## EXECUTIVE SUMMARY

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### Context and Recent Developments
- Socio-political tensions since August 2017 have weakened economic activity, with tertiary sector activities hardest hit.
- Real GDP growth:
  - 2016: 5.1 percent
  - 2017: 4.4 percent
- Private sector credit in the second half of 2017 was lower by 4.2 percent relative to the first half of 2017; the largest decline was in the construction sector.
- Agricultural production remained strong despite overall slowdown.
- Current account deficit:
  - 2016: 9.3 percent of GDP
  - 2017: 8.0 percent of GDP (improvement driven by lower imports related to public investments)
- Inflation:
  - End-March 2018 headline: 1.1 percent (year-on-year)
  - Core inflation (WAEMU definition) in March 2018: 0.7 percent
- Fiscal developments in 2017:
  - Domestic primary balance (commitment basis) swung from a surplus of 1.6 percent of GDP in Jan–Jun to a deficit of -0.8 percent in Jul–Dec; full-year domestic primary surplus was 0.8 percent of GDP, a consolidation of 5.3 percentage points of GDP relative to 2016.
  - Domestically financed investment reduced by 4.6 percentage points of GDP; externally financed investment declined by 3 percent of GDP.
  - Current expenditure declined by 1.8 percent of GDP.
- Political dialogue stalled; protests resumed in mid-April 2018 with reported injuries and arrests.

### Program Performance
- All continuous and end-December 2017 quantitative performance criteria (QPCs) were met.
  - The QPC on the domestic primary surplus for end-December 2017 was exceeded by 0.3 percent of GDP.
  - The QPC on net domestic financing was met; even accounting for higher-than-programmed arrears repayment, the QPC would be met with a margin of about 1 percent of GDP.
  - The government refrained from contracting or guaranteeing non-concessional external debt and remained current on external debt obligations.
  - The government did not provide guarantees for domestic suppliers and contractors and refrained from any new prefinancing.
- Missed indicative targets:
  - Indicative target on fiscal revenue missed by about 2 percent of GDP.
  - Indicative target on domestically financed social spending missed by 0.2 percent of GDP.
- Structural benchmarks:
  - All four end-December 2017 structural fiscal benchmarks were met (controls to detect and tax inaccurate declarations in phosphate, clinker, cement, and iron sectors; decree reorganizing Ministry of Economy and Finance adopted September 2017; cash management plan for 2018 developed; FY2018 budget adopted November 2017).
  - End-February structural benchmark on the bank restructuring plan was not met on time but was implemented with delay.

### Medium-term Outlook and Risks
- Growth projections revised downward to reflect political uncertainty; expected to gradually return to potential in outer years as shocks dissipate and public infrastructure upgrades boost productivity.
- Inflation expected to remain below the WAEMU convergence criterion of up to 3 percent during the program period.
- Current account deficit projected to narrow to around 5 percent of GDP from 2021, reflecting reduced imports of public capital goods and better export performance.
- Debt-to-GDP ratio forecast to decline below 60 percent by 2021.
- Selected projections:
  - Real GDP: 2017: 4.4; 2018: 4.7; 2019: 5.0; 2020: 5.3; 2021: 5.4; 2022: 5.4; 2023: 5.4
  - Consumer price index (average): 2017: -0.7; 2018: 0.4; 2019: 1.2; 2020: 2.0; 2021: 2.0; 2022: 2.0; 2023: 2.0
  - Domestic primary balance: 2016: -4.5; 2017: 0.8; 2018: 1.0; 2019: 2.9; 2020: 2.9; 2021: 2.9; 2022: 2.8; 2023: 2.8
  - Current account balance: 2015: -11.0; 2016: -9.3; 2017: -8.0; 2018: -7.9; 2019: -6.8; 2020: -5.6; 2021: -5.0; 2022: -4.9; 2023: -5.0
  - Total public debt: 2015: 72.2; 2016: 81.6; 2017: 75.7; 2018: 74.3; 2019: 69.2; 2020: 63.7; 2021: 58.4; 2022: 53.3; 2023: 48.3
- Downside risks:
  - Persistent public discontent could force slowing of fiscal consolidation and planned reforms.
  - Legislative and local elections in 2018, and a possible constitutional referendum, could pressure authorities to expand public expenditure.
  - Large reductions in public investment might produce greater-than-expected growth slowdown if private investment does not pick up.
  - Uncertain behavior of the WAMU regional financial market may pose challenges.
  - Weaker-than-expected global growth and unfavorable global financial conditions could cloud program implementation.

### Fiscal Framework, Debt, and WAEMU Compliance
- Under the original program, the magnitude of debt reduction envisaged for 2017-19 was about 12 percentage points of GDP (excluding bank recapitalization); under the revised fiscal framework, debt is expected to decline by about 14 percent during this period.
- 2017 overall fiscal deficit (commitment basis): 0.3 percent of GDP, complying with the WAEMU convergence criteria of 3 percent of GDP.
- 2018 overall fiscal deficit (commitment basis and excluding bank recapitalization): projected to miss the WAEMU convergence criteria only by a very small margin.
- From 2019 onwards, domestic primary balance (commitment basis) programmed at a surplus of 2.9 percent of GDP, corresponding to an overall fiscal deficit (commitment basis) of 0.5 percent of GDP, within the WAEMU convergence criterion.
- Program objective: reduce the NPV of debt below 38 percent by 2025.
- WAEMU external reserves: US$17.9 billion at end-April 2018.
- Gross reserves were USD 13.0 at end-2017, covering 4.2 months of imports.

Key indicator series (2015–2023 examples as presented)
- Overall balance/GDP (≥-3 percent): -8.9 -9.6 -0.3 -3.1 -0.5 -0.3 0.0 0.2 0.5
- Average consumer price inflation (≤ 3 percent): 1.8 0.9 -0.7 0.4 1.2 2.0 2.0 2.0 2.0
- Total debt/GDP (≤ 70 percent) (Includes central government domestic arrears and state-owned enterprise debt; excludes bank recapitalization costs of CFAF 42 billion (1.4 percent of GDP)): 72.2 81.6 75.7 72.9 67.8 62.5 57.3 52.3 47.4
- Wages and salaries/ tax revenue (≤ 35 percent): 40.1 41.1 42.9 39.4 39.7 39.6 39.4 38.9 38.5
- Tax revenue/GDP (≥ 20 percent): 17.3 16.8 16.2 17.5 17.4 17.5 17.7 17.9 18.1

### 2019 and Medium-term Fiscal Objectives and Needed Consolidation
- Fiscal consolidation required in 2019 to meet WAEMU convergence criterion: 0.1 percentage point of GDP on commitment basis.
- Fiscal consolidation required in 2019 to meet the program target on the overall fiscal balance: 2.6 percentage points of GDP on commitment basis.
- Feasibility based on Togo’s large expenditure increase in recent years and cross-country experiences on fiscal adjustment.

Selected commitment-basis entries (2018 projections → 2019 targets → Necessary adjustment 2018-19)
- WAEMU Target: Overall fiscal balance: -3.1 → -3.0 → 0.1
- Program Target: Overall fiscal balance: -3.1 → -0.5 → 2.6
- Primary fiscal balance: -0.7 → 2.0 → 2.7
- Domestic primary fiscal balance: 1.0 → 2.9 → 1.9

### Revenue Measures and Administration
- Baseline revenue projections without corrective measures were lowered by about 1.5 percent of GDP relative to the revenue contemplated in the adopted 2018 budget.
- Revenue decline drivers: (i) deceleration of taxed activities (commerce and construction); (ii) altered tax compliance behavior; (iii) residual weaknesses in tax administration and unfinished reforms under Office Togolais des Recettes.
- Measures to address remaining revenue shortfall:
  - Tax and non-tax policy measures introduced in the original 2018 budget estimated to yield about 1.2 percent of GDP.
  - Revised 2018 budget includes redesigned and new measures expected to yield an additional 0.5 percent of GDP relative to the original 2018 budget, or 1.7 percent of GDP relative to 2017.
- Box 1 — Tax policy and administration measures (expected to yield about 1.7 percent of GDP of revenue in 2018 relative to 2017):
  - Phase out reduced VAT rates introduced in 2017 on selected goods.
  - Replace 5-percent turnover tax envisaged in original 2018 budget for telecommunications with license fees.
  - General land survey country-wide and digital detailed land registry for Lomé.
  - Lower exemption threshold on interest earnings from CFAF20 millions to CFAF10 million and limit to only one exempted account per person.
  - Collect service fees previously outside the budget through revenue authority collection offices.
  - Distribute dividends from some state-owned enterprises.
  - Produce a comprehensive record of tax expenditures and append to the 2019 draft budget law for Parliament.
  - Tax administration measures: send tax adjustment notifications and collect arrears; expand mandatory online declaration for large taxpayers; limit use of VAT ineligibility certificate to VAT payments only; gradually conduct customs declarations through digital procedures and activate ASYCUDA auction functionalities; require pre-clearance controls and adjustments on customs declarations to be completed and recorded before clearance.
- Togo: Yield from Fiscal Measures in Revised 2018 Budget (selected figures):
  - Total: 34.5 Billion CFAF (1.24 percent of GDP) in 1st Review → 47.5 Billion CFAF (1.71 percent of GDP) in 2nd Review → Difference: 13.00 Billion CFAF (0.47 percent of GDP)
  - Cancellation of reduced VAT rates introduced in the 2017 budget law: 10.00 Billion CFAF (0.36 percent of GDP)
  - Turnover tax of 5 percent in telecommunication sector: 5.2 Billion CFAF (0.19 percent of GDP)
  - Land survey for property tax: 1.3 Billion CFAF (0.05 percent of GDP)
  - Collection of tax arrears: 5.0 Billion CFAF (0.18 percent of GDP)
  - Tax administrative measures total: 5.8 Billion CFAF (0.21 percent of GDP)
  - New collection offices: 2.0 Billion CFAF (0.07 percent of GDP)
  - 4G licences: 15.0 Billion CFAF (0.54 percent of GDP)
  - Dividends: 12.2 Billion CFAF (0.44 percent of GDP) in 1st Review; 48.4 Billion CFAF (0.30 percent of GDP) in 2nd Review with difference -3.8 Billion CFAF (-0.14 percent of GDP)

### Expenditure Control, Arrears Clearance, and PFM Strengthening
- Net repayment of arrears in 2017: CFAF50 billion or about 2 percent of GDP, corresponding to 41 percent of total recent arrears stock.
- Fiscal framework envisages further net repayments of:
  - CFAF65 billion (2.2 percent of GDP) in 2018.
  - CFAF35 billion (1.1 percent of GDP) in 2019.
- Institutional measures:
  - Synchronize entire expenditure chain with the cash management plan.
  - Update procurement, commitment, and cash management plans monthly (structural benchmark end-December 2018).
  - Submit monthly data on the stock of payment arrears by age to staff starting July 2018 (structural benchmark end-December 2018).
  - Expand coverage of the treasury single account.
  - Conduct cost-effectiveness analysis of public investment projects and enforce under the 2019 budget (structural benchmark end-September 2018).

### Borrowing Policies and Debt Management
- Reorganization: cash flow forecasting and debt management combined under a single general directorate organized into front, middle, and back offices; a procedures manual is under preparation.
- End-December 2017 debt ratios:
  - External debt-to-GDP ratio: 19.9 percent.
  - Domestic debt-to-GDP ratio: 58.8 percent.
- Total debt service amounted to 24 percent of revenue in 2017.
- Program includes a zero-limit on non-concessional debt; Togo is rated at ‘moderate’ risk of external debt distress and program can accommodate non-zero non-concessional borrowing limits if they do not lead to an external risk-rating downgrade.
- Reprofiling guidance:
  - Operation should maintain or reduce the present value of total public debt after fees and charges.
  - Should keep Togo comfortably at moderate risk of external debt distress (i.e., below the NPV-of-external-Debt-to-GDP ratio of 30 percent).
  - At end-December 2018, the NPV-of-external-Debt-to-GDP ratio is currently forecast to be 18.2 percent.
- Continued fiscal consolidation required to address debt burden fundamentally.

### Financial Sector: Bank Restructuring and NPLs
- Restructuring plan submitted to the general secretariat of the WAMU banking commission for review and approval in June 2018.
- Restructuring principles for two ailing public banks:
  - Adequate recapitalization in line with latest prudential requirements by the WAMU regulator.
  - No bail-out of minority shareholders.
  - Minimum cost for the government while preserving financial stability.
  - Active collection of non-performing loans by an entity within the bank.
  - Clear public interest mandate.
  - Strengthened governance and internal control; close non-profitable activities or branches; efficient organizational structure.
- Board composition for new bank: four independent and three non-executive members; heads of audit and risk committees chosen among independent members.
- Structural benchmark: mechanism to ensure full independence of the governance structure of the new public bank resulting from the merger (end-December 2018).
- Recapitalization estimated at about CFAF42 billion (or about 1.5 percent of GDP).
- Non-performing loans (NPLs) ratio: 17 percent at end-December 2017.
- Two public banks together accounted for 20.1 percent of total assets of the banking system at end-2017.
- Merger includes creation of an NPLs recovery unit inside the newly merged bank, with option to outsource difficult debts; staff selection, training, and incentive system (including collection fees) to improve recovery.

