## _cr1438 ## Source details **Canonical URL:** [_cr1438](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1438.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1438.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1438.pdf.json) --- ### Recent developments and short-term performance - Ruling party won legislative elections in July 2013 and secured two-thirds of the seats; prime minister and most of the cabinet reappointed. - Real economic growth: almost 4½ in 2010-11 to 5.9 percent in 2012. - GDP per capita declined by about 17 percent during 1997-2002; recovery since 2009 not yet fully restored. - Poverty: about 60 percent of the population. - Gini coefficient: rose from 0.361 to 0.393 during 2006-11. - Inflation: average 2.6 percent in 2012. - Current account deficit: widened to 11.8 percent of GDP in 2011-12. - Growth expected: around 5½ in 2013. - Current account projected: improve slightly to 10.6 percent of GDP in 2013 because of lower global import prices. ### Medium-term outlook and key projections - Growth: expected to rebound to about 6 percent a year in the medium term. - Fiscal projections: - Primary domestic fiscal balance projected to become positive to anchor reductions in the debt burden. - Overall fiscal balance projected to be gradually reduced to limit new debt accumulation. - Current account deficit: projected to narrow to 9.2 percent of GDP by 2016. - Total public debt: estimated around 45 percent of GDP at end-2012 (includes arrears and state-owned enterprises external debt). ### Main risks to the outlook - Domestic risks: elections in 2014 and 2015 could generate policy slippages; vested interests may resist reforms; limited capacity may slow implementation. - Financial sector: emerging weaknesses could undermine stability. - Energy sector: policy inaction could hurt growth and the budget. - PPPs: ill-conceived public-private partnerships could entail fiscal liabilities. - External vulnerability: openness makes economy vulnerable to shocks in export demand. ### Fiscal developments and policy recommendations - Fiscal deterioration in 2011–12: - Overall fiscal deficit more than doubled to 7.2 percent of GDP during 2012. - Fuel subsidies rose to 2.1 percent of GDP; unpaid bills accumulated at end-2012. - 2013 budget developments: - Adopted 2013 budget implied an overall balance deficit of almost 11 percent of GDP. - Authorities adopted a revised 2013 budget with lower capital expenditures, higher allocations for fuel subsidies, and more realistic privatization revenue estimates. - Staff advice: - Phased fuel price increase (except kerosene) by 5 percent in September 2013 and in January 2014 with targeted protection for the most vulnerable. - Fiscal policy anchored by improvement of the domestic primary fiscal balance; return to positive territory to create fiscal space. - Authorities’ fiscal objectives: - Reduce the overall deficit to around 5¼ percent of GDP in 2014 and below 4 percent by 2016. - Return to a balanced primary domestic balance in 2014 and to a positive primary domestic balance slightly below 2 percent by 2016. - Frontload fiscal adjustment: deficit reduction in 2013 accounts for one-third of projected adjustment during 2013-16. - Fiscal governance recommendations: - Exclude tax exemptions from revenue in staff presentation (authorities report tax revenue inclusive of exemptions). - Strengthen medium-term debt strategy and regular debt sustainability analysis updates. ### Financial sector, microfinance, and structural reforms - Financial sector recommendations from 2011 Article IV remain relevant: - Adopt and implement financial sector development strategy; speed up bank privatization. - Strengthen public financial management; improve debt management capacity. - Reform phosphate, telecommunication and energy sectors; improve business environment. - Implementation status: - Financial sector strategy approved but implementation limited; two out of four banks privatized. - Since mid-2011: Togo became full EITI member; new Telecommunication Act approved; new Managing Director of state-owned electricity distribution company selected in December 2011. - Ministry of Economy and Finance approved a PFM reform plan; implementation has started. - Microfinance sector (2009–2012): - Deposits increased by 70 percent. - Loans increased by 80 percent. - Number of clients increased from about 0.7 to 1.2 million. - At end-2012, microfinance’s share of deposits: 16 percent of the financial system. - End-2012 savings in sector: CFAF 116 billion; credit: CFAF 103 billion. - NPLs in microfinance: grew from 3.2 percent in 2011 to 5 percent in 2012. - Over 60 illicit/unlicensed microfinance entities exist; supervisory capacity weak. - Banking system: - Gross NPL ratio near 11 percent. - Market concentration: four largest banks account for over 60 percent of assets, deposits and loans in 2012. - Loan concentration: over 70 percent of loans to commerce, manufacturing and transportation. - Three major state-owned banks recapitalized in 2008 via securitization; about US$200 million in government securities exchanged for non-performing loans to SRT. - Privatization: two banks sold; attempt to privatize BTCI in early 2013 unsuccessful. - Regulatory context (WAEMU): - NPL provisioning only after 180 days versus international 90 days. - WAEMU supervision dual mandate complicates recapitalization/resolution decision-making. ### Financial sector policy recommendations - Short-run: - Favor consolidation over broadening; tighten multilateral surveillance through the Banking Commission. - Strengthen microfinance supervision: increase CAS-IMEC staffing, close unlicensed institutions, prevent pyramid schemes. - Adopt resolution strategies for problem banks; require capital accumulation where needed. - Medium-term: - Legal reforms for guarantees, property rights, insurance market. - Promote financial education, broaden access (including mobile payments), develop credit registry. ### Debt sustainability, trajectory, and policy recommendations - DSA conclusions: - Togo remains at moderate risk of debt distress. - End-2012 total public debt: around 45 percent of GDP; end-2012 nominal total debt stock: US$1.9 billion. - PV of PPG external debt at end-2012: US$724 million; about 45 percent owed to multilateral creditors; ~28 percent to non-Paris Club bilateral creditors. - Baseline assumptions: - Real GDP growth: 5.6 percent in 2013 and average about 5.9 percent over 2014-18. - Public investment: projected 10.4 percent of GDP in 2013 and 10.9 percent in 2014; stabilize around 9.5 percent after planned investments. - Share of public investment financing: 35 percent domestically, 65 percent external. - Inflation long-term: around 2.5 percent. - Domestic primary fiscal balance: projected to return to positive territory and remain above 1 percent in the projection period. - Discount rate used in DSA: 5 percent. - Key numeric debt points: - Total public debt at end-2012: around 45 percent of GDP. - Comparator averages: fragile states that benefited from HIPC — 39.1 percent of GDP; low-income countries — 34.4 percent of GDP. - External public debt expected to accumulate to around 22 percent of GDP by 2016. - Stress-test vulnerabilities: - Terms shock: breaches PV of external debt-to-GDP threshold in 2023; PV debt-to-exports threshold in 2033; PV debt-to-revenue ratio breaches 200 percent in 2029. - One-time 30 percent nominal depreciation: debt service-to-revenue ratio surpasses thresholds in 2026. - Policy implications: - Continue to borrow on concessional terms until debt management capacity improves. - Strengthen Public Debt Directorate capacity; annual debt strategy to be a medium-term strategy aligned with budget and MTEF. - Improve public investment management and monitor contingent liabilities from PPPs and SOEs. - Maintain domestic primary fiscal balance above 1 percent of GDP as anchor. ### External sector and competitiveness - Current account: structural deficits for nearly two decades; average deficit ~8.2 percent during 2000-11. - Exports: around 40 percent of GDP since 2010; main exports: cotton, phosphates, cement and clinker, cocoa and coffee — more than 40 percent of total exports. - Remittances: around 7 percent of GDP in 2012. - REER: broadly in line with fundamentals; depreciated by almost 11 percent over past three years (euros depreciation). - External reserves (pooled regionally): ample, covering more than five months of imports. - Medium-term risks: imports for investment and intermediate goods keep current account deficits high; low savings relative to investment needs. ### Infrastructure bottlenecks and PPPs - Transport: airport and port capacity expected to double by end-2014. - Togo Invest Corporation (TIC) capital: CFAF 20 billion (0.9 percent of GDP) to launch rail and transport projects mostly via PPPs. - Staff cautioned high fiscal risks with PPPs and administrative responsibility ambiguity. - Telecoms: cost among highest in the world; access limited. - Power sector: - About 85 percent of Togo’s power is imported. - Structural financial deficit in electricity sector; accumulation of arrears to suppliers. - Staff recommended breaking cycle of arrears with public information and sanctions; authorities preferred verified repayment plan. - Gradual move to cost-recovery tariffs in medium term considered unavoidable. ### Social protection, inclusion, and poverty dynamics - Growth reduced poverty incidence by about 3 percentage points to about 60 percent during 2006-2011, but income distribution worsened for the poorest deciles. - Poverty highest in rural areas; rural poverty increased during 2006-2011. - Internal migration contributed to about a third of total reduction in poverty. - Policy recommendations: - Enhance rural productivity and market access (feeder roads, irrigation, inputs, storage). - Targeted cash transfers and expansion of school feeding programs (pilot programs to be extended). - Urban planning and improved urban/peri-urban transport. - Focus on human capital: universal access to quality education, nutrition, health care. ### Key macroeconomic projections and selected numeric indicators (2010–18 unless otherwise noted) - Real GDP (percent growth): 4.1 (2010), 4.8 (2011), 5.9 (2012), 5.6 (2013), 6.0 (2014), 6.0 (2015), 6.1 (2016), 5.8 (2017), 5.5 (2018). - Real GDP per capita (percent growth): 1.9 (2010), 2.6 (2011), 3.7 (2012), 3.4 (2013), 3.8 (2014), 3.8 (2015), 3.9 (2016), 3.6 (2017), 3.3 (2018). - Consumer price index (average, percent change): 1.4 (2010), 3.6 (2011), 2.6 (2012), 2.2 (2013), 2.4 (2014), 2.5 (2015), 2.5 (2016), 2.5 (2017), 2.5 (2018). - GDP (CFAF billions): 1,571 (2010), 1,772 (2011), 1,999 (2012), 2,154 (2013), 2,337 (2014), 2,539 (2015), 2,762 (2016), 2,995 (2017), 3,239 (2018). - Current account balance (percent of GDP): -6.3 (2010), -9.1 (2011), -11.8 (2012), -10.6 (2013), -10.9 (2014), -9.9 (2015), -9.0 (2016), -8.4 (2017), -8.4 (2018). - Total public debt (percent of GDP): 47.3 (2010), 44.0 (2011), 45.2 (2012), 44.1 (2013), 44.3 (2014), 42.8 (2015), 41.4 (2016), 40.2 (2017), 39.4 (2018). - External public debt (percent of GDP): 17.2 (2010), 15.6 (2011), 18.1 (2012), 18.9 (2013), 19.6 (2014), 20.8 (2015), 21.5 (2016), 22.0 (2017), 22.4 (2018). - Public investment (percent of GDP): 7.9 (2010), 8.1 (2011), 16.5 (2012), 11.2 (2013), 8.8 (2014), 16.3 (2015), 10.8 (2016), 10.2 (2017), 10.6 (2018). - Overall balance (cash basis, incl. grants and change in arrears, percent of GDP): -4.3 (2010), -3.5 (2011), -11.8 (2012), -9.1 (2013), -7.2 (2014), -10.8 (2015), -6.4 (2016), -6.3 (2017), -5.3 (2018). ### Data provision and statistical weaknesses - Data provision broadly adequate for surveillance but quality and timeliness weaknesses hamper analysis. - National accounts and balance of payments compiled on limited information; government finance statistics derived from weak accounting/reporting. - Monetary data reported by BCEAO with a two-month lag. - Participation in GDDS since November 2001; metadata last updated December 2004. - CPI basket revised in 2010; national CPI construction under way with first observations planned for January 2014 and publication after January 2015. - Government finance improvements: bridge table from TOFE (GFS86) to GFSM01 prepared; Table of Government Financial Operations for 2009-16 based on GFSM01 principles (Appendix V). ### Key short-term and medium-term risks (Risk Assessment Matrix) - Short Term (1 year): - Sharp decline in growth in regional partners — Likelihood: Low; Impact: Medium. - Social unrest — Likelihood: High; Impact: Medium. - Delays in fiscal adjustment — Likelihood: Medium; Impact: High. - Risks to financial sector stability — Likelihood: High; Impact: High. - Medium- to Long-Term (2 to 4 years): - Power supply shortfalls — Likelihood: High; Impact: High. - Weather shock: flooding or drought — Likelihood: Medium; Impact: Medium. - Protracted slower European growth — Likelihood: High; Impact: Low. - Lower-than-anticipated emerging market growth — Likelihood: Medium; Impact: Medium. - Policy slippages around local (2014) and presidential (2015) elections — Likelihood: Medium; Impact: Medium. - Resistance to reforms from entrenched interests — Likelihood: High; Impact: High. *Sources: Togolese authorities and IMF staff estimates and projections.