on projection for current-year budget execution. ### Key quantitative targets and selected outturns (June 2017 – June 2018, Billions CFA Francs) - Domestic primary fiscal balance (floor): - End-September 2017 Indicative Target: -19.0 - End-September 2017 Outturn: 43.0 (Met) - End-December 2017 Indicative Target: 8.4 - End-December 2017 Outturn: 13.4 (Met) - End-March 2018 Target: -6.2 - End-March 2018 Outturn: -12.4 - Non-accumulation of arrears on external public debt (continuous performance criterion): - End-September 2017 Indicative Target: 0.0; Outturn: 0.0 (Met) - End-December 2017 Indicative Target: 0.0; Outturn: 0.0 (Met) - End-March 2018 Target: 0.0; Outturn: 0.0 - Net domestic financing (ceiling): - End-September 2017 Indicative Target: 80.3; Outturn: -17.4 (Met) - End-December 2017 Indicative Target: 157.8; Outturn: 31.6 (Met) - End-March 2018 Target: 51.4; Outturn: 75.7 - Government contracting or guaranteeing of nominal nonconcessional external debt (ceiling, continuous performance criterion): all test dates Target/Outturn: 0.0 (Met for those with outturns) - Government guaranteeing of domestic loans to suppliers and contractors (ceiling): all test dates Target/Outturn: 0.0 (Met for those with outturns) - Government guarantees on bank prefinancing for public investments (ceiling): all test dates Target/Outturn: 0.0 (Met for those with outturns) - Indicative targets: - Total fiscal revenue (floor): End-September 2017 Target: 246.3; Outturn: 246.1 (Not Met) - Total domestically financed social spending (floor): End-September 2017 Target: 87.4; Outturn: 76.5 (Not Met) - Memorandum items: - Overall primary balance: End-September 2017 Target: -70.2; Outturn: 39.5 - Government contracting or guaranteeing of nominal concessional external debt: End-September 2017 Target: 49.6; Outturn: 14.6; End-December 2017 Target: 88.8; Outturn: 138.0; End-March 2018 Target: 21.0; Outturn: 52.7 ### Prior actions and structural benchmarks (selected) - Prior Action Met: - Produce a detailed outline of the restructuring plan of the two state-owned banks. - Verify 30 percent of revenue foregone from customs exemptions in 2016 through a post-clearance audit program (End-June 2017). - Submit a methodology to identify and verify domestic arrears (End-June 2017). - Centralize all debt management functions in one entity and organize the debt department into front, middle, and back offices (End-September 2017). - Conduct an independent audit of domestic arrears (End-September 2017). - Prior Action Not Met: - Based on the independent audit of the two public banks, approve a comprehensive, timebound restructuring plan for the two public banks; if required, submit an application for the creation of a new bank to the WAMU Banking Commission (End-June 2017) — Not met. - Structural benchmarks for 2nd and 3rd reviews (selected deadlines): - Implement sector controls to detect and tax evasion in phosphate, clinker, cement, and iron (End-December 2017). - Reduce by 60 percent the number of pending customs transit cases (End-June 2018, proposed). - Sign a decree reorganizing the Ministry of Economy and Finance (End-December 2017). - Ministry of Economy and Finance to submit an annual cash plan for 2018 consistent with the 2018 procurement plan and quarterly commitments for 2018 (End-December 2017). - Close 32 accounts of general government entities in commercial banks and transfer balances to the Treasury Single Account (End-June 2018, proposed). - Prepare an arrears clearance plan and issue circulars to prevent arrears (End-June 2018, proposed). - Adopt a budget for FY 2018 consistent with the Fund-supported program (End-December 2017). - Put guidelines to include in the 2019 budget only investment projects selected through cost-benefit or cost-effective analyses (End-June 2018, proposed resetting from end-December 2017). - Produce and approve by the Ministry of Economy and Finance a comprehensive restructuring plan for the two public banks and, if required, submit an application to the WAMU banking commission for the creation of a new bank (End-February 2018, proposed). - Complete the legal transfers required in the restructuring plan at least cost to the government (End-June 2018, proposed resetting from end-December 2017). *Source: IMF staff and Togolese authorities (cr17379).