### Structural Reforms, National Development Plan, and Business Environment
- New National Development Plan (NDP) finalized to anchor public policies and partners’ programs for 2018-2022.
- NDP overarching objective: structural transformation through:
  - A major logistic hub leveraging Port of Lomé, renovated international airport, littoral and hinterland corridors.
  - A dynamic financial center building on regional banking and insurance headquarters and digital economy development.
  - A strong manufacturing base.
  - Inclusive and social policies to tackle poverty based on agricultural clusters, industrial parks, and consolidation of the mining sector.
- ECF-supported program emphasizes safeguarding social spending in the context of fiscal consolidation, aligning with NDP objectives.
- Business environment and Doing Business findings:
  - Action plan targeting improvement of main Doing Business indicators; measures adopted to improve access to electricity, business creation, dealing with construction permits, and contract enforcement.
  - Areas needing further reform: registering property, easiness of paying taxes, and access to credit.
  - Structural benchmark: digitize the stock of existing land property titles and open the central window for liquidation and payment of fees; clear backlog of pending mortgage handover documents (end-December 2018).
- Togo admitted to the Compact with Africa (CwA); authorities intend to leverage CwA membership to attract foreign direct investment.

### Program Modalities, Monitoring, and Financing
- Program reviewed semi-annually based on quantitative performance criteria, indicative targets, and structural benchmarks.
- Authorities requested—and staff supports—modification of the end-June 2018 QPCs on the domestic primary balance and net domestic financing as well as the continuous QPC on non-concessional external borrowing.
- One structural benchmark proposed to be reset from end-June 2018 to end-September 2018; five new structural benchmarks proposed for end-December 2018.
- The third review of the program will be based on the end-June 2018 criteria/targets/benchmarks and is scheduled to be discussed by the IMF Board on or after September 15, 2018.
- Program financing support from development partners including the World Bank, the European Union, and the African Development Bank; ECF disbursements will close the remaining financing needs.

### Capacity to Repay and Safeguards
- Updated safeguards assessment of the BCEAO, completed in April 2018, found central bank has maintained a strong control environment since 2013 and governance arrangements are broadly appropriate.
- IFRS adopted as the accounting framework beginning with the 2015 financial statements.
- Capacity to repay: Obligations to the Fund would peak in 2025 at only 2.5 percent of government revenue or 0.5 percent of GDP.

### Debt Sustainability Analysis (DSA) — Key Findings
- Risk of external debt distress: Moderate.
- Inclusion of domestic public debt yields assessment of heightened overall risk of debt distress.
- Baseline projections show Togo’s PV of total PPG debt-to-GDP ratio will reach the 38 percent benchmark by 2025, down from 73.1 percent in 2017.
- Drivers of domestic debt burden: persistently high deficits; recognition of liabilities from liquidated loss-making SOEs and old arrears; ongoing arrears accumulation; weak public financial management.
- Stress-test results:
  - Most extreme shock (combination of low growth and large reduction in exports and non-debt creating flows) leads to PV of PPG debt-to-GDP ratio breaching the threshold in 2020 and remaining above until 2023.
  - Historical scenario and alternative scenarios show breaches of solvency indicators under adverse assumptions.
- DSA macro assumptions (selected):
  - DSA 2018 real GDP growth: 2017-19: 4.7 percent; 2020-37: 5.4 percent (average).
  - Public investment: 6.3 percent of GDP in 2017; projected 10.1 percent in 2018; stabilize around 7 percent by 2020-23.
  - Total revenue revised down to 23.2 percent of GDP for 2017-19.
  - Current account: 8 percent of GDP in 2017; projected to narrow to about 5 percent of GDP from 2021.

### Risk Assessment Matrix — Key Risks and Mitigations
- External risks:
  - Tighter global financial conditions — Relative Likelihood: HighHigh — Mitigation: bolster investor confidence via credible medium-term fiscal adjustment.
  - Weaker-than-expected global growth — Relative Likelihood: High/MediumMedium — Mitigation: competitiveness-enhancing structural reforms and export diversification.
  - Retreat from cross-border integration — Relative Likelihood: MediumMedium — Mitigation: prudent budgetary management and regional policy coordination.
- Regional and domestic risks:
  - Surge of insecurity in the region — Relative Likelihood: MediumMedium — Mitigation: prudent budgetary management.
  - Continued political unrest — Relative Likelihood: HighHigh — Mitigation: accelerate growth-inclusive measures and stakeholder communication.
  - Delays in fiscal adjustment and reforms — Relative Likelihood: MediumMedium — Mitigation: persevere in fiscal consolidation and accelerate structural reforms; social programs to protect vulnerable groups.
  - Power-supply shortfall — Relative Likelihood: HighHigh — Mitigation: invest in power generation capacity, reform pricing, and ensure public entities are current on bills.
- Key policy themes across risks:
  - Implement credible medium-term fiscal adjustment strategy.
  - Ensure prudent budgetary management to contain financing needs.
  - Accelerate competitiveness-enhancing and inclusion-focused structural reforms.
  - Bolster regional policy coordination and regional trade.
  - Implement sector-specific reforms (e.g., power generation and pricing) and governance measures.

### Staff’s Views and Recommendations
- Staff supports:
  - Completion of the second ECF review.
  - Modification of end-June 2018 QPCs on the domestic primary balance and net domestic financing.
  - Modification of the continuous QPC on non-concessional external borrowing.
- Staff recommends:
  - Pursuing debt reduction; maintain magnitude of debt reduction envisaged under the program for 2017-19 while allowing for a slight loosening in 2018.
  - Implementing the bank restructuring plan, including adequate recapitalization, strengthened governance, and financial viability.
  - Persevering on structural reforms to address weak revenue collection, prevent new arrears accumulation, and improve cost-effectiveness of public investment projects.
  - Progressing toward adherence to the WAEMU convergence criteria to help rebuild regional reserves.

*International Monetary Fund; EXECUTIVE SUMMARY (cr18184); May 30, 2018.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and Recent Developments
- Socio-political tensions since August 2017 have weakened economic activity, with tertiary sector activities hardest hit.
- Real GDP growth:
  - 2016: 5.1 percent
  - 2017: 4.4 percent
- Private sector credit in the second half of 2017 was lower by 4.2 percent relative to the first half of 2017; the largest decline was in the construction sector.
- Agricultural production remained strong despite overall slowdown.
- Current account deficit:
  - 2016: 9.3 percent of GDP
  - 2017: 8.0 percent of GDP (improvement driven by lower imports related to public investments)
- Inflation:
  - End-March 2018 headline: 1.1 percent (year-on-year)
  - Core inflation (WAEMU definition) in March 2018: 0.7 percent
- Fiscal developments in 2017:
  - Domestic primary balance (commitment basis) swung from a surplus of 1.6 percent of GDP in Jan–Jun to a deficit of -0.8 percent in Jul–Dec; full-year domestic primary surplus was 0.8 percent of GDP, a consolidation of 5.3 percentage points of GDP relative to 2016.
  - Domestically financed investment reduced by 4.6 percentage points of GDP; externally financed investment declined by 3 percent of GDP.
  - Current expenditure declined by 1.8 percent of GDP.
- Political dialogue stalled; protests resumed in mid-April 2018 with reported injuries and arrests.

### Program Performance
- All continuous and end-December 2017 quantitative performance criteria (QPCs) were met.
  - The QPC on the domestic primary surplus for end-December 2017 was exceeded by 0.3 percent of GDP.
  - The QPC on net domestic financing was met; even accounting for higher-than-programmed arrears repayment, the QPC would be met with a margin of about 1 percent of GDP.
  - The government refrained from contracting or guaranteeing non-concessional external debt and remained current on external debt obligations.
  - The government did not provide guarantees for domestic suppliers and contractors and refrained from any new prefinancing.
- Missed indicative targets:
  - Indicative target on fiscal revenue missed by about 2 percent of GDP.
  - Indicative target on domestically financed social spending missed by 0.2 percent of GDP (small margin).
- Structural benchmarks:
  - All four end-December 2017 structural fiscal benchmarks were met (controls to detect and tax inaccurate declarations in phosphate, clinker, cement, and iron sectors; decree reorganizing Ministry of Economy and Finance adopted September 2017; cash management plan for 2018 developed; FY2018 budget adopted November 2017).
  - End-February structural benchmark on the bank restructuring plan was not met on time but was implemented with delay.

### Medium-term Outlook and Risks
- Growth projections revised downward to reflect political uncertainty; expected to gradually return to potential in outer years as shocks dissipate and public infrastructure upgrades boost productivity.
- Inflation expected to remain below the WAEMU convergence criterion of up to 3 percent during the program period.
- Current account deficit projected to narrow to around 5 percent of GDP from 2021, reflecting reduced imports of public capital goods and better export performance.
- Debt-to-GDP ratio forecast to decline below 60 percent by 2021.
- Selected projections (percent or percent of GDP unless otherwise indicated):
  - Real GDP: 2017: 4.4; 2018: 4.7; 2019: 5.0; 2020: 5.3; 2021: 5.4; 2022: 5.4; 2023: 5.4
  - Consumer price index (average): 2017: -0.7; 2018: 0.4; 2019: 1.2; 2020: 2.0; 2021: 2.0; 2022: 2.0; 2023: 2.0
  - Domestic primary balance: 2016: -4.5; 2017: 0.8; 2018: 1.0; 2019: 2.9; 2020: 2.9; 2021: 2.9; 2022: 2.8; 2023: 2.8
  - Current account balance: 2015: -11.0; 2016: -9.3; 2017: -8.0; 2018: -7.9; 2019: -6.8; 2020: -5.6; 2021: -5.0; 2022: -4.9; 2023: -5.0
  - Total public debt: 2015: 72.2; 2016: 81.6; 2017: 75.7; 2018: 74.3; 2019: 69.2; 2020: 63.7; 2021: 58.4; 2022: 53.3; 2023: 48.3
- Downside risks:
  - Persistent public discontent could force slowing of fiscal consolidation and planned reforms.
  - Legislative and local elections in 2018, and a possible constitutional referendum, could pressure authorities to expand public expenditure.
  - Large reductions in public investment might produce greater-than-expected growth slowdown if private investment does not pick up.
  - Uncertain behavior of the WAMU regional financial market may pose challenges.
  - Weaker-than-expected global growth and unfavorable global financial conditions could cloud program implementation.

### Policy Discussions and Fiscal Policy
- Objective: Achieve debt reduction envisaged under original 2017–19 program to ensure public debt sustainability and WAEMU regional external stability.
- Revenue: 2018 revenue projections lowered to reflect 2017 underperformance and socio-political effects.
  - Revenue was expected to increase by about 1 percent of GDP from 2016 to 2017 but declined by about 0.5 percent of GDP.
  - Baseline revenue projections without corrective measures were lowered by about 1.5 percent of GDP relative to the revenue contemplated in the adopted 2018 budget.
  - Weak performance attributed to: (i) deceleration of economic activities hitting taxed activities (commerce and construction) harder than non-taxed (agriculture); (ii) altered tax compliance behavior; (iii) residual weaknesses in tax administration and unfinished reforms under Office Togolais des Recettes.
- Fiscal stance for 2018:
  - Revised fiscal framework loosens the domestic primary balance (excluding bank recapitalization) by about 1 percent of GDP relative to the original program, after an overperformance of about 0.3 percent of GDP in 2017.
  - Loosening justified by weakening economic activity and anticipated spending pressures related to socio-political tensions and elections.
- Measures to address remaining revenue shortfall:
  - Tax and non-tax policy measures introduced in the original 2018 budget estimated to yield about 1.2 percent of GDP.
  - Revised 2018 budget includes redesigned and new measures expected to yield an additional 0.5 percent of GDP relative to the original 2018 budget, or 1.7 percent of GDP relative to 2017.
- Expenditure measures:
  - Comprehensive review of expenditure (with international consulting firm) aims to identify efficiency gains to save about 0.5 percent of GDP in 2018 and up to 2 percent of GDP annually in the medium term.
  - Adoption of a revised 2018 budget in line with the revised fiscal framework is a prior action for conclusion of the second ECF review.
- Other policy priorities:
  - Strengthen revenue administration and public financial management to prevent new arrears accumulation and address weak collection.
  - Harmonize the expenditure chain and treasury management; conduct cost-effectiveness analysis of public investments.
  - Implement restructuring plan for two public banks, including adequate recapitalization, strengthened governance, and financial viability.
  - Pursue growth-enhancing structural reforms, including opening up some key sectors to private investment.
  - Progress toward adherence to WAEMU convergence criteria to help rebuild reserves.
  - Strengthen debt management and reprofiling of public debt; focus financial sector policies on bank restructuring implementation.
  - Start implementation of the National Development Plan and the Compact with Africa initiative.