* ### 1. Main Recommendations from the 2011 Article IV Consultations ________________________________6 ### 1. Main Recommendations from the 2011 Article IV Consultations ________________________________6 ### Recent developments and short-term performance - The ruling party won legislative elections in July 2013 and secured two-thirds of the seats; the prime minister and most of the cabinet were reappointed, giving authorities a strong mandate to pursue growth-oriented policies. - Real economic growth accelerated from almost 4½ in 2010-11 to 5.9 percent in 2012, driven by agriculture, mining, construction, and public works. - GDP per capita declined by about 17 percent during 1997-2002; recovery that started in 2009 has not yet fully made up lost ground. - Poverty remains high, at about 60 percent of the population. - Income distribution worsened during 2006-11; the Gini coefficient rose from 0.361 to 0.393 during this period. - Inflation eased to an average 2.6 percent in 2012 due to rising staple food production and declining import prices. - The current account deficit widened to 11.8 percent of GDP in 2011-12, primarily due to higher imports of fuels and goods for public and private investment. - Economic growth expected to soften to around 5½ in 2013, affected by irregular rains, lackluster transit trade, and political uncertainties. - The current account deficit projected to improve slightly to 10.6 percent of GDP in 2013 because of lower global import prices. ### Medium-term outlook and key projections - Growth is expected to rebound to about 6 percent a year in the medium term, supported by regional growth and trade, more public and private investment in infrastructure, FDI in mining, and earlier reforms in cash crop markets. - The primary domestic fiscal balance is projected to become positive to anchor reductions in the debt burden. - The overall fiscal balance is projected to be gradually reduced to limit new debt accumulation. - The current account deficit is projected to remain high, narrowing only to 9.2 percent of GDP by 2016, mainly reflecting imports of investment and intermediate goods. - Total public debt estimated at around 45 percent of GDP at end-2012 (includes arrears and state-owned enterprises external debt). ### Main risks to the outlook - Domestic risks predominate: local and presidential elections in 2014 and 2015 could generate policy slippages; vested interests may resist reforms; limited capacity may slow policy implementation. - Emerging financial sector weaknesses, if not promptly addressed, could undermine macroeconomic stability. - Continued policy inaction in the energy sector could negatively affect growth and the budget. - Ill-conceived public-private partnerships could entail fiscal liabilities. - External vulnerability: given openness, the economy is vulnerable to shocks in export demand from significant slowdowns among trading partners. ### Policy discussions and priorities - Discussions focused on restoring fiscal discipline and moving to stronger, more sustainable, and inclusive growth, and on strengthening the financial sector and external stability. - Broad agreement between authorities and staff on issues and policies, with occasional divergence on pace and feasibility. - Authorities requested IMF support in implementing their economic reform program; a staff-level agreement was reached in early September 2013 (presentation to the IMF Executive Board delayed to allow completion of agreed prior actions). ### Fiscal developments and policy recommendations - Fiscal deficits and public debt increased in 2011 and 2012. The overall fiscal deficit more than doubled to 7.2 percent of GDP during 2012, largely due to an expansionary budget in the context of planned elections. - Financing from privatization and budget support fell short of budget plans; fuel subsidies rose to 2.1 percent of GDP, and unpaid bills accumulated at end-2012. - The 2013 approved budget was also expansionary; the adopted budget implied an overall balance deficit of almost 11 percent of GDP, driven by unrealistically high capital spending, allocations for elections, higher wages, and optimistic privatization proceeds. - Budget execution pressures: bank privatization did not yield projected revenue; fuel subsidies over the first quarter absorbed almost the entire allocation for the year; anticipated external financing did not materialize; additional outlays for election operations increased cash flow pressures by mid-2013. - Authorities adopted a revised 2013 budget (in consultation with IMF staff) that is more realistic: lower capital expenditures better aligned with execution capacity, higher allocations for fuel subsidies, and more realistic privatization revenue estimates. - Staff advised a phased increase in fuel prices (except kerosene) by 5 percent in September 2013, and in January 2014, with accompanying targeted measures to protect the most vulnerable; authorities preferred temporary income tax exemptions for transporters and exemptions on imports of selected essential foodstuffs, and plan to expand the school-feeding program. - Staff proposed fiscal policy anchored by an improvement of the domestic primary fiscal balance; a return to positive territory would create fiscal space for infrastructure and social policies while reducing the debt burden. - Authorities’ fiscal objectives: - Reduce the overall deficit to around 5¼ percent of GDP in 2014 and below 4 percent by 2016. - Return to a balanced primary domestic balance in 2014 and to a positive primary domestic balance slightly below 2 percent by 2016. - Frontload fiscal adjustment: the deficit reduction in 2013 accounts for one-third of the projected adjustment during 2013-16. - Fiscal governance and transparency notes: - Authorities report tax revenue inclusive of tax exemptions; staff’s presentation excludes such tax exemptions from revenue and records tax exemptions as a memorandum item. - Strengthened medium-term debt strategy and regular debt sustainability analysis updates were recommended. ### Financial sector, structural reforms, and public financial management - Many staff recommendations from the 2011 Article IV consultation remain relevant: - Adopt and implement the financial sector development strategy and speed up bank privatization. - Strengthen public financial management. - Improve debt management capacity and adopt a financing strategy relying on highly concessional loans and grants. - Reform the phosphate, telecommunication and energy sectors, where state-owned enterprises dominate; the World Bank plays a key support role in this area. - Improve the business environment and boost investment in physical and human capital. - Implementation status and challenges: - Revenue and public financial management reforms slowed and debt management weakened after HIPC completion in December 2010. - Financial sector strategy approved but implementation limited; only two out of four banks have been privatized and further actions are needed to address vulnerabilities in other banks. - Reforms in mining, telecommunications, and energy have progressed slowly under resistance from vested interests. - Since mid-2011, some steps taken: Togo became a full member of the Extractive Industry Transparency Initiative (EITI); authorities are seeking a consortium to develop new deposits of carbonated phosphates; a new Telecommunication Act was approved to open the sector to more competition; a new Managing Director of the state-owned electricity distribution company was selected in December 2011 following a competitive process. - The Ministry of Economy and Finance approved a public financial management (PFM) reform plan and its implementation has started to bear fruits. *Sources: Togolese authorities and IMF staff estimates and projections.* ### 13. The projected fiscal adjustment is predicated on the implemention of the authorities’ ### _cr1438 - 13. The projected fiscal adjustment is predicated on the implemention of the authorities’ ### Fiscal adjustment, sequencing, and financing risks - Projected fiscal adjustment is predicated on the implemention of the authorities’ policy objectives. - Reduction in current spending reflects objectives to cut back on oil subsidies during 2013-2015 and to limit the nominal growth of the wage bill to somewhat below the nominal growth of GDP in the medium-term. - Ongoing reforms in revenue administration are expected to usher a continuation of improvements in revenue collection. - Deficit levels for 2014 and beyond could still raise financing challenges. - Possible adoption of a Fund-supported program could help catalyze development partners’ budget support and, together with recourse to the regional financial market, would help close projected financing gaps. - Staff emphasized that reconciling fiscal sustainability with developmental and social objectives will require significant improvements in public expenditure planning and efficiency, and continued efforts to enhance revenue collection. ### Wages, unions, and public employment policy - Authorities face considerable pressures from unions on wage increases but reiterated intention to resist the pressure except for portions that can be accommodated within the current medium-term spending envelope. - Unions demanded wage, benefits, and employment increases at the beginning of the school year. - Staff recommended moving away from ad-hoc yearly negotiations and adopting a comprehensive strategy of public sector employment and remuneration consistent with the authorities’ medium-term fiscal framework and sector strategies, particularly for education and health. - Staff cautioned that if wage demands were accommodated beyond current allocations, the appropriate first-best policy adjustment would be to lower other budget expenditures. ### Fuel subsidies: pace of removal and communication - Authorities concurred that progressive elimination of fuel subsidies would be a key driver of fiscal adjustment but expressed concern that the current political and social situation is too tense for drastic changes. - Example cited: Ghana recently eliminated fuel subsidies by increasing prices and reestablishing an automatic adjustment mechanism aligning future changes with fluctuations in world oil prices and exchange rates. - Togolese authorities expect to be in position to reduce fuel subsidies by about 1 percent of GDP in 2014 after reaching an agreement with unions on pay packages. - Staff underscored importance of strategic public information on fiscal cost, regressive impact, and opportunity cost in terms of foregone social and infrastructure spending. ### Investment spending, PPPs, and public financial management (PFM) - Divergence of views on pace of scaling up investment spending: authorities argue underinvestment from the 1990s crisis requires significant scaling up; staff emphasized prioritizing and effectively executing capital expenditures through enhanced planning and project implementation capacity. - Recommendation: create more fiscal space and progressively increase capital spending in line with improvements in planning and execution capacity. - Staff noted guarantees on scheduled amortization of bank pre-financing of government contractors have reduced transparency and tied down large portions of allocations for investment spending in future years. - PFM reform execution is experiencing delays due to limited capacity and resistance from administrative units; difficult in a fragile-country