* ### 6. A debt is considered contracted for purposes of the program at the time of issuance of a “no ### cr17379 - 6. A debt is considered contracted for purposes of the program at the time of issuance of a “no ### Debt contracting timing - A debt is considered contracted for purposes of the program at the time of issuance of a “no objection” opinion by the Supreme Court, where such an opinion is required under domestic law. - Otherwise, a debt will be considered contracted when it enters into effect. ### Quantitative performance criteria and indicative targets - Periodic quantitative performance criteria (PCs) and indicative targets (ITs) are set for: - end-December 2017 - end-March 2018 (indicative targets) - end-June 2018 - The PCs include: - a floor on domestic primary fiscal balance; - a zero ceiling on accumulation of arrears on external public debt; - a ceiling on net domestic financing; - a zero ceiling on government contracting or guaranteeing of nominal nonconcessional external debt; - a zero ceiling on government guaranteeing of domestic loans to suppliers and contractors; - a zero ceiling on government guarantees on bank prefinancing for public investments. - The ITs are: - a floor on total fiscal revenue; - a floor on total domestically financed social spending. ### A. Domestic Primary Fiscal Balance — Definition and reporting - Definition: - Domestic primary fiscal balance = (i) the government’s fiscal revenue less (ii) total fiscal expenses, net of interest and capital spending financed by donors and lenders. - Balances for the periods from end-June 2017 to end-December 2017 and to end-June 2018 (performance criteria) and the periods from end-June 2017 to end-March 2018 (indicative targets) must be equal to or greater than the amounts indicated in Table 1 of the attachments to the MEFP. - Data source: Government Financial Operations Table (Tableau des opérations financières de l’État – TOFE), prepared monthly by the Directorate of Economy of the Ministry of Economy and Finance (statistical TOFE). - The statistical TOFE will be prepared by the Directorate of Economy in close cooperation with revenue offices and the Treasury. The data provided by the Directorate of Economy will take precedence for program purposes. - Reporting deadlines: - Detailed data concerning the domestic primary fiscal balance will be reported monthly within eight weeks of the end of the month. ### B. Arrears on External Public Debt — Definition and reporting - Definition: - The government will not accumulate payment arrears on external public debt (continuous performance criterion). - This criterion excludes arrears on debts subject to dispute or renegotiation. - The source of the data is the Public Debt Directorate. ### C. Net Domestic Financing — Definition, calculation, adjustments, and reporting - Definition: - Government net domestic financing = (i) net credit from the banking sector to the government; (ii) net domestic nonbank financing of the government; and (iii) unidentified financing. - Net domestic financing for the periods from end-June 2017 to end-December 2017 and to end-June 2018 (performance criteria) and the periods from end-June 2017 to end-March 2018 (indicative targets) must be equal to or less than the amounts indicated in Table 1 appended to the MEFP. - Adjustments and caps: - The ceiling on net domestic financing shall be adjusted to make up for gaps in projected external financing for the program, as indicated in the Table above, subject to a cap of CFAF 10 billion. - The performance criterion on the ceiling for net domestic financing will also be adjusted up or down in line with payments of arrears over the course of 2018. - The total adjustment to net domestic financing for arrears payments over the entirety of 2018 is subject to a ceiling of CFAF 59.3 billion; the end-June performance criterion includes CFAF 29.7 billion as part of the adjustor for arrears payments. - Components: - Net credit from the banking sector to the government: - Equal to the balance of government claims and debts to national banking institutions in Togo. - Government claims include balances in the Togolese Treasury, Treasury deposits in the central bank, Treasury deposits in commercial banks (excluding deposits of other arms of government, such as deposits from projects financed with external resources and CNSS accounts), and blocked accounts. - Government debts to the banking system include assistance from the central bank (excluding BCEAO credits to the government tied to IMF financing), assistance from commercial banks (including government securities denominated in CFA francs