## _cr15309

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### Recent developments and context
- Output growth averaged 5.4 percent in 2013-14, supported by productivity gains in agriculture and public investment in infrastructure.
- Inflation slowed in 2014 mainly due to declining food prices and reductions in retail fuel prices; inflation was 0.2 percent in 2014 (1.8 percent in 2013, 1.9 percent in 2015).
- Current account deficit widened from 7.5 percent of GDP in 2012 to 13 percent of GDP in 2013–14, driven by higher imports of intermediary goods and petroleum products linked to transportation network development.
- Total public debt increased from 46 percent of GDP in 2012 to 58 percent of GDP in 2014.
- Structural and operational constraints identified: equipment constraints in phosphate exploitation; operational accidents and strikes interrupting clinker and cement production; currency depreciations in key trading partners reducing external demand.
- Institutional developments: Doing Business ranking improved (top 10 most improved in 2015); establishment of a single window for business registration; revenue administration and PFM reforms underway; Treasury Single Account (TSA) not yet in place; re-organization of the Ministry of Finance not started; privatization of two state banks stalled.

### Outlook and risks
- Growth:
  - Expected to average 5.5 percent in 2015–18, supported by agricultural production, transportation services linked to international trade, and investments in transport infrastructure.
  - Staff projection: around 5.6 percent in 2016; authorities project growth above six percent over the medium-term.
- External and fiscal projections:
  - Current account deficit projected to improve marginally to 12.25 percent of GDP in 2015 as a result of lower oil prices.
  - Current account deficit projected to narrow to 9.5 percent of GDP by 2020 with gradual fiscal consolidation and increased savings of state-owned enterprises.
- Inflation expected to remain subdued in line with WAEMU trend.
- Main risks to the baseline:
  - Domestic: limited fiscal consolidation; inaction in PFM reform; delays in opening mining, energy, telecommunications, and business environment reforms.
  - External: sharp slowdown in regional or global growth affecting key trading partners.
- Other vulnerabilities: persistent high poverty concentrated in rural areas; rapid public investment pace raising public debt and current account pressures.

### Executive Board assessment and key policy recommendations
- Board assessment:
  - Welcomed strong recent economic growth driven by agricultural productivity gains and public infrastructure investment; noted improvements in social indicators.
  - Cautioned rapid public investment has raised public debt and the current account deficit.
  - Emphasized need to improve fiscal balances, complete fiscal reforms, address financial sector weaknesses, and promote structural transformation for inclusive growth.
- Key policy recommendations (exact formulations preserved where possible):
  - "Place fiscal balances on a sustainable path to ensure debt and external sustainability and create space for social spending."
  - "Anchor public finances on a domestic primary balance to reduce the public debt-to-GDP ratio over the medium term."
  - "Control current spending, including by continuing to reduce fuel subsidies."
  - "Raise the efficiency of public investment to ensure it raises growth."
  - Enhance public financial and debt management and complete key fiscal reforms, including:
    - reorganization of the Ministry of Finance;
    - developing an effective debt and treasury cash management;
    - establishing a treasury single account;
    - modernizing revenue administration.
  - "Enforce the regulatory framework in the financial sector, resolve problem banks, and strengthen supervision in the microfinance sector."
  - "Banks with weak regulatory indicators should take immediate corrective action or be subject to resolution; implement least-cost resolution options when dealing with nonviable financial entities."
  - Accelerate structural reforms to raise potential growth, including:
    - enhancing public investment management;
    - opening key economic sectors (mining, telecommunications, and energy) to private sector competition;
    - further improving the business environment;
    - investing in social development to make growth inclusive.
  - "Improve timeliness and consistency of national accounts and fiscal data; welcome establishment of the national statistics institute."