low capacity environment to reach consensus and align units. - Measures to reinvigorate PFM agenda include: - first steps towards establishing a single treasury account; - a more effective cash projection and management system at the treasury; - better prioritization, execution and monitoring of investment projects. ### Revenue mobilization and institutional reform - Authorities intend to raise tax revenue further. - Short-term gains: increased reliance on risk-based assessment of imports and tighter monitoring of entitlements to exemptions. - Medium-term strategy hinges on successful launch of the revenue authority (Office Togolais des Recettes—OTR). - OTR expected to deliver efficiency gains by hiring new and more qualified personnel, shedding excess staff, and exploiting synergies among domestic- and import-related tax functions under a common strategic direction. - Staff noted importance of continuing on-going and programmed reforms in tax and customs administrations notwithstanding OTR creation. ### Debt sustainability, trajectory, and policy recommendations - Debt sustainability analysis (DSA) shows Togo remains at moderate risk of debt distress (Supplement II). - Considerable debt accumulation over the past two years as fiscal situation deteriorated; increase in external debt mainly driven by new loans from multilaterals and non-Paris Club bilateral creditors. - In light of projected increase in public investments, Togo’s external public debt is expected to increase in the near future, accumulating to around 22 percent of GDP by 2016. - Under baseline assumptions (more favorable than historical trends), overall debt indicators are projected to remain below relevant thresholds in the 20-year period. - Need to closely monitor public debt trajectory, with increased focus on debt contracted from domestic sources given low debt management capacity. - Strengthening Public Debt Directorate capacity (human and physical resources) recommended. - Annual debt strategy should be strengthened into a medium-term strategy aligned with the budget process and the medium-term expenditure framework. - Staff view: Togo should continue to borrow on concessional terms until debt management capacity has considerably improved, and closely monitor domestic debt dynamics. - Key numeric debt/contextual points: - Total public debt at end-2012: around 45 percent of GDP. - Comparator averages: fragile states that benefited from HIPC — 39.1 percent of GDP; low-income countries — 34.4 percent of GDP. - Authorities exploring financing packages with a fully concessional grant element of 35 percent or higher consistent with the projected DSA. ### Growth, inclusiveness, and poverty dynamics - Growth acceleration reduced poverty incidence by about 3 percentage point to about 60 percent during 2006-2011, but income distribution worsened as real consumption in the lowest four deciles declined. - Poverty is highest in rural areas and increases with distance from coastal areas; poverty in rural areas increased during 2006-2011. - Internal migration contributed to about a third of the total reduction in poverty. - Policy implications: focus on enhancing productivity in rural areas and market access, targeted cash transfers, urban planning, improving urban and peri-urban transportation, and expansion of primary education and health services. - New PRSP (SCAPE 2013-2017) adopted August 2013 with five strategic pillars: (i) developing sectors with high growth potential; (ii) strengthening economic infrastructure; (iii) developing human capital, social protection, and employment; (iv) strengthening governance; (v) promoting participatory, inclusive, and durable development. ### Infrastructure bottlenecks: transport, telecoms, and power - Authorities focused on roads and transport infrastructure given Togo’s role as a regional hub; airport and port capacity will double by end-2014. - Togo Invest Corporation (TIC) established with capital of CFAF 20 billion (0.9 percent of GDP) to launch major rail and transportation projects along the North-South axis, mostly via PPPs. - Staff cautioned high fiscal risks associated with PPPs, economic risks from long gestation periods, and administrative risks due to unclear sharing of policy and operational responsibilities between ministries and TIC. - Telecoms: - Cost of telecom services among the highest in the world; access limited and marred by frequent interruptions. - Recommendation: accelerate implementation of telecom strategy and liberalize sector to allow more competition. - Power sector: - Electricity sector faces a structural financial deficit and is constraining economic growth. - About 85 percent of Togo’s power is imported. - On current investment plans, shortfalls likely to become larger and a major constraint to growth. - Problems: high input costs compared to tariffs, operational inefficiencies, over-reliance on imports, lack of adequate strategic planning, accumulation of arrears to suppliers (mostly other electricity companies in neighboring countries). - Largest payment backlog toward the distribution company is due by public sector entities. - Staff recommended breaking cycle of arrears accumulation via public information campaigns and a sanctions policy allowing cut off of service to public sector entities; authorities preferred a verified repayment plan. - Importance of settling a portion of government arrears in 2014 and making more realistic budget allocations emphasized. - Gradual move to cost-recovery level tariffs in the medium term considered unavoidable to attract foreign investors, provided other issues are addressed concurrently. ### Business climate and competitiveness - Significant scope for improvement in the business climate. - Creation of a one-stop shop for business registration reduced time for registration to 24 hours. - Togo ranks 156th out of 185 countries in the 2013 Doing Business survey. - Reform priorities include protecting investors’ rights, enforcing contracts, and accessing financing. - A one-stop window for foreign trade has been contracted; when fully operational it is expected to facilitate flow and transit of goods and expedite customs and border controls. ### Social protection, employment, and inclusive growth strategies - Staff noted capital-intensive natural resource projects are unlikely to create many jobs; higher farm productivity and broader rural job opportunities more effective for poverty reduction. - Authorities’ strategy emphasizes creating opportunities for gainful self-employment and gradual expansion of the pilot school feeding program. - Staff suggested expanding conditional cash transfers and the school feeding program given geographical and sectoral profile of poverty; school feeding programs can improve rural economy linkages. - Authorities expressed concerns that cash-based social programs may be prone to abuse and create dependency. ### Financial sector developments and constraints - Financial deepening has increased since 2007: credit- and deposits-to-GDP ratios indicate significant improvements and more than a 100 bank branches have been opened. - Lack of wide access to credit remains a challenge; low level of savings is a major constraint on deposits. - Credit supply constrained by lack of competition among banks and concentration of banking activity in Lomé, limiting reach to rural areas. - Microfinance sector important where traditional banking services do not function efficiently but plagued by unregulated activity. - Payment collections and arrears: - Collection rate on private sector accounts: above 95 percent. - Collection on central government: 31 percent. - Collection on municipalities: 18 percent. - Overall arrears amount to 1.1 percent of GDP. *IMF staff report excerpt: Togo — fiscal policy, PFM, debt, growth, and sectoral bottlenecks.* ### 33. The microfinance sector has grown very rapidly. Between 2009 and 2012, deposits and ### The microfinance sector has grown very rapidly. Between 2009 and 2012, deposits and loans increased by 70 percent and 80 percent, respectively, and the number of clients increased from about 0.7 to 1.2 million. ### Microfinance sector: scale, role, and vulnerabilities - Deposits increased by 70 percent between 2009 and 2012. - Loans increased by 80 percent between 2009 and 2012. - Number of clients increased from about 0.7 to 1.2 million. - At end-2012, the microfinance’s share of deposits was 16 percent of the financial system. - The microfinance sector plays a critical role in financial inclusion, especially among the poor and the rural population, covering a large number of households. - Togo’s microfinance sector plays a relatively more important part in the domestic economy than those in neighboring countries, as evidenced by higher financial deepening indicators and relatively higher proportion of population covered by the sector. - Regulatory and supervisory weaknesses: - Prevalence of informal lending and institutional arrangements constrains effective supervision. - Proliferation of small financial entities operating without formal licenses or authorization; currently there exist over 60 such microfinance entities. - Supervisory infrastructure is ill-equipped to track and enforce licensing and close illegal units. - Need to rein in pyramid-type operations, which undermine financial and social sector stability. ### Banking system: aggregate stability and bank-level vulnerabilities - Aggregate indicators: - Non-performing loans (NPLs) have declined significantly over the past five years. - System-wide capital adequacy levels are strong. - Bank-level issues: - Substantial differences among banks exist; aggregate numbers hide weaknesses of individual banks. - Recent stress-tests suggest the system is strong on traditional liquidity and solvency metrics, but risks from highly concentrated loans and deposits’ short-term bias are important. - Rehabilitation and privatization: - Three major state-owned banks (BTCI, UTB and BIA-T) were recapitalized in 2008 through a securitization process. - These institutions received about US$200 million in new government securities in exchange for non-performing loans to be recovered by Société de Recouvrement du Togo (SRT). - Strengthening the recovery effort could result in important revenue for the government, but so far only limited amounts have been recovered. As time passes, the recovery rate on the portfolio diminishes, reducing its value as a government asset. - The bank privatization process led to the successful sale of two out of four banks; an attempt in early 2013 to privatize BTCI was unsuccessful. - Recommended bank-level actions: - Adopt resolution strategies for problem banks; take effective and swift corrective action for institutions facing financial difficulties. - Continue moving the financial sector toward greater private sector participation through larger stockholding and privatization of public banks. - Require banks to accumulate capital where needed, through dividend suspensions or new capital injections. ### Regulatory framework and supervision (WAEMU context) - Systemic weaknesses in bank supervision in the WAEMU region: - Banking supervision relies on a dual mandate between WAEMU supra-national authorities and national Ministries of Finance: WAEMU can recommend recapitalization or resolution but final decisions rest with national Ministries of Finance. - This structure can complicate decision-making and promote moral hazard. - WAEMU banking regulation is relatively lax compared to international standards: - Non-performing loans are required to be provisioned only after 180 days (international norms prescribe 90 days). - Banks in the WAEMU are allowed to operate below minimum capital requirements for extended periods before intervention. - Delays in policy implementation due to a complex regulatory framework, combined with ex ante relatively loose financial regulation, result in a financial system prone to systemic risks. - Authorities noted these issues should be addressed at a WAEMU-wide level. ### Strengthening microfinance supervision and institutional reforms - Enhance oversight and supervision of the micro-credit sector: - The microfinance supervisor—Cellule d’Appui et de Suivi des Institutions Mutualistes et de Coopératives d’Epargne et de Crédit (CAS-IMEC, a division of the MEF)—is grossly understaffed and needs significant institutional