## 1. Main Recommendations from the 2016 Article IV Consultations and Current Status ## Source details **Canonical URL:** [1. Main Recommendations from the 2016 Article IV Consultations and Current Status](https://www.imf.org/-/media/files/publications/cr/2019/1tgoea2019001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1tgoea2019001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1tgoea2019001.pdf.json) --- ### Context and Recent Developments - Despite bold reforms, uncertainty and underdeveloped institutions have prevented Togo from fully unlocking its growth potential. - Government actions following 2016 Article IV recommendations: - Stopped public investment pre-financing and embarked on strong fiscal consolidation, leading to a significant reduction in the fiscal deficit and public debt. - Completed a comprehensive spending review and began gradual clearance of arrears to the private sector. - Doing Business Indicators improved considerably (score improved from 49 in 2017 to 55 in 2018). - Economic performance and constraints: - Growth decelerated recently and remains below the average of the last decade and below peer averages. - Private investment slow to offset decline in public investment. - Social spending increased but remained below targets. - Public debt declined but remains the highest in the WAEMU. - High non-performing loans (NPLs) and loan concentration constrain bank profitability and new lending. - Reforms to address weaknesses in public banks encountered significant delays. - Governance and institutional capacity weaker than in peers. - Economic activity repeatedly hindered by socio-political instability; poverty remains high and only marginally decreasing. - Recent macro developments: - Growth estimated: 4.4 percent in 2017 to 4.9 percent in 2018. - Headline inflation: 2 percent in March 2019 (year-on-year). - WAEMU pooled foreign reserves: equivalent to 4.3 months of union imports at end-2018. ### Box 1 — Main Recommendations from the 2016 Article IV Consultations and Current Status - Reduce overall fiscal deficit substantially upfront to ensure long-term debt and external sustainability. - Outcome: Overall fiscal deficit (commitment basis) reduced from 9.6 percent of GDP in 2016 to 0.8 percent of GDP in 2018; total public debt reduced from 81 percent of GDP at end-2016 to 76 percent of GDP at end-2018. - Accelerate revenue administration reforms (overhaul tax exemptions, reduce manual procedures, complete automation, stronger control of import valuation). - Outcome: Measures to upgrade tax and customs administrations in progress; 2019 Budget eliminates or limits several tax exemptions; revenue increasingly relies on ad-hoc and non-permanent sources. - Phase out prefinancing of public investments and reduce domestically-financed capital spending. - Outcome: Prefinancing phased out; liabilities converted into orthodox borrowing; domestically financed capital spending reduced; comprehensive spending review undertaken. - Prioritize investment projects and use grant and concessional financing. - Outcome: Methodological guide for investment cost-benefit analysis prepared and mandated; government refrained from contracting non-concessional borrowing. - Apply restraints on current spending and cut wage bill as percent of GDP. - Outcome: Wage bill declined, but primary current spending increased from 15 percent of GDP in 2016 to 15.5 percent of GDP in 2018 due to goods and services spending. - Fully clear government arrears over 2–5 years (annual arrears clearance of 0.9 percent of GDP over 2017–2021); strengthen PFM. - Outcome: Arrears stock dropped from 4.6 percent of GDP at end-2016 to 1.2 percent of GDP at end-2018; synchronization of commitment, procurement, and cash plans implemented. - Resolve financial sector weaknesses, especially in two public banks (audit, recapitalization, governance, restructuring/merger). - Outcome: Process launched but delayed; independent audit completed; restructuring/merger plan submitted; government resumed privatization; process taking longer than planned. - Refocus policies on sustainable and inclusive growth. - Outcome: Social and financial inclusion key objectives in National Development Plan finalized in 2018, but actual social spending below targets. ### Fiscal and Debt Developments (selected statistics and outcomes) - Central government financial operations (percent of GDP): - Revenue and grants: 21.4 (2017 outturn) to 24.3 (3rd Rev. Est.) - Revenue: 18.2 (2017 outturn) to 20.4 (3rd Rev. Est.) - Grants: 3.2 (2017 outturn) to 3.9 (3rd Rev. Est.) - Expenditure and net lending: 21.6 (2017 outturn) to 27.4 (3rd Rev. Est.) - Domestic primary balance: 0.8 (2017 outturn) to 2.4 (3rd Rev. Est.) - Overall primary balance (commitment basis, incl. grants): 1.5 (2017 outturn) to -0.7 (3rd Rev. Est.) - Overall balance (commitment basis, incl. grants): -0.3 (2017 outturn) to -3.1 (3rd Rev. Est.) - Change in arrears and accounts payable: -1.8 (2017) to -2.2 (3rd Rev. Est.) - Financing: 3.8 (2017 outturn) to 7.8 (3rd Rev. Est.) - IMF/ECF financing: 1.4 (2017) to 1.4 (3rd Rev. Est.) - Memorandum public debt items: - Total public debt: 75.5 (2017) to 74.1 (3rd Rev. Est.) to 76.2 (2018 outturn). - Total public debt (excluding SOEs): 72.3 (2017) to 71.3 (3rd Rev. Est.) to 73.6 (2018 outturn). - 2018 fiscal outturn: - Total revenue expanded by 2.1 percentage points of GDP relative to 2017; about 1.5 percent of GDP was exceptional/ad-hoc revenue. - Overall spending increased relative to 2017 but remained significantly below projections, especially for foreign-financed investment. - Domestic primary balance improved by 1.6 percentage points of GDP from 2017 to 2018. - Togo met the WAEMU fiscal deficit criterion (not exceeding 3 percent of GDP) in 2017 and 2018. - Arrears and market access: - Government repaid arrears of about 2 percent of GDP in 2018. - Subscription rate of government bonds: 77 percent in 2017; 92 percent in 2018; 222 percent during January–April 2019. ### Program Performance (end-2018) - Performance criteria and targets: - Five out of six performance criteria at end-December 2018 were met. - Zero ceilings respected on: (i) non-accumulation of arrears on external public debt; (ii) contracting/guaranteeing of non-concessional external debt; (iii) guaranteeing of domestic loans to suppliers and contractors; (iv) guarantees on bank prefinancing for public investment. - Indicative target on domestic arrears met. - Indicative target on revenue missed by 0.1 percent of GDP. - Indicative target on priority social spending missed by 0.3 percent of GDP. - Net domestic financing: - End-December 2018 PC on net domestic financing missed: net domestic financing exceeded program ceiling by about 1.5 percent of GDP. - Main cause: statistical recording—commitments to repay revenue arrears made in late 2018 were paid in 2019 and recorded in “other accounts receivable” in 2018 (1.2 percent of GDP). Had revenue been recorded in 2018, net domestic financing would have exceeded the program ceiling by only 0.2 percentage point of GDP. - Structural benchmarks: - Five out of seven structural benchmarks met. - Actions taken include: monthly data on stock of payment arrears by age transmitted to IMF; strengthened cash plan implementation; methodological guide mandated for investment project selection; mechanisms to facilitate land registration; terms of reference drafted for transaction advisor for second public bank sale. - Privatization of first public bank delayed: due diligence completed, but draft sale contract not finalized; negotiations ongoing. ### Medium-Term Outlook and Risks - Staff projections: - Growth expected to approach 5½ percent over the medium term. - Inflation expected to stabilize around 2 percent over the medium term. - Current account deficit expected to remain in the range of 4-5 percent of GDP. - Drivers: completion of large public investment (new roads, expanded port and airport), improved business environment, expected boost to domestic and foreign private investment; lower demand for capital goods and other imports; continued export growth in cotton, phosphates, agriculture, and light manufacturing. - Downside risks (tilted to the downside): - National: persistent socio-political uncertainty; Presidential election scheduled for March 2020 could reignite unrest. Constitutional reform approved in May 2019 caps presidential mandate to two five-year terms but does not apply retrospectively; guarantees lifetime immunity for former presidents; limits MPs’ mandate to two terms of six years each. - Fragility-related risks: limited administrative capacity, persistent social tensions, sporadic violence. - Regional: intensifying security risks including terrorism threats, which could hinder investment, tourism, and regional hub ambitions. - Global: rising protectionism and retreat from multilateralism, potential tightening of global financial conditions, weaker-than-expected global growth. ### Box 2 — Risk Assessment Matrix (external, regional, and domestic risks) - Rising protectionism and retreat from multilateralism (ST, MT) - Relative likelihood: High - Expected impact if realized: High - Policy mitigation: prudent budgetary management; bolster regional policy coordination and trade. - Sharp tightening of global financial conditions (ST) - Relative likelihood: Medium/low - Expected impact if realized: Medium - Policy mitigation: implement credible medium-term fiscal adjustment to bolster investor confidence. - Weaker-than-expected global growth (MT) - Relative likelihood: Medium/low - Expected impact if realized: Medium - Policy mitigation: implement competitiveness-enhancing structural reforms; diversify export markets. - Surge of insecurity in the region (ST, MT) - Relative likelihood: High - Expected impact if realized: High - Policy mitigation: prudent budgetary management. - Socio-political tensions (ST, MT) - Relative likelihood: Medium - Expected impact if realized: High - Policy mitigation: accelerate measures towards growth-inclusiveness; communicate reforms with stakeholders. - Setback in fiscal adjustment and reforms (ST) - Relative likelihood: Medium - Expected impact if realized: Medium - Policy mitigation: persevere in fiscal consolidation; accelerate structural reforms; implement social programs for vulnerable groups. - Power-supply shortfall (ST, MT) - Relative likelihood: Low - Expected impact if realized: Medium - Policy mitigation: invest in power generation capacity; reform pricing; ensure public entities pay bills to avoid arrears. ### Near-term program focus and fiscal framework adjustments - Immediate program priorities: - Accommodate some urgent spending while safeguarding fiscal consolidation and debt reduction. - Complete reforms of weak public banks. - Improve budget preparation and execution. - Urgent spending in 2019–20: - One-off urgent spending amount: 1.5 percent of GDP (to be incorporated in a revised 2019 budget). - To create room: postpone spending of 0.3 percent of GDP previously planned for 2019 to 2020 while protecting social and development spending. - Effect on fiscal balance: overall fiscal balance will loosen from previously envisaged deficit of 1.5 percent of GDP to 2.7 percent of GDP in 2019. - Safeguards: authorities will take measures to limit risks of fiscal loosening, preserve WAEMU regional stability, and promote good governance. - Revised fiscal projections and debt trajectory: - Overall fiscal deficit changes: - Worsen by 1.2 percentage points of GDP in 2019 (to 2.7 percent of GDP). - Worsen by 0.3 percentage point of GDP in 2020 (to 2.1 percent of GDP). - Expected to remain below 2 percent of GDP in subsequent years (unchanged from previous projections). - WAEMU criterion: deficits consistent with WAEMU deficit criterion not exceeding 3 percent of GDP. - Public debt path: debt trajectory will slightly shift upward relative to previous projections, remain above the 70 percent WAEMU debt criterion until 2019, but is on a downward path. - Debt expected to fall below the DSA benchmark for countries with “medium” debt carrying capacity by 2023, instead of 2022 in previous projections. ### Revenue performance, weaknesses, and policy measures - Tax revenue outturn in 2018: 16.5 percent of GDP. - Program approval projection for tax revenue: 19.1 percent of GDP. - Causes of shortfall: - Severe socio-political unrests in mid-2017 and ensuing deceleration of economic activity. - Sharp reduction in public investment and adverse impact on related activities. - Delays in reform implementation at OTR. - Increased reliance on ad-hoc tax arrears collection or non-tax revenues. - Key weaknesses in revenue administration: - Taxpayer register inaccurate and unreliable. - Tax arrears not properly monitored. - High proportion of non-paying VAT returns: 56 percent for large enterprises and 62 percent for medium-sized enterprises in 2018. - Customs procedures not sufficiently automated; not all import/export operations reported. - Authorities’ domestic revenue mobilization focus: - Permanent revenue measures: revision of the general tax code; ongoing land reform; intensification of anti-fraud measures; review of OTR performance and governance. - Consideration of additional measures: faster resolution of disputed tax arrears; sale of some government non-financial assets. - Box 3: Revenue measures expected revenue impact in 2019 — Overall estimated yield: 1.1 percent of GDP. - Property taxes: 15 CFAF billion — 0.5 % of GDP - Motor vehicle taxation: 4 CFAF billion — 0.1 % of GDP - Telecommunication tax: 4 CFAF billion — 0.1 % of GDP - Import deposit (15 percent): 10 CFAF billion — 0.3 % of GDP - VAT new measures: 2 CFAF billion — 0.06 % of GDP - Customs controls: 2 CFAF billion — 0.06 % of GDP - Total: 37 CFAF billion — 1.12 % of GDP ### Financial sector vulnerabilities and privatization strategy - Financial sector vulnerabilities: - NPLs reached 18.3 percent in June 2018. - Overall capital adequacy ratio: 6.0 percent at end-June 2018. - BCEAO new capital adequacy requirement (Basel II/III aligned): 8.65 percent (entered into force in 2018). - Only the two problem public banks violate the new requirements; two private banks previously below minimum CAR received fresh equity. - Some MFIs show vulnerabilities; two under provisional administration at end-December 2018. - Privatization timeline for public banks: - First public bank: negotiations ongoing; revised strategy to be submitted by end-June 2019; tender to be launched by end-August 2019; privatization expected to finalize by end-December 2019. - Second public bank: privatization proceeding as planned; transaction advisor recruitment expected; tender to be launched by end-August 2019. - Authorities should monitor liquidity of both banks during privatization. - Box 4: Policies for successful bank privatization (key preconditions and recommendations): - Avoid adverse macro environment prior to privatization; ensure adequate regulatory and institutional frameworks; prepare SOFIs for privatization; consider financial/operational restructuring; ensure transparency and open bidding; conduct prudential review of new owner; ensure market-based valuation. ### Credit infrastructure, financial inclusion, and AML/CFT - Credit infrastructure and inclusion: - Togo outperforms WAEMU and SSA averages on number of accounts at financial institutions but has lower mobile money penetration. - Firms’ access to bank financing relatively good versus WAEMU; collateral remains a key obstacle. - Credit bureau quality needs improvement (list all types of credit). - Lower intermediation costs through land management, stronger credit underwriting and recovery could enable more firms to access credit. - AML/CFT framework: - AML/CFT framework needs strengthening. - Togo scheduled for GIABA evaluation in March 2020. - Authorities to prepare action plan following national risk assessment. - Lomé Commercial Court should be made fully operational. - Financial access and inclusion (Annex II highlights): - Banking system: 14 banks in 2018; highest total banking assets-to-GDP ratio among low-income SSA countries; share of formal private sector credit to GDP: 42 percent at end-2018. - MFIs: serve 37 percent of population. - Account ownership (2017): 45 percent of population (age 15+) have access to some financial services; 34 percent at a financial institution. - Credit to agriculture: 0.3 percent of total credit. ### Strengthening the foundation for strong and inclusive growth (policy recommendations and program actions) - Improve quality of public investment: - Future investment programs/budgets must include only projects selected through cost-effectiveness methodology. - Authorities will revise and enforce multi-year public investment program (SB end-October 2019). - Multi-year capital expenditure programming should be consistent with realistic resource envelopes of the medium-term budget framework and be binding in the following year and indicative thereafter. - Program-based budgeting: - Program-based presentation produced for all ministries in 2019. - Program-based budgeting document will be produced for 2020-22 (SB end-June 2019). - Develop standard framework of performance indicators and train stakeholders (SB end-October 2019). - Efficiency of social spending: - Social spending (health + education): from 5.4 percent of GDP in 2001 to 7.1 percent of GDP in 2016. - Staff analysis potential improvements with existing inputs: - Health-adjusted life expectancy (HALE) could improve by 4.8 percent relative to current outcome. - Net primary enrollment rate could improve by 6.3 percent relative to current outcome. - Frontier analysis (2015 data): - Health: PPP$76.3 per capita; HALE 52.3 years; potential input-efficiency saving PPP$7.8 per capita (10.2 percent) or output-efficiency improvement HALE by 3.3 years (6.3 percent). - Education: PPP$260.5 per capita; net enrolment 95.4 percent; frontier uses PPP$223.7 per capita for 99.1 percent enrolment (input-efficiency 14.1 percent); output-efficiency indicates net enrolment could reach 100 percent (4.8 percent). - Recommendations: structural reforms over medium term; continue expansion of PUDC and PAPV; strengthen governance in social delivery; improve execution and targeting of social outlays. ### Improve Debt Management Capacity - Assessment: Togo at moderate risk of external debt distress and high risk of overall public debt distress (reflecting elevated domestic debt). - Operational steps recommended: - Fully staff the reorganized debt directorate. - Implement the approved procedures manual for debt management activities. - Increase transparency and active communication with primary dealers and investors. - Planned operation: - Debt reprofiling planned in 2019: borrow externally at more favorable terms to repay outstanding domestic or regional debt; objective to reduce NPV of total public debt. - Size limited to keep external debt moderate risk rating unchanged. - Consultancy firm contracted to advise on operation. - Authorities’ views: - Concur with staff recommendations but prefer narrower public debt coverage; request more intensive TA and training; plan to justify exclusion of some SOE debt under LIC-DSF guidance. ### Program Modalities, Financing, and Safeguards - Review schedule and program end: - Fifth and sixth reviews on a quarterly schedule. - Program should end around end-2019 or early 2020, considering Presidential election in early 2020. - Fifth review based on end-June 2019 criteria; scheduled for IMF Board discussion on or after September 15, 2019. - Sixth review based on end-September 2019 criteria; scheduled for IMF Board discussion on or after December 15, 2019. - Financing: - Program fully financed with firm commitments from development partners including the World Bank, the European Union, and the African Development Bank, while ECF disbursements will close remaining financing needs. - Safeguards: - Updated safeguards assessment of the BCEAO completed in 2018: strong control environment; audit arrangements broadly conform with international standards; financial statements prepared per IFRS. - BCEAO enhanced oversight role of its audit committee. - Capacity to repay the Fund: - Togo’s capacity to repay the Fund remains adequate. - Obligations to the Fund would peak in 2025 at 2.3 percent of government revenue or 0.5 percent of GDP. ### Capacity Development and Ongoing Reforms - Current CD focus: - Increase domestic revenue mobilization and modernize customs administration. - Improve PFM, including investment management and program-based budgeting. - Strengthen compilation and dissemination of statistics. - Additional notes: - Comprehensive diagnostic of the banking sector may be considered in future fiscal year(s). - IMF, World Bank, and development partners cooperating to build institutional and technical capacity. ### Staff Appraisal — Economic Outlook, Risks, and Performance - Recent and projected growth: - Growth estimated at 4.9 percent in 2018. - Growth expected to approach 5½ percent over the medium term. - Inflation and external position: - Headline inflation around 2 percent (year-on-year) in March 2019. - External position in 2018 broadly consistent with fundamentals and desirable policies. - Risks: - Tilted to the downside: national uncertainty (Presidential election in first half of 2020), regional security risks, and global protectionism/tightening financial conditions. - Program performance: - Five out of six performance criteria and five out of seven structural benchmarks at end-December 2018 were met. - Togo complied with WAEMU fiscal deficit criterion in 2017 and 2018, two years ahead of timeline. - Caveats: revenue partly driven by exceptional/non-permanent items; public debt remains above WAEMU convergence criterion; privatization of one public bank delayed. - Staff recommendations and policy priorities (selected): - Fiscal/debt: safeguard fiscal consolidation while accommodating urgent 2019–20 expenditure; pursue debt reduction; strengthen permanent revenue mobilization. - Financial sector/privatization: finalize reforms related to the two public banks; if privatization delays persist, revisit strategy and launch open tender; conduct prudential review of new owners; address elevated NPLs. - Public investment/social spending: improve quality of public investment; bolster efficiency of social spending; finalize methodological guide on cost-benefit analysis; comprehensive expenditure review and program-based budgeting welcomed. - Governance/inclusion: continue governance reforms and anticorruption measures; urge further reforms to advance gender equality. - Program endorsement: staff supports waiver for nonobservance of net domestic financing PC and modification of two PCs; recommends completion of fourth ECF review; 5th and 6th reviews on quarterly cycle. ### Key Quantitative Projections (selected series preserved) - Real GDP growth (annual): 2016: 5.6; 2017: 4.4; 2018: 4.9; 2019 (proj): 5.1; 2020–24 (proj): 5.3, 5.4, 5.4, 5.4, 5.4. - Real GDP per capita (annual): 2016: 3.0; 2017: 1.9; 2018: 2.3; 2019: 2.5; 2020–24: 2.7, 2.8, 2.8, 2.8, 2.8. - Inflation (CPI