### Fiscal outlook, debt dynamics, and DSA findings
- Fiscal developments:
  - Fiscal stance expansionary in recent years; rapid increase in domestically-financed investment led to widening primary domestic deficits and debt accumulation.
  - Planned revenue increases did not materialize due to delayed start of operations at the Revenue Authority (OTR).
  - Staff expects tax revenue to rise to 16.8 percent of GDP in 2015 (average collection ~15.6 percent during 2012-2014).
  - Fuel price subsidies estimated to burden the budget at ¾ percentage points of GDP if not passed through.
- Debt accumulation and vulnerability:
  - Togo has accumulated debt faster than expected, notably increasing domestic borrowing (bond and treasury bills), external loans of public enterprises, and external loans for public investments.
  - Togo remains at a moderate risk of external public debt distress; overall public debt dynamics present heightened vulnerabilities due to high domestic debt.
  - Under baseline, external debt indicators remain below indicative thresholds through 2015–35; four out of five indicators breach thresholds under alternative scenarios and stress tests.
  - PV of public debt-to-GDP breaches the benchmark level of 38 percent for most of the forecast period when domestic debt included.
- Baseline macro assumptions (selected):
  - Real GDP growth: 5.4 percent in 2014; average about 5½ percent over 2015–18; long-run real GDP growth 4.5 percent.
  - Public investment: increase to 9.7 percent of GDP in 2015; stabilize around 9.1 percent in medium term; about 50 percent financed domestically.
  - Concessionality of new external financing projected to decline from nearly 50 percent to around 23 percent over 2015–2035.
  - Non-concessional new borrowing assumed at 1.5 percent of GDP in 2018, increasing to 2.5 percent of GDP in 2035.
- DSA stress tests and sensitivity:
  - Debt indicators sensitive to non-debt-creating flows shocks and real depreciation shocks (defined examples: one-time 10 percent of GDP other debt-creating flows; one-time 30 percent nominal depreciation).
  - Under less-favorable borrowing terms and combination shocks, key ratios breach thresholds (e.g., PV debt-to-GDP breaches in 2022 under less-favorable-terms scenario; PV debt-to-revenue breaches 200 percent in 2028).
  - Under historical scenario several indicators breach thresholds.
- Staff conclusion on debt risk:
  - "Togo remains at moderate risk of external public debt distress" and at a heightened overall risk of public debt distress because of domestic debt vulnerabilities.

### Staff recommendations to reset fiscal balances (illustrative targets and measures)
- Anchor public finances on a domestic primary balance to reduce public debt:
  - Move to a 1.0 percent of GDP domestic primary surplus by 2020, up from a projected deficit of 1.7 percent of GDP this year.
- Revenue-side measures:
  - Accelerate reforms in revenue administration and overhaul exemption and tax expenditure system.
- Expenditure-side measures:
  - Stricter control on public employment numbers to ensure the wage bill declines in percent of GDP; reform compensation system for public employees.
  - Reduce fuel price subsidies by consistently applying the existing price adjustment formula.
- Redistribute allocations toward social spending:
  - Reduce total infrastructure allocation as large projects complete and invest more in social sector and secondary and feeder roads.
- Project and procurement governance:
  - Investment contracts should: (i) follow procurement process; (ii) be fully integrated in all budget phases; (iii) require payments after verification of completed work.
  - Limit use of pre-financed investments that lead to fixed government payments independent of contractor completion.
- Reorganize Ministry of Finance:
  - Create an effective debt management unit; strengthen the budget department; establish a tax policy unit; the Ministry of Finance should define tax policy.
- Strengthen debt management:
  - Centralize debt management functions; organize debt unit into Front, Middle and Back Offices; build capacity and train staff.