strengthening. - First steps: increase staffing and enhance training in modern risk-based financial sector supervision. - Close all unlicensed institutions and take measures to prevent the establishment and development of pyramid-type structures. - Medium-term: promote restructuring and consolidation of the microfinance sector. - Restructuring pension funds (CRT) to become financially sustainable over the medium term: - Importance of adopting one of the proposed options to eliminate the structural deficit of the public sector pension scheme (CRT) and to settle public sector arrears with both the CRT and the national social security fund (CNSS). - Options for improving the CRT’s financial situation include: - (i) raising the retirement age; - (ii) progressively raising the contribution rate; - (iii) transferring social assistance payments (which have nothing to do with pensions) to the state budget. ### External sector stability and competitiveness - External sector assessment highlights: - Export growth accelerated significantly over the past five years, but imports have grown even faster, mainly due to investment goods for infrastructure projects. - Togo has had structural current account deficits for nearly two decades. - Low savings relative to large investment needs imply continued deficits over the medium term, although they are expected to decline as new projects come on-stream. - Longer-run prospects are generally good for greater export growth given investment in mining-related activities and the large expansion of the port of Lomé. - Inward FDI is expected to increase due to improvements in infrastructure and the business climate. - Remittances have remained an important contributor to the balance of payments. - Real Effective Exchange Rate (REER) and reserves: - Staff assessment of the REER using three standard methods indicates it is broadly in line with economic fundamentals. - The REER has somewhat declined over the past three years, largely reflecting the depreciation of the euro, to which the CFA franc is pegged. - External reserves (pooled at the regional level) are ample, covering more than five months of imports. - Policy implications to reduce external vulnerabilities: - Implement prudent fiscal and borrowing policies. - Increase non-price competitiveness. - Authorities plan reforms including implementing the new investment code (with implementing decrees), adopting a new mining code in line with EITI transparency standards, and developing a modern code for property titles. ### Staff appraisal: growth, fiscal policy, debt management, and inclusion - Growth and outlook: - Growth has picked up over the past few years on the back of reforms initiated under the previous ECF-supported program. - The past five years have seen a reversal of declining per capita GDP levels of the prior 15 years. - Growth has generally been broad-based (agriculture, cement and clinker manufacturing, construction, and other services) but not inclusive. - The medium-term growth outlook is good; the challenge is to sustain momentum and make growth more inclusive. - Inflation would remain moderate. - Fiscal stance and debt: - Staff welcomes authorities’ determination to address emerging fiscal problems in 2013 to set Togo on a sustainable debt path. - Fiscal deficits and debt ratios have increased in recent years, reducing room for fiscal maneuver and raising sustainability issues. - Restoring fiscal space and keeping low the risk of debt distress require lower deficits. - Debt sustainability considerations call for strengthening debt management and further reducing the fiscal deficit in the medium term. - Greater revenue mobilization is needed to facilitate high priority spending on infrastructure, health, education, and agriculture; the proposed OTR would help reinvigorate revenue mobilization. - Operational reforms in revenue administration should be deepened. - Need for a determined effort to improve debt management: careful monitoring of existing debt and rigorous implementation of a medium-term debt strategy; seek only new concessional external loans until there is decisive improvement in debt management capacity. - PPPs can unlock financing for infrastructure but require a robust legal framework and improved institutional capacity to minimize contingent liabilities. - Public spending, subsidies, and social protection: - Reducing the fiscal deficit while addressing social and development needs requires improving public spending efficiency. - Staff welcomes authorities’ intention to phase out costly and poorly-targeted fuel price subsidies and to broaden and improve social safety nets. - Implementation will require strong political leadership, a public information campaign, and good administrative capacity. - Address pressures on the wage bill and public sector size by defining a structural wage and employment reform. - For the poorest segments, progressively extending the pilot cash transfer and school feeding programs will begin to reduce inter-generational transmission of poverty. - Inclusion and regional disparities: - Despite pickup in growth, overall poverty incidence has declined only slowly; significant regional differences exist, with poverty in several rural regions increasing. - The poorest 40 percent of the population saw incomes decline between 2006 and 2011. - Fiscal space is needed to support policies that raise incomes of the poor (rural feeder roads, mini dams for irrigation, off-grid energy alternatives). - Financial sector summary: - The overall Togolese financial system has developed significantly over the past decade and is sound, but some individual banks have shown fragility. - Financial depth has increased significantly over the past decade and Togo compares favorably to its WAEMU peers. - The microfinance sector has greater reach in Togo than in other WAEMU countries. - Actions needed: enhance weak banks (require capital accumulation), and significantly enhance supervision, monitoring and control of the microfinance sector to address structural weaknesses and unregulated activity. - Risks: - Main domestic risks: delays in reforming the energy sector; difficulties modernizing state functions and reforming state owned enterprises—these would affect growth and fiscal sustainability. - External vulnerabilities are generally manageable given diversified export destinations, but increasing non-price competitiveness is important to position Togo as a major transport and logistics hub on the West African coast. *IMF staff report excerpt.* ### 48. It is proposed that the next Article IV consultation take place on the standard 12– ### It is proposed that the next Article IV consultation take place on the standard 12–month cycle. ### Macro outlook and real sector - Real GDP (percentage growth, unless otherwise indicated): 4.1 (2010), 4.8 (2011), 5.9 (2012), 5.6 (2013), 6.0 (2014), 6.0 (2015), 6.1 (2016), 5.8 (2017), 5.5 (2018). - Real GDP per capita (percentage growth): 1.9 (2010), 2.6 (2011), 3.7 (2012), 3.4 (2013), 3.8 (2014), 3.8 (2015), 3.9 (2016), 3.6 (2017), 3.3 (2018). - GDP deflator (percentage change): 1.1 (2010), 7.6 (2011), 6.5 (2012), 2.0 (2013), 2.4 (2014), 2.5 (2015), 2.5 (2016), 2.5 (2017), 2.5 (2018). - Consumer price index (average, percentage change): 1.4 (2010), 3.6 (2011), 2.6 (2012), 2.2 (2013), 2.4 (2014), 2.5 (2015), 2.5 (2016), 2.5 (2017), 2.5 (2018). - GDP (CFAF billions): 1,571 (2010), 1,772 (2011), 1,999 (2012), 2,154 (2013), 2,337 (2014), 2,539 (2015), 2,762 (2016), 2,995 (2017), 3,239 (2018). - Terms of trade (deterioration = –): -2.2 (2010), -2.1 (2011), -0.2 (2012), 0.3 (2013), 0.4 (2014), 0.5 (2015), 0.4 (2016), 0.4 (2017), 0.3 (2018). ### External sector and balance of payments - Current account balance (percent of GDP): -6.3 (2010), -9.1 (2011), -11.8 (2012), -10.6 (2013), -10.9 (2014), -9.9 (2015), -9.0 (2016), -8.4 (2017), -8.4 (2018). - Trade balance (billions of CFA francs): -225.0 (2010), -273.7 (2011), -313.1 (2012), -348.0 (2013), -380.0 (2014), -387.7 (2015), -395.5 (2016), -409.1 (2017), -403.7 (2018). - Exports of goods and services (billions of CFA francs): 483.5 (2010), 553.6 (2011), 628.9 (2012), 677.9 (2013), 731.1 (2014), 797.4 (2015), 864.5 (2016), 936.8 (2017), 1,005.5 (2018). - Cotton (billions CFAF): 8.9 (2010), 23.6 (2011), 31.0 (2012), 41.6 (2013), 45.3 (2014), 49.6 (2015), 59.3 (2016), 68.9 (2017), 74.1 (2018). - Phosphates (billions CFAF): 34.0 (2010), 46.9 (2011), 70.6 (2012), 71.3 (2013), 80.0 (2014), 88.1 (2015), 98.4 (2016), 110.0 (2017), 119.3 (2018). - Cement & clinker (billions CFAF): 73.4 (2010), 81.4 (2011), 92.9 (2012), 103.3 (2013), 116.1 (2014), 140.4 (2015), 154.5 (2016), 169.9 (2017), 181.8 (2018). - Reexports (billions CFAF): 112.5 (2010), 139.0 (2011), 158.4 (2012), 167.9 (2013), 178.0 (2014), 188.7 (2015), 200.0 (2016), 212.0 (2017), 229.2 (2018). - Imports, f.o.b. (billions CFAF): -708.5 (2010), -869.0 (2011), -989.5 (2012), -1,093.1 (2013), -1,200.0 (2014), -1,298.3 (2015), -1,380.1 (2016), -1,452.0 (2017), -1,500.9 (2018). - Imports for domestic use (billions CFAF): -651.4 (2010), -827.3 (2011), -942.0 (2012), -1,025.9 (2013), -1,111.0 (2014), -1,185.1 (2015), -1,260.1 (2016), -1,346.0 (2017), -1,409.2 (2018). - Petroleum products (billions CFAF): -57.8 (2010), -109.9 (2011), -125.3 (2012), -140.6 (2013), -158.9 (2014), -176.1 (2015), -181.8 (2016), -192.4 (2017), -195.9 (2018). - Services (net, billions CFAF): -38.5 (2010), -47.1 (2011), -74.2 (2012), -73.3 (2013), -76.2 (2014), -73.4 (2015), -65.5 (2016), -64.1 (2017), -66.0 (2018). - Income (net, billions CFAF): -11.6 (2010), -11.4 (2011), -13.6 (2012), -9.3 (2013), -12.2 (2014), -13.0 (2015), -16.6 (2016), -13.8 (2017), -20.8 (2018). - Current transfers (net, billions CFAF): 176.2 (2010), 171.3 (2011), 165.7 (2012), 202.3 (2013), 213.6 (2014), 222.3 (2015), 230.3 (2016), 235.0 (2017), 218.5 (2018). - Remittances (billions CFAF): 126.4 (2010), 126.9 (2011), 126.9 (2012), 128.2 (2013), 129.5 (2014), 130.8 (2015), 132.1 (2016), 136.0 (2017), 121.3 (2018). - Capital and financial account (billions CFAF): 77.4 (2010), 124.1 (2011), 73.8 (2012), 175.9 (2013), 196.3 (2014), 198.1 (2015), 216.8 (2016), 235.4 (2017), 258.9 (2018). - Direct investment (billions CFAF): 24.1 (2010), 30.7 (2011), 31.9 (2012), 37.0 (2013), 58.4 (2014), 63.5 (2015), 69.1 (2016), 74.9 (2017), 81.0 (2018). - Portfolio investment, incl. bonds (billions CFAF): -3.8 (2010), 18.1 (2011), 19.6 (2012), 21.9 (2013), 26.9 (2014), 31.4 (2015), 33.7 (2016), 33.7 (2017), 25.0 (2018). - Other investment (billions CFAF): 75.0 (2010), 52.5 (2011), 19.7 (2012), 106.4 (2013), 111.0 (2014), 103.2 (2015), 114.0 (2016), 121.0 (2017), 153.0 (2018). - Overall balance (billions CFAF): -46.4 (2010), -92.8 (2011), -157.8 (2012), -52.3 (2013), -58.4 (2014), -53.7 (2015), -30.7 (2016), -16.6 (2017), -13.0 (2018). - Identified financing (billions CFAF) and components (selected): - IMF financing: 11.0 (2010), 17.3 (2011), 0.0 (2012 onward in table). - Donor financing (budget support/other identified): 30.1 (2010), 28.9 (2011), 16.3 (2012), 17.9 (2013), 12.8 (2014), 0.0 (2015 onward in identified financing). - Financing gap and residuals (billions CFAF): - Financing gap: 51.8 (2010), 58.0 (2011), -3.6 (2012), 17.9 (2013), 12.8 (2014), 34.1 (2015), 24.2 (2016), 15.3 (2017), 4.5 (2018). - Residual financing (unidentified): 10.3 (2010), 11.9 (2011), -19.6 (2012), 0.0 (2013), 34.1 (2014), 24.2 (2015), 15.3 (2016), 4.5 (2017), 4.5 (2018). ### Public finances and government operations - Total revenue and grants (percent of GDP): 20.4 (2010), 20.4 (2011), 19.8 (2012), 22.7 (2013), 23.0 (2014), 23.5 (2015), 23.7 (2016), 23.5 (2017), 23.3 (2018). - Total revenue (percent of GDP): 18.4 (2010), 17.3 (2011), 18.2 (2012), 19.8 (2013), 19.9 (2014), 19.9 (2015), 20.1 (2016), 20.2 (2017), 20.3 (2018). - Tax revenue (percent of GDP): 15.2 (2010), 15.9 (2011), 17.3 (2012), 17.7 (2013), 16.0 (2014), 16.9 (2015), 17.0 (2016), 17.1 (2017), 17.8 (2018). - Grants (percent of GDP): 2.0 (2010), 3.1 (2011), 4.1 (2012), 2.2 (2013), 1.6 (2014), 3.8 (2015), 3.8 (2016), 3.4 (2017), 3.6 (2018). - Total expenditure and net lending (percent of GDP): 22.5 (2010), 23.8 (2011), 26.4 (2012), 28.1 (2013), 27.6 (2014), 27.1 (2015), 26.5 (2016), 25.7 (2017), 25.1 (2018). - Domestic primary expenditures (percent of GDP): 16.7 (2010), 18.9 (2011), 20.3 (2012), 20.0 (2013), 19.4 (2014), 18.9 (2015), 18.3 (2016), 