held by commercial banks), and deposits in postal checking accounts. - Net domestic nonbank financing: - Includes (i) changes in the balance of government securities issued in CFA francs (including on the WAEMU regional financial market) not held by Togolese commercial banks, calculated on the basis of the initial amount underwritten; (ii) changes in the deposit accounts of Treasury correspondents; (iii) changes in various deposit accounts, including trustee accounts (comptes de consignation) in the Treasury and accounts in which fines and sentences are deposited pending distribution; (iv) repayment of other domestic public debt (including bank loans to the economy assumed by the government and securitized arrears) to nonbank entities (including nonresidents); and income from privatization. - The assumption or securitization of debts and arrears by the government is not included in the definition of net domestic financing, whereas the repayment of that debt by the government is included. - Unidentified financing: - The difference between total financing (net domestic financing plus exceptional financing) and the overall balance on a cash basis (including grants and changes in arrears). - Data sources and precedence: - Net credit from the banking sector to the government is calculated by the BCEAO. - Treasury bill and bond amounts are determined by the Agence UMOA-Titres. - Net domestic nonbank financing of the government is calculated by the Togolese Treasury. - Their data will take precedence for program purposes. - Data are reported in the Government Financial Operations Table (statistical TOFE) prepared monthly by the Directorate of Economy of the Ministry of Economy and Finance. - Reporting deadlines: - Data concerning net domestic financing of the government will be reported monthly within eight weeks of the end of the month. - Details concerning any domestic borrowing by the government will be reported every month within six weeks of the end of the month. - Data on domestic borrowing will be categorized as short term (less than one year) and long term (one year or more). This rule will also be applied to government-guaranteed domestic loans to government suppliers and contractors. ### D. Government or Government-Guaranteed Nominal Nonconcessional External Debt — Definition and scope - Continuous performance criterion: - The government undertakes not to contract or financially guarantee any new nonconcessional external debt at maturities of one year or more. - Definition and calculation: - Nonconcessional external debt = all external debt with a grant element of less than 35 percent (http://www.imf.org/external/np/pdr/conc/calculator/default.aspx). - The level of concessionality of loans is calculated based on a discount rate of 5 percent. - For program purposes, the value in U.S. dollars of new debt is calculated using the average exchange rate for July 2017 in the IMF’s International Financial Statistics (IFS) database. - Scope and exclusions: - This performance criterion applies not only to the debt as defined in paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements attached to IMF Executive Board Decision No. 15688-(14/107), adopted on December 5, 2014, but also to any commitment contracted or guaranteed for which no value has been received. - This criterion does not apply to reschedulings that take the form of new debts, or to bond borrowing, Treasury bills, and Sukuk or other instruments issued in CFA francs on the WAEMU regional financial market. - For the purposes of this performance criterion, “government” covers the definition given in paragraph 2 and also: public institutions of an industrial or commercial nature (établissements publics à caractère industriel et commercial – EPIC), public administrative agencies (établissements publics administratifs – EPA), public scientific and technical institutions, public professional establishments, public health agencies, local authorities, public enterprises, national corporations (public corporations with financial autonomy, in which the government holds at least 50 percent of the capital), and state agencies. ### E. Government-Guaranteed Domestic Loans to Suppliers and Contractors — Definition - Continuous performance criterion: - The government is committed to not providing new financial guarantees for domestic loans to its suppliers or contractors. - Coverage: - The concept of “government” used for this performance criterion includes