### Projected fiscal impact of illustrative fiscal adjustment scenario (selected figures, in percent of GDP)
- Revenues and Grants (series): 21.0; 21.4; 21.7; 21.7; 21.9; 22.0; 0.0; 0.1; 0.2; 0.2; 0.3
  - Total Revenue: 18.8; 19.0; 19.2; 19.7; 19.9; 20.1; 0.0; 0.1; 0.2; 0.2; 0.3
  - Tax Revenue: 16.8; 17.0; 17.3; 17.6; 17.8; 18.0; 0.0; 0.1; 0.1; 0.1; 0.2
  - Non-Tax Revenue: 1.9; 2.0; 2.0; 2.1; 2.1; 2.1; 0.0; 0.0; 0.1; 0.1; 0.1
- Expenditures and Net Lending (series): 26.3; 25.9; 25.9; 25.8; 25.7; 25.4; -0.1; -0.3; -0.5; -0.9; -1.2
  - Wages and Salaries: 6.6; 6.5; 6.3; 6.2; 6.1; 6.0; -0.1; -0.2; -0.3; -0.4; -0.5
  - Transfers and Subsidies: 5.2; 5.1; 5.5; 5.8; 5.7; 5.6; 0.0; 0.0; 0.0; -0.1; -0.2
    - of which: Oil Price Support: 0.3; 0.3; 0.3; 0.3; 0.3; 0.3; 0.0; -0.3; -0.5; -0.5; -0.5
  - Public Investment: 9.7; 9.6; 9.3; 8.9; 8.7; 8.5; 0.0; -0.1; -0.2; -0.4; -0.6
- Domestic Primary Balance: -1.7; -0.8; -0.3; -0.1; 0.5; 1.0; 0.1; 0.4; 0.6; 1.0; 1.4
- Overall Balance, cash basis (incl. change in arrears): -5.4; -5.0; -4.8; -4.6; -4.3; -4.0; 0.1; 0.4; 0.7; 1.1; 1.5
- Financing Needs: 0.0; 0.9; 0.8; 0.6; 0.1; 0.0; -0.1; -0.4; -0.6; -1.0; -1.4
- Memorandum Items:
  - Public Debt: 62.5; 61.7; 61.0; 60.3; 59.4; 55.3; -0.1; -0.3; -0.6; -1.1; -1.9
  - Current Account Balance: -12.3; -11.1; -10.4; -9.8; -9.2; -8.6; 0.2; 0.4; 0.6; 0.8; 1.0

### Financial sector assessment and recommendations
- Financial sector structure and trends:
  - System competitive with significant foreign bank presence; foreign banks account for 66 percent of banking system assets.
  - Financial depth improved but intermediation limited; credit concentrated in retail trade, public works, and transportation.
  - Since December 2013, loans to public works companies increased, substituting for manufacturing and transportation.
- Financial soundness (key indicators, end-of-period unless noted; 2015 data to end-March):
  - Regulatory Capital / Risk-weighted Assets: 2011: 11.7, 2012: 11.4, 2013: 11.4, 2014: 8.5, 2015: 8.9
  - Base Capital / Risk-weighted Assets: 2011: 10.6, 2012: 9.8, 2013: 10.0, 2014: 7.2, 2015: 7.5
  - NPLs / Gross Loans: 2011: 10.9, 2012: 11.4, 2013: 12.5, 2014: 15.4, 2015: 15.6
  - Return on Assets: 2011: 2.0, 2012: 1.6, 2013: 1.6, 2014: 0.9, 2015: n.a
  - Return on Equity: 2011: 13.6, 2012: 22.9, 2013: 24.0, 2014: 19.4, 2015: n.a
  - Liquid Assets / Total Assets: 2011: 33.4, 2012: 44.6, 2013: 43.8, 2014: 43.5, 2015: 41.7
  - Liquid Assets / Total Deposits: 2011: 46.4, 2012: 65.7, 2013: 67.3, 2014: 63.6, 2015: 58.9
- Risks in microfinance:
  - As of July 2015, about 100 out of 185 microfinance institutions operated without license.
  - Sector suffers governance problems, weak information systems, capacity constraints, and deterioration in credit portfolios.
  - Microfinance supervisor CAS-IMEC is grossly understaffed.
- Staff-recommended urgent actions:
  - Stricter enforcement of regulatory framework, including single large exposure limits.
  - Banks not properly capitalized should be called to increase capital; noncompliant banks should take remediation action or be subject to resolution.
  - Adopt least-cost resolution options for nonviable financial entities.
  - Strengthen microfinance supervision and decide on institutions under provisional administration.