18.0 (2017), 17.9 (2018). - Public investment (percent of GDP): 7.9 (2010), 8.1 (2011), 16.5 (2012), 11.2 (2013), 8.8 (2014), 16.3 (2015), 10.8 (2016), 10.2 (2017), 10.6 (2018). - Foreign financed public investment (percent of GDP): 4.9 (2010), 4.3 (2011), 10.4 (2012), 7.4 (2013), 5.2 (2014), 11.5 (2015), 7.1 (2016), 6.7 (2017), 6.0 (2018). - Domestically financed (percent of GDP): 2.9 (2010), 3.8 (2011), 6.1 (2012), 3.8 (2013), 3.5 (2014), 4.8 (2015), 3.7 (2016), 3.5 (2017), 3.4 (2018). - Overall balance (payment order basis, percent of GDP): - Including grants: -2.1 (2010), -3.4 (2011), -10.8 (2012), -8.3 (2013), -6.6 (2014), -9.7 (2015), -5.3 (2016), -5.4 (2017), -4.6 (2018). - Excluding grants: -4.2 (2010), -6.5 (2011), -14.9 (2012), -10.5 (2013), -8.2 (2014), -13.5 (2015), -9.1 (2016), -8.9 (2017), -8.2 (2018). - Overall balance (cash basis, incl. grants and change in arrears): -4.3 (2010), -3.5 (2011), -11.8 (2012), -9.1 (2013), -7.2 (2014), -10.8 (2015), -6.4 (2016), -6.3 (2017), -5.3 (2018). - Change in arrears (percent of GDP): -2.2 (2010), -0.1 (2011), -1.0 (2012), -0.7 (2013), -0.6 (2014), -1.1 (2015), -1.1 (2016), -0.9 (2017), -0.7 (2018). ### Public debt - External public debt (percent of GDP): 17.2 (2010), 15.6 (2011), 18.1 (2012), 18.9 (2013), 19.6 (2014), 20.8 (2015), 21.5 (2016), 22.0 (2017), 22.4 (2018). (Includes arrears and state-owned enterprises external debt.) - External public debt service (percent of exports): 4.7 (2010), 2.0 (2011), 2.8 (2012), 3.5 (2013), 3.9 (2014), 3.8 (2015), 4.0 (2016), 3.9 (2017), 3.6 (2018). - Total public debt (percent of GDP): 47.3 (2010), 44.0 (2011), 45.2 (2012), 44.1 (2013), 44.3 (2014), 42.8 (2015), 41.4 (2016), 40.2 (2017), 39.4 (2018). ### Monetary conditions and financial sector - Money supply (M2, billions CFAF): 717.0 (2010), 831.3 (2011), 905.6 (2012), 1,049.6 (2013), 1,149.3 (2014), 1,254.9 (2015), 1,407.4 (2016), 1,529.4 (2017), 1,663.4 (2018). - M2 growth (annual change, percent of beginning-of-period broad money): 16.3 (2010), 15.9 (2011), 8.9 (2012), 15.9 (2013), 9.5 (2014), 9.2 (2015), 12.2 (2016), 8.7 (2017), 8.8 (2018). - Net foreign assets (annual change, percent of beginning-of-period broad money): 3.0 (2010), 4.4 (2011), -2.1 (2012), -3.1 (2013), -2.4 (2014), 1.7 (2015), 2.5 (2016), 2.7 (2017), -0.3 (2018). - Credit to nongovernment sector (annual change, percent of beginning-of-period broad money): 10.3 (2010), 20.5 (2011), 11.5 (2012), 10.0 (2013), 6.6 (2014), 6.6 (2015), 8.0 (2016), 6.7 (2017), 6.7 (2018). - Credit to government (net, annual change as percent of beginning-of-period broad money): 4.3 (2010), -5.6 (2011), 3.7 (2012), 2.0 (2013), 0.7 (2014), 0.7 (2015), 0.5 (2016), 0.6 (2017), 1.2 (2018). - Financial Soundness Indicators (percent, end of period, selected): - Regulatory Capital / Risk-weighted Assets: 12.3 (2009), 11.9 (2010), 11.7 (2011), 11.4 (2012), 11.8 (June 2013). - NPLs / Gross Loans: 14.6 (2009), 13.9 (2010), 10.9 (2011), 11.4 (2012), 13.6 (June 2013). - Return on Assets: n.a. (2009), 1.5 (2010), 2.0 (2011), 1.6 (2012), 2.0 (June 2013). - Liquid Assets / Total Deposits: 36.6 (2009), 42.6 (2010), 46.4 (2011), 65.7 (2012), 62.2 (June 2013). ### Key risks (Risk Assessment Matrix) Short Term (1 year) - Sharp decline in growth in Togo’s regional partners - Likelihood: Low; Expected impact on economy: Medium. - Social unrest - Likelihood: High; Expected impact on economy: Medium. - Delays in fiscal adjustment - Likelihood: Medium; Expected impact on economy: High. - Risks to financial sector stability (poor management of some public sector banks; microcredit supervision weaknesses) - Likelihood: High; Expected impact on economy: High. Medium- to Long-Term (2 to 4 years) - Power supply shortfalls - Likelihood: High; Expected impact on economy: High. - Weather shock: flooding or drought - Likelihood: Medium; Expected impact on economy: Medium. - Protracted period of slower European growth - Likelihood: High; Expected impact on economy: Low. - Lower-than-anticipated emerging market growth potential - Likelihood: Medium; Expected impact on economy: Medium. - Policy slippages in connection with local (2014) and presidential (2015) elections - Likelihood: Medium; Expected impact on economy: Medium. - Resistance to reforms from entrenched interests affecting mining, infrastructure investment and business environment reform - Likelihood: High; Expected impact on economy: High. ### Memoranda and other indicators - Exports of goods and services (percent of GDP): 40.2 (2010), 40.7 (2011), 39.6 (2012), 39.5 (2013), 39.2 (2014), 39.4 (2015), 39.4 (2016), 39.5 (2017), 39.2 (2018). - Imports of goods and services (percent of GDP): -57.3 (2010), -61.4 (2011), -61.1 (2012), -62.2 (2013), -62.5 (2014), -62.0 (2015), -60.4 (2016), -58.8 (2017), -56.5 (2018). - Gross international reserves (imputed in billions of USD): 0.7 (2010), 0.8 (2011), 0.4 (2012), 0.4 (2013), 0.4 (2014), 0.5 (2015), 0.5 (2016), 0.5 (2017), 0.6 (2018). - Gross international reserves (as a percentage of M2): 49.2 (2010), 47.8 (2011), 24.2 (2012), 21.0 (2013), 18.2 (2014), 17.6 (2015), 16.8 (2016), 16.7 (2017), 16.3 (2018). - Memorandum on exports/imports including CEB: Aggregate import and export figures now include separately the imports and exports from the bi-national electricity generating company CEB. *Source: Togolese authorities and IMF staff estimates and projections.* ### Appendix II. Financial Sector Profile ### Appendix II. Financial Sector Profile ### A. Banking System — depth and stability - Financial depth increased: the deposit-to-GDP ratio has more than doubled since 2000 to 38 percent; for WAEMU the same ratio stands at 25 percent. - Gross NPL ratio appears stable near 11 percent. - Loan portfolio concentration: - Over 70 percent of loans flow to commerce, manufacturing and transportation. - Loans allocated to the five largest enterprises account for over 70 percent of total capital. - Market concentration and competition: - The four largest banks account for over 60 percent of total assets, total deposits and total loans in 2012. - The ratio of non-interest income to total income was 41 percent in 2011 (declining since 2004), indicating reliance on commissions and fees. - Thin branch network outside Lomé limits competition and increases transportation costs for customers. - Privatization and past restructuring: - Three major state-owned banks (BTCI, UTB and BIA-T) were recapitalized through securitization; one private bank (Ecobank Togo) underwent restructuring. - Bad loans were removed in return for bonds eligible for BCEAO refinancing; an asset recovery company was established to recover bad loans. - Recapitalization had a heavy budgetary impact: CFAF 88.1 billion, 6.2 percent of GDP. - Only two banks—BTD and BIA-T—were eventually privatized. Note on prudential measurement: - Abiding by Basel I standards prevents use of proper risk-based approaches (sovereign debt given zero risk weighting; claims on financial institutions given a 20 percent risk weight), which may overestimate solvency ratios for banks active in government securities. ### B. Risk assessment and stress testing - Stress-test headline result: in the event of the default of the largest borrower in the system, the capital adequacy ratio (CAR) falls 70 percent for banks of all sizes. - Medium and large banks show the greatest insolvency risk (declines in CAR relative to baseline). - Smallest banks are at greatest risk of a run under simulated liquidity shocks. - Sectoral concentration stress: - Stagnation in commerce, manufacturing or transportation would primarily put medium and large banks at risk. - These first-order effects are likely to propagate to other sectors and feed back to the entire financial system, including smaller banks. - IMF (2013) evidence: at the WAEMU level, concentration of lending represents one of the main risks in the financial system. ### C. Microfinance sector — growth, weaknesses, supervision - Rapid growth (2008–2012): - Deposits increased by 77 percent. - Loans increased by 80 percent. - At end 2012: savings in the sector stood at CFAF 116 billion (16 percent of the financial system deposits); credit was CFAF 103 billion (approximately 14 percent of overall financial sector credit). - Crisis episodes and NPLs: - In July 2010, one major institution, IDH, was put under temporary receivership after being declared bankrupt; its resolution has made limited progress. - NPLs grew from 3.2 percent in 2011 to 5 percent in 2012. - Supervision capacity gaps: - Two supervisory institutions: CASIMEC (within the Ministry of Finance) and WAEMU Banking Commission. - Large networks are supervised by the WAEMU Banking Commission; smaller operations by CASIMEC. - Significant capacity and technical issues: the supervisory infrastructure lacks the technical means to track licensing rules and to supervise many small decentralized entities. - There are currently sixty-three illicit microfinance entities; a strategy to incorporate or close them is outstanding. - The Société de Recouvrement du Togo (SRT) became operational only in early 2013, but its operational strategy is not yet approved and it has recovered a limited volume of assets. - A new pyramid scheme emerged recently, with slow response in closing it down. ### D. Policy advice — short-run and medium-term priorities - Short-run priorities: - Favor financial sector consolidation over broadening and deepening. - Tighten multilateral surveillance through the Banking Commission and other financial sector supervisors and harmonize coordination with national licensing authorities. - Rationale: an adequate quantity of banking services exists for Togo’s small formal economy, but quality and responsiveness to development needs are lacking; weak supervision, aggressive expansion by new Pan-African banks, and microfinance conditions increase vulnerability. - Regional/banking resolution policies: - Revamp the bank resolution framework via greater executive powers for the Banking Commission. - Ensure more effective recapitalization and bankruptcy proceedings to prevent contagion. - Specific policies should include: - Strengthening capacity and means of microfinance supervision to execute mandates and impose decisions. - Reducing the backlog of microfinance licensing, consolidating non-viable entities, closing illegitimate ones, and impeding re-emergence of pyramidal schemes. - Developing financial tools to assess and package risks, and broadening the basis of activity. - Medium-term objectives to increase financial depth while preserving stability and profitability: - Legal framework reforms to carefully design guarantees, property rights, and a viable insurance market to ease credit risk and collateral constraints. - Promote financial education, outreach, and greater awareness of financial services, especially in rural areas. - Reduce asymmetric information via a functional credit registration system. - Leverage existing modern technologies (including mobile phone-based) for payments, supported by appropriate regulatory infrastructure. - Improve business climate by increasing enforceability of contracts and ensuring more effective and consistent regulatory compliance. *Source: Appendix II. Financial Sector Profile, IMF staff report content provided in the supplied PDF.