the definition of government in paragraph 2, EPIC, EPA, public scientific and technical institutes, public vocational establishments, public health agencies, local authorities, public enterprises, national corporations (public corporations with financial autonomy, in which the government holds at least 50 percent of the capital), and state agencies. ### F. Government Guarantees on Bank Prefinancing for Public Investments — Definition - Continuous performance criterion: - The government undertakes not to guarantee new bank prefinancing for public investments. - Typical arrangement described: - A private company granted a public works contract obtains a loan from a domestic commercial bank or a group of commercial banks. - The Ministry of Economy and Finance guarantees this loan and signs an unconditional and irrevocable substitution of debtor agreement to service all principle and interest, which are paid automatically from the Treasury account at the BCEAO. - Coverage: - The concept of “government” used for this performance criterion includes the definition of government in paragraph 2, EPIC, EPA, public scientific and technical institutions, public professional establishments, public health agencies, local authorities, public enterprises, national corporations (public corporations with financial autonomy, in which the government holds at least 50 percent of the capital), and state agencies. ### G. Total Fiscal Revenue — Definition and reporting - Definition: - Total fiscal revenue includes tax and nontax revenue, and excludes external grants, the revenue of autonomous agencies, and income from privatization. - Data are calculated by revenue offices and reported in the Government Financial Operations Table (statistical TOFE) prepared monthly by the Directorate of Economy of the Ministry of Economy and Finance. - The revenue is reflected on a cash basis. - Targets and reporting: - Revenue collection for the periods from end-June 2017 to end-December 2017, end-March 2018, and end-June 2018 must be equal to or greater than the amounts indicated in Table 1 attached to the MEFP. - The revenue floor is an indicative target for the entire duration of the program. - This information will be reported monthly to the IMF within four weeks of the end of the month. ### H. Domestically Financed Social Spending — Definition and reporting - Definition: - Total (current and capital) domestically financed social spending is calculated for each category of current and capital accounts (wages, goods and services, transfers and subsidies, other) and capital accounts financed with domestic resources. - Social spending sectors include: 1. Ministry of Education: primary and secondary education, technical and vocational training, and higher education with respect to scholarships and relief allowances, with references to Decree No. 2011-173/PR and Decree No. 2011-174/PR of November 30, 2011. 2. Ministry of Health; 3. Ministry of Social Action, Advancement of Women, and Literacy; 4. Ministry of Grassroots Development, Crafts, Youth, and Youth Employment; 5. Ministry of Agriculture, Livestock, and Fisheries; 6. Ministry of Mines and Energy (rural electrification projects); 7. Emergency Program for Community Development (Programme d’Urgence de Développement Communautaire – PUDC); 8. Support Program for Vulnerable Populations (Programme d’Appui aux Populations Vulnérables – PAPV). - Total current and capital social expenditure financed with owner equity covers spending financed with domestic resources, including revenue, domestic financing, and general foreign budgetary support, and excludes all social spending financed with project-specific grants or loans. - The source of the data is SIGFiP, from the Budget Directorate (Ministry of Economy and Finance) prepared at monthly intervals. - Targets and reporting: - Social spending financed with domestic resources for the periods from end-June 2017 to end-December 2017, end-March 2018, and end-June 2018 must be equal to or greater than the amounts indicated in Table 1 attached to the MEFP. - The data provided by the Budget Directorate and the Directorate of Economy will take precedence for program purposes. - The floor on (current and capital) social expenditure financed with domestic resources is an indicative target for the entire program period. *Source: cr17379 — INTERNATIONAL MONETARY FUND.