average): 2016: 0.9; 2017: -0.2; 2018: 0.9; 2019: 1.4; 2020–24: 2.0, 2.0, 2.0, 2.0, 2.0. - Current account balance (percent of GDP): 2016: -9.8; 2017: -2.0; 2018: -4.9; 2019 (proj): -5.9; 2020–24 (proj): -5.3, -5.0, -4.7, -4.5, -4.5. - Total public debt (percent of GDP): 2016: 81.4; 2017: 75.5; 2018: 76.2; 2019 (proj): 72.2; 2020–24: 68.4, 64.2, 60.3, 56.5, 52.8. - Banking sector indicators: - Regulatory capital to risk-weighted assets: 2018Q2: 6.0. - Non-performing loans to total gross loans: 2018Q2: 18.3. - Loans to top 5 borrowers to capital: 2018Q2: 157.2. _International Monetary Fund staff report excerpts provided in the content unit 1tgoea2019001._ ### 1. Main Recommendations from the 2016 Article IV Consultations and Current Status ___________ 6 ### 1. Main Recommendations from the 2016 Article IV Consultations and Current Status ### Context and Recent Developments - Despite bold reforms, uncertainty and underdeveloped institutions have prevented Togo from fully unlocking its growth potential. - Government actions following 2016 Article IV recommendations: - Stopped public investment pre-financing and embarked on strong fiscal consolidation, leading to a significant reduction in the fiscal deficit and public debt (see Box 1). - Completed a comprehensive spending review and began gradual clearance of arrears to the private sector. - Doing Business Indicators have improved considerably. - Economic performance and constraints: - Economic growth decelerated in recent years and remains below the average of the last decade and below peer averages. - Private investment has been slow to offset the decline in public investment. - Social spending has increased but remained below targets. - Public debt declined but remains the highest in the WAEMU. - High non-performing loans (NPLs) and loan concentration in banks and the microfinance sector constrain profitability and new lending. - Reforms to address weaknesses in public banks encountered significant delays. - Governance and institutional capacity are weaker than in peers. - Economic activities repeatedly hindered by bouts of socio-political instability; poverty remains high and is only marginally decreasing. - Recent macro developments: - Growth estimated to have accelerated from 4.4 percent in 2017 to 4.9 percent in 2018. - Headline inflation stood at 2 percent in March 2019 (year-on-year). - Current account deficit increased in 2018 but remained markedly smaller than in previous years. - Togo has recourse to WAEMU’s pooled foreign reserves, equivalent to 4.3 months of union imports at end-2018. ### Box 1 — Main Recommendations from the 2016 Article IV Consultations and Current Status - Reduce the overall fiscal deficit substantially upfront to ensure long-term debt and external sustainability. - Outcome: Overall fiscal deficit (commitment basis) reduced from 9.6 percent of GDP in 2016 to 0.8 percent of GDP in 2018; total public debt reduced from 81 percent of GDP at end-2016 to 76 percent of GDP at end-2018. - Accelerate revenue administration reforms (overhaul tax exemptions, reduce manual procedures, complete automation, stronger control of import valuation). - Outcome: Measures to upgrade tax and customs administrations in progress; 2019 Budget eliminates or limits several tax exemptions. Some important reforms not yet completed under the newly created Office Togolais des Recettes. Revenue increasingly relies on ad-hoc and non-permanent sources. - Phase out the prefinancing of public investments and reduce domestically-financed capital spending. - Outcome: Prefinancing of public investment phased out; corresponding government liabilities converted into orthodox borrowing at more favorable terms. Domestically financed capital spending reduced; comprehensive spending review undertaken. - Prioritize investment projects and make full use of grant and concessional financing. - Outcome: Methodological guide for investment cost-benefit analysis prepared and mandated for project selection. Government refrained from contracting non-concessional borrowing. - Apply restraints on current spending and ensure wage bill declines as percent of GDP. - Outcome: Wage bill declined, but primary current spending increased from 15 percent of GDP in 2016 to 15.5 percent of GDP in 2018 due to spending on goods and services. - Fully clear government arrears over 2–5 years (annual arrears clearance of 0.9 percent of GDP over 2017–2021); strengthen public financial management. - Outcome: Arrears stock dropped from 4.6 percent of GDP at end-2016 to 1.2 percent of GDP at end-2018. Synchronization of commitment, procurement, and cash plans implemented to prevent new arrears. - Resolve financial sector weaknesses, especially in two public banks (independent audit, recapitalization, governance, restructuring/merger plan). - Outcome: Process launched but encountered significant delays. Independent audit completed; restructuring/merger plan submitted to the Banking Commission. Government revisited strategy and resumed privatization of the two banks; process taking longer than planned. - Refocus policies on sustainable and inclusive growth. - Outcome: Social and financial inclusion are key objectives in the National Development Plan finalized in 2018, but actual social spending has so far been below targets. ### Fiscal and Debt Developments (selected statistics and outcomes) - 2017–2018 central government financial operations (percent of GDP, Text Table 1 highlights): - Revenue and grants: 21.4 (2017 outturn) to 24.3 (3rd Rev. Est.) - Revenue: 18.2 (2017 outturn) to 20.4 (3rd Rev. Est.) - Grants: 3.2 (2017 outturn) to 3.9 (3rd Rev. Est.) - Expenditure and net lending: 21.6 (2017 outturn) to 27.4 (3rd Rev. Est.) - Domestic primary balance: 0.8 (2017 outturn) to 2.4 (3rd Rev. Est.) - Overall primary balance (commitment basis, incl. grants): 1.5 (2017 outturn) to -0.7 (3rd Rev. Est.) - Overall balance (commitment basis, incl. grants): -0.3 (2017 outturn) to -3.1 (3rd Rev. Est.) - Change in arrears and accounts payable: -1.8 (2017) to -2.2 (3rd Rev. Est.) - Financing: 3.8 (2017 outturn) to 7.8 (3rd Rev. Est.) - IMF/ECF financing: 1.4 (2017) to 1.4 (3rd Rev. Est.) - Memorandum items: Total public debt 75.5 (2017) to 74.1 (3rd Rev. Est.) to 76.2 (2018 outturn); Total public debt (excluding SOEs) 72.3 (2017) to 71.3 (3rd Rev. Est.) to 73.6 (2018 outturn). - 2018 fiscal outturn: - Total revenue expanded by 2.1 percentage points of GDP relative to 2017 and was in line with projections; about 1.5 percent of GDP of this was exceptional/ad-hoc revenue. - Overall spending increased relative to 2017 but remained significantly below projections, especially for foreign-financed investment. - Domestic primary balance improved by 1.6 percentage points of GDP from 2017 to 2018 and was in line with projections. - Togo reached the WAEMU fiscal deficit criterion (not exceeding 3 percent of GDP) in 2017 and 2018. - Arrears and market access: - Government repaid arrears of about 2 percent of GDP in 2018. - Subscription rate of government bonds in the regional market improved from an average of 77 percent in 2017 to 92 percent in 2018 and 222 percent during January–April 2019. ### Program Performance (end-2018) - Performance criteria and targets: - Five out of six performance criteria at end-December 2018 were met. - Zero ceilings respected on: (i) non-accumulation of arrears on external public debt; (ii) contracting or guaranteeing of non-concessional external debt; (iii) guaranteeing of domestic loans to suppliers and contractors; (iv) guarantees on bank prefinancing for public investment. - Indicative target on domestic arrears met. - Indicative target on revenue missed by 0.1 percent of GDP. - Indicative target on priority social spending missed by 0.3 percent of GDP; authorities taking corrective measures to improve social spending execution and efficiency. - Net domestic financing: - End-December 2018 performance criterion on net domestic financing was missed: net domestic financing exceeded program ceiling by about 1.5 percent of GDP. - Main cause: statistical recording—commitments to repay revenue arrears made in late 2018 were paid in 2019 and recorded in “other accounts receivable” in 2018 (1.2 percent of GDP) and will be transferred to net domestic financing in 2019. Had the revenue been recorded in 2018, net domestic financing would have exceeded the program ceiling by only 0.2 percentage point of GDP. - Structural benchmarks: - Five out of seven structural benchmarks were met. - Actions taken: monthly data on stock of payment arrears by age transmitted to IMF staff; strengthened cash plan implementation and control of commitment authorizations; methodological guide mandated for investment project selection; mechanisms and procedures to facilitate land registration; terms of reference drafted for transaction advisor for second public bank sale; strategic plan for privatization submitted with slight delay. - Privatization of the first public bank delayed: legal and regulatory due diligence completed, but draft sale contract not finalized; negotiations with potential buyer ongoing and structural benchmark not met. ### Medium-Term Outlook and Risks - Staff projections: - Growth expected to approach 5½ percent over the medium term. - Inflation expected to stabilize around 2 percent over the medium term. - Current account deficit expected to remain in the range of 4-5 percent of GDP. - Drivers: completion of large public investment (new roads, expanded port and airport), improved business environment, expected boost to domestic and foreign private investment; lower demand for capital goods and other imports; continued export growth in cotton, phosphates, agriculture, and light manufacturing. - Downside risks (tilted to the downside): - National: persistent socio-political uncertainty; Presidential election scheduled for March 2020 could reignite unrest and affect macroeconomic performance, fiscal adjustment, and structural reforms. Constitutional reform approved by Parliament in May 2019 caps presidential mandate to two five-year terms but does not apply retrospectively; guarantees lifetime immunity for former presidents; limits MPs’ mandate to two terms of six years each. - Fragility-related risks: limited administrative capacity, persistent social tensions, sporadic violence. - Regional: intensifying security risks including terrorism threats, which could hinder local and foreign private investment, hamper tourism, and obstruct Togo’s regional hub ambitions. - Global: rising protectionism and retreat from multilateralism, potential tightening of global financial conditions, weaker-than-expected global growth. ### Authorities’ Views - Authorities broadly shared staff’s views on medium-term outlook and risks but were more optimistic on growth prospects, consistent with the 2018–2022 National Development Plan (NDP). - NDP expectations: - Baseline scenario envisages GDP growth of 5.5 percent in the medium term (in line with staff projections). - Alternative scenario envisages average annual growth of 6.6 percent during 2019–22, reaching 7.6 percent in 2022, underpinned by full implementation of NDP projects and structural transformation across logistics, agricultural processing/manufacturing/extractive industries, and social development/inclusion. - Authorities agreed on the balance of risks and reiterated commitment to prevent resumption of socio-political tensions; highlighted additional downside risks from environmental conditions affecting the primary sector. *Document: 1. Main Recommendations from the 2016 Article IV Consultations and Current Status (Togo).* ### Box 2. Risk Assessment Matrix ### Box 2. Risk Assessment Matrix ### Risk assessment — external risks - Rising protectionism and retreat from multilateralism (ST, MT) - Relative likelihood: High - Expected impact if realized: High - Key channels of impact: - Reduced global policy collaboration and regional integration may limit international aid, FDI, trade flows, and growth. - Policies to mitigate: - Ensure prudent budgetary management to contain financing need; bolster regional policy coordination and regional trade. - Sharp tightening of global financial conditions (ST) - Relative likelihood: Medium/low - Expected impact if realized: Medium - Key channels of impact: - The government may have difficulties to raise full financing. - 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 (MT) - Relative likelihood: Medium/low - Expected impact if realized: Medium - Key channels of impact: - 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. ### Risk assessment — regional and domestic risks - Surge of insecurity in the region (ST, MT) - Relative likelihood: High - Expected impact if realized: High - Key channels of impact: - 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. - Socio-political tensions (ST, MT) - Relative likelihood: Medium - Expected impact if realized: High - Key channels of impact: - 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. - Setback in fiscal adjustment and reforms (ST) - Relative likelihood: Medium - Expected impact if realized: Medium - Key channels of impact: - 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: Low - Expected impact if realized: Medium - Key channels of impact: - 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. - Note on the RAM methodology: - “Low” indicates a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent. - “Short term (ST)” and “medium term (MT)” indicate risks that could materialize within 1 year and 3 years, respectively. - The RAM shows events that could materially alter the baseline path and reflects staff views as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. ### Near-term program focus and fiscal framework adjustments - Immediate program priorities: - Accommodate some urgent spending while safeguarding fiscal consolidation and debt reduction. - Complete reforms of weak public banks. - Improve budget preparation and execution. - Urgent spending in 2019–20: - One-off urgent spending amount: 1.5 percent of GDP (to be incorporated in a revised 2019 budget). - To create room: postpone spending of 0.3 percent of GDP previously planned for 2019 to 2020 while protecting social and development spending. - Effect on fiscal balance: - Overall fiscal balance will loosen from previously envisaged deficit of 1.5 percent of GDP to 2.7 percent of GDP in 2019. - Safeguards: - Authorities will take appropriate safeguard measures related to the urgent spending to limit risks of fiscal loosening, preserve WAEMU regional stability, and promote good governance. - Revised fiscal projections and debt trajectory: - Overall fiscal deficit changes: - Worsen by 1.2 percentage points of GDP in 2019 (to 2.7 percent of GDP). - Worsen by 0.3 percentage point of GDP in 2020 (to 2.1 percent of GDP). - Expected to remain below 2 percent of GDP in subsequent years (unchanged from previous projections). - WAEMU criterion: - Overall fiscal deficits consistent with WAEMU deficit criterion of not exceeding 3 percent of GDP. - Public debt path: - Debt trajectory will slightly shift upward relative to previous projections and remain above the 70 percent WAEMU debt criterion until 2019, but is on a downward path. - Debt is expected to fall below the DSA benchmark for countries with “medium” debt carrying capacity by 2023, instead of 2022 in previous projections. ### Revenue performance, weaknesses, and policy measures - Revenue performance and shortfall: - Tax revenue outturn in 2018: 16.5 percent of GDP. - Program approval projection for tax revenue: 19.1 percent of GDP. - Causes of shortfall cited: - Severe socio-political unrests in mid-2017 and ensuing deceleration of economic activity. - Sharp reduction in public investment and its adverse impact on related economic activities. - Delays in reform implementation at the revenue authority (OTR). - Increasing reliance on ad-hoc tax arrears collection or non-tax revenues (temporary or uncertain items such as license fees and dividends). - Key weaknesses in revenue administration: - The taxpayer register is inaccurate and unreliable, with many importers unknown to the revenue authorities. - Tax arrears are not properly monitored. - Revenue leakage from a high proportion of non-paying VAT returns: 56 percent of all returns for large enterprises and 62 percent for medium-sized enterprises in 2018. - Risk management culture among agents is at an incipient stage. - Tax exemptions are declining but remain significant. - Customs procedures are not sufficiently automated, increasing vulnerabilities to corruption. - Not all import and export operations are reported in the customs. - Authorities’ domestic revenue mobilization focus: - Permanent revenue measures, including: - Revision of the general tax code. - Ongoing land reform. - Intensification of anti-fraud measures. - Ongoing review of OTR performance and governance structure. - Consideration of additional measures to accelerate debt reduction, including faster resolution of some disputed tax arrears cases and the sale of some government non-financial assets to generate resources to repay government liabilities. - Box 3: Revenue measures expected revenue impact in 2019 - Overall estimated yield: 1.1 percent of GDP in 2019. - Tax policy measures: - Property taxes: implementation from 2019 based on finalized land survey; pilot phase covering Lomé and its peripheries. - Motor vehicle taxation: new tax based on vehicle capacity enforced from January 2019. - Telecommunication tax: turnover of telecommunication companies taxed at 5 percent. - Tax and customs administration measures: - Import deposit: lump sum deposit of 15 percent of import value for importers deemed inactive; deposit deductible against taxes (SB end-June 2019, TMU¶32). - Cross-checks of tax and customs obligations: importers with outstanding tax debts will not be allowed to clear merchandise (SB end-June 2019, TMU¶33). - Tax arrears collection unit: strengthen risk-analysis role to increase recovery rate of tax arrears from 66 percent in 2017 to 70 percent at end-October 2019 for large companies and from 48 percent to 60 percent for medium-sized companies (SB at end-October 2019, TMU¶37). - VAT controls: improve VAT collection and control over zero or refund claims through point-of-sale cash registry, risk-based spot checks, appointment of focal points at large and medium taxpayers’ units; extend VAT prepayment system to public institutions of an industrial and commercial nature, public administration agencies, state-owned enterprises, and some large private companies; strengthen VAT refund system through an escrow account to reduce delays (SB at end-October 2019, TMU¶38). - Special Economic Zones: strengthen controls to prevent abusive use of the regime and fraud on tax and customs duties. - Customs valuation: create a specialized anti-fraud unit to detect valuation anomalies and apply standard transaction valuation where supporting documents are missing. - Online customs procedures: make online submission of customs declarations and supporting documents mandatory for the 30 largest importers or filers (SB for end-October 2019, TMU¶39). - Box Table 1. Revenue Measures in 2019 (CFAF billion; % of GDP) - Property tax: collections based on the recently finalized land survey. — 15 CFAF billion — 0.5 % of GDP - Motor vehicle taxation: new tax. — 4 CFAF billion — 0.1 % of GDP - Telecommunication tax. — 4 CFAF billion — 0.1 % of GDP - Import deposit: required deposit of 15 percent on the value of imports made by agents deemed to be inactive in connection with other taxes. — 10 CFAF billion — 0.3 % of GDP - VAT new measures. — 2 CFAF billion — 0.06 % of GDP - Customs controls: tighter valuation. — 2 CFAF billion — 0.06 % of GDP - Total — 37 CFAF billion — 1.12 % of GDP ### Financial sector vulnerabilities and privatization strategy - Objectives: - Reduce banks’ vulnerabilities and enhance financial access. - Pursue privatization efforts in the financial sector, notably for public banks. - Status and timeline for public bank privatizations: - First public bank: - Negotiations between the government and potential buyer were expected to be finalized by end-2018 but were still underway. - Negotiations could not reach an agreement until end-May 2019. - Authorities revising strategy and to submit revised strategy by end-June 2019 (modified structural benchmark for end-June 2019, TMU¶35). - Revised strategy to launch a tender by end-August 2019. - Privatization expected to be finalized by end-December 2019 (structural benchmark for end-December 2019, TMU¶42). - Second public bank: - Privatization proceeding as planned. - Transaction advisor being recruited to assist in tender process, expected to be launched by end-August 2019 (structural benchmark for end-August 2019, TMU¶36). - Authorities should carefully monitor liquidity situations of the two public banks during the privatization process. - Box 4: Policies for successful bank privatization (key preconditions and recommendations) - Preconditions and enabling policies: - Avoid adverse macroeconomic environment (e.g., fiscal profligacy) prior to privatization. - Ensure adequate regulatory framework and appropriate institutional framework for the privatization process. - Create a business environment conducive to competition, good governance, and entry. - Implement corrective actions and privatization plans in a timely manner; manage costs, sequencing of reforms, and achieve political consensus. - During privatization: - Prepare SOFIs for privatization; for insolvent SOFIs, consider financial and operational restructuring prior to sale. - Financial restructuring options include purchase and assumptions, merger with a stronger bank, or other options. - Strategically time operational restructuring (e.g., branch closures, personnel reductions). - Ensure transparency, fairness, and a level playing field; performance improves when government fully relinquishes control and when privatization is to strategic investors with open bidding, including foreign banks. - Conduct prudential review of the new owner and its business plan to ensure fit-and-proper status and financial capacity. - Manage implications of new bank strategy ex-ante and ensure fair (market-based) valuation to address potential impacts on equity. _Italic: International Monetary Fund staff summary as presented in the Box titled "Risk Assessment Matrix"._ ### 18. Elevated non-performing loans (NPLs), portfolio concentration and common ### 18. Elevated non-performing loans (NPLs), portfolio concentration and common ### Financial sector vulnerabilities - NPLs reached 18.3 percent in June 2018 and are concentrated in a few banks (Text Figure 6). - The overall capital adequacy ratio was 6.0 percent at end-June 2018. - New BCEAO regulation on capital, aligned to international Basel II/III standards, entered into force in 2018, requiring a capital adequacy ratio of 8.65 percent. - Only the two problem public banks violate the new requirements; two private banks previously below the minimum CAR have received fresh equity from new strategic shareholders. - Some microfinance