* ### 10. Rising inequality and poverty patterns suggest different policies for different wealth ### 10. Rising inequality and poverty patterns suggest different policies for different wealth groups ### Policy recommendations for poor households and agricultural development - Poor households, largely found in rural areas, would benefit from policies that raise agricultural productivity and lower barriers to participate in markets. - With urban food markets set to continue to grow, opportunities for farmers to sell their surplus staples would increase. - Recommended areas for policy attention: - Feeder roads and local transportation. - Increased agricultural extension. - Improved price incentives (e.g., passing on to farmers a greater proportion of international agricultural commodity prices as has been done for cotton). - Better storage facilities. - Provision of agricultural inputs in an efficient and cost effective manner (World Bank, 2013a). ### Social safety nets and food insecurity - Social safety nets targeted towards the poorest would help alleviate the high and seasonal levels of food insecurity. - Cash transfers and school feeding programs, especially if they are conditional, are typically inexpensive fiscally and quite effective socially (Arze del Granado and Adenauer, 2011). - The strong geographical and seasonal connotation of food insecurity provides an opportunity to implement geographically targeted and seasonal income support programs. - The current cash transfer and school feeding programs, currently implemented on a pilot basis, have the potential to provide income relief to the poorest, and create forward and backward linkages within the rural economy. ### Migration, urban planning, and human capital - Although migration brings the risk of urban gridlock and inefficiency, if managed well, it could contribute to higher total factor productivity and incomes. - Urban planning should take a more prominent role in the authorities’ poverty reduction strategy and emphasize public urban and peri-urban transportation in a context of an economically vibrant capital region. - Policies that build human capital across the nation should be emphasized: - Universal access to quality education. - Nutrition policies. - Access to health care. - These measures enhance the capacity of (potential) migrants. ### Secondary towns, the informal sector, and regulatory simplification - Two characteristics of developments in SSA relevant to Togo: - Increasing evidence of the importance of the development of secondary towns for poverty and inequality reduction (World Bank, 2013a). - Market-friendly public policies—fostering availability of banking and other tertiary services, investing in local roads and transportation networks, education and health services—are likely to have a more positive and permanent impact than regional fiscal incentives (i.e., policies based on tax exemptions and free enterprise zones). - The informal sector is the new normal in SSA and is leading in employment creation. - To support its development, tax compliance regulations, accounting, and regulatory policies should be simplified for enterprises below fairly high turnover thresholds. ### External sector stability: key findings and statistics - Current account and financing - During 2000-11, Togo had an average deficit of about 8.2 percent. - In 2011, owing to the surge in oil and food prices, the deficit increased to 9.1 percent. - In 2012, as capital imports grew, the current account deficit increased to 11.8 percent. - The current account deficit is expected to remain in the 9-10 percent range until 2016, and improve afterwards upon the completion of the ongoing investment projects. - The widening of the current account deficit has been financed mostly through aid and is expected to remain so over the projection period; however, aid decreased in 2012 in the absence of an IMF-supported program. - Trade and exports - Since 2010, Togo’s exports have been around 40 percent of GDP, and are expected to remain at this level until 2017. - During 2000-10, exports fluctuated notably, averaging around 32 percent of GDP per annum. - Cotton, phosphates, cement and clinker, cocoa and coffee have been Togo’s main exports and still constitute more than 40 percent of total exports. - Togo’s share in total world exports of goods and services increased from 0.004 percent in 2000 to 0.007 percent in 2012. - Capital flows, FDI, and remittances - Foreign direct investment slowed from an average of 3.8 percent in the first half of the 2000s to around 1.5 percent in the second half, and is expected to increase in accordance with ongoing public and private investments over the projection period. - Workers’ remittances constituted around 7 percent of GDP in 2012 and have been on an upward trend since 2000. - Exchange rate and competitiveness - The real effective exchange rate (REER) appreciation of about 17 percent during 2000-2009 has been partially offset in the last three years with the REER depreciating by almost 11 percent. - The exchange rate assessment finds that Togo’s REER was broadly in line with economic fundamentals in 2012. - ERER method indicates a moderate undervaluation of the exchange rate, by about 3.8 percent. - The MB approach indicates that the REER is slightly overvalued by 0.6 percent (equilibrium and underlying current account deficits estimated at about 2.8 percent and 3.6 percent of GDP, respectively). - The ES approach indicates that the REER is slightly overvalued by about 0.4 percent. - The underlying NFA-to-GDP ratio is -41 percent. - Non-price competitiveness, governance, and business environment - Survey-based indicators point to low non-price competitiveness. - World Bank’s Doing Business Report 2013 ranks Togo as the 156th out of 185 countries. - Togo faces particular challenges in protecting investors’ rights, enforcing contracts, starting a business, and accessing financing; supply of infrastructure remains inadequate and procedures for paying taxes and registering property continue to be cumbersome. - The quality of governance deteriorated since 2000 according to World Governance Indicators; Togo ranks below the average for sub-Saharan Africa. - In terms of political stability, Togo ranks lower than both its SSA and LIC peers, highlighting the need for improving political stability to ensure a more sustainable business environment. - External debt and reserves - Gross external debt was around 18 percent in 2012 and is expected to increase to about 22 percent over the next four years. - The DSA indicates moderate debt distress risk. - At the WAEMU level, reserves amount to over 5 months of imports, 60 percent of broad money and 100 percent of short-term debt; the level of foreign exchange reserves of the WAEMU is assessed as adequate. *Source: IMF staff report excerpt on Togo from the provided PDF content.* ### Appendix V. Central Government Financial Operations on GFSM-01 ### Appendix V. Central Government Financial Operations on GFSM-01 ### Central Government Financial Operations (selected figures, 2013–16; in billions of CFA Francs) - Revenue: 362.3 (2013 Act.), 396.4 (2014 Act.), 489.5 (2015 Proj.), 536.9 (2016 Proj.), 597.7, 653.4 - Taxes: 281.4 (2013), 320.8 (2014), 364.3 (2015), 400.1 (2016), 448.3, 492.2 - Public enterprises: 24.3; 29.1; 29.9; 33.1; 38.5; 42.7 - Other direct taxes: 35.2; 34.4; 41.9; 46.1; 52.3; 57.8 - Import taxes: 162.9; 176.9; 205.3; 225.2; 249.6; 273.0 - Other indirect taxes: 58.9; 80.4; 87.2; 95.8; 107.9; 118.7 - Grants: 55.8; 31.7; 74.1; 84.1; 91.5; 98.2 - Other revenue: 25.1; 43.9; 51.0; 52.6; 57.9; 63.0 - Expenditure (Total): 434.4 (2013), 540.7 (2014), 618.8 (2015), 656.9 (2016), 699.4, 744.1 - Expense (current): 290.2; 365.7; 398.5; 408.5; 422.6; 443.0 - Compensation of employees: 104.7; 120.4; 136.0; 147.2; 159.8; 167.9 - Use of goods and services: 63.7; 88.5; 78.3; 85.5; 93.2; 102.3 - Interest (total): 11.5; 18.6; 30.2; 33.8; 32.3; 34.3 - Domestic interest: 9.6; 12.8; 20.8; 23.6; 22.8; 23.0 - Foreign interest: 1.9; 5.8; 9.4; 10.2; 9.5; 11.3 - Subsidies: 32.5; 42.5; 43.9; 24.0; 8.0; 0.0 - Grants, social benefits and other expense: 77.8; 95.6; 110.1; 117.9; 129.4; 138.5 - Net acquisition of nonfinancial assets: 144.2; 175.1; 220.3; 248.4; 276.7; 301.1 - Domestically financed: 68.2; 70.9; 75.5; 91.8; 101.5; 110.5 - Foreign financed: 76.1; 104.2; 144.8; 156.6; 175.2; 190.6 - Gross Operating Balance: 72.2; 30.8; 90.9; 128.4; 175.1; 210.4 - Net lending (+)/borrowing (–) (fiscal balance): -72.1; -144.3; -129.3; -120.0; -101.6; -90.7 - Change in net financial worth due to transactions (fiscal balance): -80.1; -159.4; -128.8; -119.0; -90.1; -79.6 - Net acquisition of financial assets (total): 26.9; -16.6; -14.4; 4.3; 10.5; 11.1 - Currency and deposits: 34.9; 1.2; 1.9; 4.3; 0.0; 0.0 - Equity and investment fund shares: 0.0; -3.0; -16.8; 0.0; 0.0; 0.0 - Other accounts receivable: -8.1; -14.8; 0.5; 0.0; 10.5; 11.1 - Net incurrence of liabilities (total): 95.1; 162.4; 114.4; 123.3; 66.5; 66.5 - Domestic: 28.6; 84.6; 43.8; 59.3; 5.2; 0.9 - Debt securities: 24.7; 25.3; 43.6; 63.9; 27.6; 27.0 - Loans: 0.7; 38.9; 0.3; -4.6; -22.5; -26.1 - Other accounts payable: 3.2; 20.4; 0.0; 0.0; 0.0; 0.0 - Foreign: 66.4; 77.8; 70.6; 63.9; 61.4; 65.7 - Loans (foreign): 66.4; 77.8; 70.6; 63.9; 61.4; 65.7 - Residual/unidentified financing: -11.9; 19.6; 0.0; 0.0; -34.1; -24.2 - Memorandum items: - Primary balance: -60.6; -125.7; -99.2; -86.2; -69.4; -56.4 - NLB (overall balance) excluding grants: -127.8; -176.0; -203.5; -204.1; -193.1; -188.9 - CG Domestic Debt and Arrears: 503.5; 541.2; 541.7; 576.8; 559.7; 548.5 (Note: Table 1b presents the same series in percent of GDP; Nominal GDP (CFAF billions) figures: 1,772 (2011), 1,999 (2012), 2,154 (2013), 2,337 (2014), 2,539 (2015), 2,762 (2016).) ### Debt Sustainability Analysis — Key conclusions and baseline assumptions - DSA outcome: Togo remains at moderate risk of debt distress. - Historical context: After full HIPC assistance, MDRI and beyond HIPC assistance, external and public debt indicators improved significantly in 2010/11. - End-2012 nominal total debt stock: US$1.9 billion. - PV of PPG external debt at end-2012: US$724 million; about 45 percent owed to multilateral creditors; ~28 percent owed to non-Paris Club bilateral creditors. - Baseline macro assumptions: - Real GDP growth: 5.6 percent in 2013 and average about 5.9 percent over 2014-18. - Public investment: projected to reach 10.4 percent of GDP in 2013 and 10.9 percent in 2014; stabilize around 9.5 percent after planned investments completed. - Share of public investment financing: 35 percent domestically, 65 percent external. - Commodity prices: projections for oil, cotton, cocoa, coffee through 2018 based on WEO August 2013 and assumed constant in real terms afterwards. - Inflation long-term: around 2.5 percent. - Current account deficit: expected above 10 percent; from 11.8 percent in 2012 to about 10.6 percent in 2013; improve to around 7 percent in the long run from 2016 onwards. - Domestic primary fiscal balance: projected to return to positive territory and remain above 1 percent in the projection period. - Overall balance: expected to improve by 2 percentage points of GDP to a deficit of 3 percent by 2017 and gradually decline to around 2 percent. - FDI: expected to increase from 1.7 percent of GDP in 2012 to 2.5 percent of GDP by 2018. - New external financing: initially mostly on grant terms; concessionality of new financing declines (grant element falls from nearly 50 percent to around 18 percent over 2013–2033). - Discount rate used in DSA: 5 percent. ### External debt sustainability (baseline and risks) - Baseline: PV of PPG external debt equals 20.4 percent of GDP in 2013 and remains below the 30 percent threshold through the projection period. - Concessionality trend: concessional loans share declines, concessionality of new loans decreases from nearly 50 percent to around 18 percent (2013–2033). - Debt accumulation: projected to stabilize around 1.5 percent per annum in the long run. - Vulnerabilities / stress test results: - Terms shock scenario: breaches PV of external debt-to-GDP threshold in 2023. - Terms shock scenario: PV of debt-to-exports ratio surpasses threshold in 2033. - Terms shock scenario: PV of debt-to-revenue ratio breaches 200 percent threshold in 2029. - One-time 30 percent nominal depreciation shock: debt service-to-revenue ratio surpasses indicative thresholds in 2026. - Staff assessment: under baseline external debt indicators remain below policy-relevant thresholds, but Togo is vulnerable to shocks and could breach thresholds under alternative scenarios in outer years. ### Public sector debt sustainability (baseline and risks) - Inclusion of domestic public debt increases vulnerability of baseline scenario. - PV of total public debt ratios projected to decrease over projection period; average PV public debt-to-GDP about 23 percent over 2013–2033. - Sources of domestic debt burden: weak fiscal management, domestic arrears accumulation, recapitalization needs for ailing banks, recognition of liabilities from liquidated loss-making SOEs. - Sensitivity: debt indicators highly sensitive to growth shocks; total public debt dynamics particularly vulnerable to growth shocks. - Implication: need for improved macro outlook and a more cautious debt strategy to keep debt ratios at reasonable levels. ### Policy implications and recommendations (implied by analysis) - Adopt a prudent approach to new borrowing, given vulnerability to less favorable terms on new financing. - Improve debt management capacity to realistically assess and manage risks across sectors, including fiscal contingent liabilities from PPPs and SOEs. - Strengthen public investment management (noting weak PIMI rating) to ensure planned investments yield the projected growth benefits. - Pursue reforms to improve the business environment and governance to support private investment, FDI, and growth resilience. - Maintain a domestic primary fiscal balance above 1 percent of GDP as an anchor for reducing the debt-to-GDP stock. *Source: Appendix V. Central Government Financial Operations on GFSM-01 (Togo), IMF staff estimates, projections and debt sustainability analysis.