### Public financial management, statistics, and data priorities
- PFM reform needs:
  - Capacity shortfalls require technical assistance; challenge to find IT expertise to link customs and internal revenue systems for OTR benefits.
  - Priorities for Treasury cash management: (i) feed the Treasury Forecast model with quality data; (ii) establish operational process to update the Treasury Plan; (iii) enact decree committing line ministries to draft an engagement plan.
  - Priorities for TSA: (i) integrate central administration entities in the TSA and finalize TSA at the BCEAO; (ii) analyze balance sheets of entities to join TSA and find solutions for deficits; (iii) sign and implement TSA Cashier Agreements with agent banks.
  - State Minister intends to proceed with Ministry of Finance reorganization after 2016 budget work completed.
- Statistical capacity and data gaps:
  - INSEED established February 2015; plans to clear national accounts lags for 2011–15 by 2017; national CPI with national coverage planned for publication in January 2016.
  - National accounts published with long lags; base year for constant price GDP is 2007.
  - Government finance statistics derived from weak accounting/reporting systems with large discrepancies and delays; debt database weakened since HIPC completion recognition issues.
- Staff recommendations on statistics:
  - Strengthen INSEED staffing to reduce lags and produce preliminary GDP data.
  - Finalize projects: clear national accounts lags by 2017; household budget survey (Quibb) for 2015; CPI with national coverage; new economic activity indices.
  - Improve fiscal data consistency: establish a Steering Committee to direct priority improvements (e.g., arrears) and base next-year budget projections on current-year execution projections.

### Macro projections and key indicators (selected series and values)
- Real GDP (annual percent change series): 5.9 5.4 5.4 5.4 5.6 5.6 5.6 5.5 5.5
- Consumer price index (average): 2.6 1.8 0.2 1.9 2.1 2.5 2.5 2.5 2.5
- GDP (CFAF billions): 1,999 2,149 2,277 2,459 2,659 2,875 3,106 3,352 3,614
- Total revenue and grants (percent of GDP): 19.2 20.9 19.7 21.0 21.4 21.6 21.6 21.8 21.7
- Current account balance (percent of GDP memoranda): -7.5 -13.0 -12.8 -12.3 -11.3 -10.8 -10.4 -10.0 -9.6
- Central government aggregates (CFAF billions, selected): Revenue and grants 383.5 449.1 448.2 534.4 517.2 568.8 619.9 669.9 729.2 785.6; Domestically financed public investment 70.9 76.9 104.1 142.6 131.0 130.3 127.9 145.0 153.5 168.7.

### Implementation priorities and sequencing
- Prioritized institutional and PFM measures advised given political and capacity constraints:
  - Leverage OTR to modernize revenue administration: appoint OTR Board; back each exemption with an agreement for ex-post verification; ideally replace exemption regime with tax reimbursement regime; prohibit immediate release of imports beyond customary goods and process all imports through ASYCUDA; segment taxpayers based on company turnover.
  - Improve Treasury cash management and complete TSA establishment.
  - Continue implementing PFM reforms transposed from WAEMU directives; enhance liquidity forecasts and budget execution practices.
- Financial sector priorities:
  - Enforce regulatory framework; resolve problem banks; strengthen microfinance supervision; decide on institutions under provisional administration.
- Structural transformation priorities:
  - Improve public investment management quality; crowd-in private investment; open mining, telecom, and energy to private competition; target Doing Business indicators with monitorable action plans.

### Authorities’ views and responses (summarized)
- Authorities generally agree with staff on outlook challenges but are more optimistic on medium-term growth (>6 percent) and a faster narrowing of the current account deficit once major investments complete.
- Authorities emphasize vigilance in borrowing strategy and reliance on WAEMU bond market for domestic financing.
- Authorities’ responses to staff recommendations (selected):
  - "Fuel subsidies have been virtually eliminated by January 2015."
  - OTR established; SIGFIP being enhanced; WAEMU directives transposed locally.
  - Provisional administration actions ongoing for public banks; strategy being developed for BTCI and UTB.
  - Progress in Doing Business ranking: moved from 164th to 142nd in 2015.
  - Committed to strengthening INSEED and requested technical assistance for debt management capacity.
- Authorities differ with staff on debt risk perception: they reference WAEMU nominal debt-to-GDP convergence threshold of 70 percent and note market demand for Togolese securities; staff uses PV-based LIC-DSA metrics and additional indicators (debt-to-revenue, debt-to-exports).