### Staff’s Views
- Staff supports:
  - Completion of the second ECF review.
  - Modification of end-June 2018 QPCs on the domestic primary balance and net domestic financing.
  - Modification of the continuous QPC on non-concessional external borrowing.

*International Monetary Fund; EXECUTIVE SUMMARY (cr18184); May 30, 2018.*

### 11.      This revised fiscal framework preserves the program’s overall fiscal and external

### 11.      This revised fiscal framework preserves the program’s overall fiscal and external

### Fiscal framework, debt, and WAEMU compliance
- Under the original program, the magnitude of debt reduction envisaged for 2017-19 was about 12 percentage points of GDP (excluding bank recapitalization); under the above revised fiscal framework, debt is expected to decline by about 14 percent during this period.
- 2017 overall fiscal deficit (commitment basis): 0.3 percent of GDP, complying with the WAEMU convergence criteria of 3 percent of GDP.
- 2018 overall fiscal deficit (commitment basis and excluding bank recapitalization): projected to miss the WAEMU convergence criteria only by a very small margin.
- From 2019 onwards, domestic primary balance (commitment basis) programmed at a surplus of 2.9 percent of GDP.
  - This corresponds to an overall fiscal deficit (commitment basis) of 0.5 percent of GDP, within the WAEMU convergence criterion.
- Program objective: reduce the NPV of debt below 38 percent by 2025.
- WAEMU external reserves: US$17.9 billion at end-April 2018.
- Gross reserves were USD 13.0 at end-2017, covering 4.2 months of imports; coverage increased significantly thereafter, reflecting primarily the issuance of Eurobonds by Cote d’Ivoire and Senegal in March.

Key indicators (as presented)
- First-order criteria examples from Text Table 4:
  - Overall balance/GDP (≥-3 percent) series: -8.9 -9.6 -0.3 -3.1 -0.5 -0.3 0.0 0.2 0.5 (2015–2023 Est./Proj. sequence)
  - Average consumer price inflation (≤ 3 percent) series: 1.8 0.9 -0.7 0.4 1.2 2.0 2.0 2.0 2.0 (2015–2023)
  - Total debt/GDP (≤ 70 percent) series (Includes central government domestic arrears and state-owned enterprise debt; excludes bank recapitalization costs of CFAF 42 billion (1.4 percent of GDP)): 72.2 81.6 75.7 72.9 67.8 62.5 57.3 52.3 47.4 (2015–2023)
- Second-order criteria examples:
  - Wages and salaries/ tax revenue (≤ 35 percent) series: 40.1 41.1 42.9 39.4 39.7 39.6 39.4 38.9 38.5 (2015–2023)
  - Tax revenue/GDP (≥ 20 percent) series: 17.3 16.8 16.2 17.5 17.4 17.5 17.7 17.9 18.1 (2015–2023)

### 2019 and medium-term fiscal objectives and needed consolidation
- Fiscal consolidation required in 2019 to meet WAEMU convergence criterion (overall fiscal balance deficit under 3 percent of GDP): 0.1 percentage point of GDP on commitment basis.
- Fiscal consolidation required in 2019 to meet the program target on the overall fiscal balance: 2.6 percentage points of GDP on commitment basis.
- Reasons consolidation appears feasible:
  - Togo’s large expenditure increase in recent years.
  - Higher level of expenditure in 2018 relative to peer countries.
  - Cross-country experiences on fiscal adjustment.

Text Table 5 (2018 projections, 2019 targets, necessary adjustment 2018-19; Commitment basis, incl. grants and excl. bank recapitalization costs)
- WAEMU Target:
  - Overall fiscal balance: -3.1 (2018 projections) → -3.0 (2019 targets) → 0.1 (Necessary adjustment 2018-19)
- Program Target:
  - Overall fiscal balance: -3.1 → -0.5 → 2.6
- Primary fiscal balance:
  - -0.7 → 2.0 → 2.7
- Domestic primary fiscal balance:
  - 1.0 → 2.9 → 1.9

### Fiscal management: strengthening revenue administration and PFM
- Large revenue underperformance requires measures to bolster revenue administration.
- Revenue authority (Office Togolais des Recettes) reforms since 2012 include payments online and through mobile phones, collateral against tax disputes, and expanded use of computers in customs clearance.
- 2018 planned measures: strengthen property tax collection, document/streamline tax exemptions, expand digital customs clearance functionalities/coverage, and tighten controls.
- Prior actions: communication to the Cabinet of a digital land registry for Lomé as a prior action for the conclusion of this second ECF review.

Box 1 — Tax policy and administration measures (expected to yield about 1.7 percent of GDP of revenue in 2018 relative to 2017)
- Tax policy measures:
  - Phase out reduced VAT rates introduced in 2017 on selected goods.
  - Replace 5-percent turnover tax envisaged in original 2018 budget for telecommunications with license fees (higher 2018 yield but likely non-permanent).
  - General land survey country-wide and digital detailed land registry for Lomé to identify “niches fiscales”.
  - Lower exemption threshold on interest earnings from CFAF20 millions to CFAF10 million and limit to only one exempted account per person.
  - Collect service fees previously outside the budget through revenue authority collection offices.
  - Distribute dividends from some state-owned enterprises (with reduced outer-year yields).
  - Produce a comprehensive record of tax expenditures and append to the 2019 draft budget law for Parliament.
- Tax administration measures:
  - Send tax adjustment notifications and collect arrears; some large amounts settled.
  - Expand mandatory online declaration for large taxpayers and mobile payment for transport activities to other sectors in 2018.
  - Limit use of VAT ineligibility certificate (“certificat de détaxe”) to VAT payments only.
  - Gradually conduct customs declarations through digital procedures and activate ASYCUDA auction functionalities.
  - Require pre-clearance controls and adjustments on customs declarations to be completed and recorded before clearance.

Togo: Yield from Fiscal Measures in Revised 2018 Budget (summarized figures as presented)
- Total tax revenue and measures (1st Review / 2nd Review / Difference) summarized to a Total of:
  - 34.5 Billion CFAF (1.24 percent of GDP) in 1st Review
  - 47.5 Billion CFAF (1.71 percent of GDP) in 2nd Review
  - Difference: 13.00 Billion CFAF (0.47 percent of GDP)
- Components (examples preserving table text):
  - Cancellation of reduced VAT rates introduced in the 2017 budget law: 10.00 Billion CFAF (0.36 percent of GDP)
  - Turnover tax of 5 percent in telecommunication sector: 5.2 Billion CFAF (0.19 percent of GDP) [noting substitution with license fees]
  - Land survey for property tax: 1.3 Billion CFAF (0.05 percent of GDP)
  - Collection of tax arrears: 5.0 Billion CFAF (0.18 percent of GDP)
  - Tax administrative measures total: 5.8 Billion CFAF (0.21 percent of GDP)
  - New collection offices: 2.0 Billion CFAF (0.07 percent of GDP)
  - 4G licences: 15.0 Billion CFAF (0.54 percent of GDP)
  - Dividends: 12.2 Billion CFAF (0.44 percent of GDP) in 1st Review; 48.4 Billion CFAF (0.30 percent of GDP) in 2nd Review with difference -3.8 Billion CFAF (-0.14 percent of GDP)

### Arrears clearance and public financial management strengthening
- Net repayment of arrears in 2017: CFAF50 billion or about 2 percent of GDP, corresponding to 41 percent of total recent arrears stock.
- Fiscal framework envisages further net repayments of:
  - CFAF65 billion (2.2 percent of GDP) in 2018.
  - CFAF35 billion (1.1 percent of GDP) in 2019.
- Institutional measures to prevent new arrears accumulation:
  - Synchronize entire expenditure chain with the cash management plan.
  - Update procurement, commitment, and cash management plans monthly (structural benchmark for end-December 2018).
  - Submit monthly data on the stock of payment arrears by age to staff starting July 2018 (structural benchmark for end-December 2018).
  - Expand coverage of the treasury single account.
  - Conduct cost-effectiveness analysis of public investment projects and enforce under the 2019 budget (structural benchmark for end-September 2018).
- Proposal to set up a mechanism to facilitate recording and projections of financing from development partners and harmonize disbursement plans.

### Borrowing policies and debt management
- Reorganization: cash flow forecasting and debt management combined under a single general directorate organized into front, middle, and back offices; a procedures manual is under preparation.
- End-December 2017 debt ratios:
  - External debt-to-GDP ratio: 19.9 percent.
  - Domestic debt-to-GDP ratio: 58.8 percent.
- Total debt service amounted to 24 percent of revenue in 2017.
- Program currently includes a zero-limit on non-concessional debt; Togo is rated at ‘moderate’ risk of external debt distress and program can accommodate non-zero non-concessional borrowing limits if they do not lead to an external risk-rating downgrade.
- Reprofiling guidance:
  - Operation should maintain or reduce the present value of total public debt after fees and charges.
  - Should keep Togo comfortably at moderate risk of external debt distress (i.e., below the NPV-of-external-Debt-to-GDP ratio of 30 percent).
  - At end-December 2018, the NPV-of-external-Debt-to-GDP ratio is currently forecast to be 18.2 percent.
- Continued fiscal consolidation required to address debt burden fundamentally.

### Financial sector: bank restructuring and NPLs
- Restructuring plan submitted to the general secretariat of the WAMU banking commission for review and approval in June 2018.
- Restructuring principles for two ailing public banks:
  - Adequate recapitalization in line with latest prudential requirements by the WAMU regulator.
  - No bail-out of minority shareholders.
  - Minimum cost for the government while preserving financial stability.
  - Active collection of non-performing loans by an entity within the bank.
  - Clear public interest mandate.
  - Strengthened governance and internal control; close non-profitable activities or branches; efficient organizational structure.
- Board composition for new bank: four independent and three non-executive members; heads of audit and risk committees chosen among independent members.
- Structural benchmark: mechanism to ensure full independence of the governance structure of the new public bank resulting from the merger (end-December 2018).
- Recapitalization estimated at about CFAF42 billion (or about 1.5 percent of GDP).
- Non-performing loans (NPLs) ratio: 17 percent at end-December 2017.
- Two public banks together accounted for 20.1 percent of total assets of the banking system at end-2017.
- Merger includes creation of an NPLs recovery unit inside the newly merged bank, with option to outsource difficult debts; staff selection, training, and incentive system (including collection fees) to improve recovery.

### Structural reforms: National Development Plan and Compact with Africa
- New National Development Plan (NDP) finalized to anchor public policies and partners’ programs for 2018-2022.
- NDP overarching objective: structural transformation through:
  - A major logistic hub leveraging Port of Lomé, renovated international airport, littoral and hinterland corridors.
  - A dynamic financial center building on regional banking and insurance headquarters and digital economy development.
  - A strong manufacturing base.
  - Inclusive and social policies to tackle poverty based on agricultural clusters, industrial parks, and consolidation of the mining sector.
- ECF-supported program emphasizes safeguarding social spending in the context of fiscal consolidation, aligning with NDP objectives.
- Successful NDP implementation will benefit from greater prioritization of projects and greater emphasis on domestic resource mobilization.

*Source: cr18184 - 11.      This revised fiscal framework preserves the program’s overall fiscal and external*

### 22.      Given Togo’s desire to become a regional commercial and transportation hub, it is

### 22.      Given Togo’s desire to become a regional commercial and transportation hub, it is 

### Business environment and Doing Business findings
- Government, in consultation with the private sector, produced and publicized an action plan targeting improvement of main Doing Business indicators where Togo performs subpar.
- Authorities adopted measures to improve access to electricity, business creation, dealing with construction permits, and contract enforcement.
- Areas needing further reform: registering property, easiness of paying taxes, and access to credit.
- Specific measure: authorities committed to digitize the stock of existing land property titles and open the central window for the liquidation and payment of fees, and clear the entire backlog of pending mortgage handover documents (structural benchmark for end-December 2018).
- High government presence and intervention in key sectors—such as phosphates and telecoms— is stifling private initiative.
- Doing Business indicators (2018) shown relative to peers (0=lowest, 100=highest performance) include categories: Starting a business; Dealing with construction permits; Getting electricity; Registering property; Getting credit; Protecting minority investors; Paying taxes; Trading across borders; Enforcing contract; Resolving insolvency. (Source: World Bank Doing Business Report 2018.)