institutions supervised by the BCEAO display vulnerabilities due to weak governance and internal control and risk management systems; two of them were under provisional administration at end-December 2018. - Text Figure 6 summarizes sector vulnerabilities (note: TGO_SOFIs = 20 percent of Total Banking Assets; TGO_Foreign SOFIs = 4 percent of Total Banking Assets). ### Credit infrastructure and financial inclusion - Togo shows better performance than WAEMU and SSA averages on the number of accounts at financial institutions but has a lower penetration rate of mobile money accounts (MEFP¶23, Annex II). - Firms’ access to bank financing compares relatively well against the WAEMU region; obstacles remain notably on collateral. - The quality of information collected by the credit bureau needs improvement (e.g., by listing all types of credit) to facilitate better decision making by banks. - Lower intermediation costs—through improvements in the land management system, strengthening credit underwriting and recovery systems—could enable more firms to access credit. - Text Figure 7 and chart data (Non-Performing Loans, 2009-17; Loan Concentration Ratio, 2008; firm-level bank access indicators for 2009 and 2016) document trends and comparative metrics. ### AML/CFT framework - The AML/CFT framework needs to be strengthened (MEFP¶24). - Togo is scheduled to undergo an AML/CFT evaluation by GIABA in March 2020. - Authorities are encouraged to address technical deficiencies in their legal and institutional framework and enhance AML/CFT effectiveness at mitigating ML/TF and related predicate crimes, including acts of corruption. - Following the national risk assessment findings, authorities will prepare an action plan to address weaknesses identified in the national AML/CFT framework. - The recently created Lomé Commercial Court, which deals with commercial disputes, should be made fully operational. ### Authorities’ views on banking sector measures - Authorities view privatization of the public banks as the most effective approach to restore financial viability and prevent fiscal costs; they remain confident privatization of the two public banks will be completed in line with their respective new timeline. - The two banks’ management teams will keep the WAMU Banking Commission informed on recent developments on a regular basis. - Authorities agree that high NPLs need to be addressed to facilitate credit creation. - They will take measures to enable the Togolese Debt Collection Agency (Société de Recouvrement du Togo) to better collect the state-owned banks’ NPLs which were securitized in the run up to the previous round of privatization. - Authorities plan to train judges specialized in banking law to enable objective and fair adjudication of disputes between banks and customers. ### Strengthening the foundation for strong and inclusive growth (Policy recommendations and program actions) - In the context of fiscal adjustment, improving the quality of public investment is essential to support economic growth (MEFP¶18). - Future investment programs and budgets should strictly include only projects selected through the recently developed cost-effectiveness methodology. - Authorities will revise and enforce the multi-year public investment program (SB at end-October 2019, TMU¶40). - Multi-year capital expenditure programming should ensure consistency with realistic resource envelopes of the medium-term budget framework, be made binding in the following year and indicative for the two years thereafter. - Program-based budgeting progress: - Program-based presentation of the budget was produced for all ministries in 2019 as an initial step. - A program-based budgeting document will be produced for 2020-22 (SB end-June 2019, TMU¶34). - Authorities will develop a standard framework of performance indicators to define guiding principles and train stakeholders in ministries and institutions (SB at end-October 2019, TMU¶41). ### Efficiency of social spending (findings and implications) - Social spending (health + education) grew from 5.4 percent of GDP in 2001 to 7.1 percent of GDP in 2016. - In 2017-18, public social spending fell short of the target under the ECF-supported program mainly because of execution and efficiency issues. - Staff analysis: with existing inputs, Togo could potentially improve: - Health-adjusted life expectancy (HALE) by 4.8 percent relative to the current outcome. - Net primary enrollment rate by 6.3 percent relative to the current outcome. - Frontier analysis (2015 data) findings: - Health: Togo allocated PPP$76.3 per capita with a HALE of 52.3 years. Togo can save about PPP$7.8 per capita to produce the same HALE (input-efficiency of 10.2 percent). Alternatively, Togo could improve HALE by as much as 3.3 years with comparable spending (output-efficiency of 6.3 percent). - Education: Togo allocated PPP$260.5 per capita with net enrolment of 95.4 percent. A frontier country devotes PPP$223.7 per capita to achieve 99.1 percent enrolment (input-efficiency score 14.1 percent). Output-efficiency indicates Togo can improve net enrolment to 100 percent with the same spending (output-efficiency 4.8 percent). - Achieving efficiency gains requires structural reforms over the medium term in both sectors; immediate efforts should continue expansion of existing social initiatives including the PUDC and the PAPV, strengthen governance in social delivery, improve execution of budgeted social outlays, and better target the most vulnerable. ### Private investment, business environment, and governance - Public investment constraints mean the business environment must be conducive to private investment to foster growth (MEFP¶20). - Togo’s recent growth performance has been below historical and peer averages; the expected private investment boost has not materialized yet. - Togo made significant progress in improving the business environment and was among countries with the largest improvements under the latest Doing Business Indicators; its score improved from 49 in 2017 to 55 in 2018. - Remaining weaknesses: access to credit, protecting minority investors, easiness of tax payments (Text Figure 8). - Contributing factors to credit underperformance: asymmetries of information and narrow credit bureau coverage (Annex II). - Recent measures to reduce administrative burdens: tax telepayment introduced; reduction in the number of small taxes; e-filings for contributions to the Caisse Nationale de Sécurité Sociale. - Authorities’ measures: facilitate access to public purchases for SMEs/SMIs, reduce payment delays, create a specialized structure to assist SMEs/SMIs with feasibility studies to improve project bankability. - Governance remains weaker than WAEMU and SSA averages; reforms focus on: - Fiscal governance: investment prioritization, fiscal transparency, public investment management, procurement capacity, and follow-up of audit reports. - Fighting corruption: effective enforcement of anti-corruption law enforcement agencies, implementation of asset-declaration requirements, strengthening HAPLUCIA’s role. - AML/CFT: new AML/CFT law in 2018; undertaking a National ML/TF risk assessment using World Bank methodology. - Judicial improvements: publication of judicial and prison statistics, enhancing expedited enforcement procedures such as Injonction de Payer, implementation of the new Commercial Courts Act, and opening two new commercial courts focused on business conflicts. - Control of corruption and government effectiveness indicators show improvements versus earlier periods but remain below some peers (Box 6 and Box 6 Figure 1). *Source: IMF staff report (chapter content provided).* ### 28. The authorities agreed that, in the context of fiscal adjustment, improving the ### 1tgoea2019001 - 28. The authorities agreed that, in the context of fiscal adjustment, improving the ### Improve Debt Management Capacity - Togo is assessed to be at moderate risk of external debt distress and high risk of overall public debt distress, mainly reflecting the elevated level of domestic debt (MEFP¶26). - Recommended operational steps: - Fully staff the newly-reorganized debt directorate. - Implement the recently approved procedures manual for debt management activities. - Increase transparency and active communication with primary dealers and investors to support market functioning and development. - Planned operation: - A debt reprofiling operation is planned in 2019 (MEFP¶27) consisting of borrowing externally at more favorable terms to repay outstanding domestic or regional debt. - Objective: reduce the NPV of total public debt. - The size of the operation will be limited to an amount that keeps unchanged the moderate risk rating on external debt. - A consultancy firm has been contracted to advise on this operation. ### Authorities’ Views on Debt and Program Adjustments - The authorities: - Fully concurred with staff’s recommendations on debt management policy but preferred a narrower coverage of public debt. - Requested more intensive technical assistance and training from the Fund to strengthen capacity. - Preferred to exclude the debt of some state-owned enterprises from public sector debt, arguing that this debt does not represent a fiscal risk to the central government; they plan to submit justifications based on the LIC-DSF guidance note. - Program monitoring actions: - Authorities request, and staff supports, a waiver for the nonobservance of the net domestic financing PC and modification of two PCs (MEFP¶28-29). - Net domestic financing exceeded the program ceiling by about 1.5 percent of GDP at end-2018. - The underperformance would have been 0.2 percent of GDP if revenue recorded in “other accounts receivable” had been recorded as cash payments in 2018. - Authorities are taking corrective measures, including to strengthen permanent revenue sources. - Modifications reflect additional urgent spending and account for 2019 recording of revenue committed in 2018 and paid in 2019. - The waiver and modifications do not alter the thrust of the program objectives. - The end-December 2018 structural benchmark on the privatization of the first public bank is proposed to be redesigned and reset to end-June 2019. - Six new structural benchmarks have been added for the sixth review. ### Program Modalities, Financing, and Safeguards - Review schedule and program end: - Fifth and sixth reviews will take place on a quarterly schedule (MEFP¶30). - The program should end around end-2019 or early 2020, considering the Presidential election in early 2020. - Fifth review based on end-June 2019 criteria/targets/benchmarks; scheduled for IMF Board discussion on or after September 15, 2019. - Sixth review based on end-September 2019 criteria/targets/benchmarks; scheduled for IMF Board discussion on or after December 15, 2019. - Financing: - The program is fully financed with firm commitments from development partners including the World Bank, the European Union, and the African Development Bank and others, while ECF disbursements will close the remaining financing needs. - Safeguards: - An updated safeguards assessment of the BCEAO was completed in 2018. - Findings: the regional central bank maintained a strong control environment; audit arrangements were in broad conformity with international standards; financial statements prepared in accordance with the International Financial Reporting Standards. - The BCEAO has enhanced the oversight role of its audit committee in line with recommendations. - Capacity to repay the Fund: - Togo’s capacity to repay the Fund remains adequate (Table 7). - Obligations to the Fund would peak in 2025 at 2.3 percent of government revenue or 0.5 percent of GDP. ### Capacity Development and Ongoing Reforms - Current capacity development focus (MEFP¶31): - Increase domestic revenue mobilization and modernize the customs administration. - Improve PFM, including investment management and program-based budgeting. - Strengthen the compilation and dissemination of statistics. - Additional notes: - A comprehensive diagnostic of the banking sector may be considered in future fiscal year(s). - IMF, World Bank, and development partners are cooperating to build institutional and technical capacity (Annex IV). ### Staff Appraisal — Economic Outlook, Risks, and Performance - Recent and projected growth: - Economic growth is estimated to have accelerated to 4.9 percent in 2018 following a sharp deceleration in 2017. - Growth is expected to approach 5½ percent over the medium term as large public investment completed in recent years and the improvement of the business environment are expected to boost private investment. - Inflation and external position: - Headline inflation stood at around 2 percent (year-on-year) in March 2019. - The external position in 2018 is broadly consistent with fundamental and desirable policy settings. - Risks: - Risks remain tilted to the downside and inhibit growth potential. - National: lingering uncertainty, particularly with the Presidential election scheduled for the first half of 2020. - Regional: intensifying security risks—including terrorism threats. - Global: a rise in protectionism and a retreat from multilateralism, possible tightening of global financial conditions, and weaker-than-expected global growth. - Program performance: - Five out of six performance criteria and five out of seven structural benchmarks at end-December 2018 were met. - Togo complied with the WAEMU fiscal deficit criterion in 2017 and 2018, two years ahead of timeline. - Caveats: revenue outturn partly driven by exceptional and non-permanent revenue; public debt remains above the WAEMU convergence criterion; privatization of one of the two public banks encountered delays. ### Staff Recommendations and Policy Priorities - Fiscal and debt policy: - Safeguard fiscal consolidation while accommodating some urgent expenditure in 2019-20; the fiscal deficit will be loosened relative to previous projections but will remain consistent with the WAEMU deficit criterion. - Pursue debt reduction; public debt is projected to fall below the 70 percent WAEMU debt criterion from 2020. - Implement safeguard measures related to urgent spending to limit governance risks. - Strengthen permanent revenue to preserve fiscal consolidation in the medium and long term and create fiscal space for social and infrastructure spending. - Financial sector and privatization: - Finalize reforms related to the two public banks and persevere with structural reforms to promote strong and inclusive growth. - If negotiations for the first public bank encounter further delays, revisit the privatization strategy and launch an open tender. - Conduct a prudential review of the new owner to ensure successful privatization. - Address elevated non-performing loans. - Public investment and social spending: - Improve the quality of public investment to support economic growth. - Bolster the efficiency of social spending to achieve better social outcomes. - Staff welcomes: - Finalization of the methodological guide on cost-benefit analysis of public investment. - The comprehensive expenditure review. - The move to program-based budgeting. - Governance and inclusion: - Continue addressing governance challenges and reduce vulnerabilities to corruption. - Urge further reforms to advance gender equality. - Program endorsement: - Staff supports the authorities’ request for a waiver on the non-observance of a performance criterion and recommends completion of the fourth ECF review. - Staff supports the modification of PCs. - The 5th and 6th reviews will be conducted on a quarterly cycle. *Source: 1tgoea2019001 - IMF staff report excerpts provided in the supplied content.* ### 43. Staff recommends that the next Article IV consultation for Togo be held on the 24- ### Staff recommends that the next Article IV consultation for Togo be held on the 24-month cycle. ### Economic and socio-political context - Human Development Index improved 2000–17; Togo's human development index "has been improving slightly faster than in some other countries in recent years." - Income distribution became more equal between 2011 and 2015: "The distribution of income among Togo's households became more equal between 2011 and 2015, as opposed to some other peers." - Rural–urban poverty gap: "Rural households are poorer than urban households and this discrepancy is larger in Togo than in peers." - Sources cited: Human Development Report; World Development Indicators; Togolese authorities; and IMF staff estimates. ### Real sector developments - Real GDP growth (selected annual figures, Table 1 Real GDP): 2016: 5.6; 2017: 4.4; 2018: 4.9; 2019 (proj): 5.1; 2020–24 (projections): 5.3, 5.4, 5.4, 5.4, 5.4. - Real GDP per capita (selected): 2016: 3.0; 2017: 1.9; 2018: 2.3; 2019: 2.5; 2020–24: 2.7, 2.8, 2.8, 2.8, 2.8. - Inflation (CPI average): 2016: 0.9; 2017: -0.2; 2018: 0.9; 2019: 1.4; 2020–24: 2.0, 2.0, 2.0, 2.0, 2.0. - Key qualitative points: - "Inflation re-entered positive territory in 2018 before starting to decline in 2019 under the influence of lower prices in the primary sector." - "Industrial production has resumed after a sharp decline in 2018H1, driven by the energy sector." - "Traffic at Lomé port has continued to expand." - "Credit to the private sector remains below potential." - Growth drivers: "Growthis driven by agriculture and tertiary activities... and by private consumption and investment, on the demand side." ### External sector developments - Current account balance (percent of GDP, Table 3): 2016: -9.8; 2017: -2.0; 2018: -4.9; 2019 (proj): -5.9; 2020–24 (proj): -5.3, -5.0, -4.7, -4.5, -4.5. - Trade balance on goods (percent of GDP): 2016: -21.6; 2017: -13.4; 2018: -15.1; 2019: -15.4. - Exports (percent of GDP): 2016: 23.2; 2017: 21.2; 2018: 19.8; 2019: 20.5; 2020–24: 20.6, 20.8, 21.4, 21.7, 22.1. - Imports (percent of GDP): 2016: 44.8; 2017: 34.6; 2018: 34.9; 2019: 35.8; 2020–24: 35.6, 35.2, 35.4, 35.4, 35.9. - Regional reserves: WAEMU reserves (months of next year's imports) 2010–2018 series shown; text: "Togo’s reduced current account deficit in 2018 helped strengthen regional reserves." - Qualitative: "The current account deficit improved significantly in 2017-2018... on the back of a strengthening trade balance" and "the reduction of intermediate and capital goods imports related to public and private investments." ### Fiscal, monetary, and banking sector developments - Fiscal outcomes (Table 1 and Tables 2a/2b): - Total revenue and grants (percent of GDP): 2016: 21.6; 2017: 21.4; 2018: 23.9; 2019 (proj): 24.0; 2020–24: 24.4, 24.8, 25.4, 26.0, 26.7. - Total expenditure and net lending (percent of GDP): 2016: 31.1; 2017: 21.6; 2018: 24.7; 2019 (proj): 26.6; 2020–24: 26.5, 26.3, 26.9, 27.2, 27.7. - Overall balance (commitment basis, incl. grants, percent of GDP): 2016: -9.5; 2017: -0.3; 2018: -0.8; 2019 (proj): -2.7; 2020–24: -2.1, -1.5, -1.4, -1.2, -1.0. - Domestic primary balance (percent of GDP): 2016: 1.0; 2017: -4.5; 2018: 0.8; 2019 (proj): 2.4; 2020–24: 1.6, 2.5, 2.7, 2.7, 2.8. - Fiscal policy notes: - "The strong fiscal consolidation that started in 2017 put an end and started to reverse the previous rapid increase in public debt." - "Although nontax revenue performance was strong, the target on total revenue collections was missed by a very small margin because of weak domestic tax collections." - "The projected balances were met on both the overall balance and the domestic primary balance (with a very small margin) because of underexecution of public investment." - "External financing was significantly less than projected and the ceiling on domestic financing was missed because some revenue accrued in 2018 was paid with a delay in 2019." - Public debt (percent of GDP, Table 1): - External public debt: 2016: 20.2; 2017: 19.7; 2018: 20.5; 2019 (proj): 22.2; 2020–24: 21.8, 21.4, 21.0, 20.4, 19.7. - Domestic public debt: 2016: 61.2; 2017: 55.8; 2018: 55.7; 2019 (proj): 50.0; 2020–24: 46.6, 42.8, 39.3, 36.1, 33.1. - Total public debt: 2016: 81.4; 2017: 75.5; 2018: 76.2; 2019 (proj): 72.2; 2020–24: 68.4, 64.2, 60.3, 56.5, 52.8. - Banking sector indicators (Table 5, selected): - Regulatory capital to risk-weighted assets: 2014: 14.0; 2015: 8.7; 2016: 5.8; 2017: 8.4; 2018Q2: 6.0. - Non-performing loans to total gross loans: 2014: 15.6; 2015: 16.8; 2016: 16.2; 2017: 19.3; 2018Q2: 18.3. - Loans to top 5 borrowers to capital: 2014: 136.3; 2015: 166.6; 2016: 186.0; 2017: 128.7; 2018Q2: 157.2. - Text: "NPLs remain high; capital cushions are diminishing; and concentration does not fall below its 2016 lowest level." - Loan distribution remains concentrated; sectoral shares shown (e.g., commerce ~31.9 percent in 2018Q2, building and construction ~11.7 percent). ### Medium-term prospects (Figures and Tables) - Growth and investment: - Togo is expected to continue growing faster than Sub-Saharan Africa but slightly slower than the rest of WAEMU: "While Togo is expected to continue growing faster than Sub-Saharan Africa, growth is slightly slower than the rest of WAEMU." - Shift in investment composition: "The driver of growth is expected to shift from public to private investment, as the former is returning to its level before the surge." - Public debt and current account: - "As fiscal consolidation is expected to continue, public debt should follow a downward path." - "The external current account is expected to converge to its fundamentals as government imports are contained." ### Program implementation, quantitative performance, and Fund financing - Quantitative performance criteria and indicative targets, end-September and end-December 2018 (Table 6, selected): - Domestic primary fiscal balance (floor): Adjusted target end-September: -6.5; Actual performance: 30.7 (Status: Met). Adjusted target end-December: 72.2; Actual: 72.3 (Met). - Net domestic financing (ceiling): Adjusted target end-September: 80.2; Actual: 58.9 (Met). Adjusted target end-December: 6.0; Actual: 16.0; Performance: 59.3 (Not met). - Total fiscal revenue (floor) end-September: Indicative target 394.2; Actual 413.9 (Met). End-December: target 606.5; Actual 604.9 (Not met). - Net domestic arrears accumulation (ceiling) end-December: Actual -64.8 (Met). - IMF Extended Credit Facility (ECF) schedule (Table 8, selected): - Disbursements of SDR 25.17 million on each of May 5, 2017; September 15, 2017; March 15, 2018; September 15, 2018; March 15, 2019; September 15, 2019; and SDR 25.14 million on December 15, 2019 — each conditional on completion of reviews and observance of performance criteria. - Total amount of the arrangement: "SDR 176.16 million (120 percent of quota)." - Indicators of capacity to repay the Fund (Table 7, selected): - Outstanding IMF credit (in millions of SDRs): 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. - Principal repayments (in millions of SDRs, projections): 2019: 8.7; 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. - Mem. items: Nominal GDP (CFAF billions) 2019: 3,199; 2020: 3,469; 2021: 3,767; 2022: 4,089; 2023: 4,440; 2024: 4,821. ### Key policy and operational observations (drawn from the report text and tables) - Fiscal consolidation from 2017 has moderated public debt accumulation and is projected to reduce total public debt from 76.2 percent of GDP in 2018 to 52.8 percent in 2024 (Table 1). - Revenue performance: "Target on total revenue collections was missed by a very small margin because of weak domestic tax collections." - Public investment underexecution helped meet projected balances but implies slower public investment outturns. - Banking sector vulnerabilities include high NPLs, falling capital cushions, and concentration risks — supporting the need for continued financial sector supervision and bank recapitalization where appropriate. - External financing shortfalls in 2018 led to deviations in the financing mix (less external financing, more delayed domestic payments). *Source: Togolese authorities; IMF staff estimates and projections.