*International Monetary Fund staff report excerpt for the 2015 Article IV consultation on Togo.*

### 0.2 percent in 2014 mainly due to declining food prices and reductions in retail fuel prices.

### _cr15309 - 0.2 percent in 2014 mainly due to declining food prices and reductions in retail fuel prices.

### Recent developments and context
- Output growth averaged 5.4 percent in 2013-14, supported by productivity gains in agriculture and public investment in infrastructure.
- Inflation slowed mainly due to declining food prices, associated with the good harvest in 2014, and reductions in retail fuel prices.
- The current account deficit widened from 7.5 percent of GDP in 2012 to 13 percent of GDP in 2013–14, primarily because higher imports of intermediary goods and petroleum products linked to transportation network development outpaced export performance.
- Public debt increased from 46 percent of GDP in 2012 to 58 percent of GDP in 2014, with investment spending and debt service putting pressure on the budget and liquidity.
- Structural and operational constraints: equipment constraints slowed phosphate exploitation; operational accidents and strikes interrupted clinker and cement production; currency depreciations in key trading partners reduced external demand for Togolese exports.
- Institutional progress: Doing Business ranking improved (top 10 most improved in 2015); establishment of a single window for business registration; revenue administration and PFM reforms underway; Treasury Single Account (TSA) not yet in place; re-organization of the Ministry of Finance not started; privatization of two state banks stalled.

### Outlook and risks
- Growth projection:
  - Growth is expected to average 5.5 percent in 2015–18, supported by agricultural production, transportation services linked to international trade, and the impact of investments in transport infrastructure.
- External and fiscal projections:
  - Current account deficit is projected to improve marginally to 12.25 percent of GDP in 2015 as a result of lower oil prices.
  - Current account deficit is projected to narrow only to 9.5 percent of GDP by 2020 with the gradual decline in the fiscal deficit and increased savings of state-owned enterprises.
- Inflation: expected to remain subdued in line with WAEMU trend.
- Main risks to the baseline:
  - Largely home-grown risks: limited fiscal consolidation, inaction in public financial management (PFM) reform, delays in reforms in mining, energy, telecommunications, and the business environment.
  - External risks: a sharp slowdown in regional or global growth that would affect key trading partners.
- Other noted vulnerabilities: continued high poverty concentrated in rural areas; rapid public investment pace raising public debt and current account pressures.

### Executive Board assessment and Directors’ recommendations
- Board assessment:
  - Executive Directors welcomed Togo’s strong recent economic growth driven by agricultural productivity gains and public infrastructure investment and noted improvements in social indicators.
  - Directors cautioned that rapid public investment has raised public debt and the current account deficit.
  - Directors emphasized the need to improve fiscal balances, complete key fiscal reforms, address financial sector weaknesses, and promote structural transformation for more inclusive growth.
- Key policy recommendations (direct quotations and exact formulations preserved where possible):
  - Place fiscal balances on a sustainable path to ensure debt and external sustainability and create space for social spending.
  - Anchor public finances on a domestic primary balance to reduce the public debt-to-GDP ratio over the medium term.
  - Control current spending, including by continuing to reduce fuel subsidies.
  - Raise the efficiency of public investment to ensure it raises growth.
  - Enhance public financial and debt management and complete key fiscal reforms, including:
    - reorganization of the Ministry of Finance;
    - developing an effective debt and treasury cash management;
    - establishing a treasury single account;
    - modernizing revenue administration.
  - Enforce the regulatory framework in the financial sector, resolve problem banks, and strengthen supervision in the microfinance sector.
  - Banks with weak regulatory indicators should take immediate corrective action or be subject to resolution; implement least-cost resolution options when dealing with nonviable financial entities.
  - Accelerate structural reforms to raise potential growth, including:
    - enhancing public investment management;
    - opening key economic sectors (mining, telecommunications, and energy) to private sector competition;
    - further improving the business environment;
    - investing in social development to make growth inclusive.
  - Improve timeliness and consistency of national accounts and fiscal data; welcome establishment of the national statistics institute.

### Selected key statistics and projections (as reported)
- Output and prices:
  - Output growth averaged 5.4 percent in 2013-14.
  - Growth is expected to average 5.5 percent in 2015–18.
  - Inflation slowed in 2014 due to declining food prices and reductions in retail fuel prices.
- External sector and debt:
  - Current account deficit: 7.5 percent of GDP in 2012; 13 percent of GDP in 2013–14.
  - Current account deficit projected at 12.25 percent of GDP in 2015 and 9.5 percent of GDP by 2020.
  - Total public debt: 46 percent of GDP in 2012; 58 percent of GDP in 2014.
- Fiscal balances:
  - Fast pace of public investment contributed to higher public debt and current account deficit.
  - Need to improve domestic primary balance to reduce total public debt in the medium term.