### Compact with Africa and program alignment
- Togo has been admitted to the Compact with Africa (CwA) (MEFP¶22).
- Macroeconomic reforms in the policy matrix are aligned with the ECF-supported program, covering macroeconomic stability, mobilization of domestic revenue, public investment management, and public financial institutions.
- Other reforms: business environment and regulation, investor protection and dispute resolution, legal framework for public-private partnership, and mobilization of private and institutional investors.
- Reforms are consistent with the National Development Plan.
- Authorities intend to leverage CwA membership to attract foreign direct investment.

### Program modalities, monitoring, and financing
- Program reviewed semi-annually based on quantitative performance criteria, indicative targets, and structural benchmarks.
- Authorities requested—and staff supports—a modification of the end-June 2018 QPCs on the domestic primary balance and net domestic financing as well as the continuous QPC on non-concessional external borrowing.
- One structural benchmark proposed to be reset from end-June 2018 to end-September 2018; five new structural benchmarks proposed for end-December 2018.
- Structural benchmarks aim to strengthen cash management, prevent arrears accumulation, ensure fiscal sustainability, restore financial stability, and improve business environment.
- The third review of the program will be based on the end-June 2018 criteria/targets/benchmarks and is scheduled to be discussed by the IMF Board on or after September 15, 2018.
- Program financing support from development partners including the World Bank, the European Union, and the African Development Bank; ECF disbursements will close the remaining financing needs.

### Financial sector, safeguards, and capacity to repay
- Updated safeguards assessment of the BCEAO, completed in April 2018, found central bank has maintained a strong control environment since 2013 and governance arrangements are broadly appropriate.
- Audit arrangements strengthened; IFRS adopted as the accounting framework beginning with the 2015 financial statements.
- A 2016 external quality review of the internal audit function found broad conformity with international standards.
- BCEAO’s risk management framework established in 2014 is progressing well with implementation across the bank.
- Capacity to repay: Obligations to the Fund would peak in 2025 at only 2.5 percent of government revenue or 0.5 percent of GDP.

### Capacity development
- TA priorities aligned with program objectives: focus on revenue administration, public financial management, financial sector, and real sector statistics (Annex II).

### Recent macroeconomic developments
- Economic growth estimated to have decelerated from 5.1 percent in 2016 to 4.4 percent in 2017.
- Private-sector credit during the second half of 2017 was lower by 4.2 percent relative to the first half of the year.
- Inflation at end-March 2018 was 1.1 percent (year-on-year).
- Current account deficit estimated to have improved from 9.3 percent of GDP in 2016 to 8.0 percent of GDP in 2017, as imports related to public investment projects are declining.

### Risks
- Risks are tilted to the downside.
- Persistence of socio-political tensions could weigh on macroeconomic performance and put pressure to slow fiscal consolidation and other reforms.
- Legislative and local elections scheduled for "this year", possibly combined with a constitutional referendum, could put pressure to expand public expenditure.
- Strong reduction in public investment may lead to a greater-than-expected slowdown in growth, particularly if private investment lags.

### Staff appraisal and recommendations
- Staff commends authorities’ satisfactory performance under the ECF-supported program despite difficult circumstances.
- Despite weak revenue collection, fiscal position shows strong consolidation as expenditure was curtailed; the domestic primary balance at end-2017 improved by about 5 percentage points of GDP relative to 2016.
- Public debt declined from 81.6 percent of GDP in 2016 to 75.7 percent of GDP in 2017.
- Authorities are undertaking a review of expenditure to improve its efficiency and have started implementing measures to improve public debt management.
- Stock of arrears reduced by about 2 percent of GDP.
- Staff recommends:
  - Pursuing debt reduction; maintain magnitude of debt reduction envisaged under the program for 2017-19 while allowing for a slight loosening in 2018 to account for weak economic activity and revenue underperformance.
  - Implementing the bank restructuring plan, including adequate recapitalization, strengthened governance, and financial viability.
  - Persevering on structural reforms to address weak revenue collection, prevent new arrears accumulation, and improve cost-effectiveness of public investment projects.
  - Progressing toward adherence to the WAEMU convergence criteria to help rebuild regional reserves.

*IMF staff summary based on the provided chapter content.*

### 32.      Staff recommends completion of the second ECF review as well as the modification of

### 32.      Staff recommends completion of the second ECF review as well as the modification of the performance criteria

### Recommendation
- Staff recommends completion of the second ECF review.
- Staff recommends modification of the performance criteria on:
  - domestic primary balance (end-June);
  - net domestic financing (end-June);
  - non-concessional external borrowing (continuous).
- Rationale: the authorities’ good performance under the program as well as their commitments going forward.

### Indicators of economic activity (2012–17 and recent monthly/quarterly data)
- Real GDP and real GDP per capita (percent change), 2012–17:
  - Real GDP: 2012–2017 series shown (chart).
  - Real GDP per capita: 2012–2017 series shown (chart).
- Inflation and prices:
  - Harmonized Index of Consumer Price, Jan-15–Mar-18 (percent, Y-o-Y): Headline and Core (WAEMU definition) shown; inflation has remained low, due to a sharp decline in fresh food and energy prices.
- Consumption and public finance indicators:
  - Electricity and Oil Products Consumption, Oct-15–Dec-17 (millions of KWH): Electricity—Low voltage and Medium voltage; Oil products (index Jan-15=100, RHS). Consumption of some key products softened, including energy and petroleum products.
  - Treasury Bills and Bonds, Coverage Rate, Jan-2017–Apr-2018 (percent): coverage rates shown; government's ability to raise funds in the WAEMU regional bond market has been uneven and the yearly average has been generally lower than the WAEMU countries.
- Financial soundness, 2014Q2–2017Q4:
  - Top risk borrowers to capital and Regulatory capital to risk-weighted assets (RHS) shown; banks' behaviour affected by regulatory changes and existing vulnerabilities.

### External sector (2012–2017)
- Current account and trade balances (percent of GDP), 2012–2017:
  - Current Account Balance (in percent of GDP) series displayed; the current account deficit remains high but is showing some improvement.
  - Trade Balance (in percent of GDP) series displayed; improvement driven by strengthening trade balance.
- Imports by category (in percent of GDP), 2012–2017:
  - Petroleum products, Intermediate goods, Capital goods, Consumer goods: shown; reduction of intermediate and capital goods imports related to public investments noted.
- WAEMU reserves (2010–17, in months of next year's imports), excluding intra-regional trade: series shown; Togo's high current account deficit has contributed to pressures on regional reserves.

### Fiscal developments (2017)
- Fiscal revenue and public investment:
  - Fiscal Revenue (percent of GDP) for H1/H2: outturn, original program, revised budget shown; fiscal revenue in H1 was in line with projections, though it fell short in H2.
  - Public Investment (percent of GDP): domestically financed and externally financed outturn vs program and revised budget shown; significantly lower investment spending over the year compensated revenue shortfall.
- Fiscal balances (percent of GDP), 2017:
  - Domestic Primary Balance (QPC)*, Overall Primary Balance (commitment basis), Overall Balance (cash basis): outturn, original program, revised budget shown.
  - The QPC for the 2nd Review was aligned with the original program rather than the revised budget.
  - Result: meeting the QPC on the domestic primary balance, as well as the overall balance targets.
- Financing:
  - Total Financing, Domestic Financing (QPC), External Financing (percent of GDP): outturn, original program, revised budget shown; financing remained well within targets, even taking into account domestic arrears.
  - Domestic arrears and their treatment are reflected in financing and balance measures.

### Selected economic and financial indicators (Table 1: 2015–23, key entries)
- Real GDP (annual percent change): 2015 5.7; 2016 5.1; 2017 4.4; 2018 4.7; 2019 5.0; 2020 5.3; 2021 5.4; 2022 5.4; 2023 5.4.
- Real GDP per capita (percent change): 2015 3.1; 2016 2.5; 2017 1.8; 2018 2.1; 2019 2.4; 2020 2.7; 2021 2.8; 2022 2.8; 2023 2.8.
- Consumer price index (average): 2015 1.8; 2016 0.9; 2017 -0.7; 2018 0.4; 2019 1.2; 2020 2.0; 2021 2.0; 2022 2.0; 2023 2.0.
- GDP (CFAF billions): 2015 2,472; 2016 2,643; 2017 2,769; 2018 2,958; 2019 3,180; 2020 3,449; 2021 3,744; 2022 4,065; 2023 4,413.
- Domestic primary balance (percent of GDP): 2015 -3.2; 2016 -4.5; 2017 0.8; 2018 1.0; 2019 2.9; 2020 2.9; 2021 2.9; 2022 2.8; 2023 2.8.
- Overall balance (commitment basis, incl. grants, percent of GDP): 2015 -8.9; 2016 -9.6; 2017 -0.3; 2018 -4.5; 2019 -0.5; 2020 -0.3; 2021 0.0; 2022 0.2; 2023 0.5.
- Current account balance (percent of GDP): 2015 -11.0; 2016 -9.3; 2017 -8.0; 2018 -7.9; 2019 -6.8; 2020 -5.6; 2021 -5.0; 2022 -4.9; 2023 -5.0.
- External public debt (percent of GDP): 2015 21.7; 2016 20.2; 2017 19.9; 2018 22.7; 2019 24.3; 2020 23.8; 2021 23.4; 2022 23.0; 2023 22.4.
- Total public debt (percent of GDP): 2015 72.2; 2016 81.6; 2017 75.7; 2018 74.3; 2019 69.2; 2020 63.7; 2021 58.4; 2022 53.3; 2023 48.3.

### Central government financial operations (Table 2a & 2b highlights, 2015–20)
- Revenue and grants (billions of CFAF): 2015 539.5; 2016 571.3; 2017 703.1; 2018 695.8 (outturn); 2019 original budget 595.8; projections through 2020 shown.
- Total expenditure and net lending (billions of CFAF): 2015 759.1; 2016 823.9; 2017 767.4; 2018 829.7; 2019 original budget 603.6; projections through 2020 shown.
- Public investment (billions of CFAF): 2015 319.6; 2016 367.3; 2017 306.2; 2018 328.0 (outturn); composition domestically financed vs foreign financed shown.
- Domestic primary balance (billions of CFAF): 2015 -79.2; 2016 -118.8; 2017 62.5; 2018 13.4; projections shown.
- Overall balance (cash basis, incl. grants, billions of CFAF): 2015 -191.3; 2016 -252.6; 2017 -134.3; 2018 -159.8; projections shown.
- Financing composition: Domestic financing (net) and External financing (net) series shown, including IMF-ECF entries.

### Balance of payments (Table 3 highlights, 2015–23)
- Current account balance (billions of CFAF): 2015 -272.6; 2016 -246.4; 2017 -222.5; 2018 -233.8; projections through 2023 shown.
- Trade balance (billions of CFAF): 2015 -610.8; 2016 -571.8; 2017 -555.2; 2018 -575.7; projections through 2023 shown.
- Exports (billions of CFAF): 2015 597.7; 2016 614.2; 2017 608.8; 2018 621.8; projections through 2023 shown.
- Imports (billions of CFAF): 2015 1,208.5; 2016 1,186.0; 2017 1,164.0; 2018 1,197.4; projections through 2023 shown.
- Financial account and components (billions of CFAF): Financial account -225.5 (2015), -152.6 (2016), -108.7 (2017), -133.6 (2018); Direct investment, Portfolio investment, Other investment series shown.
- Change in NFA/financing (billions of CFAF and percent of GDP) and BCEAO NFA (months of next year's WAEMU imports) series shown.

### Monetary and financial sector indicators (Tables 4–6 highlights)
- Monetary survey (2015–23): Net foreign assets, Net domestic assets, Credit to government (net), Credit to nongovernment sector, Total broad money liabilities, Money supply (M2) series shown in both levels (billions of CFAF) and percent of GDP/percent of beginning-of-period broad money.
- Financial Soundness Indicators, 2014–17 (percent):
  - Regulatory capital to risk-weighted assets: 2014 8.5; 2015 6.8; 2016 3.9; 2017 6.8.
  - Non-performing loans to total gross loans: 2014 15.4; 2015 16.6; 2016 15.4; 2017 17.0.
  - Bank provisions to non-performing loans: 2014 74.0; 2015 69.2; 2016 77.3; 2017 71.7.
  - Return on assets (ROA): 2014 0.9; 2015 0.7; 2016 2.6; 2017 -2.8 (available up to 2017Q2 for some series).
- Capacity to repay the Fund (Table 6, 2017–29 projections):
  - Principal repayments (in millions of SDRs): 2017 19.1; 2018 17.8; 2019 11.0; 2020 7.5; 2021 1.8; 2022 2.5; 2023 12.6; 2024 22.7; 2025 35.2; 2026 35.2; 2027 32.7; 2028 22.7; 2029 12.6.
  - Charges and interest (in millions of SDRs): 2017–2029 each 0.3.
  - Outstanding IMF credit (in millions of SDRs), 2017 88.4; 2018 121.0; 2019 185.4; 2020 177.9; 2021 176.2; 2022 173.6; 2023 161.1; 2024 138.4; 2025 103.2; 2026 67.9; 2027 35.2; 2028 12.6; 2029 0.0.
  - Net use of IMF credit (disbursements and repayments) series shown.
  - Memorandum items: Nominal GDP, Exports of goods and services, Government revenue, Debt service (in billions of CFAF) series provided.