* ### Annex I. External Sector Assessment ### Annex I. External Sector Assessment ### External position and current account - Togo’s external position in 2018 is broadly consistent with fundamental and desirable policy settings. - The current account balance (CAB) is estimated at -4.9 percent of GDP in 2018. - Compared to the average of the past five years, the CAB improved mainly due to: - continued decline in the demand for capital goods imports, - commodity prices in late 2018, - an overall improvement in terms of trade. - From the lowest level in 2013, the CAB has improved significantly, especially following the start of the ECF-supported program in 2017 and the slowdown in public and private investment demand. - The deficit is projected to remain around the norm over the medium term supported by fiscal and structural policies, but it may increase marginally over the long-term as investment needs could intensify. ### Exports, imports, and composition of trade - Exports: - Relatively diversified but concentrated in low-value added products: raw material, unprocessed agricultural produces, and re-exports. - Key export items: mining products including phosphates and clinker, and agricultural products (classified under commodities). - Need for progress to improve value-added products and the supply chain. - Imports: - Larger shares: food, energy, raw material and capital equipment. - Recent decline in other imported products and, especially since 2017, of capital goods imports by the public and private sectors has contributed to the improvement in CAB. - Long-run consideration: - Capital is still scarce in Togo and investment needs are large, which may weaken the CAB over the long-run. ### Financing of the current account - The current account deficit is mainly financed by: - public borrowing and foreign direct investments (FDI), - concessional lending, grants and government borrowings, - ECF financing in 2017-18. - Going forward, successful implementation of the National Development Plan framework is expected to increase FDI financing of the CAB, reducing reliance on portfolio investments and regional borrowing. ### EBA-lite current account assessment and REER analysis - EBA-lite model results: - The EBA-lite current account (CA) model suggests that the CA gap is broadly nil. - Current account norm is estimated to be around -5.4 percent implying that the CA gap was around 0.15 percent in 2018. - The EBA-lite methodology accounts for fundamentals, cyclical and policy variables (policy variables include fiscal policy, public health expenditures, financial sector policy, foreign exchange reserves, capital account openness, and monetary policy). - Table 1 model figures (as presented): - CA-Actual: -4.9% - Cyclical Contributions (from model): 0.4% - Cyclically adjusted CA: -5.3% - CA-Norm: -5.6% - Cyclically adjusted CA Norm: -6.0% - Multilaterally Consistent Cyclically adjusted CA Norm: -5.4% - CA-Gap: 0.15% - of/which Policy gap: 0.8% - Elasticity of current account (trade balance) to REER: -0.26 - REER Gap: -0.6% -9.1% - CA-Fitted: -4.7% - Residuals: -0.2% - Ln(REER) Actual: 4.56 - Ln(REER) Fitted: 4.65 - Ln(REER) Norm: 4.65 - Residual: -0.08 - Policy Gap: 0.0% - REER dynamics: - REER depreciation started contributing to the CAB only a few years ago. - After a depreciation in 2015, Togo’s REER (CPI based) has been stable despite a minor nominal appreciation in 2018, partially reflecting the strengthening of the Euro (to which WAEMU’s CFAF is pegged) against the US dollar. - Relatively lower inflation in Togo has helped keep the REER relatively stable. - Model comparison and caveats: - The CA model does not suggest any misalignment of the REER, which should be maintained at its current level going forward through fiscal, labor market, and other structural policies. - Compared to the CA model, the REER results indicate substantial misalignment; divergence should be interpreted with caution given currency union membership and peg of CFAF. - REER model results are less reliable for countries with a short sample span or that have experienced large structural changes not well captured by the regression. - Given major data revision in 2017 and 2018 (bringing CAB significantly higher than historical average), the overall assessment is subject to some degree of uncertainty. - Note: The assessment is based on the revised EBA-lite methodology implemented since October 2018. ### Policy implications and recommended actions - Maintain current REER level through: - fiscal policy, - labor market reforms, - structural policies that enhance competitiveness. - Fiscal adjustment required by the ECF-supported program and structural policies identified in the National Development Plan are necessary to: - keep the current account contained, - contribute to regional stabilization policies. - Structural reforms to pursue: - improve the business and institutional environment, - boost productivity, - enhance value-added in exports and strengthen supply chains. - Authorities agreed with the thrust of this analysis. *Italic: Sources: Togolese authorities; and IMF staff estimates.* --- ### Annex II. Financial Access and Inclusion in Togo ### Overview and financial sector structure - Financial sector improvements: - Provision of financial services has systematically improved. - Banking sector development is above WAEMU and SSA low-income averages. - Banking system composition (2018): - 14 banks, including two major pan-African banking groups, Ecobank and Oragroup (the country’s largest banks in terms of total assets in 2018). - Highest total banking assets-to-GDP ratio among low-income SSA countries. - Share of formal private sector credit to GDP at 42 percent at end-2018. - Microfinance and insurance: - Microfinance institutions (MFIs) serve more clients as a percentage of the population (37 percent) than any other WAEMU country. - Twelve insurance companies present in Togo. - Pension funds: - National Pension Fund (Caisse de Retraite du Togo) and National Social Security Fund (Caisse Nationale de Sécurité Sociale) have recorded structural deficits and financial sustainability difficulties due to weak governance and lack of diversification of assets. ### Financial sector risks and efficiency - Risk factors in the banking sector: - Net interest margins among the lowest in the WAEMU. - Cost-to-income ratio has been rising and is higher than the WAEMU median. - Overall efficiency of the banking sector has been declining. - Some liquidity indicators have deteriorated. - Risks: unresolved nonperforming assets at the two state-owned banks, inadequate supervision of the microfinance sector. - Private banks: some display thin capital buffers, high NPLs, loan concentration, common exposure to trade and manufacturing, and eroded margins. - Nonperforming loans and lending: - Elevated NPLs have been a significant constraint for financing the economy, especially after the 2015 oil price shock affecting intra-regional trade. - Lending interest rates rose above other WAEMU countries in 2013 to 12.5 percent, declined, then picked up again in 2015, approaching 10 percent at end-2017. - Since 2015, co-movement of interest rates and lending volumes suggests supply constraints: higher real interest rates and lower lending. ### Financial access and inclusion outcomes - Account ownership and inclusion (2017): - Share of population (age 15+) with access to some form of financial services increased from less than 10 percent to 45 percent, of which 34 percent at a financial institution. - Expansion driven primarily by banking services among individuals; mobile money accounts (MMAs) expansion more limited. - Penetration of MMAs is lower, especially for female and bottom 40 percent of income distribution. - Firms and finance: - Proportion of Togolese firms have better access to finance than WAEMU, SSA low-income averages, but: - Higher proportion of loans require collateral exceeding the loan value 1.5 times for small firms. - Only one quarter of firms use bank loans to finance investments. - One quarter of Togolese firms still see access to finance as the biggest obstacle to business. - Sector-specific credit: - Credit to agriculture remains extremely low (bank credit to agriculture share very small; data point: access of SMEs/SMIs in the agricultural sector to bank credit is 0.3 percent of total credit). - Gross national savings: the savings rate has been declining since the 2015 peak (figure presented for context). ### Identification of constraints and model-based diagnostics - Model used: - Micro-founded general equilibrium model calibrated to quantify binding constraints to financial inclusion (based on Dabla-Norris et al., 2015). - Three financial frictions modeled: - Participation costs (ψ): fixed transaction costs, documentation requirements, access barriers limiting smaller/poorer entrepreneurs. - Intermediation costs (χ): asymmetric information causing net interest spreads. - Imperfect enforceability of contracts (λ): collateral requirements and smaller collateral leverage ratios. - Calibration parameter values used (as cited): - gross savings (%GDP, average): 16.7 - value of collateral needed for a loan (% of the loan amount): 226 - Percent of firms with a bank loan/line of credit: 42 - Non-performing loans (%): 18.3 - interest rate spread: 5 - Model results and relative importance of constraints: - Main borrowing constraints: high collateral requirements and high cost of intermediation. - Effects of relaxing each constraint (summary of model implications): - Participation costs: limited scope to lower participation costs would lead to higher investment, productivity, and GDP. Agricultural SME access (0.3 percent of total credit) should be facilitated by the Agricultural Finance Incentive Mechanism (MIFA). Additional measures needed to increase productivity/bankability and finance for agriculture; Ministry of Agriculture launched a census of actors in agricultural value chains to better structure and support clusters. - Intermediation costs: lowering these could yield significant benefits in terms of more firms accessing credit. Reforms suggested include improving land management to create more collateral, strengthening credit underwriting and recovery systems, and enhancing coverage of credit information bureaus by expanding information sharing. - Collateral constraints: tackling structural constraints (insolvency framework, capacity to recover value from collateral, enforcement, credit culture) could substantially increase the share of firms with access to credit and enable additional economic activity. - Tradeoff noted: relaxing constraints can affect financial stability (interest rate spreads and NPL ratios), so the access–stability tradeoff needs consideration. ### Policy recommendations to improve financial access and inclusion - Reduce intermediation costs: - Improve land management system to increase collateral availability. - Strengthen credit underwriting and recovery systems. - Expand coverage of credit information bureaus to enhance information sharing. - Lower collateral requirements and improve enforceability: - Reform insolvency framework and enforcement capacity. - Improve mechanisms to recover value from collateral. - Foster a stronger credit culture to reduce excessive collateral multipliers. - Lower participation costs: - Simplify transaction and documentation requirements. - Implement targeted measures for SMEs and agricultural producers (e.g., MIFA). - Support agricultural value chain structuring and cluster development via Ministry of Agriculture initiatives. - Strengthen supervision and address state-owned bank vulnerabilities: - Resolve nonperforming assets at the two state-owned banks. - Improve supervision of the microfinance sector. - Address thin capital buffers and concentration risks in private banks. *Italic: Sources: Global Findex Database; BCEAO; and IMF staff estimates.* ### 9. Tackling the inefficiencies in the existing credit infrastructure and problems with ### 9. Tackling the inefficiencies in the existing credit infrastructure and problems with enforceability of loan agreements could lower the cost of financing and reduce collateral requirements ### Credit infrastructure, enforcement, and banking risk - Findings: - The credit bureau system needs to be further strengthened; financial service providers indicate that the data is incomplete. - Unpredictable court decisions contribute to high perceived risk of lending and decrease the value of collateral. - Weaknesses in the rule of law have contributed to many banks limiting their activities to what they perceive as less risky segments of the market. - Policy recommendations: - Increase the capacity of the judiciary to interpret and efficiently enforce creditors’ rights. - Ensure proper incentives for banks to pursue enforcement and liquidation claims. - Improve the insolvency law and increase its usage to facilitate the restructuring of viable companies. - Introduce voluntary out-of-court workout guidelines. ### Expanding long-term finance — supply and allocation - Findings: - A comprehensive strategy must combine policies to grow the pool of funds with policies to promote the optimal allocation of funds across the public and private sector. - Measures aimed at reducing the level of informality, increasing domestic savings in the financial system, and resolving asset quality issues could increase long-term financing for the private sector. - Strengthening credit infrastructure and reducing the risk perception in the banking sector will create incentives for banks to lend at longer maturities. - Further improvements in the business environment are critical to increasing the flow of foreign investment capital. - Restructuring the social insurance system to improve its functioning and governance would release funds needed to develop the economy in the long term. - Additional funds (e.g., for healthcare) could be developed to increase the population’s resilience to shocks, mobilize savings and channel them into long-term investments. - The size and complexity of the domestic capital markets could be increased by the resumption of SOEs privatization. ### Gender inequality, human capital, and growth implications - Findings on gender and development constraints: - Togo fares well relative to sub/regional peers in terms of gender workforce participation and legal rights but could benefit much more from women empowerment. - Persistent differences exist between the legal context and social norms; customary law is still recognized and contributes to barriers to asset access for women. - Women remain overrepresented in the informal and agriculture sectors and among the poor; the gender gap in educational attainment is the highest in the world. - Key gender-related statistics (preserved exactly as in source): - Maternal mortality ratio: 368 deaths per 100,000 live births. - Adolescent birthrate: 89.1 births per 1,000 women ages 15-19. - Share of adult female population with secondary education: 26.3 percent; male: 52.3 percent. - Women earn, on average, 33 percent less than men. - Public procurements allocated to Women and Young entrepreneurs increased from 20 percent to 25 percent in 2019. - The 2018 measure led to a significant increase in the creation of firms with about direct and indirect 4,000 jobs. - Labor force participation in Togo is high at about 76 percent in 2017. - Illiteracy as of 2017: 49 percent of women versus 23 percent of men. - Media access: 39 percent of women do not have access to the media versus 24 percent of men. - Secondary education enrollment: 33 percent female versus 48 percent male. - Adult diploma attainment: 3 percent female versus 17 percent male. - Average number of children per woman in 2017: 4.45. - Unmet demand for family planning: 37 percent of all women reported unmet demand. - Professional and technical workers that are female: 20 percent. - R&D personnel that are female: 16 percent. - Legislators, senior officials and managers that are female: 30 percent. - High-skilled share of female labor force: 0.6 percent; male: 3.2 percent. - Education and social policy recommendations: - Integrate gender budgeting considerations in the budget policies, programs, and processes to target gaps in opportunities and outcomes (for example, equalizing school enrollment rates and boosting overall education attainment levels). - Increase budget resources and improve their effective deployment to ensure quality education and reduce gender and rural-urban disparities. - Focus on building basic infrastructure, increasing the teacher-student ratio, and reducing gender disparity in educational attendance and outcomes. - Invest in education and health, including sexual and reproductive health and rights for women and girls, to expand coverage, improve quality, and reduce disparities. - Consider well-targeted social transfer schemes to increase fiscal space for education and health expenditures. - Increase overall domestic revenue mobilization to fund social investments. - Implement WAEMU regional gender strategy and increase female education and training, supported by national plans to foster job creation. - Strengthen training and vocational programs and enhance private-public sector coordination to address skills mismatches. ### Quantified potential gains to growth from reducing inequality and improving education - Econometric estimates on potential impacts to annual real GDP per capita growth: - Bringing the average level of income inequality in Togo to the level observed in benchmark countries could potentially increase annual real GDP per capita growth by about 0.5-1.8 percentage points. - Closing gender inequality has the potential to boost annual per capita income growth by about 0.2-0.4 percentage points. - Closing female legal equity gaps has the potential to boost annual per capita income growth by about 0.4-0.5 percentage points. - Differences in years of schooling could explain about 0.1-0.3 percentage points of Togo’s shortfall in the income per capita growth rate compared to benchmark African and Asian countries. _International Monetary Fund — Togo country chapter excerpt_ ### Annex IV. Capacity Development Strategy ### Annex IV. Capacity Development Strategy ### Overview - Togo is described as a "low-income fragile country" facing capacity and institution building challenges. - An extensive agenda of IMF Technical Assistance (TA) has been implemented since the beginning of the ECF-supported program, coordinated with the IMF-supported program and covering revenue administration, public financial management (PFM), financial sector, and statistics. - Implementation of TA recommendations has been uneven, attributed mostly to capacity constraints, insufficient prioritization, and internal coordination issues. ### Policy priorities under the ECF-supported program - Key policy priorities: - (i) pursue fiscal consolidation to ensure debt sustainability; - (ii) enhance fiscal governance on revenue administration and PFM; - (iii) solve the problems of the two public banks to ensure financial stability and prevent future fiscal costs. - Recent developments motivating continued CD: - Revenue is lower than projected at the start of the ECF arrangement. - Several PFM reforms remain to be completed. - Fiscal and economic statistics are weak and inconsistent. - Banking sector reforms are delayed and NPLs are high. ### Past Technical Assistance and capacity building - Since the start of the ECF arrangement, TA has focused on: - (i) tax policy; - (ii) tax and customs administration; - (iii) public investment management; - (iv) cashflow and debt management; - (v) fiscal accounting and reporting; - (vi) public financial management; and - (vii) statistics. - Obstacles to effective CD absorption: capacity weaknesses, insufficient prioritization, internal coordination issues. - Revenue performance has improved more slowly than expected despite priority given to revenue mobilization. ### CD priorities and objectives — Tax Policy - FY2020 objective: strengthen revenue collection through permanent tax policy measures and follow-up on tax expenditures. - Observations: - Revenue outturns remain below program approval projections. - Revenue structure shows an increasing share of non-tax revenues, including temporary items (license fees) and fluctuating items (dividends). - Past assessments: - February 2012 FAD diagnosis noted complexity and inconsistencies in the tax system; proposed a reform strategy to simplify and improve neutrality. - 2017 FAD assessment provided recommendations to move towards an efficient tax system conducive to economic growth. - Proposed measures: - Measures concern (i) the tax on capital income, (ii) the corporate tax, (ii) the value added tax (VAT). - Proposals aimed at widening the tax base and introducing new taxes (e.g., property tax, telecommunication tax). - Simplify the tax system and reduce the burden of paying taxes for firms and individuals. - Overhaul the exemption and tax expenditure system and address revenue loss due to evasion. - Administrative note: The next FAD assessment of the tax system is scheduled for 2019. ### CD priorities and objectives — Revenue Administration - Focus: consolidate the performance of the Togolese Revenue Authority (OTR) sustainably by achieving full coordination between customs and tax authorities. - Key issues: - Lack of collaboration between tax and customs undermines ability to fight fraud and tax evasion. - Synchronization of tax and customs databases is required at minimum. - Objectives and steps: - Increase enforcement powers of OTR and adopt risk management principles to move from exclusively tracking revenue to risk management. - Improve monitoring of tax arrears collection. - Limit VAT losses. - Strengthen control over companies in special economic zones and streamline exemptions. - Complete the taxpayer registry. - Establish automated risk management for customs and move to complete dematerialization of all customs declarations. - Implement rigorous control of customs valuations. - TA and support: significant TA on both tax and customs administration, including several long-term advisors. ### CD priorities and objectives — Public Financial Management (PFM) - Areas of focus: public investment