* ### 10. Maintaining a robust external debt outlook will depend on a sustained pick-up of real GDP ### 10. Maintaining a robust external debt outlook will depend on a sustained pick-up of real GDP growth, and foreign direct investment, as well as prudent debt management and solid fiscal performance. ### Key findings on debt outlook and risks - Inclusion of Togo’s domestic debt in the analysis reinforces the conclusions of the external DSA and stresses the risks to Togo’s debt prospects. - Maintaining a robust external debt outlook will depend on: - sustained pick-up of real GDP growth, - foreign direct investment, - prudent debt management, and - solid fiscal performance. - It is essential that the Togolese authorities ensure efforts to: - strengthen public finance management and debt management, - restructure the banking system and promote financial development, - reform state-owned enterprises, and - improve the investment climate to accelerate growth prospects. ### Public and publicly guaranteed external debt indicators (selected figures and thresholds) - PV of external debt (selected entries): 15.3, 15.6, 15.7, 16.1, 16.3, 16.5, 17.3, 22.4, 26.2 (reported series under "PV of external debt 4/") - PV of debt-to-exports ratio (selected entries): 38.5, 39.4, 40.1, 40.9, 41.5, 41.7, 44.2, 56.2, 58.5 (corresponding percent series) - PV of PPG external debt (selected entries): 13.2, 13.3, 13.2, 13.4, 13.5, 13.6, 14.4, 19.2, 23.2 - PV of PPG external debt in percent of government revenues (selected entries): 72.5, 68.7, 68.0, 67.5, 67.3, 67.1, 70.8, 94.4, 113.0 - Debt service-to-exports ratio (in percent) (selected entries): 4.7, 2.0, 2.8, 2.6, 3.0, 2.9, 3.1, 2.8, 2.6, 5.8, 7.3 - PPG debt service-to-revenue ratio (in percent) (selected entries): 10.3, 4.7, 6.1, 5.4, 6.1, 5.8, 6.1, 5.5, 5.1, 11.3, 15.9 ### Debt dynamics, contributions, and financing needs (selected numbers) - External debt (nominal) series (selected): 18.5, 17.2, 20.1, 21.2, 22.2, 23.5, 24.4, 25.0, 25.4, 31.7, 37.6 - Change in external debt (selected): -34.7, -1.3, 3.0, 1.0, 1.0, 1.3, 0.9, 0.6, 0.4, 0.8, 0.4 - Identified net debt-creating flows (selected): 4.6, 4.5, 9.5, 7.9, 7.2, 6.2, 5.1, 4.6, 4.6, 0.7, -2.7 - Non-interest current account deficit (selected): 5.9, 8.9, 11.5, 8.3, 1.9, 10.4, 10.6, 9.9, 8.9, 8.4, 8.1, 3.7, 0.4 - Deficit in balance of goods and services (selected): 17.1, 20.7, 21.5, 22.7, 23.3, 22.6, 21.0, 19.3, 17.3, 12.5, 8.4 - Net FDI (negative = inflow) (selected): -1.5, -1.7, -1.6, -2.3, 1.3, -1.7, -2.5, -2.5, -2.5, -2.5, -2.5 - Total gross financing need (Billions of U.S. dollars) (selected): 0.2, 0.3, 0.5, 0.5, 0.5, 0.5, 0.5, 0.5, 0.5, 0.5, 0.4 ### Key macroeconomic assumptions (selected) - Real GDP growth (in percent) series (selected): 4.1, 4.8, 5.9, 3.5, 1.5, 5.6, 6.0, 6.0, 6.1, 5.8, 5.5, 5.8, 4.0, 4.0, 4.2 - GDP deflator in US dollar terms (change in percent) (selected): -3.7, 12.9, -1.6, 6.8, 8.6, 4.6, 3.3, 3.5, 3.5, 3.3, 3.3, 3.6, 2.2, 2.2, 2.2 - Effective interest rate (percent) (selected): 0.7, 1.2, 2.0, 0.5, 0.6, 1.1, 1.4, 0.3, 0.4, 0.2, 1.1, 0.8, 2.2, 2.2, 2.2 - Growth of exports of G&S (US dollar terms, in percent) (selected): 9.6, 19.8, 1.5, 11.6, 10.7, 10.2, 8.5, 10.4, 9.7, 9.6, 8.2, 9.4, 7.4, 7.4, 8.3 - Growth of imports of G&S (US dollar terms, in percent) (selected): 9.7, 26.7, 3.8, 35.2, 11.6, 12.5, 10.0, 8.9, 7.0, 6.4, 4.7, 8.2, 5.4, 6.7, 6.0 - Grant element of new public sector borrowing (in percent) (selected): 50.8, 50.1, 49.6, 49.6, 49.6, 22.1, 45.3, 24.8, 22.8, 23.4 (series with many leading periods of "...............") - Government revenues (excluding grants, in percent of GDP) (selected): 18.4, 17.3, 18.2, 19.3, 19.4, 19.9, 20.1, 20.2, 20.3, 20.4, 20.6, 20.4 - Aid flows (in Billions of US dollars) (selected): 0.4, 0.3, 0.3, 0.3, 0.3, 0.4, 0.4, 0.4, 0.3, 0.5, 0.7 - o/w Grants (selected): 0.1, 0.1, 0.1, 0.1, 0.2, 0.2, 0.2, 0.2, 0.2, 0.2, 0.3 - o/w Concessional loans (selected): 0.3, 0.2, 0.2, 0.1, 0.2, 0.2, 0.2, 0.2, 0.1, 0.2, 0.4 - Grant-equivalent financing (in percent of GDP) (selected): 5.0, 5.3, 5.6, 5.5, 5.1, 3.7, 3.5, 2.9, 3.3 - Grant-equivalent financing (in percent of external financing) (selected): 77.2, 75.5, 73.1, 73.4, 73.4, 73.7, 59.8, 52.9, 42.6, 49.2, 64.9, 2/49.2? (table includes varying entries) ### Public sector debt sustainability (selected public sector indicators) - Public sector debt (percent of GDP) (selected): 47.3, 44.0, 45.2, 44.0, 44.3, 42.9, 41.5, 40.3, 39.4, 35.8, 23.3 - o/w foreign-currency denominated (selected): 17.2, 15.6, 18.1, 18.9, 19.7, 20.8, 21.6, 22.1, 22.4, 28.5, 20.3 - Change in public sector debt (selected): -26.0, -3.4, 1.2, -1.1, 0.3, -1.5, -1.4, -1.2, -0.9, -1.5, 0.0 - Identified debt-creating flows (selected): -40.0, -1.9, 1.6, 2.1, 0.9, -0.3, -0.9, -1.4, -1.5, 0.9, 0.5 - Primary deficit (selected): 1.1, 2.6, 5.6, 1.4, 2.4, 4.2, 3.3, 2.5, 1.9, 1.4, 0.9 - Revenue and grants (selected): 20.4, 20.4, 19.8, 22.7, 23.0, 23.5, 23.7, 23.5, 23.3, 22.9, 22.6 - PV of public sector debt (selected): 40.3, 38.4, 37.8, 35.5, 33.4, 31.8, 31.4, 26.5, 19.8 - PV of public sector debt-to-revenue and grants ratio (in percent) (selected): 203.2, 169.0, 164.8, 150.8, 141.1, 135.0, 134.5, 116.0, 87.9 - Gross financing need (selected): 3.2, 4.2, 9.3, 7.0, 5.5, 4.2, 3.6, 2.8, 2.3, 4.8, 4.2 - Debt service-to-revenue ratio (in percent) (selected): 10.6, 7.5, 18.4, 12.2, 9.6, 7.0, 7.0, 6.2, 5.8, 11.0, 13.1 ### Sensitivity and stress-test results (high-level) - Sensitivity tables (Table 1b and Table 2b) present multiple alternative scenarios and bound tests, including: - A1. Key variables at their historical averages in 2013-2033. - A2. New public sector loans on less favorable terms in 2013-2033. - B1. Real GDP growth at historical average minus one standard deviation in 2014-2015. - B2. Export value growth at historical average minus one standard deviation in 2014-2015. - B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-2015. - B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015. - B5. Combination of B1–B4 using one-half standard deviation shocks. - B6. One-time 30 percent nominal depreciation relative to the baseline in 2014. - Stress tests produce higher ratios under specific shocks: - The most extreme stress tests in 2023 correspond to Terms shock, Exports shock, or One-time depreciation shock across various panels (figure notes). ### Policy recommendations and priorities (as stated) - Strengthen public finance management and debt management. - Restructure the banking system and promote financial development (including privatization of government-owned banks). - Reform state-owned enterprises. - Improve the investment climate to attract FDI and accelerate growth. - Coordinate structural reforms in energy, telecommunications, business environment, and phosphates to reduce bottlenecks and raise potential growth. - Consider measures to render growth more inclusive, such as targeted transfers. *Sources: Country authorities; and staff estimates and projections.* ### 1. Data provision is broadly adequate for surveillance, but weaknesses in the quality and ### _cr1438 - 1. Data provision is broadly adequate for surveillance, but weaknesses in the quality and timeliness of data hamper staff’s analysis ### Data provision — overarching assessment - Data provision is broadly adequate for surveillance, but weaknesses in the quality and timeliness of data hamper staff’s analysis. - National accounts and balance of payments statistics are compiled based on very limited information, with only few surveys and scarce data on primary agriculture and private sector services. - Government finance statistics are derived from a weak accounting and reporting system. - Monetary data are reported by the BCEAO with a two-month lag. ### Participation in data dissemination frameworks - The country has participated in the General Data Dissemination System (GDDS) since November 2001. - Metadata on the national statistical system, including plans for improvement posted to the Fund’s Dissemination Standard Bulletin Board, were last updated in December 2004. ### National accounts and consumer price index (CPI) - Like other West African Economic and Monetary Union (WAEMU) member states, Togo embarked in late 2002 on implementing the System of National Accounts 1993 (1993 SNA), using the ERETES software. - The national accounts for the new base year (2000) were completed in 2005. - In 2006 the program was suspended and the NA for 2001 was not finalized due to lack of staff, material and financial resources. - Implementation resumed in March 2009 and the Direction Générale de la Statistique et de la Comptabilité Nationale (DGSCN) started working on the compilation of data for 2007 (the most recent year for which enough data was available). - Assistance provided by AFRITAC West and AFRISTAT missions included: - completion of data collection, - preparation of source data, - ensuring consistency across primary data sources, - preparing preliminary accounts. - Estimates of production in the informal sector were also produced. - The end-2010 population census exercise further delayed completion of the 2007 National Accounts. - A May 2011 AFRITAC West TA report pointed to serious anomalies in the provisional 2007 national accounts (concerning value added in the informal sector, low fixed capital formation, high consumption to GDP ratio, among others), which were corrected during the mission. - Final National Accounts numbers for 2006 and 2007 have been validated by the Comité PIB. - Despite delays, the authorities remain committed to finalizing the national accounts referring to the years up to 2010 by 2014, replacing the previous target of June 2012. - CPI developments: - The CPI basket was revised in 2010. - The WAEMU commission, supported by AFRISTAT and the BCEAO, launched a revision of the harmonized CPI basket in the region in 2008. - The reform included expanding CPI surveys and updating weights of various sub-components to reflect consumption habits. - The DGSCN is constructing a consumer price index with national coverage. - The collection of the first observations is planned for January 2014, and the index will be published after January 2015 when the first 12 month variation becomes available. ### External sector statistics - Balance of payments statistics and international investment position data are compiled based on bank reports, a survey of enterprises, and customs data. - Statistics are compiled following the principles of the 5th balance of payment manual, with a six-month delay and are revised twice a year. - Export figures, net of transit trade, are appropriately reported since the latest STA technical assistance mission in balance of payments statistics in 2008. - The Central bank continues efforts to better cover informal trade, notably with the subregional unit for the reconciliation of intra-WAMU trade. ### Government accounts and public debt data - The Government finance statistics accounting system is undergoing improvements. - The new WAEMU budget nomenclature permits the economic and ministerial classification of expenditure, with functional classification under development. - The monthly TOFE (Table of Central Government Financial Operations) is based on a mixture of administrative and accounting data and is sent to AFR with a two-month lag. - The debt database weakened since the HIPC completion point at end 2010. - Government recognition of old domestic arrears and their liabilities has further complicated the compilation of a reliable and consistent database. - Only budgetary central government data are reported for publication in the Government Finances Statistics Yearbook (GFSY); government finance high frequency data are not reported for publication in the IFS. - In the context of the 2013 Article IV consultation, with assistance from STA, the authorities established: - a bridge table allowing transposition of TOFE data, which is based on the 1986 Government Finance Statistics Manual (GFS86), to the 2001 Government Finance Statistics Manual (GFSM01), - a table on Government Financial Operations for 2009-16 based on GFSM01 principles (Appendix V). ### Monetary statistics - (Text on monetary statistics begins but is not included in the supplied content.) *IMF staff report content as provided in the supplied PDF excerpt.