### Schedule of disbursements under ECF Arrangement (Table 7)
- SDR 25.17 million (17.1 percent of quota): May 5, 2017 — Following Executive Board Approval of an ECF arrangement.
- SDR 25.17 million (17.1 percent of quota): September 15, 2017 — Observance of continuous and end-June 2017 performance criteria and completion of the first review under the arrangement.
- SDR 25.17 million (17.1 percent of quota): March 15, 2018 — Observance of continuous and end-December 2017 performance criteria and completion of the second review under the arrangement.
- SDR 25.17 million (17.1 percent of quota): September 15, 2018 — Observance of continuous and end-June 2018 performance criteria and completion of the third review.
- SDR 25.17 million (17.1 percent of quota): March 15, 2019 — Observance of continuous and end-December 2018 performance criteria and completion of the fourth review.
- SDR 25.17 million (17.1 percent of quota): September 15, 2019 — Observance of continuous and end-June 2019 performance criteria and completion of the fifth review.
- SDR 25.14 million (17.1 percent of quota): December 15, 2019 — Observance of continuous and end-September 2019 performance criteria and completion of the sixth review.
- Note: Conditions for disbursement include observance of continuous and period-end performance criteria and completion of reviews under the arrangement; schedule reflects IMF staff estimates.

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

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Overview
- 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.

### External Risks
- Tighter global financial conditions (ST, MT). Relative Likelihood: HighHigh
  - Expected impact if realized:
    - The inability of the government to raise financing may reemerge.
    - Higher rates would increase debt servicing costs, putting pressure on the budget.
  - Policies to mitigate:
    - Bolster investors’ confidence by implementing a credible medium-term fiscal adjustment strategy.

- Weaker-than-expected global growth (ST, MT). Relative Likelihood: High/MediumMedium
  - Expected impact if realized:
    - 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.
  - Policies to mitigate:
    - Implement competitiveness enhancing structural reforms, and further diversify export market locations.

- Retreat from cross-border integration (ST, MT). Relative Likelihood: MediumMedium
  - Expected impact if realized:
    - Reduced global policy collaboration may limit international aid, FDI, trade flows, exports, and growth.
  - Policies to mitigate:
    - 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). Relative Likelihood: MediumMedium
  - Expected impact if realized:
    - 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.
  - Policies to mitigate:
    - Ensure prudent budgetary management to contain financing need.

- Continued political unrest (ST, MT). Relative Likelihood: HighHigh
  - Expected impact if realized:
    - Economic activity and growth would slow down; spending pressure may intensify to address social demands; support for structural reforms may dwindle.
  - Policies to mitigate:
    - Accelerate measures towards growth-inclusiveness; communicate and discuss structural reforms with key stakeholders.

- Delays in fiscal adjustment and reforms (ST). Relative Likelihood: MediumMedium
  - Expected impact if realized:
    - The large revenue under-performance may persist.
    - 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.
  - Policies to mitigate:
    - 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 shortfall (ST, MT). Relative Likelihood: HighHigh
  - Expected impact if realized:
    - 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.
  - Policies to mitigate:
    - 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.

### Key Policy Themes Across Risks
- Bolster investors’ confidence by implementing a credible medium-term fiscal adjustment strategy.
- Ensure prudent budgetary management to contain financing needs.
- Accelerate competitiveness-enhancing and inclusion-focused structural reforms.
- Bolster regional policy coordination and regional trade to mitigate cross-border shocks.
- Implement sector-specific reforms (e.g., power generation and pricing) and governance measures to limit fiscal costs.

*Annex I. Risk Assessment Matrix*

### 11.      We will continue our efforts in 2018 to correct the revenue underperformance in 2017. To

### We will continue our efforts in 2018 to correct the revenue underperformance in 2017.

### Revenue measures and administration
- Prepared and submitted to the Cabinet a methodological document for the establishment of the Urban Land Registry (Régistre Foncier Urbain, RFU) of Lomé (prior action). The RFU:
  - Allows setting up a land map identifying and locating each property, as well as land databases.
  - Is defined as a multi-purpose Land Information System (Système d'Informations Foncières) based on digitized parcel mapping; assimilated to a simplified cadaster with a purely fiscal purpose.
  - Describes stages, actors and their role, detailed estimated cost, and timing. Activities will start with pilot areas with high potential in 2018.
- Other revenue-enhancing measures under consideration:
  - Reduce the tax exemption threshold for interest income on funds deposited in savings account from 20 to 10 million CFA francs, all accounts combined.
  - Expand the e-service (online declaration and payments and mobile payments) to all other taxpayers.
  - Limit the use of exemption eligibility certificate (certificat de détaxes) to the sole payment of VAT; disallow this mechanism for other taxes.
  - Gradually digitalize customs clearance procedures and related documentation; activate trans-shipment and auctions functions in ASYCUDA.
  - Require that all ex-ante controls and all adjustments to customs declarations be completed and reported in the IT system by officers before clearance.
  - Compile all tax expenditures and attach them to the next budget law for FY2019.
- Revenue administration actions already taken:
  - Implemented controls to detect and tax inaccurate declarations and potential evasions in phosphate, clinker, cement, and iron sectors (end-December 2017 structural benchmark: Met).

### Expenditure control, arrears, and cash management
- Strengthen entire expenditure chain and cash management to accelerate arrears clearance and prevent new accumulation.
- From July 2018, the Ministry of Economy and Finance will complete monthly procurement and commitment plans consistent with a cash plan derived from the revised 2018 budget.
- Structural benchmarks:
  - Bolster implementation of the cash plan and control of commitment authorizations (structural benchmark end-December 2018).
  - Provide IMF staff with monthly data on the stock of payment arrears by age (structural benchmark end-December 2018).
  - Continue reforms on coverage of the Treasury Single Account (TSA) to centralize public funds.
  - Pursue cost-benefit analysis of investment projects (structural benchmark end-September 2018).

### Borrowing policies and debt management
- Commitment to reduce public debt to approach the WAEMU debt convergence criterion of 70 percent of GDP by the end of the ECF-supported program in 2019.
- Long-term objective: reduce the NPV of debt below 38 percent by 2025.
- Strengthening debt management capacities:
  - Centralized debt management functions and organized the debt management unit with front, middle and back offices; managers to be appointed as soon as possible.
  - Develop a procedures manual for debt management by around end-June 2018 following AFRITAC technical assistance recommendations.
- Considering reprofiling a portion of domestic debt into external debt on more favorable terms:
  - Request modification of the zero-ceiling on non-concessional external debt to allow such operations.
  - Will limit magnitude to ensure moderate risk of external debt distress and ensure these do not increase total public debt level in net-present-value terms.
  - Commit to consult with IMF staff and provide all necessary data before undertaking operations.

### Financial sector policy and bank restructuring
- Completed comprehensive restructuring plan of the two problem banks (structural benchmark end-February 2018).
  - Plan principles: adequate capitalization of merged/restructured bank; no bailout of minority shareholders; minimize costs for the state while preserving financial stability; active collection of nonperforming loans by a dedicated unit; clear public interest mandate; strengthened governance free from political interference; strengthened management and internal control; elimination of loss-making activities; improved organizational efficiency.
  - Estimated cost of the restructuring to the budget is about 1.4 percent of GDP.
  - Government submitted the plan in April 2018 to the WAMU Banking Commission for review.
  - Legal transfer for the merger expected to be completed by end-June 2018 (structural benchmark end-June 2018).
- Governance commitments for the new bank:
  - Ensure majority of Board members are independent; Board will deliberate only in presence of a majority of independent members.
  - Board Chair will be either an independent director, or a non-executive director operating within a framework to be defined in coordination with IMF staff.
  - Set forth principles of governance, replacement and election of directors in the bank’s statutes.
  - Put in place, before the legal merger at end-June 2018, a formal framework guaranteeing Board accountability.
  - Ministry of Economy and Finance will act as State representative; a unit within the ministry will monitor strategy and financial performance.
  - After legal merger, set up the new governance structure (structural benchmark end-December 2018).
- Further steps and safeguards:
  - Any modifications to ownership structure will be governed by Togolese law and BCEAO regulations, including fit-and-proper and solvency requirements.
  - Timely consult with IMF staff prior to taking such steps.
  - Given the high NPL ratio of about 17 percent at end-December 2017, develop a resolution plan including measures and time-bound reduction targets.

### Structural reforms and inclusive growth
- Completed and validated National Development Plan (NDP) covering 2018-22; succeeds SCAPE (expired 2017).
  - NDP inspired by 2030 Agenda for Sustainable Development, 2063 Agenda of the African Union, and Vision 2020 of ECOWAS.
  - Overarching objectives: structural transformation via a major logistic hub, a dynamic financial center, a solid manufacturing base, and inclusive social policies.
  - Medium-term social priorities dovetail with commitment under the ECF-supported program to protect social spending on projects with high impact on poverty reduction.
  - Submitted consolidated NDP as the new Economic Development Document (EDD) for information of the IMF and World Bank Executive Boards.
- Inclusive development process:
  - Active involvement of public administration, institutions of the Republic, private sector, civil society, and development partners.
  - Stakeholder mapping and central and regional consultations conducted.
- Business environment reforms and priorities:
  - Produced action plan based on Doing Business findings; adopted measures to improve building permits, access to electricity, transfer of existing property titles, contract enforcement, and paying taxes.
  - Immediate concerns: land reform, business creation, cross-border trade, contract enforcement, and increasing competitiveness (including legal framework for dynamic public-private partnerships and acceleration of tax telepayment).
  - Land reform commitments:
    - Put in place mechanisms and procedures to facilitate land registration, including digitizing the stock of existing land property titles, opening a central window for liquidation and payment of fees, and clearing backlog of pending mortgage handover documents (structural benchmark end-December 2018).
  - Steps to further open key sectors (e.g., phosphates and telecommunications) to private investment.
- Leverage Compact with Africa (CwA) accession to attract investors and catalyze reforms.

### Program monitoring, targets, and data improvements
- Program review cadence:
  - Reviewed semi-annually based on quantitative performance criteria, indicative targets, and structural benchmarks.
  - Request modification of quantitative performance criteria for end-June 2018 on the domestic primary balance and net domestic financing; modification of the continuous performance criterion on non-concessional external borrowing.
  - Proposed quantitative performance criteria for end-December 2018 and indicative targets for end-September 2018 and end-December 2018.
  - Third and fourth reviews based on performance criteria for end-June 2018 and end-December 2018; IMF Board discussions on or after September 15, 2018 and March 15, 2019, respectively.
- Institutional capacity strengthening:
  - Permanent Secretariat for Reform Policies and Financial Programs (SP-PRPF) to provide technical program monitoring and quarterly progress reports; liaison between national structures and partners; coordination of technical assistance.
- Data and statistics:
  - Reduced lags in production of final national accounts and making efforts to improve GDP estimates.
  - Will avoid delays in production of final national accounts and continue improving data quality.
  - Progress in compiling and producing fiscal reports, particularly the Tableau des Opérations Financières de l’Etat.
  - Ensure budget projections for following year are based on estimates of budget execution of the current year.
- Commitment on external restrictions:
  - Will not introduce or intensify restrictions on payments and transfers for current international transactions, introduce or modify any multiple currency practice, conclude bilateral payments agreements incompatible with Article VIII of the IMF’s Articles of Agreement, or introduce or intensify import restrictions for balance of payments reasons without IMF prior approval.