*International Monetary Fund staff report excerpt for the 2015 Article IV consultation on Togo.*

### 7.      The risks to baseline forecasts are largely home-grown, although a sharp slowdown in

### _cr15309 - 7.      The risks to baseline forecasts are largely home-grown, although a sharp slowdown in

### Risks to baseline forecasts
- Main risk drivers are largely domestic (home-grown); a sharp slowdown in regional or global growth would also have an impact (Annex II).
- Limited fiscal consolidation would lead to further accumulation of public debt; inaction in PFM would result in less efficient spending and debt management.
- Delays in opening key sectors (mining, energy, telecommunications) to private sector competition, and in improving the business environment, would dampen medium-term growth prospects.
- A protracted slowdown in advanced and emerging markets would affect Africa and Togo, mainly via key trading partners such as Ghana and Nigeria; impact would be moderate given Togo’s relatively diversified country and product base for exports.
- Given Togo’s isolation from global financial markets, the main channel for global shocks is through imported food and oil inflation, or through prices of Togo’s commodity exports.
- Further deterioration in the terms of trade would dampen growth.
- Political risks hinge on government capacity to deliver growth, social spending, and job creation; population pressures with large numbers joining the labor force may generate social and political discontent. Next elections not due until 2018, offering a window to deliver promises.

### Authorities’ views on outlook and risks
- Authorities largely agreed with staff on outlook and challenges but are more optimistic about medium-term growth and the current account deficit.
- Authorities’ expectations and views:
  - Economic growth will be above six percent over the medium-term as recent infrastructure investments lay a foundation for private-sector participation.
  - Agriculture will continue as an engine of growth, benefiting from government productivity-enhancing programs.
  - The increase in the current account deficit is temporary and will narrow faster than staff projections once large investments are completed.
  - Persistent appreciation of the U.S. dollar is perceived as the biggest risk because of its impact on debt service and import prices, particularly capital and intermediary imports for infrastructure projects.
  - Microfinance sector seen as most vulnerable to shocks for financial stability risks.
  - Resistance of interest groups to reforms is unlikely to impact growth due to ongoing business environment improvements.
  - Risk of social unrest considered minimal, citing the peaceful 2015 presidential election.

### Achieving fiscal and debt sustainability — recent developments and fiscal outlook
- Fiscal stance has been expansionary in recent years; rapid increase in domestically-financed investment led to widening primary domestic deficits and debt accumulation.
- Planned revenue increases to offset capital spending did not materialize due to delayed start of operations at the Revenue Authority (OTR).
- Current spending was reduced to the essential, except for the wage bill and oil price subsidies.
- Financing shortfalls arose from privatization revenue shortfalls and cut-backs in donor budget support.
- Improved revenue performance is likely to partially reduce the deficit in 2015:
  - Staff expects tax revenue to rise to 16.8 percent of GDP in 2015.
  - This is a tangible increase from the average collection of around 15.6 percent during 2012-2014.
- Medium-term budget outlook constrained by current expenditure policies:
  - Unresolved wage claims and piecemeal hiring/compensation decisions likely to pressure the wage bill.
  - If authorities do not pass through projected higher oil prices in the medium term, fuel price subsidies will continue to burden the budget (at ¾ percentage points of GDP).
  - Pre-financing contracts commit budgets to high levels of outlays in the short to medium term; available fiscal data do not include the value of current pre-financing contracts.
  - Elevated, albeit declining, fiscal deficits under current policies would not eliminate budget financing gaps and would allow only moderate reductions in the public debt-to-GDP ratio and the current account deficit, leaving vulnerability to shocks.
- Debt accumulation and vulnerability:
  - Togo has accumulated debt faster than expected, significantly increasing debt relative to the 2013 DSA.
  - Main sources: bond and treasury bills to finance the deficit, external loans of public enterprises, and external loans for public investments.
  - Togo remains at a moderate risk of external public debt distress.
  - Under the baseline scenario, all external debt sustainability indicators remain below indicative thresholds through 2015–35; however, four out of five indicators breach thresholds under alternative scenarios and stress tests.
  - Overall public debt dynamics present heightened vulnerabilities, with the debt-to-GDP ratio remaining above the indicative benchmark for most of the projection period.
- Public debt management weaknesses:
  - Functions scattered across entities that do not share information systematically; lack of a global overview and risk assessment.
  - Fragmentation precludes designing a Medium Term Debt Strategy (MTDS) in line with good practices.
  - Classification of public debt stock excludes some instruments, such as Treasury bonds and some arrears.
- Exchange rate and domestic market risks:
  - Significant part of external debt is denominated in foreign currencies other than the Euro—exposure to exchange rate risks.
  - Increase in domestic debt, partly contracted in the WAEMU financial market and with short maturities due to increased use of Treasury bills, exposes economy to rollover and refinancing risks.
  - With a rapid rise in government securities on the regional market, Togo has the highest level of domestic debt-to-GDP ratio within the WAEMU.