* ### 7. Monthly data for Togo, along with data for other members of the West African Monetary ### Monthly data for Togo, along with data for other members of the West African Monetary Union ### Data dissemination - Monthly data for Togo, along with data for other members of the West African Monetary Union, are regularly disseminated by the Central Bank of the West African Monetary Union (BCEAO) with a lag of about two months. - Data on lending and borrowing rates, charged by domestic banks, are compiled and available monthly. ### Availability and frequency of key macroeconomic series (as of October 2013) - Exchange Rates — Date of latest observation: September 2013; Date received: October 2013; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: Published. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities — Date of latest observation: August 2013; Date received: October 2013; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: Published. - Reserve/Base Money — Date of latest observation: August 2013; Date received: October 2013; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: Published. - Broad Money — Date of latest observation: August 2013; Date received: October 2013; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: Published. - Central Bank Balance Sheet — Date of latest observation: August 2013; Date received: October 2013; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: Published. - Consolidated Balance Sheet of the Banking System — Date of latest observation: August 2013; Date received: October 2013; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: Published. - Interest Rates — Date of latest observation: August 2013; Date received: September 2013; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: Published. - Consumer Price Index — Date of latest observation: August 2013; Date received: September 2013; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: Published. - Revenue, Expenditure, Balance and Composition of Financing – General Government — Date of latest observation: n.a.; Date received: n.a.; Frequency of Data: n.a.; Frequency of Reporting: n.a.; Frequency of publication: Not published. - Revenue, Expenditure, Balance and Composition of Financing – Central Government — Date of latest observation: July 2013; Date received: September 2013; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: Published. - Stocks of Central Government and Central Government-Guaranteed Debt — Date of latest observation: June 2013; Date received: August 2013; Frequency of Data: M; Frequency of Reporting: M; Frequency of publication: Not published. - External Current Account Balance — Date of latest observation: December 2012; Date received: August 2013; Frequency of Data: A; Frequency of Reporting: OM; Frequency of publication: Not published. - Exports and Imports of Goods and Services — Date of latest observation: December 2012; Date received: August 2013; Frequency of Data: M; Frequency of Reporting: OM; Frequency of publication: Not published. - GDP/GNP — Date of latest observation: December 2012; Date received: August 2013; Frequency of Data: A; Frequency of Reporting: OM; Frequency of publication: Not published. - Gross External Debt — Date of latest observation: December 2012; Date received: August 2013; Frequency of Data: A; Frequency of Reporting: OM; Frequency of publication: Not published. - International Investment Position — Date of latest observation: 2011; Date received: 2012; Frequency of Data: A; Frequency of Reporting: OM; Frequency of publication: Not published. ### Macroeconomic overview and recent performance - Real economic growth accelerated from almost 4½ in 2010-11 to 5¾ in 2012-13, reflecting dynamism in agriculture, mining, construction and public works, particularly in transportation infrastructure. - Growth has been accompanied by a widening of the current account deficit, financed mainly through foreign direct investment. - Inflation has been low, on average slightly below 2½ percent during 2012-13. - Under election-related pressures, fiscal policy deteriorated in 2012 and early 2013, with the approval of expansionary budgets that led to financing shortfalls. - In mid-2013 the authorities adopted a revised budget and corrective measures that have placed Togo on a path of fiscal consolidation, anchored by an improvement in the primary domestic fiscal balance that could lead to a gradual reduction of debt. ### Fiscal policy, public finance, and debt management - Challenges identified: - Greater prioritization of public investment projects. - Reducing fuel subsidies. - Containing the public wage bill to create fiscal space for higher social and infrastructure spending. - Formulating annual budgets in the context of medium-term budget policies. - Improving public debt management to ensure continued debt sustainability. - Authorities’ actions and intentions: - Revised 2013 budget aligned with execution capacity, more realistic revenue projections, and more sensible allocations for fuel subsidies. - Plan to reduce fuel subsidies by an amount equivalent to 1 percent of GDP as early as 2014 after agreement with labor union partners on pay and tax packages notably for transporters. - Pursue establishment of a single treasury account, improve cash and treasury projections and management, and simplify the expenditure circuit. - Strengthen technical and operational capacity of the debt management unit (Direction de la Dette Publique) within the Ministry of Economy and Finance; authorities have requested additional technical assistance. - Seek highly concessional financing packages consistent with debt sustainability as guided by the DSA. ### Financial sector developments and risks - Financial sector progress: - Deepening of the financial sector; aggregate financial indicators described as sound. - Two state-owned banks privatized; new banks expanding operations; microfinance sector grown rapidly. - Vulnerabilities and required measures: - Individual banks face difficult situations; initial steps taken to stem asset deterioration. - Need to improve supervision framework of the micro-finance sector, enforce licensing regulations, and close pyramid-like schemes. - Authorities intend to step up capacity of CAS-IMEC to monitor under-regulated institutions and close illegal entities in the microfinance sector. - Continued close cooperation with the regional Banking Commission within WAEMU to require banks to comply with prudential standards. - Full agreement on medium-term policies to support growth through greater financial intermediation and ensure banks, microfinance institutions and pension funds remain financially sound. - Directors’ recommendations: - Intensify financial sector oversight and resolve problem banks. - Stronger supervision of microfinance institutions and further restructuring of public banks. ### Structural reforms, competitiveness, and inclusive growth - Structural reform progress: - Re-energized public financial management reform program. - Project to establish a revenue authority by merging tax and customs administrations to modernize revenue administration and increase revenue. - Initiatives: establishment of a one-stop window at the Port Autonome de Lomé (PAL); financial restructuring of problem banks; privatization of two banks. - Growth constraints and policy priorities: - Major obstacles: infrastructure bottlenecks (electricity and transport), high telecommunication costs, weak business environment. - Authorities’ medium-term strategy SCAPE (2013-2017) organized around five pillars: developing sectors with high growth potential; economic infrastructure; human capital and employment; governance; and participatory, inclusive and durable development. - Energy sector: measures to clear accumulated arrears to electricity companies and a diagnostic and action plan to avoid re-emergence of arrears and potential supply shortages. - Infrastructure gaps to be closed in roads, airport, and port to boost potential growth. - Governance reforms to improve contract enforcement, protection of investors’ rights, and access to finance. - Poverty reduction and inclusiveness: construct small dams, increase access to water, expand feeder roads, and address youth unemployment through targeted support to young entrepreneur projects; consider urban planning to enhance poverty-reduction gains from internal migration. ### Executive Board assessment and policy recommendations - Directors commended actions to control the fiscal deficit and set Togo on a sustainable debt path. - Emphasized importance of: - Improving debt management and seeking financing on terms consistent with debt sustainability. - Progressive reduction in poorly-targeted fuel subsidies and lower growth of public sector wages to free budget space. - Improvements in financing and management of projects to support scaling-up of public investment. - Swift implementation of fiscal reforms including a single treasury account and a new revenue authority. - Encouraged intensified financial sector oversight, resolution of problem banks, stronger supervision of microfinance institutions, and further restructuring of public banks. - Recommended addressing energy sector bottlenecks, reforming public enterprises, improving the business environment, and prioritizing poverty reduction policies and agricultural productivity and employment. - Directors welcomed authorities’ intention to remain in close engagement with the Fund, including through a possible Fund-supported program and continued technical assistance. ### Selected economic indicators, 2010–14 (annual percentage change or percent of GDP as specified) - Income and Prices (Annual percentage change) - GDP at constant prices: 2010: 4.1; 2011: 4.8; 2012: 5.9; 2013 (Est.): 5.6; 2014 (Proj.): 6.1. - Consumer price index (average): 2010: 1.4; 2011: 3.6; 2012: 2.6; 2013 (Est.): 2.2; 2014 (Proj.): 2.4. - Real effective exchange rate (minus = depreciation): 2010: -6.0; 2011: 0.7; 2012: -4.0; 2013: ...; 2014: .... - Money and credit - Net foreign assets1 (change in percent of beginning-of-period broad money): 2010: 3.0; 2011: 4.4; 2012: -2.1; 2013 (Est.): -3.1; 2014 (Proj.): -2.4. - Broad money (M2): 2010: 16.3; 2011: 15.9; 2012: 8.9; 2013 (Est.): 15.9; 2014 (Proj.): 9.5. - Credit to nongovernment sector1: 2010: 10.3; 2011: 20.5; 2012: 11.6; 2013 (Est.): 10.0; 2014 (Proj.): 6.6. - Credit to government1: 2010: 4.3; 2011: -5.6; 2012: 3.7; 2013 (Est.): 2.0; 2014 (Proj.): 0.7. - Investment and Saving (Percent of GDP) - Gross domestic investment: 2010: 18.9; 2011: 18.6; 2012: 19.1; 2013 (Est.): 20.3; 2014 (Proj.): 21.1. - Gross national saving: 2010: 12.6; 2011: 9.6; 2012: 7.3; 2013 (Est.): 9.7; 2014 (Proj.): 10.2. - External sector (Percent of GDP) - Current account balance: 2010: -6.3; 2011: -9.1; 2012: -11.8; 2013 (Est.): -10.6; 2014 (Proj.): -10.9. - Trade balance: 2010: -14.3; 2011: -15.4; 2012: -15.7; 2013 (Est.): -16.2; 2014 (Proj.): -16.3. - Central government finance (Percent of GDP) - Total revenue and grants: 2010: 20.4; 2011: 20.4; 2012: 19.8; 2013 (Est.): 22.7; 2014 (Proj.): 23.0. - Expenditure and net lending: 2010: 22.5; 2011: 23.8; 2012: 26.4; 2013 (Est.): 28.1; 2014 (Proj.): 27.6. - Domestic primary balance2: 2010: 1.7; 2011: -1.6; 2012: -2.0; 2013 (Est.): -0.7; 2014 (Proj.): 0.0. - Overall balance (cash basis, incl. grants & change in arrears): 2010: -4.3; 2011: -3.5; 2012: -7.2; 2013 (Est.): -6.3; 2014 (Proj.): -5.3. Sources cited in the original text: Togolese authorities; IMF staff estimates and projections. *IMF Executive Board Concluding Statement and Togo: Table of Common Indicators Required for Surveillance (as of October 2013), Press Release No. 13/514, December 16, 2013.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1438.pdf_