### Key quantitative targets and outturns (selected figures from Table 1 and memorandum items)
- Indicative and performance figures (Billions CFA Francs):
  - Total fiscal revenue (floor): 556.3; 507.3; Status: Not Met; Quarter outturns: 128.3 (End-March 2018), 242.6 (End-June 2018), 394.2 (End-September 2018), Target End-December 2018: 606.5.
  - Total domestically financed social spending (floor): 218.4; 213.7; Status: Not Met; Quarter outturns: 37.3 (End-March 2018), 109.6 (End-June 2018), 164.4 (End-September 2018), Target End-December 2018: 219.3.
  - Domestic primary fiscal balance (floor): Indicative Target End-March 2018: 13.4; Performance Criteria End-June 2018: 22.3 (Met); Outturn End-September 2018: -6.2; End-December 2018 Target/Outturn entries include -24.5, -6.5, 72.2 as shown in table.
  - Net domestic financing (ceiling): Indicative Target End-March 2018: 31.6; Performance Criteria End-June 2018: 27.3 (Met); Outturn End-September 2018: 51.4; End-December 2018 entries include 68.6, 80.2, 6.0 as shown in table.
  - Non-accumulation of arrears on external public debt: 0.0 across targets and outturns shown in table.
  - Government contracting or guaranteeing of nonconcessional external debt (ceiling): 0.0 across targets and outturns shown in table.
  - Memorandum items:
    - Overall primary balance: -75.6 (December 2017), -9.6, -36.9, -94.2, -115.6, -85.7 (table entries).
    - Government contracting or guaranteeing of nominal concessional external debt: 138.0; quarter entries include 29.8, 138.0, 57.1, 92.7, 142.6.
    - Adjustor cap for debt management operations: nominal equivalent of 260.3 billion CFA francs in net-present-value terms (paragraphs under table).
  - Bank restructuring cost to the budget estimated at about 1.4 percent of GDP.
  - NPL ratio of about 17 percent at end-December 2017.
- Structural benchmarks and deadlines (selected):
  - Prepare and submit to the Cabinet the methodological document for RFU of Lomé (Proposed Prior Action: Met).
  - Produce and approve comprehensive restructuring plan for two public banks (End-February 2018: Not met but implemented with delay).
  - Reduce by 60 percent the number of pending customs transit cases (End-June 2018).
  - Close 32 accounts of general government entities in commercial banks and transfer balances to the TSA (End-June 2018).
  - Prepare an arrears clearance plan and issue circulars to prevent arrears (End-June 2018).
  - Put guidelines to include in the 2019 budget only investment projects selected through cost-benefit/cost-effective analyses (End-September 2018).
  - Put in place mechanisms and procedures to facilitate land registration, including digitization and clearing backlog of mortgage handover documents (End-December 2018).
  - Put in place mechanism ensuring full independence of governance of new public bank (End-December 2018).

*Source: cr18184 - https://www.imf.org/-/media/files/publications/cr/2018/cr18184.pdf*

### 1.      This Technical Memorandum of Understanding (TMU) defines the structural and quantitative

### cr18184 - 1.      This Technical Memorandum of Understanding (TMU) defines the structural and quantitative

### Scope and institutional definitions
- Program period: January 1, 2017 through the end of the arrangement.
- "Government" (unless otherwise specified) = central administration of the Togolese Republic; excludes political subdivisions, the Central Bank of West African States (BCEAO), and any public entity with a separate legal personality.
- "Public entities" (unless otherwise indicated) = majority government-owned companies, and other public entities receiving earmarked tax and quasi-tax revenues.
- For program purposes, the definition of "debt" follows 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.

### Debt definition (key elements preserved)
- Debt means a current, i.e., not contingent, liability created under a contractual arrangement requiring one or more future payments in assets or services.
- Primary forms of debt:
  - (i) loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements);
  - (ii) suppliers’ credits (deferred payments after delivery of goods/services);
  - (iii) leases: debt = present value (at inception) of all lease payments expected during the agreement, excluding payments covering operation, repair, or maintenance.
- Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt.
- Failure to make payment on an obligation not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

### Domestic vs. external debt; contracting timing
- Public debt includes obligations of the central government and public entities.
- Domestic debt = debt contracted or serviced in the franc of the Financial Community of Africa (CFAF).
- External debt = debt contracted or serviced in a currency other than the CFAF.
- A debt is considered contracted for program purposes at the time of issuance of a “no objection” opinion by the Supreme Court, where required under domestic law; otherwise when it enters into effect.

### Quantitative performance criteria (PCs) and indicative targets (ITs)
- Monitoring dates with PCs: end-June 2018 and end-December 2018.
- Monitoring dates with ITs: end-September 2018 (indicative targets) and the same end-December/end-June periods noted above.
- Performance criteria (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 ceiling on government contracting or guaranteeing of 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.
- Indicative targets (ITs) include:
  - a floor on total fiscal revenue;
  - a floor on total domestically-financed social spending.

### A. Domestic Primary Fiscal Balance
- Definition:
  - Domestic primary fiscal balance = government fiscal revenue minus total fiscal expenses, net of interest and capital spending financed by donors and lenders.
  - Balances for periods end-December 2017 to end-June 2018 and to end-December 2018 (PCs) and end-December 2017 to end-September 2018 (ITs) must be equal to or greater than amounts in Table 1 of the MEFP attachments.
  - Data source: Government Financial Operations Table (Tableau des opérations financières de l’État – TOFE), prepared monthly by the Directorate of Economy (statistical TOFE). Directorate of Economy data takes precedence.
  - Domestic primary fiscal balance will be adjusted downwards by the amount spent on bank recapitalization as defined in MEFP¶16.
- Reporting deadline:
  - Detailed data reported monthly within eight weeks of the end of the month.

### B. Arrears on External Public Debt
- PC: government will not accumulate payment arrears on external public debt (continuous performance criterion).
- For this PC, "arrears" = external debt obligations of the government not paid when due in accordance with contractual terms (including contractual grace periods).
- Exclusions:
  - arrears on external financial obligations subject to rescheduling;
  - arrears on debts subject to dispute or renegotiation.
- Data source: Public Debt Directorate.

### C. Net Domestic Financing
- Definition:
  - 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 end-December 2017 to end-June 2018 and to end-December 2018 (PCs) and end-December 2017 to end-September 2018 (ITs) must be equal to or less than amounts in Table 1 appended to the MEFP.
- Adjustors:
  - Ceiling on net domestic financing adjusted upwards by amount spent on bank recapitalization as defined in MEFP¶16.
  - Adjusted downwards by amount of domestic debt retired as a result of debt-management operations.
  - Adjustor related to debt-management operations capped at the nominal equivalent of the net present value of CFAF 260.3 billion after converting the nonconcessional external debt into CFA francs using the prevailing exchange rate at the time of the transaction.
  - Ceiling adjusted upwards to make up for gaps between projected and actual external financing for the program, subject to a cap of CFAF 10 billion.
  - Adjusted up or down in line with payments of arrears over the course of 2018; total adjustment for arrears payments over 2018 is subject to a ceiling of CFAF 64.8 billion; the end-June performance criterion includes CFAF 30.4 billion as part of the arrears adjustor.
  - Calculation of the arrears adjustor: in the statistical TOFE, authorities track balances outstanding within the fiscal year (instances de paiements) and payments of balances outstanding from previous years; sum of these two flows = domestic arrears for calculating the net arrears payment for the adjustor.
- Components definitions:
  - Net credit from banking sector = balance of government claims and debts to national banking institutions in Togo. Government claims include: balances in Togolese Treasury; Treasury deposits in the central bank; Treasury deposits in commercial banks (excluding deposits of other arms of government such as project-financed deposits and CNSS accounts); blocked accounts. Government debts to 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 in CFA francs held by commercial banks); deposits in postal checking accounts.
  - Net domestic nonbank financing includes: (i) changes in balance of government securities issued in CFA francs (including WAEMU regional market) not held by Togolese commercial banks, calculated on basis of initial amount underwritten; (ii) changes in deposit accounts of Treasury correspondents; (iii) changes in various deposit accounts including trustee accounts (comptes de consignation) and accounts holding fines and sentences pending distribution; (iv) repayment of other domestic public debt to nonbank entities (including nonresidents); and income from privatization.
  - Assumption or securitization of debts and arrears by the government is not included in net domestic financing, whereas repayment of that debt by the government is included.
  - Unidentified financing = 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 responsibility and precedence:
  - Net credit from the banking sector to government calculated by the BCEAO.
  - Treasury bill and bond amounts determined by Agence UMOA-Titres.
  - Net domestic nonbank financing calculated by the Togolese Treasury.
  - Their data take precedence for program purposes.
  - Data reported in statistical TOFE prepared monthly by the Directorate of Economy.
- Reporting deadlines:
  - Data on net domestic financing reported monthly within eight weeks of the end of the month.
  - Details on any domestic borrowing by government reported monthly within six weeks of the end of the month; categorized as short term (less than one year) and long term (one year or more). Applies to government-guaranteed domestic loans to suppliers and contractors.

### D. Government or Government-Guaranteed Non-concessional External Debt
- PC: government undertakes not to contract or financially guarantee any new nonconcessional external debt at maturities of one year or more (continuous performance criterion), except as specified.
- Definition of nonconcessional external debt:
  - External debt with a grant element of less than 35 percent.
  - Level of concessionality calculated based on a discount rate of 5 percent.
  - Applies to debt as defined in paragraph 8(a) and to any commitment contracted or guaranteed for which no value has been received.
- Exclusions from this PC:
  - reschedulings that take the form of new debts;
  - bond borrowing, Treasury bills, and Sukuk or other instruments issued in CFA francs on the WAEMU regional financial market.
- For this PC, "government" is expanded to include: definition in paragraph 2 plus public industrial/commercial institutions (EPIC), public administrative agencies (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.
- Adjustor for debt-management operations:
  - Upwards adjustment by amount of nonconcessional external borrowing used for debt-management operations that improve the overall public debt profile.
  - For operations executed in 2018 and 2019, adjustor capped at nominal equivalent of net present value of CFA francs 260.3 billion after converting nonconcessional external debt into CFA francs using prevailing exchange rate at time of transaction.
  - "Debt-management operations" limited to exchange of domestic debt for nonconcessional external debt.
  - NPV calculation method: sum of discounted debt service flows using a discount rate of 5 percent for both domestic debt to be reprofiled and external debt to be acquired.
  - Net effect = NPV(domestic debt to be reprofiled) minus net cost of domestic debt repurchase, minus [NPV(external debt to be acquired) plus any fees associated with the external debt issuance].
  - Net effect must reduce or leave unchanged total stock of public debt in NPV terms; if increase occurs, operation is not considered debt-management and would be non-observance.
  - Government must consult IMF staff before undertaking any debt-management operations and provide terms, fees, costs, and costs/fees associated with compensating current domestic bondholders and lenders.

### E. Government-Guaranteed Domestic Loans to Suppliers and Contractors
- PC: government committed not to provide new financial guarantees for domestic loans to its suppliers or contractors (continuous performance criterion).
- "Government" for this PC includes definition in paragraph 2 plus EPIC, EPA, public scientific/technical institutes, public vocational establishments, public health agencies, local authorities, public enterprises, national corporations (government holds at least 50 percent of capital), and state agencies.

### F. Government Guarantees on Bank Prefinancing for Public Investments
- PC: government undertakes not to guarantee new bank prefinancing for public investments (continuous performance criterion).
- Typical arrangement described: private company awarded public works contract obtains loan from domestic commercial bank(s); Ministry of Economy and Finance guarantees loan and signs unconditional and irrevocable substitution of debtor agreement to service all principle and interest paid automatically from Treasury account at BCEAO.
- "Government" definition for this PC includes the expanded list used in E.

### G. Total Fiscal Revenue
- Definition:
  - Total fiscal revenue = tax and nontax revenue; excludes external grants, revenue of autonomous agencies, and income from privatization.
  - Data calculated by revenue offices and reported in statistical TOFE prepared monthly by Directorate of Economy.
  - Revenue reflected on a cash basis.
- Target:
  - Revenue collection for periods end-December 2017 to end-June 2018, end-September 2018, and end-December 2018 must be equal to or greater than amounts in Table 1 attached to the MEFP.
  - Revenue floor is an indicative target for entire duration of the program.
- Reporting deadline:
  - Reported monthly to the IMF within four weeks of the end of the month.

### H. Domestically Financed Social Spending
- Definition and scope:
  - Total (current and capital) domestically financed social spending 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:
       - scholarships = awarded to students in need pursuing undergraduate degree (article 21 of Decree No. 2011-173/PR of November 30, 2011; article 1 of Decree No. 2011-174/PR of November 30, 2011);
       - relief allowances = granted to students recognized as belonging to a disadvantaged or vulnerable category (article 31 of Decree No. 2011-173/PR; article 2 of Decree No. 2011-174/PR).
    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; excludes all social spending financed with project-specific grants or loans.
  - Data source: SIGFiP, from the Budget Directorate (Ministry of Economy and Finance), prepared monthly.
- Reporting: prepared at monthly intervals in SIGFiP and reflected in statistical reporting.

*IMF Technical Memorandum of Understanding (TMU) — provisions, definitions, performance criteria, adjustors, and reporting deadlines as set out in the provided TMU text.*

### 27.      Social spending financed with domestic resources for the periods from end-December 2017

### 27.      Social spending financed with domestic resources for the periods from end-December 2017

### Social spending floors and reporting
- Social spending financed with domestic resources for the periods from end-December 2017 to end-June 2018, end-September 2018, and end-December 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.
- Reporting deadlines:
  - The data on social expenditure financed with domestic resources will be reported every month within eight weeks of the end of the month.