efficiency, cash management, fiscal reporting, implementing program-based budgeting. - Public investment: - 2016 PIMA ranked Togo at 0.3 on a scale of 0-1 (bottom quartile). - Collection of project data by line ministries was generally poor; project selection based on insufficient technical and financial information. - A workgroup within the PIP committee elaborated a methodological guidance note to rank investment projects; improvements made with IMF FAD TA in August 2018. - A multi-year program budgeting process is under preparation; PIP covering 2019-21 was published as an annex to the 2019 Budget. - December 2018 circular: future investment projects must be selected based on a cost-effectiveness methodological guidance to be included in the PIP and the budget. - At the end of each fiscal year, a report for all completed major projects, including ex-ante and ex-post assessments, will be prepared. - A follow-up PIMA mission is scheduled to take place in FY2020. - Arrears management: - A system was set up to prevent accumulation of new arrears; an arrears clearance plan was prepared. - Circulars issued to financial services of government entities to prevent arrears. - Strengthened implementation of the cash plan and control of commitment authorizations. - 32 accounts of general government entities in commercial banks were closed and balances transferred to the Treasury Single Account (TSA). - Medium-term objective: centralize all revenues and spending in the TSA and start developing cash management instruments. - Program-based budgeting: - July 2018 FAD mission launched a new EU-funded three-year PFM TA project and installed a new Resident Advisor (long-term). - Project covers budget formulation, execution and reporting, and cash and debt management. - Authorities advanced the timeline and decided to implement program budgeting starting in 2020 (initially agreed timeline was 2022). - A program-based budget for 2019-21 was prepared for the entire government and presented to Parliament in June 2018. - Main results to date: (i) support for development of results-based budgeting tools; (ii) technical capacity building for stakeholders; (iii) experimentation with the 2019-21 program budget for the State. - Institutional requirements are being put in place with TA help for prompt roll-out. ### CD priorities and objectives — Debt Management - Objective: strengthen capacity and reduce refinancing risk in the debt portfolio. - Background: - Last DEMPA completed in 2010 identified significant weaknesses. - Debt management centralized to a new Directorate and a draft manual of procedures was developed. - Current actions: - Medium-Term Debt Strategy is being updated with TA from the IMF and the World Bank. - Latest joint TA mission took place in mid-2018. ### CD priorities and objectives — Macroeconomic and Fiscal Analysis - 2016 PEFA evaluation assigned a D+ rating to the PI-14 macroeconomic and fiscal forecast component due to lack of collaboration between the Directorate of Forecasting (DP) and that of the budget and non-use of the PRECOMAT model for budget forecasts. - TA by Western AFRITAC in May 2017 focused on: - i) Eviews environmental training and Excel functionalities; - ii) revision of the model architecture, updating databases and assumptions; - iii) development of a first version of the macroeconomic framework for the 2017-2022 period; - iv) proposal for a more user-friendly and restructured version of the model. - August 2018 TA and training mission (EU-financed) worked with DP staff to improve the model. - PRECOMAT 3.0 model is currently operational and being used for macroeconomic forecasting. ### CD priorities and objectives — Statistics - Aim: strengthen compilation and dissemination of macroeconomic data and financial statistics and advance participation in GDDS. - Past support and observations: - Training in GFSM 2001/2014. - Implementation of 2015 as the new base year for the national accounts and fine tuning of the TOFE bridge tables. - External sector statistics TA identified significant inconsistencies and the need to harmonize banking data used by balance of payments statistics with monetary statistics. - TA provided a comprehensive review of the components of Togo’s international investment position (IIP), including recording of debt instruments. ### Authorities’ views on CD - Authorities agree with the thrust of the CD strategy and see CD as aligned with their reform agenda. - IMF CD has helped design and implement reforms by providing specific measures and supporting roll-out. - Implementation and absorption of recommendations could be improved through more training and outreach. ### Key CD priorities and objectives for FY2020 (table reproduced as bullets) - Revenue administration: - (i) Increase domestic revenue generation, including by reduced tax exemptions; - (ii) modernize customs administration, including extension of SYDONIA World to cover all clearance phases; and - (iii) coordination/synchronization of tax and customs databases. - Fiscal policy: - Strengthen the fiscal/tax policy unit at the Ministry of Finance. - Public financial management: - (i) Improve public investment efficiency, including implementation of the methodological guide for prioritization of investment based on a cost-benefit analysis; - (ii) improve the coverage and quality of fiscal reporting; and - (iii) implement program-based budgeting. - Statistics: - (i) Strengthen the compilation and dissemination of macroeconomic data and financial statistics; and - (ii) participation in GDDS. ### Selected recent economic and fiscal data and outcomes (as reported in the attached MOEF/MEFP) - Economic growth: estimated at 4.9 percent in 2018 (compared with 5.6 percent in 2016 and 4.4 percent in 2017). - Headline inflation: 2 percent (year-on-year) in March 2019. - Regional reserves: estimated at 4.3 months of imports of goods and services at end-2018, compared with 3.9 months at end-2017. - Total revenue: increased from 18.2 percent of GDP in 2017 to 20.3 percent of GDP in 2018. - Current expenditure overspending: 0.5 percent of GDP in 2018. - Domestic arrears clearance: achieved by about 2 percent of GDP. - Bank credit to the private sector: "broadly flat in 2018." - Current account deficit: declined significantly in 2017, increased in 2018 but remains smaller compared to previous years. *Annex IV. Capacity Development Strategy — 1tgoea2019001.* ### 5. Despite a slight increase in debt in 2018, the downward trajectory is not at risk. After a ### 5. Despite a slight increase in debt in 2018, the downward trajectory is not at risk ### Public debt trajectory and drivers - After a rapid increase between 2011 and 2016, public debt declined from 81 percent of GDP in 2016 to 75.5 percent in 2017 and to 76.2 percent in 2018. - Excluding State-owned enterprises (SOEs) debts, these ratios are of 78 percent, 72 percent, and 74 percent, respectively. - If the January 2018 issuances of government securities used to repay arrears pertaining to the 2017 fiscal year had been recorded in the 2017 debt stock, the government debt would have shown a continuous downward trend. - The downward trend reflects a major shift in fiscal policy since early 2017: phasing out of pre-financing and implementation of corrective measures aimed at reducing public debt to a sustainable level. - Investments up to 2016 addressed infrastructure deficiencies but generated large debt service payments, notably for pre-financing, putting pressure on budgetary resources. - Government efforts to clear domestic arrears have contributed to reducing total public debt. ### Program implementation (end-2018 performance) - Five out of six quantitative performance criteria (QPCs) at end-December 2018 were met. - Met performance criterion on the domestic primary balance. - No contraction of non-concessional external debt; all debt service obligations met. - No guarantees issued to domestic suppliers or contractors; no pre-financing of public investment. - Net domestic financing target was not met; deviation relative to the program target amounts to 1.5 percent of GDP (mainly due to recording of certain revenues committed in 2018 but paid in 2019). - Indicative target on domestic arrears met; significant efforts made to clear the full amount targeted under the program for 2018. - Indicative target for domestic revenue missed with a small margin. - Indicative target on social expenditure missed by 0.3 percent of GDP, but social expenditure execution rate improved significantly compared with 2017. ### Structural benchmarks and public expenditure management - Met five out of seven structural benchmarks; all four structural fiscal benchmarks on public expenditure management and business environment for end-December 2018 were met. - Since July 2018, monthly data on the stock of payment arrears by age have been sent to IMF staff. - Strengthened implementation of cash plan and control of commitment authorizations to prevent new arrears. - Measures to improve public investment efficiency: analyze maturity of public investment projects before budgeting; circulars mandate use of methodological guidance on investment project selection and prioritization. - Continued design of a multi-year program budget process; a new budget calendar incorporating reform innovations has been developed and adopted. - Program budget results to date include: (i) support for development of results-based budgeting tools; (ii) technical capacity building for stakeholders; (iii) experimentation with the 2019-21 program budget for the State. ### Business environment and governance measures - Mechanisms and procedures to facilitate land registration have been put in place. - Role of the Credit Information Bureau (BIC) strengthened by amending uniform law No. 2016-005 of March 14, 2016, allowing better credit-risk assessment and potentially reducing cost of credit. - Ongoing work to address weaknesses in banking sector (AML/CFT) and the judicial system. - Launched a multisectoral national risk assessment with World Bank technical assistance; drafting a consolidated general report. ### Financial-sector restructuring and privatization - Privatization process initiated for two public banks to ensure financial stability and prevent risks to the budget. - Completed evaluation of legal and regulatory aspects for privatization of the first public bank; delays in finalizing preliminary draft sale contract due to ongoing negotiations. - Drafted terms of reference for recruitment of a transaction advisor for privatization of the second public bank; strategic plan drafted with slight delay. - 2018 Parliament adoption of legal framework complementing 2014 privatization law to allow privatization of BTCI and UTB. - Privatization timeline and actions: - Revise strategy for first bank and submit by end-June 2019 (modified structural benchmark for end-June 2019); include tender process to be launched by end-August 2019; finalize privatization by end-December 2019 (structural benchmark at end-December 2019). - Draft terms of reference for transaction advisor for second bank completed; tender planned to be launched by August 2019 (structural benchmark at end-August 2019). - Will work with the Banking Commission to assess overall soundness of banking system and ensure compliance with new BCEAO regulation on capital. - Measures to enable the Togolese Debt Collection Agency - Société de Recouvrement du Togo - to better collect state-owned banks’ NPLs securitized during last privatization round. ### Economic outlook and risks (2019 and medium term) - Economic growth expected to approach 5.5 percent over the medium term, benefiting from large public investment completed in recent years and increasing FDI inflows. - Inflation expected to stabilize around 2 percent in coming years, within the WAEMU community norm of 3 percent. - Current account deficit expected to remain around 4 percent of GDP, as lower demand for capital goods and other imports persists while exports of cotton, phosphates, agriculture, and light manufacturing goods continue to grow. - Downside risks: capacity constraints in implementing structural reforms; further slowdown among main regional trading partners; intensified security risks in the subregion that could hinder private investment, tourism, and transformation efforts. ### Fiscal policy stance for 2019–medium term - Additional urgent spending of 1.5 percent of GDP in 2019; postpone to 2020 some less urgent expenditure of 0.3 percent of GDP. - Overall fiscal balance (commitment basis) initially targeting a deficit of 1.5 percent of GDP will loosen to 2.7 percent of GDP in 2019. - Overall fiscal deficit will loosen by about 0.3 percentage point of GDP to about 2 percent of GDP in 2020 and remain below 2 percent of GDP in the medium term. - These deficits remain consistent with WAEMU criterion of overall fiscal deficit not exceeding 3 percent of GDP. - Anticipated maintenance spending of 0.5 percent of GDP connected with urgent spending; to be discussed in future ECF program reviews. - Plan to design development projects for northern region and seek grant financing from partners. - Measures to limit fiscal loosening and promote governance for urgent spending: strengthen permanent revenue to compensate one-off/temporary 2018 revenue; treat urgent spending as other government operations under existing budgetary and procurement procedures; ensure transparency, recording, accountability, oversight; ex-post audit by independent entity (Court of Audit); record operations on the budget; avoid off-budget operations. ### Debt projections and sustainability - Public debt declined from 81.4 percent of GDP in 2016 to 75.5 percent of GDP in 2017, followed by a slight uptick to 76.2 percent of GDP in 2018. - Public debt projected to follow a downward trajectory from 2019 and to fall below the WAEMU debt criterion of 70 percent of GDP starting from 2020. - Excluding SOEs debt, public debt is projected to converge to the WAEMU debt criterion from 2019. - Total public debt expected to fall below the debt sustainability benchmark for countries with medium debt carrying capacity by 2023. - Continued debt reduction over the medium term remains a policy priority to ensure fiscal and external sustainability and to create a foundation for sustained economic growth. ### Revenue mobilization and tax-administration reforms - Revenue outturns remain below program approval projections; revenue structure has increasing share of non-tax revenues (temporary license fees, fluctuating dividends). - Tax policy measures: - Process results of recent land survey to improve property tax implementation and apply relevant tax-code provisions. - New tax on motor vehicles introduced in tax code. - Telecom turnovers to be subjected to a 5 percent tax. - Revenue administration measures: - Increase enforcement powers of revenue administration and improve customs–tax coordination. - Introduce an import lump sum deposit for importers deemed inactive for corporate taxation (SB end-June 2019). - Prohibit merchandise customs clearance for importers with outstanding tax arrears (SB end-June 2019). - Increase tax return audits by cross-checking third-party information and implement rigorous control of customs valuations. - Specific measures to accelerate revenue collection and permanence (structural benchmarks at end-October 2019): - Improve monitoring of tax arrears collection (66 percent for large companies and 48 percent for medium-sized companies by end-2017); formalize creation of Revenue Collection and Receivables Recovery Unit and strengthen its risk analysis role. - Reduce VAT losses: high proportion of non-paying VAT returns (56 percent for large companies and 62.3 percent for medium-sized companies in 2018). Reduce non-paying VAT returns through roll-out of cash-register hardware/software; formulate risk-based spot-check strategy; appoint focal points at medium and large taxpayers’ unit to centralize spot-check results. Extend VAT prepayment system to public entities, SOEs, and some large private companies. - Strengthen control over companies operating in special economic zones, including warehouses and clearance areas. - Analyze capacity of customs IT system and prepare action plan for complete dematerialization of customs declarations; make online submission mandatory for the 30 largest importers or tax filers via ASYCUDA World (structural benchmark at end-October 2019). - Improve inventory reliability through capacity building for mid-level personnel to check monthly returns and detect small errors early. - Further streamline tax expenditures (exemptions) to reduce revenue losses. ### Public spending efficiency, social spending, and inclusiveness - Strengthen efficiency of public spending to support growth while realigning expenditure with resources; accelerate implementation of PIMA recommendations. - Multi-year public investment programming to be strengthened and made consistent with realistic resource envelopes of the medium-term budgetary framework (structural benchmark at end-October 2019). - Prepare program-budget document covering 2020-2022; develop standard framework of performance indicators and train stakeholders (structural benchmark at end-October 2019); initiate gender-budgeting indicators. - Improve efficiency of social expenditure to promote growth inclusiveness; completed comprehensive spending review. - Enhance transfer programs to most vulnerable households; measures for women's economic empowerment and poverty alleviation. - Implement a system to improve monitoring of social expenditure by end-September 2019. - Reallocate funds to social spending in accordance with National Development Plan and strive to meet indicative social spending target set with development partners. - Continue efforts to clear arrears to private sector and avoid any further build-up; refocus policies on sustainable and inclusive growth through targeted social spending and sustainably financed investments. _International Monetary Fund — Chapter excerpt (2019)._ ### 23. We will build on our good performance to further improve access to financial services ### 23. We will build on our good performance to further improve access to financial services ### Financial inclusion and access to finance - Performance shows improvement on a number of key indicators, including the number of accounts at financial institutions. - Policy actions: - Pursue efforts with the BCEAO to improve the penetration rate of mobile money accounts. - Take further measures to address obstacles to firms’ access to bank financing, notably on collateral. - Accelerate procedures for obtaining land title and mortgage registration certificates to provide reliable security. - In collaboration with the Banking Commission, lift obstacles related to permission and access to the Credit Information Bureau. ### Strengthening AML/CFT regime and judicial effectiveness - Based on the national risk assessment, implement an action plan to address weaknesses identified in the national AML/CFT framework. - Speed up liquidation procedures by requiring compliance with regulatory deadlines. - Operationalize the Lomé Commercial Court to deal with commercial disputes. - Train judges specialized in banking law to judge disputes between banks and their customers objectively and fairly. ### Governance reforms - Continue fiscal governance reforms, including: - Publishing fiscal data. - Deepening revenue mobilization reforms. - Selecting and prioritizing public investment projects based on rigorous cost-benefit criteria. - Ensuring closer monitoring of public enterprises. - Establishing procedures for systematic follow-up of audit reports by oversight bodies. - Strengthen anticorruption measures: - HAPLUCIA, the Anti-Corruption Agency, became operational in 2017 and is scrutinizing cases following a corruption awareness campaign launched in September 2018. - Two new laws to strengthen the asset disclosure regime are being adopted: (i) a law requiring the disclosure of assets by all civil service agents, professionally and politically-exposed to corruption, and (ii) a framework law for full implementation of the United Nations Convention on Corruption. - AML/CFT developments: - A new law on AML/CFT was adopted in 2018 and transposes domestically the Uniform Act on AML/CFT adopted by the WAEMU. - Togo is undergoing a national ML/TF risk assessment; the report is expected to be published in June 2019. - Based on the national risk assessment, an action plan will be implemented to mitigate identified risks and gaps. - Continue to strengthen the overall AML/CFT framework, increase vigilance regarding suspicious transactions, and update the on-site inspection schedule of AML/CFT supervisors. - Judicial improvements: - Develop and publish an annual compendium of judicial and prison statistics through appropriate channels, including the Internet. - The new Commercial Courts Act provides for accelerated procedures for the settlement of small-value claims, at low cost; produce a roadmap to ensure effective implementation of this procedure by end-September 2019. - Streamline border procedures and market regulations: - Promote automated procedures to facilitate trade and support modern customs management. ### Borrowing policies and debt management - Continue prudent borrowing policies and strengthen debt management to contain public debt vulnerabilities. - Risk assessment: - Risk of external debt distress is moderate. - High level of domestic debt creates a high risk of overall public debt distress. - Actions: - Fully staff the reorganized debt directorate and implement the recently approved procedures manual for debt management activities. - Enhance transparency and engage in more active communication with primary dealers and investors to support market functioning and development. - Planned operations: - Proceed with a debt reprofiling operation in 2019: borrow externally at more favorable terms to repay outstanding domestic or regional debt; expected to reduce the NPV of total public debt. - The operation is expected to be facilitated by a Policy-Based Guarantee from the World Bank; discussions are underway. - A consultancy firm has been contracted to advise on the debt reprofiling operation. ### Program monitoring, performance criteria, and data production - Request a waiver for nonobservance of the quantitative performance criterion on net domestic financing at end-December 2018: - Underperformance mainly due to certain revenues planned for 2018 but paid in 2019. - Effective underperformance of domestic financing is only 0.2 percent of GDP. - From 2019, the Government has taken corrective measures to strengthen permanent tax revenue so fiscal consolidation objectives for 2018/2019 are preserved. - Request modification of two performance criteria at end-June and end-September 2019 due to additional urgent spending and 2019 recording of revenue committed in 2018 and paid in 2019. - Review schedule and program timing: - Fifth and sixth reviews will take place on a quarterly schedule based on quantitative performance criteria, indicative targets, and structural