* ### 26. The data on social expenditure financed with domestic resources will be reported every ### 26. The data on social expenditure financed with domestic resources will be reported every ### RELATIONS WITH THE FUND (as of October 31, 2017) - Membership Status: Joined August 1, 1962; Article VIII - General Resources Account (SDR million; % of Quota) - Quota 146.80 100.00 - Fund holdings of currency 127.89 87.12 - Reserve Position 18.98 12.90 - SDR Department (SDR million; % of Quota) - Net cumulative allocation 70.33 100.00 - Holdings 22.04 31.34 - Outstanding Purchases and Loans (SDR million; % of Quota) - ECF Arrangements 67.31 45.85 - Financial Arrangements (table entries preserved) - ECF — Date of Arrangement May 05, 2017; Expiration Date Dec 31, 2019; Amount Approved (SDR million) 176.16; Amount Drawn (SDR million) 25.17 - ECF — Date of Arrangement Apr 21, 2008; Expiration Date Jul 26, 2011; Amount Approved (SDR million) 95.41; Amount Drawn (SDR million) 95.41 - ECF — Date of Arrangement Sep 16, 1994; Expiration Date Jun 29, 1998; Amount Approved (SDR million) 65.16; Amount Drawn (SDR million) 54.30 - Projected Payments to the Fund (SDR million; based on existing use of resources and present holdings of SDRs) — Forthcoming - 2017 Principal 4.11; Charges/Interest 0.07; Total 4.17 - 2018 Principal 17.76; Charges/Interest 0.31; Total 18.06 - 2019 Principal 11.04; Charges/Interest 0.31; Total 11.34 - 2020 Principal 7.48; Charges/Interest 0.31; Total 7.79 - 2021 Principal 1.76; Charges/Interest 0.31; Total 2.07 - Implementation of HIPC Initiative - I. Commitment of HIPC assistance Framework — Decision point date Nov. 2008; Assistance committed by all creditors (US$ Million) 282.00; Of which: IMF assistance (US$ million) 0.32; (SDR equivalent in millions) 0.22; Completion point date Dec. 2010 - II. Disbursement of IMF assistance (SDR Million) - Assistance disbursed to the member 0.22 - Interim assistance 0.08 - Completion point balance 0.14 - Additional disbursement of interest income² 0.01 - Total disbursements 0.22 - Safeguards Assessments - 2013 assessment of the BCEAO completed on December 13, 2013 - Findings: continued strong control environment; enhanced governance framework following 2010 Institutional Reform of the WAEMU; establishment of an audit committee; increased transparency with more timely publication of audited financial statements - Identified limitation: external audit process; recommendation to select a second experienced audit firm to conduct joint audits - Status: All recommendations from the assessment have been implemented - Exchange Arrangement - Togo accepted Article VIII, Sections 2, 3 and 4 of the Fund’s Articles of Agreement as of June 1, 1996 - Maintains an exchange system free of restrictions on current international transactions - WAEMU exchange regime: conventional peg to the euro - Historical parities: - CFA franc pegged to French franc at CFAF 1 = F 0.02 - Effective January 12, 1994, parity set at CFAF 1 = F 0.01 (devaluation) - Effective December 31, 1998, parity switched to the euro at CFAF 655.96 = €1 ### STATISTICAL ISSUES — OVERVIEW (As of October 2017) - General assessment: Data provision is broadly adequate for surveillance, but weaknesses in quality and timeliness hamper staff’s analysis. - National accounts - Compiled based on very limited information, with only few surveys and scarce data on primary agriculture and private sector services - Published with considerable delays and only available on annual frequency - Base year for constant price GDP is 2007 - Price statistics - Base year for CPI index is 2008 - Fiscal sector statistics - Derived from a weak accounting and reporting system - Timely and accurate tracking of government arrears has been inadequate - Fiscal and public sector debt accounts do not disaggregate the share of government-issued securities held within or outside the banking sector, either in stocks or flows - Significant delays in compilation and dissemination; limited or no data on public entities outside of (budgetary) central government - Balance of payments statistics - Data reported on an annual frequency with long lags - Balance of payments data for 2015 were published in July, 2017 - Coverage incomplete and significant consistency issues between the IIP and other balance of payment data - Monetary data - Reported by the BCEAO and sent to AFR within 45 days - BCEAO tracking of public sector accounts held in the BCEAO and in commercial banks is inadequate ### NATIONAL ACCOUNTS (Detailed) - Implementation: WAEMU members implemented the