### Structural benchmarks: arrears, cash plan, governance, and land registration
- End-December 2018 structural benchmark on monthly report of the stock of payment arrears by age — methodology and definitions:
  - Domestic payment arrears: domestic debt obligations of the government to nonfinancial public and private entities and the domestic debt service (excluding the BCEAO) that have not been paid within 90 days after the contractual due date (taking into account any contractual grace periods).
  - Floating debt: domestic debt obligations of the government to nonfinancial public and private entities and the domestic debt service (excluding the BCEAO) that have not been paid when due in accordance with the relevant contract terms (taking into account any contractual grace periods) and for which such due date has been exceeded by fewer than 90 days.
  - Data concerning the stock of domestic payment arrears and floating debt by age will be reported monthly within eight weeks of the end of the month starting from July 2018, continuously through December 2018.
- End-December 2018 structural benchmark on strengthening the implementation of the cash plan and the control commitment authorizations:
  - The authorities will ensure that the cash plan is updated on a monthly basis by the Treasury Committee of the Ministry of Finance.
  - Monthly update will include updates to the commitment plan and the procurement plan, with data consistent between the three plans.
  - The authorities will align expenditure authorizations with these plans.
  - Reporting deadlines:
    - The cash management, commitment and procurement plans will be reported every month within eight weeks of the end of the month.
- End-December 2018 structural benchmark on an independent governance structure for the newly-merged bank:
  - A fully independent bank governance structure includes at minimum:
    1. a majority of independent Board members, with this majority of independent members required for Board deliberations;
    2. distinct audit and risk committees headed by independent directors;
    3. a chairman of the Board being either an independent director, or a non-executive director operating within a framework designed to ensure an equivalent degree of independence;
    4. the principles of governance of the bank, replacement and election of directors enshrined in the bank’s statutes;
    5. a formal framework guaranteeing the accountability of the Board, through which the State (represented by the Ministry of Economy and Finance, via an internal unit which monitors the strategy and financial performance of the bank) sets high-level expectations and strategic orientations, based on which the Board develops and/or fine-tunes the strategy of the bank.
- End-December 2018 structural benchmark on land registration — actions:
  - Digitize the stock of existing land property titles and open the central window for the liquidation and payment of fees; and clear the entire backlog of pending mortgage handover documents.

### Debt sustainability: overall assessment and headline findings
- Risk of external debt distress: Moderate
- Augmented by significant risks stemming from domestic public debt? Yes
- Key summary findings:
  - Togo’s risk of external debt distress continues to be moderate with heightened overall risk of debt distress—unchanged from the previous DSA published in April 2017.
  - Alternative scenarios and stress tests suggest external public debt could accumulate rapidly, pushing Togo above the external debt-distress threshold for the present value (PV) of public and publicly guaranteed (PPG) debt-to-GDP.
  - Togo’s domestic public debt burden remains high and reflects among others, persistently high deficits, materialized contingent liabilities and arrears accumulation.
  - Baseline projections show that Togo’s PV of total PPG debt (external plus domestic)-to-GDP ratio will reach the 38 percent benchmark by 2025, down from 73.1 percent in 2017 - with the bulk constituting domestic debt obligations.
  - The analysis highlights the need for sustained fiscal consolidation, improved debt management, and macroeconomic policies to reduce the level of public debt to prudent levels over the medium term.

### Recent debt dynamics and composition (selected figures)
- Text Table 1 (selected entries, end-2013 / end-2016 / end-2017):
  - Total Public Debt: 1,189 (end-2013) 100.0 55.7; 2,157 (end-2016) 100.0 81.6; 2,097 (end-2017) 100.0 75.7
  - External Debt (total): 306 25.7 14.3; 535 24.8 20.2; 550 26.2 19.9
  - Domestic Debt (total): 883 74.3 41.4; 1,622 75.2 61.4; 1,547 73.8 55.9
  - Domestic Arrears: 290 24.4 13.6; 334 15.5 12.6; 310 14.8 11.2
  - Bonds (Emprunts Obligataires): 213 17.9 10.0; 574 26.6 21.7; 797 38.0 28.8
  - T-Bills (Bons du Tresor): 111 9.4 5.2; 189 8.7 7.1; 148 7.0 5.3
- Developments:
  - Public domestic debt rose from 41.4 percent of GDP to 61.4 percent of GDP during 2013-16.
  - Government securities on the regional market increased from 15.2 percent of GDP to 28.8 percent between 2013 and 2016.
  - Domestic arrears amounted to CFAF 334 billion (12.6 percent of GDP) by end-2016 (staff estimate); authorities' preliminary report reduced their estimate to CFAF 316 billion (11.9 percent of GDP).
  - Fiscal consolidation initiated in 2017: by end-2017 total public debt dropped 5.9 percentage points of GDP from the previous year, reaching 75.7 percent, and the domestic debt stock fell 5.5 percentage points from 2016, reaching 55.9 percent.
  - The bank recapitalization costs are currently estimated at CFAF 42 billion (1.4 percent of GDP) — if these costs do not materialize, the debt profile will improve.
  - Togo has the highest levels of total debt-to-GDP and domestic debt-to-GDP ratios within the WAEMU.

### DSA thresholds and policy classification
- Togo’s CPIA rating averaged 3.00 over 2014-2016 and the country is classified as having weak policy performance.
- External debt burden thresholds (Without Remittances):
  - PV of debt in percent of Exports: 100
  - PV of debt in percent of GDP: 30
  - PV of debt in percent of Revenue: 200
  - Debt service in percent of Exports: 15
  - Debt service in percent of Revenue: 18
  - Total Public Debt Benchmark: PV of total public debt in percent of GDP: 38

### Underlying DSA macroeconomic assumptions (selected)
- Real GDP growth:
  - DSA 2018: 2017-19: 4.7 percent; 2020-37: 5.4 percent (average)
  - Revised down from DSA 2017 where 2017-19: 5.2 percent; 2020-37: 5.2 percent
- Public investment:
  - Estimated to have dropped to 6.3 percent of GDP in 2017 and projected to reach 10.1 percent in 2018, before stabilizing at around 7 percent by 2020-23.
- Commodity price projections (oil, phosphates, cotton, cocoa, and coffee) through 2023 are sourced from the WEO prepared in January 2018 and are assumed to remain constant in real terms for the remainder of the forecast period.
- Inflation:
  - Average inflation declined to -0.7 percent in 2017 from 0.9 in 2016.
  - Expected to increase slightly to 0.4 percent in 2018 and reach 2 percent in the medium-term.
- Total revenue:
  - Revised down to 23.2 percent of GDP for 2017-19 (a decrease of 2.1 percentage points of GDP relative to previous DSA).
  - Projected to increase to 25 percent in the long term.
- Overall primary fiscal balance:
  - Commitment basis (including grants): expected deficit of 2.1 percent of GDP in 2018, down from a surplus of 1.5 percent in 2017.
  - Cash basis (including grants): remains anchored on a surplus of 2 percent by the end of the program and until 2025.
- Current account:
  - Remained broadly the same as the previous DSA at 8 percent of GDP in 2017.
  - Projected to narrow to about 5 percent of GDP from 2021.
- Foreign direct investment:
  - Expected to stabilize around an inflow of 3.8 percent of GDP per year in the long run, about 3 percentage points lower than the previous DSA.

### External Debt Sustainability Analysis — baseline and stress tests
- Baseline:
  - Under the baseline scenario, all Togo’s external debt indicators continue to remain below their indicative policy-relevant thresholds.
  - The present value of external PPG debt is projected at 18.2 percent of GDP in 2018 and should decrease to 13.1 percent by 2038.
  - The ratio will remain below the 30 percent threshold under the baseline throughout the projection period.
  - Ratios of the PV of PPG external debt relative to revenues and to exports remain relatively stable and below their respective indicative thresholds through the end of the projection period.
  - Debt service measures remain well below thresholds and on a broadly downward trend.
- Alternative scenarios and stress tests — key results:
  - Alternative scenarios reveal multiple breaches of relevant thresholds under adverse scenarios.
  - Most extreme shock (combination shock of low growth and a large reduction in exports and non-debt creating flows):
    - GDP and exports growth, FDI and current transfers are set at historical average minus one standard deviation for 2019-20.
    - The PV of PPG debt-to-GDP ratio will breach the threshold in 2020 and remain above until 2023 (breach by an average of 2 percentage points over 2020-23).
    - The PV of PPG debt-to-exports ratio breaches its relevant threshold by 14 percentage points during 2020-26 under the most extreme shock.
    - This scenario highlights vulnerability to non-debt creating flows and the importance of FDI stability.
  - Historical scenario (key macroeconomic parameters set to their 10-year historical averages):
    - The three solvency indicators and debt service-to-revenue ratio breach their relevant policy dependent thresholds.
    - Debt service-to-exports remains broadly below the relevant policy dependent threshold.
  - Under the most extreme shock, the PV of debt-to-revenue ratio and the debt service ratios remain well below their respective policy relevant thresholds.

*Source: IMF and World Bank staff Debt Sustainability Analysis for Togo, May 30, 2018.*

### 10.      The inclusion of Togo’s domestic public debt in the analysis emphasizes the vulnerability of

### 10.      The inclusion of Togo’s domestic public debt in the analysis emphasizes the vulnerability of 

### Baseline Scenario
- Inclusion of domestic public debt increases the assessed vulnerability of the baseline scenario and yields an assessment of heightened risk of overall debt distress (Table 2a, Figure 2).
- Drivers of the domestic debt burden:
  - Persistently high deficits.
  - Recognition as government debt of accumulated liabilities from liquidated loss-making SOEs and old arrears accumulation.
  - Ongoing arrears accumulation.
  - Weak public financial management, including limited debt management capacity.
- Projections:
  - Domestic debt is projected to keep declining gradually from a record high of 61.4 percent of GDP in 2016.
  - By the end of the projection period, repayment of arrears coupled with significant fiscal consolidation is expected to substantially have reduce domestic debt and total PPG debt.
- Under the authorities’ ECF-supported program:
  - The overall fiscal primary balance will reach 2 percent of GDP by 2019.
  - If maintained, Togo’s PV of total public debt-to-GDP would reach the 38 percent benchmark by 2025, and decline gradually below thereafter (Figure 2).

### Alternative and Historical Scenarios; Risks
- Under the historical scenario and the scenario that keeps the primary balance unchanged from 2018:
  - The PV of public debt-to-GDP stays above the 38 percent benchmark throughout the projection period as the country accumulates more debt to finance larger fiscal deficits.
  - These scenarios highlight risks to debt sustainability in the absence of needed policy reforms.
- Contingent liabilities risk:
  - A significant shock to SOEs, such as a bankruptcy, could result in realization of contingent liabilities that could increase debt levels notably, though such risks are difficult to quantify.
- External vulnerabilities:
  - Togo’s public external debt remains vulnerable to adverse shocks on exports stemming from low external demand or decline in commodity prices, and on non-debt creating flows (particularly, FDI flows).

### Authorities’ Views
- The authorities broadly agreed with staff’s assessment of Togo’s debt situation and recommendations on debt management policy, but continued to prefer a narrower coverage of public debt.
- They concurred that significant progress has been made in reducing debt levels since the inception of the ECF-supported program, but recognized that the current level of debt still poses risks and that fiscal consolidation must continue.
- On debt management capacity:
  - The authorities highlighted progress made but recognized that more improvements are needed.
  - They intend to make full use of IMF and World Bank technical assistance and training resources to strengthen capacity in this area.
- Coverage disagreement:
  - The authorities reiterated their view expressed at the beginning of the ECF-supported program that they prefer to exclude public institutions from public sector debt, as they think that this debt does not represent a fiscal risk to the central government.

### Conclusion — Debt Distress Assessment and Key Statistics
- External debt distress:
  - Togo remains at moderate risk of external public debt distress.
  - Under the baseline scenario, all external debt sustainability indicators are expected to remain well below their indicative thresholds throughout the projection period (2018–38).
  - However, under the historical scenario and several stress tests, some solvency indicators (i.e., PV debt-to-GDP and PV debt-to-exports) breach their respective thresholds.
- Overall (external plus domestic) public debt distress:
  - The country is assessed at heightened risk of overall (external plus domestic) public debt distress, reflecting vulnerabilities in domestic debt.
  - Togo had the largest debt-to-GDP ratio in WAEMU in 2017, at 75.7 percent of GDP (72.5 percent excluding SOEs’ debt), composed largely of non-concessional loans.
  - The ratio stands at about twice the prudential levels, remaining above such indicative benchmark through 2024—but on a steep declining trend, on the assumption of a continued fiscal consolidation path and substantial reduction in the domestic debt.