benchmarks. - Program should end around end-2019 or early 2020. - Fifth and sixth reviews will be based on performance criteria for end-June 2019 and end-September 2019, respectively. - IMF Board discussions scheduled on or after September 15, 2019 and December 15, 2019, respectively. - Program financed with support from development partners; ECF disbursements will close remaining financing needs. - Institutional capacity and statistics: - The Permanent Secretariat for Reform Policies and Financial Programs (Secrétariat permanent chargé des politiques de réformes et des programmes financiers – SP-PRPF) will provide technical program monitoring and quarterly progress reports; liaison between national structures, technical and financial partners; and coordination of technical assistance. - Strengthen staffing within the National Statistics and Accounting Institute (INSEED). - Reduced lags in production of final national accounts. - Rebase GDP according to the 2008 SCN for production by July 2019 of accounts for new base year (2016). - For 2017 accounts, produce by end-December 2019. - Continue to improve data quality and consistency across sources (budget execution data i.e. TOFE and debt outturn data). - Ensure budget projections for the following year are based on estimates of budget execution of the current year. - Make full use of technical assistance to strengthen institutional capacity. - Commitment on external transactions and trade policy during program period: - Will not introduce or intensify restrictions on payments and transfers for current international transactions or introduce or modify any multiple currency practice without the IMF’s prior approval. - Will not conclude bilateral payment agreements incompatible with Article VIII of the IMF’s Articles of Agreement. - Will not introduce or intensify import restrictions for balance of payments reasons. ### Key quantitative outcomes and targets (selected figures from program tables) - Table 1: End-September and End-December 2018 (Billions of CFA Francs) - Domestic primary fiscal balance (floor): Indicative/Adjusted Targets: -6.5; Actual: 30.7; Status: Met (End-September). End-December: Targets 72.2; Adjusted 72.3; Status: Met. - Net domestic financing (ceiling): End-September: Targets 80.2; Adjusted 58.9; Actual 49.6; Status: Met. End-December: Targets 6.0; Adjusted 16.0; Actual 59.3; Status: Not met. - Total fiscal revenue (floor): End-September: Target 394.2; Adjusted 413.9; Status: Met. End-December: Target 606.5; Adjusted 604.9; Status: Not met. - Total domestically financed social spending (floor): End-September: Target 164.4; Adjusted 129.5; Status: Not met. End-December: Target 219.3; Adjusted 210.4; Status: Not met. - Net domestic arrears accumulation (ceiling): End-September: ...; Adjusted 0.0; Actual 8.2; Adjusted -64.8; Status: Met. - Memorandum item: Overall primary balance: End-September: -115.6; Adjusted 17.2; Actual -85.7. End-December: 47.3. - Table 2: Proposed Performance Criteria and Targets for 2019 (Billions CFA Francs) - Domestic primary fiscal balance (floor): End-June: 0.4-38.0; Proposed Performance Criteria range 35.2-3.25; End-September: 51.0. - Net domestic financing (ceiling): Proposed End-June: 70.0; End-September: 72.4; End-December: 51.0; Indicative Targets: 53.3-22.7. - Total fiscal revenue (floor): End-June: 286.1; End-September: 445.1; End-December: 635.9. - Total domestically financed social spending (floor): End-June: 109.3; End-September: 164.0; End-December: 218.6. - Memorandum item: Government contracting or guaranteeing of nominal concessional external debt: cumulative figures include 39.2, 58.8, 78.3, and cap 260.3 (nominal equivalent). - Table 3: Structural benchmarks for the 4th Reviews (deadlines and status) - Monthly data on stock of payment arrears by age: End-December 2018 — Met. - Strengthen cash plan and control of commitment authorizations: End-December 2018 — Met. - Circular mandating methodological guidance on investment project selection: End-December 2018 — Met. - Put in place mechanisms and procedures to facilitate land registration: End-December 2018 — Met. - Finalize legal and regulatory due diligence for privatization of the first public bank and have draft sale contract: End-December 2018 — Not met. - Draft terms of reference for hiring transaction advisor for sale of second public bank: End-December 2018 — Met. - Draft strategic plan and tender terms for second public bank: End-April 2019 — Not met. - Table 4: Structural benchmarks for the 5th Review (deadlines) - Lump sum deposit of 10 to 15 percent on imports by agents deemed inactive: End-June 2019. - Prohibit customs clearance by agents/owners with outstanding tax arrears: End-June 2019. - Develop program-based budget document covering 2020-22: End-June 2019. - Submit revised strategy for privatization of first public bank to launch call for tenders by end-August 2019 and finalize privatization by end-December 2019: End-June 2019 (proposal for modification). - Launch tender for sale of the second public bank: End-August 2019. - Table 5: Proposed structural benchmarks for the 6th Review (deadlines and targets) - Formalize and reinforce Revenue Collection and Receivables Recovery Unit to increase recovery rates: targets from 66 percent in 2017 to 70 percent in 2019 for large taxpayers unit and from 48 percent in 2017 to 60 percent in 2019 for medium-sized taxpayers unit — End-October 2019 (proposed). - Deploy hardware/software for cash registers; formulate strategy for selection of risk-based spot checks; appoint focal points in large and medium-sized taxpayers unit — End-October 2019 (proposed). - Make mandatory online submission of declarations and supporting documents for customs clearance of imports for the 30 largest importers or filers — End-October 2019 (proposed). - Revise and enforce multi-year public investment program — End-October 2019 (proposed). - Develop standard framework of performance indicators and train stakeholders to transition to program budgeting — End-October 2019 (proposed). - Finalize privatization process for the first public bank — End-December 2019 (proposed). *Source: IMF staff and Togolese authorities, excerpt from program documents.* ### 3. Unless otherwise indicated, public entities are defined in this TMU as majority government- ### 3. Unless otherwise indicated, public entities are defined in this TMU as majority government-owned companies, and other public entities receiving earmarked tax and quasi-tax revenues. ### DEFINITION OF TERMS - For program purposes, the definition of debt is set out in paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements attached to IMF Executive Board Decision No. 15688-(14/107), adopted on December 5, 2014. - “Debt” for these guidelines: - Means a current, i.e., not contingent, liability created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. - Primary forms of debt include: - (i) loans, including deposits, bonds, debentures, commercial loans and buyers’ credits, temporary exchanges of assets equivalent to fully collateralized loans (repurchase agreements and official swap arrangements); - (ii) suppliers’ credits, where the supplier permits the obligor to defer payments until after delivery of goods or services; and - (iii) leases, where debt is the present value (at the inception of the lease) of all lease payments expected to be made during the agreement excluding payments that cover operation, repair, or maintenance of the property. - 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. - 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 AND INDICATIVE TARGETS - Continuous quantitative performance criteria (PCs): - (a) a zero ceiling on accumulation of arrears on external public debt; - (b) a zero ceiling on government contracting or guaranteeing of nonconcessional external debt, except for the purpose of debt management to reprofile public debt; - (c) a zero ceiling on government guaranteeing of domestic loans to suppliers and contractors; - (d) a zero ceiling on government guarantees on bank prefinancing for public investments. - Periodic PCs (end-June 2019 and end-September 2019) and indicative targets (end-December 2019): - (e) a floor on domestic primary fiscal balance; - (f) a ceiling on net domestic financing. - Indicative targets (ITs) for end-June 2019, end-September 2019, end-December 2019: - (a) a floor on total fiscal revenue; - (b) a floor on total domestically-financed social spending; - (c) a ceiling on net domestic arrears accumulation. ### A. Domestic Primary Fiscal Balance (floor) - Definition: - Domestic primary fiscal balance = (i) government’s fiscal revenue minus (ii) total fiscal expenses, net of interest and capital spending financed by donors and lenders. - Calculated cumulatively from the beginning of the calendar year. - Balances at end-June 2019 and end-September 2019 (performance criteria) and at end-December 2019 (indicative targets) must be equal to or greater than amounts in Table 1 of the attachments to the MEFP. - Data source: Government Financial Operations Table (Tableau des opérations financières de l’État – TOFE), prepared monthly by the Directorate-General of Economic Studies and Analyzes of the Ministry of Economy and Finance (statistical TOFE). Statistical TOFE prepared by the Directorate of Economy in close cooperation with revenue offices and the Treasury. Data provided by the Directorate of Economy take precedence for program purposes. - Reporting Deadlines: - Detailed data reported monthly within eight weeks of the end of the month. ### B. Arrears on External Public Debt - Definition: - Continuous performance criterion: government will not accumulate payment arrears on external public debt. - For this PC, arrears = external debt obligations of the government not paid when due in accordance with contractual terms (taking into account contractual grace periods). - Excludes arrears on external financial obligations subject to rescheduling, and excludes arrears on debts subject to dispute or renegotiation. - Data source: Public Debt Directorate. ### C. Net Domestic Financing (ceiling) - Definition: - Government net domestic financing = (i) net credit from the banking sector to the government; (ii) net domestic nonbank financing of the government; and (iii) unidentified financing. - Calculated cumulatively from the beginning of the calendar year. - Net domestic financing at end-June 2019 and end-September 2019 (performance criteria) and at end-December 2019 (indicative targets) must be equal to or less than amounts in Table 1 appended to the MEFP. - Adjustors: - Ceiling on net domestic financing will be adjusted downwards by the amount of domestic debt retired as a result of debt management operations. - Adjustor related to debt-management operations is 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 on net domestic financing shall also be adjusted upwards to make up for gaps between projected and actual external financing for the program, subject to a cap of CFAF 10 billion. - Component definitions: - Net credit from the banking sector to the government = balance of government claims and debts to national banking institutions in Togo. Government claims include Treasury balances, Treasury deposits in the central bank, Treasury deposits in commercial banks (excluding deposits of other arms of government such as project-financed accounts and CNSS accounts), and blocked accounts. Government debts include central bank assistance (excluding BCEAO credits tied to IMF financing), commercial bank assistance (including government securities denominated in CFA francs held by commercial banks), and postal checking account deposits. - Net domestic nonbank financing includes: - (i) changes in balance of government securities issued in CFA francs (including on the WAEMU regional financial market) not held by Togolese commercial banks, calculated on the basis of the initial amount underwritten; - (ii) changes in depositor accounts of Treasury correspondents; - (iii) changes in various deposit accounts, including trustee accounts (comptes de consignation) in the Treasury and accounts where fines and sentences are deposited pending distribution; - (iv) repayment of other domestic public debt to nonbank entities (including nonresidents); and income from privatization. - The assumption or securitization of debts and arrears by the government is not included in the definition of net domestic financing, whereas the repayment of that debt by the government is included. - Unidentified financing = total financing (net domestic financing plus exceptional financing) minus the overall balance on a cash basis (including grants and changes in arrears). - Data sources and calculation precedence: - Net credit from the banking sector to the government calculated by the TOFE unit; Treasury bill and bond amounts by Agence UMOA-Titres; net domestic nonbank financing calculated by the Togolese Treasury. Their data take precedence for program purposes. Data reported in the 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 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 also to government-guaranteed domestic loans to suppliers and contractors. Data primarily based on estimates of the Debt unit. ### D. Government or Government-Guaranteed Non-Concessional External Debt - Definition: - Continuous performance criterion: government undertakes not to contract or financially guarantee any new nonconcessional external debt at maturities of one year or more, other than specified exceptions. - 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. - Criterion applies to debt as defined in paragraph 8(a) of the Guidelines and to any commitment contracted or guaranteed for which no value has been received. - Exclusions: rescheduling 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. - “Government” includes: definition in paragraph 2, EPIC, EPA, public scientific and technical institutions, public professional establishments, public health agencies, local authorities, public enterprises, national corporations (public corporations with financial autonomy, government holds at least 50 percent of the capital), and state agencies. - Adjustor for debt-management operations: - Performance criterion adjusted upwards by amount of nonconcessional external borrowing used for debt-management operations that improve the overall public debt profile. - For debt-management operations executed in 2019, adjustor capped at the nominal equivalent of the 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 of domestic debt to be reprofiled = sum of discounted debt service flows using discount rate of 5 percent. NPV of external debt to be acquired calculated similarly. - Net effect = NPV(domestic debt to be reprofiled) minus [net cost of domestic debt repurchase + NPV(external debt to be acquired) + any fees associated with external debt issuance]. - Net effect must reduce or leave unchanged total stock of public debt in NPV terms. If contracting/guaranteeing nonconcessional external debt increases stock in NPV terms, operation is not considered a debt-management operation and would constitute non-observance. - Government will consult with IMF staff before undertaking debt-management operations and will provide staff with data on terms of exchanged and new debt, fees and costs, and costs/fees for compensating domestic bondholders and lenders for early retirement. ### E. Government-Guaranteed Domestic Loans to Suppliers and Contractors - Definition: - Continuous performance criterion: government committed to not providing any new financial guarantees for domestic loans to its suppliers or contractors. - “Government” includes definitions in paragraph 2, EPIC, EPA, public scientific and 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 Pre-financing for Public Investments - Definition: - Continuous performance criterion: government undertakes not to guarantee any new bank pre-financing for public investments. - Typical pre-financing arrangement: private company with public works contract obtains loan from domestic commercial bank; Ministry of Economy and Finance guarantees loan and signs unconditional and irrevocable substitution of debtor agreement to service principal and interest paid automatically from the Treasury account at the BCEAO. - “Government” includes definitions in paragraph 2, EPIC, EPA, public scientific and technical institutions, public professional establishments, public health agencies, local authorities, public enterprises, national corporations (government holds at least 50 percent of capital), and state agencies. ### G. Total Fiscal Revenue (Floor) - Definition: - Total fiscal revenue includes tax and nontax revenue, and excludes external grants, the revenue of autonomous agencies, and income from privatization. - Data calculated by revenue offices and reported in the statistical TOFE prepared monthly by the Directorate of Economy. Revenue is reflected on a cash basis. - Calculated cumulatively from the beginning of the calendar year. - Revenue collections at end-June 2019, end-September 2019, and end-December 2019 must be equal to or greater than the amounts in Table 1 attached to the MEFP. - The revenue floor is an indicative target for the entire duration of the program. - Reporting Deadlines: - Reported monthly to the IMF within four weeks of the end of the month. ### H. Domestically-Financed Social Spending (Floor) - Definition: - Total (current and capital) domestically-financed social spending is calculated for each category of current and capital accounts (wages, goods and services, transfers and subsidies, other) and capital accounts financed with domestic resources. - Social spending sectors include: - (1) Ministry of Education: primary and secondary education, technical and vocational training, and higher education with respect to scholarships and relief allowances (scholarships for students in need pursuing undergraduate degrees per Decree No. 2011-173/PR of November 30, 2011, and Decree No. 2011-174/PR of November 30, 2011; relief allowances for disadvantaged or vulnerable students per same decrees); - (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) financing basic socio-economic development actions and infrastructure in rural and semi-urban areas (schools, health centers, drinking water and basic sanitation points, rural roads, hydro-agricultural schemes, infrastructure for storing and processing agricultural products, rural electrification, and more generally access to all sources of energy); - (8) Support Program for Vulnerable Populations (Programme d’Appui aux Populations Vulnérables – PAPV). - Total current and capital social expenditure financed with owner equity covers spending financed with domestic resources, including revenue, domestic financing, and general foreign budgetary support, and excludes social spending financed with project-specific grants or loans. - Data source: SIGFiP, from the Directorate-General of Budget and Finance (Ministry of Economy and Finance), prepared monthly. *Source: 1tgoea2019001 - 3. Unless otherwise indicated, public entities are defined in this TMU as majority government-owned companies, and other public entities receiving earmarked tax and quasi-tax revenues.* ### 26. Social spending will be calculated cumulatively from the beginning of the calendar year. ### 26. Social spending will be calculated cumulatively from the beginning of the calendar year. ### Social spending rules and reporting - Social spending will be calculated cumulatively from the beginning of the calendar year. - Social spending financed with domestic resources at end-June 2019, end-September 2019, and end-December 2019 must be equal to or greater than the amounts indicated in Table 1 attached to the MEFP. - The data provided by the Directorate General of Budget and Finance and the Directorate General of Economic Studies and Analyzes 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. ### Net Domestic Arrears Accumulation (Ceiling) — Definition - Domestic payment arrears consist of 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 data (taking into account any contractual grace periods). - This definition includes, but is not limited to: - (i) old domestic financial and commercial arrears (to domestic private-sector suppliers); - (ii) old arrears to CNSS (Caisse Nationale de Sécurité Sociale) and CRT (Caisse de Retraite du Togo); - (iii) outstanding debts of liquidated companies (TOGOPHARMA, SOTOCO, OTP, IFG, FER, FICAO, and LIMUSCO); - (iv) balances of accounts payable (instances de paiements) reported in the Government Financial Operations Table (statistical TOFE) that have not been paid 90 days after the due date. ### Arrears accumulation measurement, targets, and adjustors - The net accumulation of domestic arrears will be calculated cumulatively from the beginning of each calendar year. - The amounts at end-June 2019, end-September 2019, and end-December 2019 must be less or at most equal to the amounts indicated in Table 1 attached to the MEFP. - The arrears ceiling is an indicative target for the entire duration of the program after the completion of the third review. - Adjustors: - The ceiling on net accumulation of domestic arrears will be adjusted upward by one half of the amount of any shortfall between the actual and the programmed level of external financing for the program. - In the event that the actual external financing for the program exceeds the programmed levels, the ceiling for the net accumulation of domestic arrears will be adjusted downward by one half of the amount of any excess financing. ### Reporting Deadlines for arrears - The data on net accumulation of domestic arrears will be reported every month within four weeks of the end of the month. ### Structural benchmarks (deadlines and requirements) - End-June 2019 — Strengthening customs controls during the customs clearance process: - A lump sum deposit of 10 to 15 percent will be levied on imports made by taxpayers deemed inactive by OTR (i.e., those that are excluded from the list of the Tax Administration, Commissariat des Impôts) with the objective of limiting the loss of tax revenue (and VAT in particular) due to false invoicing, unjustified invoicing, and imports of goods through screen persons, "groupings" or multiple identifiers. - The lump sum deposit is based on the assessed value determined at the customs border, it is payable on all imports of goods for commercial purposes in the domestic market, and it is directly transferred to taxes. - The deposit will be deducted from the profit tax at the time of the submission of financial statements. - End-June 2019 — Strengthening tax administration powers to collect tax debts, using the fiscal identification number: - The customs administration will prohibit the customs clearance and take control of the goods imported by agents and/or owners with outstanding tax debts (e.g., debt related to VAT, profit tax, and employer contributions to social security). - A blocking field at customs clearance will be activated for importers with tax debt. - End-June 2019 — Strengthening budget preparation and the