System of National Accounts 1993 (1993 SNA) using ERETES software since late 2002 - National accounts for base year 2007 completed in 2012 - DGSCN published National Accounts GDP numbers covering 2000-2007 - 2009 and 2010 National Accounts GDP numbers finalized and published in 2014 and 2015 respectively - INSEED (Institut National de la Statistique et des Etudes Economiques et Démographiques) established February 2015; executing plan, with AFRITAC West support, to clear delay for 2011–15 by 2017 - Progress: national accounts through 2013 published in early 2017 - Plans to build quarterly national accounts cancelled to prioritize closing delays and transition to SNA 2008 ### PRICE STATISTICS (Detailed) - CPI basket revised in 2010 - WAEMU commission, AFRISTAT, and BCEAO launched harmonized CPI basket revision in 2008; reform included expanding CPI surveys and updating weights - INSEED constructing a consumer price index with national coverage in line with WAEMU directives - First observations collection started January 2015 - Index published beginning in January when the first 12-month variation became available ### GOVERNMENT FINANCE STATISTICS (Detailed) - Compiled by the Ministry of Finance from customs, tax, and treasury departments; consolidated into government financial operations tables (TOFE) - WAEMU budget nomenclature permits economic and ministerial classification of expenditure; functional classification under development - Monthly TOFE based on mixture of administrative and accounting data; sent to AFR with a variable two-month lag - Audited domestic arrears through end-2006 incorporated into the debt stock; incorporation of more recent arrears has lagged - Only budgetary central government data reported for publication in the Government Finances Statistics Yearbook (GFSY) - Government finance high frequency data are not reported for publication in the IFS - In 2013 Article IV consultation, with STA assistance, authorities established a bridge table to transpose TOFE (GFS86) to GFSM01 ### MONETARY AND FINANCIAL STATISTICS (Detailed) - Monthly data for Togo and other WAEMU members regularly disseminated by BCEAO with a lag of about two months - Data on lending and borrowing rates charged by domestic banks compiled and available monthly ### EXTERNAL SECTOR STATISTICS (Detailed) - Balance of payments and IIP compiled based on bank reports, enterprise surveys, and customs data - Statistics compiled following principles of the 6th balance of payment manual - Central bank continues efforts to better cover informal trade, notably with the sub-regional unit for reconciliation of intra-WAMU trade ### DATA STANDARDS AND QUALITY - Participation: Country has participated in the General Data Dissemination System (GDDS) since November 2001 - Metadata on the national statistical system, including improvement plans, last updated in December 2004 on the Fund’s Dissemination Standard Bulletin Board - No data ROSC are available ### TABLE OF COMMON INDICATORS REQUIRED FOR SURVEILLANCE — SELECTED ITEMS (latest observation; date received; frequency of data; frequency of reporting; frequency of publication) - Exchange Rates — Date of latest observation 09/2017; Date received 10/2017; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M - International Reserve Assets and Reserve Liabilities of the Monetary Authorities — 08/2017; 10/2017; M; M; M - Reserve/Base Money — 08/2017; 10/2017; M; M; M - Broad Money — 08/2017; 10/2017; M; M; M - Central Bank Balance Sheet — 08/2017; 10/2017; M; M; M - Consolidated Balance Sheet of the Banking System — 08/2017; 10/2017; M; M; M - Interest Rates — 08/2017; 09/2017; M; M; M - Consumer Price Index — 09/2017; 10/2017; M; M; M - Revenue, Expenditure, Balance and Composition of Financing – General Government — NA; NA; NA; NA; NA - Revenue, Expenditure, Balance and Composition of Financing– Central Government — 07/ 2017; 09/2017; M; M; M - Stocks of Central Government and Central Government-Guaranteed Debt — 07/ 2017; 09/2017; M; M; NA - External Current Account Balance — 12/ 2015; 07/ 2017; A; A; A - Exports and Imports of Goods and Services — 12/2015; 07/ 2017; A; A; A - GDP/GNP — 12/2014; 07/ 2017; A; A; A - Gross External Debt — 12/2015; 07/ 2017; M; M; M - International Investment Position — 12/2015; 07/ 2017; A; A; A *Prepared By The African Department (In consultation with other departments); November 30, 2017* --- _Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17379.pdf_