*TOGO  INTERNATIONAL MONETARY FUND*

### 15.      Togo’s debt burden calls for the authorities’ commitment to continue fiscal consolidation,

### 15.      Togo’s debt burden calls for the authorities’ commitment to continue fiscal consolidation,

### Main findings on debt burden and fiscal stance
- Authorities should persevere in the strong fiscal consolidation initiated in 2017 and improve public financial and debt management.
- Bolstering cash management practice will aid in containing new domestic arrears accumulation.
- Debt management should be strengthened through the creation of good information systems capable of feeding a comprehensive borrowing plan that includes well-defined development objectives for investment projects and their financing options.
- The zero ceiling on external non-concessional borrowing, with the exception of debt management operations, should help improve the financing mix.
- Efforts should be made to strengthen revenue mobilization and to improve the efficiency of public spending, especially capital investment, to identify saving and foster growth.

### Recent economic performance and program implementation
- Real GDP growth: 4.4 percent in 2017 compared to 5.1 percent in 2016.
- Overall primary balance: improved from a deficit of 7.2 percent in 2016 to a surplus of 1.5 percent in 2017.
- Current account deficit: narrowed from 9.3 percent of GDP in 2016 to 8.0 percent of GDP in 2017.
- Inflation: remained well below WAEMU regional convergence criterion of 3 percent.
- Program outcomes for end-December 2017:
  - All quantitative performance criteria (QPCs) were met.
  - Specific achievements: domestic primary balance exceeded the program target; no external arrears accumulated; net domestic financing contained below the program ceiling; no new non-concessional debt contracted; no guarantees for domestic suppliers and contractors; no new prefinancing operations initiated.
  - Indicative targets: total fiscal revenue failed to meet the floor due to activity slowdown; priority social spending target missed by a very small margin.
  - Structural benchmarks: all met, with restructuring plan for two public banks completed with a minor delay.

### Policy recommendations and fiscal measures
- Loosen fiscal stance in 2018 in recognition of revenue-reducing turmoil, while securing prospects for timely progress toward WAEMU convergence criteria related to the deficit.
- Revised 2018 budget includes measures to enhance revenue collection equivalent to about 0.5 percent of GDP compared to the original budget and to contain public expenditure.
- Revenue-side initiatives to be pursued:
  - Strengthen tax administration and policy; build on 2017 measures including mandatory online reporting for large companies and mobile payment options for some taxes.
  - Expand the tax base, improve property tax collection, reduce tax expenditures, increase non-tax revenue.
  - Expand e-service for online declaration and payments and mobile payments; digitalize customs clearance procedures.
  - Creation of the Urban Land Registry initiated.

### Debt sustainability indicators and projections (selected figures from baseline and public sector frameworks)
- External debt (nominal) series (selected years): 21.7, 20.2, 19.9, 23.1, 24.7, 24.8, 24.3, 24.5, 24.3, 22.0, 23.8 (percent of GDP across 2015–2023 and averages).
- PV of external debt (selected): 17.2, 18.6, 19.4, 19.4, 18.9, 19.1, 18.8, 15.8, 16.3 (percent of GDP in projection table).
- PV of PPG external debt (selected): 17.2, 18.2, 18.9, 18.4, 18.0, 17.6, 17.0, 13.3, 13.1 (percent of GDP).
- PV of PPG external debt in percent of exports (selected): 53.9, 60.0, 62.8, 63.4, 61.5, 62.0, 61.2, 52.0, 53.0 (percent).
- PPG debt service-to-revenue ratio (in percent): 7.5, 9.3, 10.7, 7.0, 6.7, 6.6, 5.9, 6.2, 7.2, 7.4, 4.8 (series across years).
- Debt service-to-exports ratio (in percent): 4.1, 5.2, 6.1, 4.6, 4.3, 4.3, 3.9, 4.1, 4.8, 5.2, 3.4.
- Total gross financing need (Billions of U.S. dollars): 0.4, 0.4, 0.3, 0.3, 0.3, 0.2, 0.2, 0.2, 0.2, 0.3, 0.5 (series).
- Public sector debt (percent of GDP, selected): 72.2, 81.6, 75.7, 74.3, 69.2, 63.7, 58.4, 53.3, 48.3, 36.4, 37.3.
- PV of public sector debt (selected): 73.1, 69.8, 63.8, 58.4, 53.0, 47.9, 42.9, 30.2, 29.8 (percent of GDP).
- Gross financing need (percent of GDP, selected): 19.4, 19.5, 9.3, 12.7, 9.6, 10.2, 9.0, 7.9, 8.1, 7.5, 6.9.

### Key macroeconomic and financing assumptions (baseline)
- Real GDP growth (in percent): 5.7, 5.1, 4.4, 5.6, 0.8, 4.7, 5.0, 5.3, 5.4, 5.4, 5.4, 5.2, 5.4, 5.4, 5.4 (series across 2015–2038 segments).
- GDP deflator in US dollar terms (change in percent): -13.6, 1.5, 2.4, 0.7, 8.9, 11.9, 3.5, 4.2, 3.7, 3.7, 3.4, 5.1, 3.0, 3.0, 3.0.
- Effective interest rate (percent): 1.9, 1.8, 2.1, 1.4, 0.7, 1.7, 1.5, 1.5, 1.6, 1.8, 1.8, 1.7, 1.8, 1.6, 1.7 (series).
- Growth of exports of G&S (US dollar terms, in percent): -17.5, -0.5, 2.1, 6.1, 14.4, 13.6, 8.3, 9.1, 9.7, 9.3, 8.9, 9.8, 8.5, 8.0, 8.6.
- Growth of imports of G&S (US dollar terms, in percent): -8.5, -1.8, 0.5, 6.6, 15.7, 13.7, 4.7, 6.3, 7.8, 8.8, 8.9, 8.4, 8.1, 8.9, 8.6.
- Grant element of new public sector borrowing (in percent): 43.0, 39.8, 37.7, 37.7, 37.7, 37.7, 37.7, 37.7 on projection years (series shown as repeated 37.7/37.3/37.7 values).
- Government revenues (excluding grants, in percent of GDP): 19.5, 18.8, 18.3, 20.5, 19.9, 20.0, 20.0, 20.2, 20.4, 20.6, 21.5, 21.8, 21.5.
- Aid flows (Billions of US dollars, selected): 0.1, 0.1, 0.2, 0.4, 0.4, 0.4, 0.4, 0.5, 0.5, 0.7, 1.7.
- Grants (Billions of US dollars, selected): 0.1, 0.1, 0.2, 0.2, 0.2, 0.3, 0.3, 0.3, 0.3, 0.5, 1.2.
- Grant-equivalent financing (in percent of GDP, selected): 6.6, 5.7, 4.8, 4.8, 4.8, 4.8, 4.8, 4.8, 4.8.
- Grant-equivalent financing (in percent of external financing): 65.2, 67.8, 75.4, 76.0, 76.0, 76.0, 76.0, 76.0, 76.0.

### Stress tests and sensitivity analysis (highlights)
- Table 1b and Table 3 present multiple scenario outcomes for PV of debt-to-GDP, PV of debt-to-exports, PV of debt-to-revenue, debt service-to-exports and debt service-to-revenue ratios under:
  - Alternative scenarios A1 (key variables at historical averages) and A2 (new public sector loans on less favorable terms).
  - Bound tests B1–B6 (including shocks to real GDP growth, export values, US dollar GDP deflator, net non-debt creating flows, combination shocks, and a one-time 30 percent nominal depreciation).
- Examples of scenario results (selected):
  - PV of debt-to-GDP ratio — Baseline: 18 (2018), 19 (2019), 18 (2020), 18 (2021), 17 (2022), 13 (2028), 13 (2038).
  - PV of debt-to-exports ratio — Baseline: 59 (2018), 61 (2019), 60 (2020), 59 (2021), 57 (2022), 55 (2028), 44 (2038); A1 and A2 produce higher peaks in some years (e.g., A1 values up to 193 in a later year in table).
  - PV of debt-to-revenue ratio — Baseline values across years include 54, 44, 45, 53 (selected).
  - Debt service-to-revenue and debt service-to-exports ratios show elevated vulnerability under some shocks (e.g., baseline debt service-to-revenue ratio series includes 77, 76, 67, 67, 75 in select years).
- Memorandum: Grant element assumed on residual financing is 30 (percent) across projection years in Table 1b notes.

### Outlook and authorities’ strategy
- Authorities optimistic about medium-term outlook; expect sustained high growth once socio-political environment improves.
- Public infrastructure investments expected to enhance competitiveness and boost growth via productivity gains and stronger private sector activity.
- Authorities determined to preserve macroeconomic stability, improve social protection, safeguard long-term debt sustainability, address financial sector vulnerabilities, and boost growth potential.
- Authorities intend to sustain Togo’s positive contribution to West African Monetary Union (WAMU)’s external stability.

*Source: IMF staff report chapter — “Togo’s debt burden calls for the authorities’ commitment to continue fiscal consolidation, and improve public financial and debt management, supported by solid macroeconomic policies.”*

### 10.     On the spending side, the restraint exercised by the authorities helped achieve fiscal

### cr18184 - 10.     On the spending side, the restraint exercised by the authorities helped achieve fiscal

### Spending restraint, optimization, and cash management
- Restraint exercised by the authorities helped achieve fiscal targets notwithstanding the significant revenue underperformance.
- An optimization exercise was initiated following a comprehensive review supported by an international consulting firm, aimed at identifying and streamlining non-priority expenditure.
- The optimization exercise is expected to yield significant savings in 2018 and onwards.
- To continue clearing domestic arrears and avoid new accumulation, steps are being taken to strengthen the expenditure chain and cash management flows.
- It is envisaged that monthly procurement and commitment plans will be developed from July 2018.
- The authorities will carry out a cost-effectiveness analysis of public investment projects expected to enrich the 2019 budget.

### Achieving debt reduction
- Bringing public debt on a sustainable downward path continues to be a key priority for the authorities.
- Togo’s public debt-to-GDP ratio was reduced from 78.2 percent of GDP in 2016 to 72.5 in 2017 (excluding debt from state-owned-enterprises SOEs).
- Authorities remain fully committed to consolidation plans to tackle the still high public debt level and meet WAEMU requirements.
- They are determined to pursue a prudent borrowing strategy and to continue strengthening the technical and operational capacities of the new debt management office.
- As part of efforts to ease the debt burden and improve the public debt profile, the authorities envision carrying out a reprofiling of a portion of their domestic debt.
- They plan to contract new external debt at more favorable maturity and interest rates terms to repay heavy and costly domestic debt service.
- The authorities would welcome a modification of the zero-ceiling on new non-concessional external borrowing that would not lead to a deterioration of Togo’s current debt rating.

### Maintaining financial stability
- Important strides are being made in addressing the legacies of the two remaining public banks to mitigate risks to the budget.
- A comprehensive restructuring plan was submitted to the Secretariat of WAEMU Banking Commission in April 2018, built on international best practices.
- Upon approval, the authorities expect the legal transfer for the merger of the two banks will be promptly completed.
- In the context of the NDP, the authorities aim to position Togo as a financial center hub in the sub-region while safeguarding financial stability.
- They will address remaining weaknesses in the financial system in close collaboration with the regional authorities.
- Plans include continuing efforts to improve access to credit and taking steps to enhance the sector’s regulatory and supervisory framework.

### Promoting economic transformation and advancing structural reforms
- The main objective of Togo’s NDP is to enable structural transformation of the economy to achieve stronger and more inclusive growth, create jobs, and improve living conditions.
- Priority initiatives include setting up a modern and dynamic logistics hub, a premier sub-regional business and financial center, and developing agricultural processing, manufacturing and extractive industries centers.
- Advancing reforms in the health and education sectors and creating jobs through agricultural clusters and industrial parks are key pillars of the inclusive growth strategy.
- Continuous progress in improving the business environment is critical given the expected role of the private sector in economic transformation.
- A business climate unit under the supervision of the Office of the President of the Republic was set up in September 2017.
- An action plan aiming at addressing impediments to a conducive business environment was adopted in January 2018; reforms in the electricity, construction and property sectors have since been initiated.
- Ongoing efforts focus inter alia on land reform, facilitating the issuance construction permits, fostering business creation, enforcing contracts and promoting trade.
- Authorities seek assistance from development partners in property registration, tax administration, and access to credit, where the country still significant room for maneuver.
- They expect Togo’s participation in the G20 Compact with Africa Initiative (CwA) to help reform the business environment and attract foreign private investment.

### Conclusion and requests to the Fund
- The Togolese authorities welcome the Executive Board’s support for the completion of the second ECF review based on strong program performance amid a challenging environment and their continued commitment to their Fund-supported program.
- They request the modification of performance criteria on domestic primary balance, net domestic financing, and non-concessional external borrowing to accommodate revenue underperformance stemming from the socio-political situation and reduce the domestic debt service burden, while maintaining Togo at moderate risk of external debt distress.
- They look forward to Directors’ continued support and the Fund’s valuable engagement in Togo.

*cr18184 - 10.     On the spending side, the restraint exercised by the authorities helped achieve fiscal*

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_Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18184.pdf_