performance orientation of budget decision-making: - The authorities will develop a document for program-based budget covering 2020-22. - The authorities will also make all necessary efforts to undertake the following actions: - (1) Regulatory framework: make appointments to the financial controller positions in line ministries and institutions; - (2) Information systems: finalize the three new re-coding components (development, execution, and accounting) of the information system (SIGFiP) that are necessary to the implementation of program-based budgeting; - (3) Parliamentary approval: launch discussions in Parliament on budget orientations. - End-June 2019 — First public bank privatization: - Submit to IMF staff a revised strategy for the privatization of the first public bank, which consists of launching by end-August 2019 a call for tenders and finalizing the privatization process by end-December 2019. - End-August 2019 — Second public bank: - The authorities will launch the tender for the sale of the bank. - End-October 2019 — Improving tax revenue collection (Revenue Authority): - Formalize the creation, by Act of the Commissioner-General, and reinforce the risk-analysis role of the Revenue Collection and Receivables Recovery Unit in order to increase the recovery rate of tax arrears from 66 percent in 2017 to 70 percent in 2019 for large companies (DGE) and from 48 percent in 2017 to 60 percent in 2019 for the medium-sized companies (DME). - End-October 2019 — Reducing non-paying VAT returns (zero or credit) to improve tax revenue collection: - (I) start deploying hardware and software for the establishment of cash registers; - (ii) formulate a strategy for the selection of risk-based spot checks; - (iii) appoint focal points in the DGE/DME to centralize the results of spot checks. - End-October 2019 — Improving customs duty collection and border procedures: - The customs administration will make mandatory the online submission of declarations and attached documents for the consumption of imports for the 30 largest importers or registrants, by enabling this feature in ASYCUDA World. - The authorities will also perform an analysis of the capacity of the customs IT system and prepare an action plan for the complete dematerialization of all customs declarations. - End-October 2019 — Improving the efficiency of investment: - The multi-year public investment program will be revised and enforced by ensuring coherence with the realistic resource envelopes of the medium-term budgetary framework, which would make it binding for the following year and indicative for the two years thereafter. - The authorities will also accelerate the implementation of the recommendations of the public investment management assessment ("PIMA"). - End-October 2019 — Budgetary resources’ optimization and the transition to program budgeting: - The authorities will develop a standard framework of performance indicators to define guiding principles and train stakeholders in ministries and institutions. - Reflections to include specific gender-budgeting indicators will also be initiated. - End-December 2019 — First public bank: - The authorities will finalize the privatization process. ### Reporting Deadlines (cash management, commitment and procurement plans) - The cash management, commitment and procurement plans will be reported every month within four weeks of the end of the month. *Source: 1tgoea2019001 - 26. Social spending will be calculated cumulatively from the beginning of the calendar year.* ### 2017. Togo’s high public debt is the result of, among other factors, high deficits, contingent ### 1tgoea2019001 - 2017. Togo’s high public debt is the result of, among other factors, high deficits, contingent ### Key findings and overall assessment - Togo’s PV of total PPG debt (external plus domestic)-to-GDP ratio is projected to decline below the new debt distress benchmark of 55 percent starting in 2023, down from 72 percent in 2018 — with the bulk constituting domestic debt obligations. - Togo’s Composite Indicator (CI) is 2.86, which corresponds to a medium debt-carrying capacity. - The analysis highlights the need for sustained fiscal consolidation, improved debt management, and strong macroeconomic policies to reduce the public debt to prudent levels over the medium term. - Togo’s external debt sustainability has been assessed as moderate in the recent past with high overall risk of debt distress. ### Public debt coverage - Public debt includes obligations of the central government and public entities. - Debt data includes: - external and domestic obligations of the central government, including arrears to suppliers and guaranteed debt; - external and domestic debt of state-owned enterprises (SOEs). - Domestic debt is defined as debt denominated in franc de la Communauté Financière d’Afrique (CFAF). - External debt is defined as debt contracted or serviced in a currency other than the CFAF. - Coverage choice is based on currency rather than residency due to difficulty monitoring residency of creditors for debt traded in the WAEMU regional market. ### Background on debt dynamics and composition - Total public debt increased substantially during 2010-16, reflecting public infrastructure investments financed by both domestic and external borrowing. - Total public debt exceeded 80 percent of GDP in 2016, up from 47 percent of GDP in 2010. - The stock of government securities in the regional market increased from 15.2 percent of GDP to 28.8 percent between 2013 and 2016. - Domestic arrears to suppliers (included in domestic debt) remained relatively high, amounting to CFAF 334 billion (12.6 percent of GDP) by end-2016. - The government halted investment pre-financing and replaced related obligations with bonds at more favorable conditions; profile of domestic debt revised accordingly. ### Recent movements (2016–2018) - By end-2017, total public debt dropped by 5.8 percentage points of GDP from the previous year, reaching 75.5 percent; domestic debt stock fell by 5.4 percentage points from 2016, reaching 55.8 percent. - Total public debt was reported at 76.2 percent of GDP by December 2018. - The slight increase in 2018 is primarily due to: - some revenue recorded in accounts receivable (and not in cash) in 2018; - resources borrowed in January 2018 to repay arrears connected to the fiscal year 2017; - exchange rate depreciation; - capitalization of accrued interest on Sukuk bonds. - While total debt-to-GDP ratio has started to decline, it remains the highest within the WAEMU. ### Composition of public debt (selected figures from Text Table 2, End-2013 to End-2018) - Total Public Debt (CFAF, Percent of GDP): - End-2013: 1,222 (57.2) - End-2016: 2,155 (81.4) - End-2017: 2,106 (75.5) - End-2018: 2,266 (76.2) - Total Central Government (CFAF, Percent of GDP): - End-2013: 1,106 (51.8) - End-2016: 2,066 (78.0) - End-2017: 2,016 (72.3) - End-2018: 2,191 (73.6) - External Debt (CFAF, Percent of GDP): - End-2013: 306 (25.0; 14.3) - End-2016: 355 (24.8; 20.2) - End-2017: 550 (26.1; 19.7) - End-2018: 610 (26.9; 20.5) - Domestic Debt (CFAF, Percent of GDP): - End-2013: 916 (75.0; 42.9) - End-2016: 1,621 (75.2; 61.2) - End-2017: 1,556 (73.9; 55.8) - End-2018: 1,656 (73.1; 55.7) - Domestic Arrears: - End-2013: 290 (23.8; 13.6) - End-2016: 334 (15.5; 12.6) - End-2017: 310 (14.7; 11.1) - End-2018: 225 (10.0; 7.6) - Notes: Figures sourced to Togolese authorities and Staff calculations; includes SUKUK; figures for 2013 and 2016 differ from previous DSA due to reclassifications. ### Macroeconomic forecast assumptions (Box 1 and narrative) - Real GDP growth: - near term annual average of 5.2 percent over 2019-20; - long term (2020-39) potential growth estimated at an annual average of 5.4 percent. - Public investment: - estimated to have dropped to 6.8 percent of GDP in 2018; - projected to grow and reach 10 to 14 percent of GDP in the medium and long terms. - Commodity price projections through 2024 sourced from the WEO prepared in April 2019 and assumed constant in real terms thereafter. - Inflation: - increased to 0.9 percent in 2018 (from deflation of 0.2 percent in 2017); - expected to reach 2 percent in the medium-term, below the WAEMU convergence criterion of 3 percent. - Revenue and grants: - tax revenue projected at 17.6 percent of GDP in 2019; - meet the WAEMU revenue criterion of 20 percent of GDP in 2025; - stabilize at 22 percent of GDP starting in 2029; - total revenue and grants projected to average about 26.8 percent of GDP over 2020-29. - Primary fiscal balance (commitment basis, including grants): - increased slightly to a surplus of 1.6 percent of GDP in 2018 from 1.5 percent in 2017; - anchored on a surplus of 1 percent of GDP over 2021-29; - projected to decrease and approach a deficit of 2 percent of GDP by 2039. - Current account deficit: - projected to stabilize at around 4½ percent of GDP over the medium term. - Debt projections: - Total PPG debt projected to decline below the new benchmark (PV of debt-to-GDP ratio of 55 percent) in 2023. - NPV of debt-to-GDP ratio projected to decline to 31 percent by 2029 and 26 percent by 2039. ### Debt financing strategy and planned operations - Debt is financed through a mix of domestic, regional and external markets. - Authorities aim to deepen and diversify the domestic and regional creditor base and develop the secondary bond market. - Use of Sukuk bonds extended the range of debt instruments in the regional market. - Planned 2019 reprofiling: - Borrow externally at more favorable terms to repurchase approximately 8 percent of GDP of outstanding domestic debt (which is more expensive and generally short term). - The ECF program sets a zero ceiling on contracting or guaranteeing new non-concessional external debt, but conditionality was modified in 2018 to allow non-zero non-concessional borrowing limits if related to debt management operations and not leading to an external risk rating downgrade. - Program aims to keep Togo comfortably at moderate risk of external debt distress at end-December 2019. - Ongoing fiscal consolidation is required regardless of any debt management operation. ### Drivers of debt dynamics and fiscal outlook - Drivers of debt dynamics: - Public debt increased significantly after 2013, peaking by 2016 due to infrastructure investment and pre-financing arrangements. - Current and recent DSA vintages reflect the ECF program’s aim to put debt on a sustainable path; projections deviate from earlier DSAs prepared in 2013. - Planned fiscal adjustment: - Primary balance estimated at 1.6 percent of GDP in 2018 outperformed program targets. - A deficit of 0.2 percent of GDP projected in 2019 due to urgent spending. - Expected stabilization at a surplus of about 1 percent of GDP in the medium term. - Growth implications: - Projected economic growth of 5.1 percent in 2019 is lower than implied by fiscal multipliers (range 5.2-6.7 percent). - Growth projected at 5.3 percent in 2020, slightly above potential growth under plausible fiscal multipliers (range 4.9-5.1 percent). - Public and private investment projections under the previous and current DSA do not deviate significantly; program aims at streamlining public investment while structural reforms are expected to enhance investment. ### Country classification, stress tests, and vulnerability assessment - Debt carrying capacity: - CI confirms ‘medium’ debt carrying capacity, unchanged from previous DSA. - CI captures institutional indicator (World Bank CPIA), real GDP growth, remittances, international reserves, and world growth. - Stress tests: - Standardized stress tests indicate external debt is resilient while public debt is under distress. - Under standardized stress tests, all PPG external debt indicators remain below policy-relevant thresholds in the external DSA. - Using the 55 percent benchmark, PV of public debt-to-GDP only falls below the threshold in 2023 in the public DSA. - Contingent liability stress test: - A shock of 11.8 percent of GDP is used; the shock includes the default value components as specified. ### Policy implications and recommendations (implied from analysis) - Sustain fiscal consolidation to maintain and deepen the downward trajectory of public debt. - Strengthen debt management to reduce reliance on short-term and expensive domestic debt. - Proceed with planned debt reprofiling consistent with program safeguards, ensuring operations do not trigger an external risk rating downgrade. - Deepen and diversify domestic and regional creditor base and develop the secondary bond market. - Continue structural reforms to enhance private sector activity, attract private and foreign investment, and support medium-term growth. *Prepared by the staffs of the International Monetary Fund and the International Development Association; June 10, 2019.* ### Box 1. Main Assumptions in the Macroeconomic Framework (concluded) ### Box 1. Main Assumptions in the Macroeconomic Framework (concluded) ### Financing and macroeconomic assumptions - Foreign direct investment is expected to rise and stabilize around an inflow of 3.8 percent of GDP per year starting in 2025. These flows, as well as grants, are subject to significant risks that may alter the debt dynamics assumed in the baseline. - Key macroeconomic assumptions (DSA June 2019 vs DSA December 2018): - Real GDP Growth (percent) - DSA June 2019: 4.8 (2017-19), 5.4 (2020-29) - DSA December 2018: 4.7 (2017-19), 5.4 (2020-29) - Total Revenue (percent of GDP)1 - DSA June 2019: 23.1, 26.8 - DSA December 2018: 23.2, 24.7 - Exports of goods and services (percent of GDP) - DSA June 2019: 32.2, 34.2 - DSA December 2018: 32.8, 33.1 - Sources: Togolese authorities and Staff calculations. - 1 Total revenue, including grants. ### External debt sustainability — baseline and stress tests - Baseline projections and thresholds - Under the baseline scenario, all Togo’s external debt indicators remain below their indicative policy-relevant thresholds. - Present value (PV) of PPG external debt is projected at 17.1 percent of GDP in 2019 and should decrease to 11.6 percent by 2029. - The PV of PPG external debt-to-GDP ratio remains below the 40 percent threshold under the baseline throughout the projection period. - Debt service measures remain well below their respective thresholds and are on a broadly downward trend. - Starting in 2020, new external loan financing composition is assumed: about 70 percent multilateral lenders, about 10 percent Paris Club bilateral lenders, and about 20 percent commercial lenders. - Alternative scenarios and stress tests - Under the most extreme shock scenario, the PV of PPG external debt-to-GDP and PV of PPG external debt-to-exports remain below relevant thresholds over the projected period; debt service-to-export and to-revenue ratios also remain below thresholds. - Under the historical scenario (setting key macro parameters to their 10-year historical averages), the PV of debt-to-exports ratio breaches the threshold in 2027, and PV of debt-to-GDP breaches in 2023. - A tailored stress test for the combined contingent liability shock does not cause breaches of relevant thresholds. - These outcomes highlight the importance of sound macroeconomic policies. ### Public debt sustainability, domestic debt, and vulnerability assessment - Inclusion of domestic public debt - Including domestic public debt worsens vulnerability and yields an assessment of high overall risk of debt distress. - Togo’s domestic debt reflects persistent high deficits, recognition of government debt from accumulated liabilities (pre-financing, liquidated loss-making SOEs, arrears), weak fiscal management, and limited debt management capacity. - Domestic debt peaked at 61.2 percent of GDP in 2016. - Domestic debt issuance assumptions and projections - New domestic debt assumed as a mix of maturities: 1-3 years (15 percent of total), 4-7 years (60 percent of total), and over 8 years (25 percent of total). - New domestic issuances projected to decrease as a share of GDP from about 6 percent a year over 2020-24 to slightly less than 3 percent a year over 2035-39. - Repayment of arrears coupled with significant fiscal consolidation is expected to substantially reduce domestic debt and total PPG debt by the end of the projection period. - External debt is defined as debt denominated in foreign currency; local-currency domestic debt owed to non-residents is not included due to record-keeping difficulties and limited non-resident participation. - Baseline and scenario outcomes for total public debt - PV of public debt–to-GDP in 2018 stands above the benchmark level of 55 percent. - PV of total public debt-to-GDP is expected to fall below the 55 percent benchmark by 2023 and decline gradually thereafter under the baseline. - Under the historical scenario and several standardized stress tests, the PV of public debt-to-GDP stays above the 55 percent benchmark throughout all or most of the projection period. - A significant shock to state-owned enterprises could realize contingent liabilities that would increase debt levels notably. ### Risk rating and vulnerabilities - Overall assessment - Togo remains at moderate risk of external public debt distress and high risk of overall public debt distress. - Togo had the largest overall debt-to-GDP ratio in WAEMU in 2018, at 76.2 percent of GDP (73.2 percent excluding SOEs’ debt). - The NPV of overall public debt-to-GDP stands above prudential levels and is projected to remain above such indicative benchmarks through 2023, but on a steady declining trend—assuming a continued primary surplus at about 1 percent of GDP and substantial reduction in domestic debt. - For external debt, mechanical results point to a low risk of external debt distress, but judgment was applied given vulnerabilities arising from high domestic debt (which could lead to reprofiling and increased external debt). ### Debt reprofiling scenario - Authorities plan a debt reprofiling operation in the second half of 2019. - Staff reprofiling scenario outcomes (based on available information): - PV of public debt would decline to 23.0 percent of GDP in 2039 compared with 26.5 percent of GDP in the baseline. - PV of external debt would be slightly higher at 14.1 percent of GDP in 2039 compared with 12.7 percent of GDP in the baseline. - Under the most extreme shock scenario, the PV of PPG external debt-to-GDP would breach the PV debt-to-GDP threshold but only temporarily. - Because of the debt reprofiling, the debt service-to-revenue ratio would decrease rapidly over the next two years and then decline gradually from 33 percent in 2021 to 20 percent by 2029. *Source: Box 1. Main Assumptions in the Macroeconomic Framework (concluded), IMF staff text.* ### 17. The authorities broadly agreed with staff's assessment of Togo's public debt situation and ### 17. The authorities broadly agreed with staff's assessment of Togo's public debt situation and ### Authorities' assessment and policy intentions - The authorities broadly agreed with staff’s assessment of debt composition, projections, risk ratings and distress level. - They noted that Togo's current level of debt is still the highest among WAEMU members and that the overall risk of debt distress remains high. - They recognize that fiscal consolidation must continue to bring public debt down to sustainable level. - They highlighted the need for further improvement in debt management by making full use of IMF technical assistance, training resources, and having a resident advisor to strengthen capacity. - They plan to sell some non-financial assets to repay and reduce public debt. ### External debt—baseline projections and key flows (selected series from Table 1) - External debt (nominal) 1/ (in percent of GDP): - 2016: 20.2 - 2017: 19.7 - 2018: 20.5 - 2019: 22.2 - 2020: 21.8 - 2021: 21.4 - 2022: 21.0 - 2023: 20.4 - 2024: 19.7 - 2029: 17.5 - 2039: 19.7 - Change in external debt: - 2016: -1.5 - 2017: -0.5 - 2018: 0.8 - 2019: 1.7 - 2020: -0.5 - 2021: -0.4 - 2022: -0.4 - 2023: -0.6 - 2024: -0.7 - 2029: -0.1 - 2039: 0.2 - Identified net debt-creating flows (selected): - 2016: 15.2 - 2017: -1.9 - 2018: 0.4 - 2019: 2.2 - 2020: 1.3 - 2021: 0.7 - 2022: 0.2 - 2023: -0.1 - 2024: -0.2 - Non-interest current account deficit (percent of GDP): - 2016: 9.4 - 2017: 1.6 - 2018: 4.6 - 2019: 5.6 - 2020: 5.1 - 2021: 4.7 - 2022: 4.4 - 2023: 4.2 - 2024: 4.1 - Net FDI (negative = inflow, percent of GDP): - 2016: 6.8 - 2017: -2.5 - 2018: -2.5 - 2019: -2.7 - 2020: -3.0 - 2021: -3.2 - 2022: -3.5 - 2023: -3.6 - 2024: -3.7 ### Sustainability indicators (selected) - PV of PPG external debt-to-GDP ratio (selected projection series): - 2019: 15.6 - 2020: 17.1 - 2021: 16.6 - 2022: 16.3 - 2023: 15.8 - 2024: 15.2 - 2029: 14.4 - 2039: 11.6 - PV of PPG external debt-to-exports ratio (selected): - 2019: 49.8 - 2020: 53.4 - 2021: 51.4 - 2022: 50.1 - 2023: 47.6 - 2024: 45.2 - 2029: 42.3 - 2039: 32.0 - PPG debt service-to-exports ratio (selected): - 2016: 4.9 - 2017: 5.9 - 2018: 4.9 - 2019: 3.9 - 2020: 3.9 - 2021: 3.6 - 2022: 3.8 - 2023: 4.4 - 2024: 4.8 - 2029: 3.7 - 2039: 2.3 - PPG debt service-to-revenue ratio (selected): - 2016: 9.3 - 2017: 10.7 - 2018: 7.5 - 2019: 6.3 - 2020: 6.2 - 2021: 5.6 - 2022: 6.0 - 2023: 6.8 - 2024: 7.3 - 2029: 5.4 - 2039: 3.8 - Gross external financing need (Billion of U.S. dollars, selected): - 2016: 0.2 - 2017: 0.3 - 2018: 0.5 - 2019: 0.5 - 2020: 0.6 - 2021: 0.6 - 2022: 0.7 - 2023: 0.7 - 2024: 0.8 - 2029: 1.2 - 2039: 2.7 ### Key macroeconomic assumptions (selected) - Real GDP growth (in percent): - 2016: 5.6 - 2017: 4.4 - 2018: 4.9 - 2019: 5.1 - 2020: 5.3 - 2021: 5.4 - 2022: 5.4 - 2023: 5.4 - 2024: 5.4 - 2029: 5.4 - 2039: 5.4 - GDP deflator in US dollar terms (change in percent): - 2016: 1.2 - 2017: 2.9 - 2018: 6.4 - 2019: -1.0 - 2020: 4.1 - 2021: 3.6 - 2022: 3.7 - 2023: 3.4 - 2024: 3.7 - 2029: 3.0 - 2039: 3.0 - Effective interest rate (percent) 4/ (selected): - 2016: 1.8 - 2017: 2.0 - 2018: 1.7 - 2019: 1.3 - 2020: 1.3 - 2021: 1.4 - 2022: 1.6 - 2023: 1.6 - 2024: 1.7 - 2029: 1.9 - 2039: 1.7 - Growth of exports of G&S (US dollar terms, in percent, selected): - 2016: 5.3 - 2017: 0.6 - 2018: 5.6 - 2019: 6.7 - 2020: 10.4 - 2021: 9.8 - 2022: 11.7 - 2023: 10.4 - 2024: 10.7 - 2029: 9.9 ### Public sector debt—baseline projections (selected series from Table 2) - Public sector debt (in percent of GDP): - 2016: 81.4 - 2017: 75.5 - 2018: 76.2 - 2019: 72.2 - 2020: 68.4 - 2021: 64.2 - 2022: 60.3 - 2023: 56.5 - 2024: 52.8 - 2029: 37.3 - 2039: 33.5 - Change in public sector debt: - 2016: 9.2 - 2017: -5.8 - 2018: 0.6 - 2019: -3.9 - 2020: -3.9 - 2021: -4.2 - 2022: -3.9 - 2023: -3.8 - 2024: -3.7 - 2029: -2.9 - 2039: 0.4 - Primary deficit (percent of GDP, selected): - 2016: 7.2 - 2017: -1.5 - 2018: -1.6 - 2019: 0.2 - 2020: -0.7 - 2021: -1.0 - 2022: -1.0 - 2023: -1.0 - 2024: -1.0 - Revenue and grants (percent of GDP): - 2016: 21.6 - 2017: 21.4 - 2018: 23.9 - 2019: 24.0 - 2020: 24.4 - 2021: 24.8 - 2022: 25.4 - 2023: 26.0 - 2024: 26.7 - 2029: 28.8 - Primary (noninterest) expenditure (percent of GDP): - 2016: 28.7 - 2017: 19.9 - 2018: 22.3 - 2019: 24.2 - 2020: 23.7 - 2021: 23.7 - 2022: 24.4 - 2023: 25.0 - 2024: 25.6 ### Public debt sustainability indicators (selected) - PV of public debt-to-GDP ratio (selected): - 2019: 71.8 - 2020: 67.0 - 2021: 63.2 - 2022: 59.0 - 2023: 55.1 - 2024: 51.3 - 2029: 47.5 - 2039: 31.3 - PV of public debt-to-revenue and grants ratio (selected): - 2019: 300.7 - 2020: 279.5 - 2021: 259.2 - 2022: 238.1 - 2023: 216.7 - 2024: 196.9 - 2029: 178.3 - 2039: 108.8 - Debt service-to-revenue and grants ratio (selected): - 2016: 55.5 - 2017: 95.4 - 2018: 57.7 - 2019: 38.7 - 2020: 45.5 - 2021: 48.3 - 2022: 33.2 - 2023: 32.7 - 2024: 32.0 - 2029: 19.9 - 2039: 13.7 - Gross financing need 4/ (selected): - 2016: 19.1 - 2017: 18.9 - 2018: 13.4 - 2019: 8.4 - 2020: 10.4 - 2021: 10.9 - 2022: 7.4 - 2023: 7.4 - 2024: 7.5 - 2029: 4.7 - 2039: 5.7 ### Stress testing and sensitivity (overview of Tables 3–4 and Figures) - A range of alternative scenarios, bound tests, and tailored tests are presented for public and PPG external debt indicators over 2019–29. - Thresholds cited: - PV of debt-to-GDP ratio threshold: 40 (Table 3) - PV of debt-to-revenue ratio threshold: 180 (Table 3) - Public debt benchmark: 55 (Table 4) - Selected illustrative results (Table 3 / Table 4 / Figures): - Baseline and scenario paths show declining public sector debt from 72.2 percent of GDP in 2019 to 52.8 percent in 2024 and further to 37.3 percent in 2029 (Table 2). - Stress tests identify most extreme shocks as Non-debt flows (for PV of Debt-to-GDP and PV of Debt-to-Revenue in Figures) and Exports (for PV of debt-to-exports and debt-service-to-exports ratios). - Sensitivity analyses present multiple breach indicators under adverse scenarios (detailed numeric matrices in Tables 3 and 4). *Source: Country authorities; and staff estimates and projections.* ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### 3-Year Adjustment in Primary Balance (Percentage points of GDP) - Distribution: projected 3-yr adjustment; 3-year PB adjustment greater than 2.5 percentage points of GDP in approx. top quartile. - Horizontal axis: size of 3-year adjustment from program inception (percentage points of GDP). - Vertical axis: percent of sample. ### Fiscal Adjustment and Possible Growth Paths (illustrative series) - Baseline and multipliers shown: Multiplier = 0.2, Multiplier = 0.4, Multiplier = 0.6, Multiplier = 0.8. - Time series years visible: 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020. - Growth axis labeled "In percentage points of GDP" and "In percent". ### Figure 5. Togo: Qualification of the Moderate Category, 2019–29 - Threshold rules (note): For the PV debt/GDP and PV debt/exports thresholds, x is 20 percent and y is 40 percent. For debt service/Exports and debt service/revenue thresholds, x is 12 percent and y is 35 percent. - Indicators plotted across 2019–2029: Debt service-to-revenue ratio, PV of debt-to-exports ratio, PV of debt-to-GDP ratio, Debt service-to-exports ratio. - Category bands shown: Some space, Substantial space, (1-X)*Threshold, (1-Y)*Threshold, Threshold, Limited space, Threshold, Baseline. ### Table 5. Togo: External Debt Sustainability Framework, Debt Reprofiling Scenario, 2016–39 (In percent of GDP, unless otherwise indicated) - External debt (nominal) / public and publicly guaranteed (PPG): - 2016: 20.2 - 2017: 19.7 - 2018: 20.5 - 2019: 30.3 - 2020: 29.5 - 2021: 28.8 - 2022: 28.1 - 2023: 27.2 - 2024: 26.1 - 2029: 22.6 - 2039: 21.8 - (Additional 20.7 and 26.2 entries appear in table.) - Change in external debt: -1.5; -0.5; 0.8; 9.8; -0.8; -0.7; -0.7; -0.9; -1.0; -0.4; -0.1. - Identified net debt-creating flows (selected): 15.2; -1.9; 0.4; 2.6; 1.3; 0.7; 0.1; -0.2; -0.3; -0.4; -0.5; 9.4; 0.2. - Non-interest current account deficit (selected): 9.4; 1.6; 4.6; 6.0; 5.1; 4.7; 4.4; 4.2; 4.1; 4.1; 4.1; 7.4; 4.4. - Deficit in balance of goods and services (selected): 18.4; 10.5; 12.3; 12.9; 12.5; 12.0; 11.6; 11.3; 11.3; 11.2; 10.8; 16.6; 11.6. - Exports (selected): 35.3; 33.1; 31.3; 32.1; 32.3; 32.5; 33.2; 33.6; 34.1; 36.1; 40.7. - Imports (selected): 53.7; 43.5; 43.6; 45.0; 44.8; 44.5; 44.8; 45.0; 45.4; 47.3; 51.5. - Net current transfers (negative = inflow) (selected): -7.6; -8.3; -7.0; -6.8; -6.8; -6.7; -6.6; -6.6; -6.5; -6.4; -6.0; -7.7; -6.6. - of which: official transfers: -1.6; -2.2; -1.1; -1.3; -1.3; -1.3; -1.3; -1.3; -1.3; -1.2; -0.5. - Net FDI (negative = inflow) (selected): 6.8; -2.5; -2.5; -2.7; -3.0; -3.2; -3.5; -3.6; -3.7; -3.8; -3.8; 2.6; -3.5. - Endogenous debt dynamics (selected): -1.0; -1.0; -1.8; -0.7; -0.8; -0.8; -0.8; -0.8; -0.8; -0.7; -0.8. - Contribution from nominal interest rate: 0.4; 0.4; 0.3; 0.3; 0.6; 0.6; 0.6; 0.6; 0.6; 0.5; 0.3. - Contribution from real GDP growth: -1.1; -0.8; -0.9; -1.0; -1.5; -1.5; -1.4; -1.4; -1.3; -1.1; -1.1. - Contribution from price and exchange rate changes: -0.3; -0.6; -1.2; ... - Residual (includes exceptional financing): -16.6; 1.4; 0.4; 7.2; -2.0; -1.4; -0.8; -0.7; -0.7; 0.0; 0.4; -13.1; 0.0. - Sustainability indicators (selected): - PV of PPG external debt-to-GDP ratio series includes 15.6; 25.2; 24.2; 23.4; 22.5; 21.5; 20.3; 15.1; 14.1. - PV of PPG external debt-to-exports ratio series includes 49.8; 78.6; 74.8; 71.9; 67.7; 63.9; 59.6; 41.8; 34.7. - PPG debt service-to-exports ratio: 4.9; 5.9; 4.9; 3.9; 5.0; 4.6; 4.8; 5.3; 5.6; 6.5; 2.5. - PPG debt service-to-revenue ratio: 9.3; 10.7; 7.5; 6.3; 8.0; 7.3; 7.5; 8.1; 8.5; 9.4; 4.1. - Gross external financing need (Billion of U.S. dollars): 0.2; 0.3; 0.5; 0.6; 0.6; 0.6; 0.7; 0.8; 0.8; 1.3; 2.7. - Key macroeconomic assumptions (selected): - Real GDP growth (in percent): 5.6; 4.4; 4.9; 5.1; 5.3; 5.4; 5.4; 5.4; 5.4; 5.4; 5.4; 5.7; 5.4. - GDP deflator in US dollar terms (change in percent): 1.2; 2.9; 6.4; -1.0; 4.1; 3.6; 3.7; 3.4; 3.7; 3.0; 3.0; -0.6; 3.0. - Effective interest rate (percent): 1.8; 2.0; 1.7; 1.3; 2.3; 2.3; 2.4; 2.4; 2.4; 2.2; 1.7; 1.5; 2.2. - Growth of exports of G&S (US$ terms, in percent): 5.3; 0.6; 5.6; 6.7; 10.4; 9.8; 11.7; 10.4; 10.7; 9.9; 10.8; 4.6; 9.9. - Growth of imports of G&S (US$ terms, in percent): -0.7; -12.9; 11.9; 7.3; 9.2; 8.5; 9.9; 9.5; 10.2; 9.5; 10.3; 4.4; 9.3. - Grant element of new public sector borrowing (in percent): ...; ...; ...; 13.8; 40.5; 40.5; 40.3; 40.2; 40.2; 42.4; 39.0; ...; 38.2. - Government revenues (excluding grants, in percent of GDP): 18.7; 18.2; 20.3; 19.9; 20.3; 20.7; 21.3; 21.9; 22.6; 25.0; 24.7; 17.9; 22.5. - Aid flows (Billion of US$): 0.3; 0.4; 0.4; 0.3; 0.3; 0.3; 0.3; 0.4; 0.4; 0.6; 0.7. - Grant-equivalent financing (in percent of GDP): ...; ...; ...; 5.8; 5.2; 5.2; 5.2; 5.2; 5.1; 5.2; 2.6; ...; 5.3. - Grant-equivalent financing (in percent of external financing): ...; ...; ...; 35.1; 75.9; 76.4; 76.6; 76.7; 76.8; 73.0; 64.3; ...; 72.3. - Nominal GDP (Billion of US$): entries show sequence 4, 5, 5, 6, 6, 7, 7, 8, 9, 13, 30 (formatted across table). - Nominal dollar GDP growth: 6.9; 7.4; 11.6; 4.1; 9.6; 9.2; 9.3; 9.0; 9.3; 8.6; 8.6; 5.1; 8.5. - Memorandum items (selected): - PV of external debt (in percent of GDP): ...; ...; 15.6; 25.2; 24.2; 23.4; 22.5; 21.5; 20.3; 15.1; 14.1. - In percent of exports: ...; ...; 49.8; 78.6; 74.8; 71.9; 67.7; 63.9; 59.6; 41.8; 34.7. - Total external debt service-to-exports ratio: 4.9; 5.9; 4.9; 3.9; 5.0; 4.6; 4.8; 5.3; 5.6; 6.5; 2.5. - PV of PPG external debt (Billion US$): 0.8; 1.4; 1.5; 1.6; 1.6; 1.7; 1.8; 2.0; 4.2. - (PVt-PVt-1)/GDPt-1 (in percent): 10.7; 1.3; 1.3; 1.2; 0.9; 0.7; 0.4; 1.2. - Non-interest current account deficit that stabilizes debt ratio: 10.9; 2.1; 3.8; -3.8; 5.9; 5.4; 5.1; 5.1; 5.2; 4.5; 4.2. ### Debt Accumulation and Financing Dynamics (charts referenced) - Rate of Debt Accumulation chart shows Grant-equivalent financing (% of GDP) and Grant element of new borrowing (right scale). - Debt Accumulation series across years 2019, 2021, 2023, 2025, 2027, 2029. ### Table 6. Togo: Public Sector Debt Sustainability Framework, Debt Reprofiling Scenario, 2016–39 (In percent of GDP, unless otherwise indicated) - Public sector debt 1/: - 2016: 81.4 - 2017: 75.5 - 2018: 76.2 - 2019: 72.2 - 2020: 68.1 - 2021: 63.8 - 2022: 59.7 - 2023: 55.7 - 2024: 51.9 - 2029: 35.8 - 2039: 30.7 - (Additional 64.7 and 52.9 entries appear.) - Change in public sector debt: 9.2; -5.8; 0.6; -4.0; -4.0; -4.4; -4.1; -4.0; -3.8; -3.0; 0.4. - Identified debt-creating flows (selected): 5.5; -5.7; -1.8; -3.6; -3.7; -4.1; -3.8; -3.8; -3.6; -2.9; 0.4; -5.9; -3.5. - Primary deficit (selected): 7.2; -1.5; -1.6; 0.2; -0.7; -1.0; -1.0; -1.0; -1.0; -1.0; 2.0; 3.3; -0.9. - Revenue and grants (selected): 21.6; 21.4; 23.9; 24.0; 24.4; 24.8; 25.4; 26.0; 26.7; 28.8; 26.4; 20.5; 26.6. - of which: grants: 2.9; 3.2; 3.6; 4.1; 4.1; 4.1; 4.1; 4.1; 4.1; 3.8; 1.7. - Primary (noninterest) expenditure (selected): 28.7; 19.9; 22.3; 24.2; 23.7; 23.7; 24.4; 25.0; 25.6; 27.8; 28.4; 23.8; 25.7. - Automatic debt dynamics (selected): -1.7; -4.2; -1.4; -2.6; -3.0; -3.1; -2.8; -2.7; -2.6; -1.9; -1.7. - Contribution from interest rate/growth differential: -2.2; -2.3; -2.3; -2.4; -2.6; -2.7; -2.5; -2.4; -2.2; -1.2; -1.0. - of which: contribution from average real interest rate: 1.6; 1.2; 1.3; 1.3; 1.1; 0.8; 0.7; 0.7; 0.6; 0.8; 0.5. - of which: contribution from real GDP growth: -3.8; -3.4; -3.5; -3.7; -3.6; -3.5; -3.3; -3.1; -2.9; -2.0; -1.6. - Contribution from real exchange rate depreciation: 0.6; -1.9; 0.8; ... - Other identified debt-creating flows: 0.0; 0.0; 1.2; -1.1; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; -6.8; -0.1. - 2018 revenue arrears paid in 2019: 0.0; 0.0; 1.2; -1.1. - Residual: 3.7; -0.2; 2.4; -0.7; -0.8; -0.6; -0.5; -0.5; -0.5; -0.7; -0.6; 4.4; -0.7. - Sustainability indicators (selected): - PV of public debt-to-GDP ratio: ...; ...; 71.8; 67.0; 62.8; 58.3; 54.1; 50.0; 46.0; 28.3; 23.0. - PV of public debt-to-revenue and grants ratio: ...; ...; 300.7; 279.3; 257.5; 235.3; 212.7; 192.1; 172.6; 98.1; 86.9. - Debt service-to-revenue and grants ratio 3/: 55.5; 95.4; 57.7; 72.5; 39.7; 32.3; 26.8; 27.8; 28.9; 18.2; 9.3. - Gross financing need 4/: 19.1; 18.9; 13.4; 16.5; 9.0; 7.0; 5.8; 6.2; 6.7; 4.2; 4.5. - Key macroeconomic and fiscal assumptions (selected): - Real GDP growth (in percent): 5.6; 4.4; 4.9; 5.1; 5.3; 5.4; 5.4; 5.4; 5.4; 5.4; 5.4; 5.7; 5.4. - Average nominal interest rate on external debt (in percent): 1.8; 2.1; 1.6; 1.4; 2.3; 2.3; 2.3; 2.4; 2.4; 2.1; 1.7; 1.5; 2.2. - Average real interest rate on domestic debt (in percent): 3.0; 1.9; 2.6; 2.7; 2.5; 2.2; 2.2; 2.2; 2.2; 1.9; 2.2; 1.6; 2.2. - Real exchange rate depreciation (in percent, + indicates depreciation): 2.8; -10.0; 4.5; ... - Inflation rate (GDP deflator, in percent): 1.5; 0.8; 1.7; 2.3; 3.0; 3.0; 3.0; 3.0; 3.0; 3.0; 3.0; 1.4; 2.9. - Growth of real primary spending (deflated by GDP deflator, in percent): 7.1; -27.7; 17.6; 14.1; 3.0; 5.7; 8.4; 7.9; 8.1; 5.8; 6.1; 10.1; 7.5. - Primary deficit that stabilizes the debt-to-GDP ratio 5/: -2.1; 4.4; -2.2; 4.2; 3.3; 3.3; 3.1; 2.9; 2.8; 2.0; 1.6; 0.0; 2.8. - PV of contingent liabilities (not included in public sector debt): 0.0 across entries shown. ### Figure 6. Indicators of Public Guaranteed External Debt under Alternative Scenarios for the Debt Reprofiling Scenario, 2019–29 - Stress tests and indicators shown: Avg. grace period, Commodity Prices, Avg. nominal interest rate on new borrowing in USD, USD Discount rate, Avg. maturity (incl. grace period). - Notes on stress tests: - "Most extreme shock 1/": the most extreme stress test yields the highest ratio in or before 2029; one-off breaches are presented but deemed away for mechanical signals. - Commodity price shock magnitudes based on IMF research department commodity prices outlook. - Thresholds indicated: 2.4% and 100% in legend context. - Most extreme shocks identified by type across indicators (examples): Combination, Exports, Non-debt flows. ### Figure 7. Indicators of Public Debt Under Alternative Scenarios for the Debt Reprofiling Scenario, 2019–29 - Public debt composition and stress-test outcomes shown: External PPG MLT debt; Domestic MLT debt; Domestic short-term debt. - Public debt benchmark and historical scenario markers visible. - Shares and average terms of marginal debt and borrowing assumptions for stress tests provided (e.g., Avg. nominal interest rate on new borrowing in USD, Avg. maturity, Avg. grace period). - Most extreme shocks identified for various ratios: Non-debt flows, Growth, Exports, etc. ### Statement by Mr. Raghani, Executive Director for Togo; Mr. Razafindramanana, Alternate Executive Director for Togo; and Mrs. Boukpessi, Advisor to the Executive Director (June 26, 2019) - Paragraph 1: Authorities thank Staff for candid and constructive policy discussions in the 2019 Article IV Consultation and Fourth Review under the ECF arrangement; request continued close cooperation. - Paragraph 2: Fiscal consolidation and comprehensive reforms under the ECF program have helped Togo strengthen macroeconomic and financial stability, achieve debt reduction while promoting durable and more inclusive growth; authorities committed to Plan National de Développement (PND) launched officially in March 2019. - Paragraph 3: Authorities request completion of the 4th Review under the ECF arrangement; a waiver for non-observance of a performance criterion missed mainly due to a statistical recording problem; and modification of PCs to accommodate the correction and some urgent spending. ### Recent Developments and Performance under the ECF Program - Economic performance 2018: - Real GDP estimated at 4.9 percent (against 4.4 percent in 2017). - Inflation: 0.9 percent on average in 2018 (regional ceiling 3 percent). - Fiscal: Togo meeting WAEMU fiscal deficit criterion of 3 percent of GDP since 2017. - Public-debt-to-GDP ratio (excluding SOEs): 73.6 percent in 2018 compared to 72.3 percent in 2017; slight increase due to oversight in recording of securities. - Current account deficit: 4.9 percent of GDP in 2018. - Financial sector vulnerabilities: high level of non-performing loans (NPLs), loan concentration, inadequate buffers, excessive exposure to trade and manufacturing activities. - Program implementation (end-December 2018): - Five out of six quantitative performance criteria (QPCs) met, including the floor on the domestic primary balance. - Net domestic financing target not met due to error in recording some 2018 revenues paid in 2019. - Indicative target (IT) on domestic arrears clearance met. - ITs on revenue and domestic social expenditure missed by small margins; total revenue increased significantly in 2018 thanks to customs receipts and non-tax revenue; social spending execution improved. - Structural benchmarks (SBs): five out of seven SBs met, including three SBs related to public expenditure management and one to the business environment; SB on privatization of one public bank not observed due to non-conclusion of negotiations. ### Outlook and Policy Priorities for 2019 and the Medium Term - (Section heading present in source; detailed policies and projections follow beyond the provided excerpt.) *Sources: Country authorities; and staff estimates and projections.* ### 6. Our authorities take positive note of staff’s growth projections of 5½ percent over the ### 6. Our authorities take positive note of staff’s growth projections of 5½ percent over the ### Growth outlook and risks - Authorities take positive note of staff’s growth projections of 5½ percent over the medium term. - Authorities foresee higher growth rates over the medium-term given recent public infrastructure investments (roads, port and airport) and substantial steps in implementing their PND. - Authorities agree with staff’s assessment of downside risks, including those related to regional security and weather. - Authorities are cognizant of potential socio-political tensions and are determined to ensure that the upcoming local and presidential elections take place in a peaceful and secure environment. ### Program adjustments and conditionality - While program objectives remain unchanged, the program is being adjusted to take into account recent developments and needs. - Beside the two PCs on domestic primary balance and net domestic financing: - one SB related to the privatization of one of the two public banks is proposed for modification; and - six additional SBs on revenue administration, expenditure and investment management, and financial sector are being proposed. ### Fiscal policy stance and 2019 budget - Authorities remain committed to the fiscal objectives of the ECF-program. - Policy priorities: enhancing permanent revenue collection, pursuing public expenditures restraint while accommodating infrastructure needs and protecting social spending. - Against a worsening regional environment and increased security issues, authorities will loosen the fiscal stance in 2019. - A revised 2019 budget will: - accommodate additional 1.5 percent of GDP for urgent spending; and - postpone 0.3 percent of GDP for less urgent spending to 2020. - The overall fiscal deficit (commitment basis, grants included) is projected at 2.7 percent of GDP in 2019, below the 3-percent threshold under the WAEMU convergence framework. ### Revenue measures and expenditure priorities - Revenue-side measures include: - (i) introduction in the Tax Code of a property tax, a corporate tax, notably for telecom companies and a new tax on motor vehicle; - (ii) setting of an import lump sum deposit for inactive importers with regard corporate taxation, increase in the number of cross-check of taxpayers’ transactions, and a stricter valuation and collection of customs; - (iii) further streamlining of tax exemptions; - (iv) improving monitoring of tax arrears collection by establishing the Revenue Collection and Receivables Recovery Unit; - (v) reducing losses in VAT revenue by rolling-out cash registers and extending the VAT prepayment system to public entities, SOEs, and other large companies; and - (vi) enhancing the customs software to make online submission of customs declarations possible. - Expenditure-side priorities: - continue efforts to contain domestically-financed capital expenditures while scaling up targeted social spending. ### Strengthening debt sustainability - Public-debt-to-GDP ratio (excluding SOEs) is projected to continue declining and reach levels below the WAEMU debt convergence criterion of 70 percent of GDP starting in 2019 (2020 when including SOEs). - Authorities will pursue a prudent borrowing strategy and continue strengthening the operational capacity of the recently-reorganized debt management office (Direction de la Dette Publique et du Financement). - A new handbook on procedures for debt management activities, in line with AFRITAC’s recommendations, is soon to be applied. - Authorities expect enhanced technical assistance from the Fund and other development partners to strengthen the debt management office. - A debt reprofiling operation endorsed by a Policy-Based Guarantee from the World Bank is envisaged by end 2019: - operation will be conducted with support from an international advisory firm; - consist in contracting new external debt at more favorable maturity and rate terms to repay outstanding domestic or regional debt; - expected not to alter Togo’s assessment of moderate risk of external debt distress. ### Fostering financial stability and development - Authorities aim to position Togo as a first-class financial center in the sub-region, with several sub-regional and regional banking institutions headquartered in Lomé. - Collaboration with the WAMU banking supervisory body (Commission bancaire) is emphasized to address vulnerabilities in banking and non-banking sectors and safeguard financial stability. - Privatization plans: - Steps underway to privatize the two remaining state-owned banks. - Privatization of one bank is ongoing according to the plan agreed with Staff. - Delays encountered in the privatization of the other bank: an agreement between the negotiation committee and potential buyers could not be reached by end-May 2019 as previously planned. - Authorities are elaborating a revised strategy including the launch of a tender process by end-August 2019, aiming to finalize privatization by end-December 2019. - Privatization of the two banks—which concentrate most of the NPLs—will reduce the high level of NPLs and improve the banking system’s overall soundness. - Operationalization of the debt collection agency–Société de Recouvrement du Togo—will be an important step. - Authorities are working on improving access to credit and fostering financial inclusion, leveraging mobile money banking. ### Promoting sustainable inclusive growth and governance - Sustainable growth will rest on private sector development; recent improvements in the business climate are beginning to yield results, with Togo among the top reformers in the recent World Bank’s Doing Business. - Authorities intend to further strengthen the business environment to attract private sector investment and make Togo a regional transportation hub, financial center, and manufacturing and extractive industry base. - Investment and project selection: - Emphasis on accelerating implementation of the last PIMA recommendations. - Recent cost-effectiveness methodology for future projects and strengthening of the multi-year public investment program. - Application of the WAEMU directive on program-based budget is underway, with adoption of a new budget calendar and upcoming production of a program-budget document for 2020-2022. - Social protection: - Authorities continue efforts to strengthen safety nets and take targeted social and inclusive policies to support vulnerable households and reduce poverty and inequality. - A system to improve monitoring of social expenditure will be put in place by end-September 2019. - Governance and anti-corruption: - Strengthening institutional and judicial frameworks through the Criminal Code and the 2018 law on AML/CFT in line with WAEMU requirements and the work of HAPLUCIA. - A law to promote asset disclosure by all civil service agents and professionally and politically-exposed people has been prepared and should be adopted shortly, as is a framework law for full implementation of the United Nations Convention on Corruption. - Authorities look forward to conclusions of the recent national multisectoral money laundering/ financing of terrorism risk assessment with support of the World Bank and stand ready to implement an appropriate action plan to address identified vulnerabilities. ### Conclusion and official requests - Authorities are pressing ahead with an ambitious consolidation and reform agenda. - They are fully committed to the objectives of the ECF program: preserve macroeconomic stability, achieve debt reduction and meet growth and social objectives. - On their behalf, they request the Executive Board’s completion of the Fourth Review under the ECF arrangement, approval of their requests for waivers of nonobservance and modification of performance criteria, and conclusion of the 2019 Article IV Consultation. *Source: 1tgoea2019001 - 6. Our authorities take positive note of staff’s growth projections of 5½ percent over the (PDF).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1tgoea2019001.pdf_