### Staff recommendations to reset fiscal balances and reinforce sustainability
- Anchor public finances on a domestic primary balance that would gradually reduce the public debt-GDP ratio:
  - Move to a 1.0 percent of GDP domestic primary surplus by 2020, up from a projected deficit of 1.7 percent of GDP this year.
  - Revenue-side measures: accelerate reforms in revenue administration and overhaul exemption and tax expenditure system.
  - Expenditure-side measures: stricter control on public employment numbers to ensure the wage bill declines in percent of GDP; reform compensation system for public employees.
  - Reduce fuel price subsidies by consistently applying the existing price adjustment formula.
- Gradually redistribute allocations towards social spending:
  - With large infrastructure projects mostly completed, reduce total allocation while investing more in social sector and secondary and feeder roads to finance new social spending initiatives proposed by the President.
- Undertake projects fully integrated in all phases of the budget process:
  - Investment contracts should (i) follow procurement process; (ii) be fully integrated in all budget phases; (iii) require payments after verification of completed work.
  - Pre-financed investments make it difficult to follow PFM standards because government payments to banks are on fixed installment schedules independent of contractors’ completion timing.
- Reorganize the Ministry of Finance:
  - Create an effective debt management unit.
  - Strengthen the budget department to encompass budget preparation, monitoring, and medium-term budget frameworks.
  - Establish a tax policy unit; the Ministry of Finance, rather than the OTR, should define tax policy.
- Strengthen debt management:
  - Centralize all debt management functions in one entity.
  - Organize the debt management unit into Front, Middle and Back Offices.
  - Build capacity and train staff.

### Projected fiscal impact of illustrative fiscal adjustment scenario (Text Table 3 — selected figures, in percent of GDP)
- Revenues and Grants: 21.0; 21.4; 21.7; 21.7; 21.9; 22.0; 0.0; 0.1; 0.2; 0.2; 0.3
  - Total Revenue: 18.8; 19.0; 19.2; 19.7; 19.9; 20.1; 0.0; 0.1; 0.2; 0.2; 0.3
  - Tax Revenue: 16.8; 17.0; 17.3; 17.6; 17.8; 18.0; 0.0; 0.1; 0.1; 0.1; 0.2
  - Non-Tax Revenue: 1.9; 2.0; 2.0; 2.1; 2.1; 2.1; 0.0; 0.0; 0.1; 0.1; 0.1
- Expenditures and Net Lending: 26.3; 25.9; 25.9; 25.8; 25.7; 25.4; -0.1; -0.3; -0.5; -0.9; -1.2
  - Wages and Salaries: 6.6; 6.5; 6.3; 6.2; 6.1; 6.0; -0.1; -0.2; -0.3; -0.4; -0.5
  - Transfers and Subsidies: 5.2; 5.1; 5.5; 5.8; 5.7; 5.6; 0.0; 0.0; 0.0; -0.1; -0.2
    - of which: Oil Price Support: 0.3; 0.3; 0.3; 0.3; 0.3; 0.3; 0.0; -0.3; -0.5; -0.5; -0.5
  - Public Investment: 9.7; 9.6; 9.3; 8.9; 8.7; 8.5; 0.0; -0.1; -0.2; -0.4; -0.6
- Domestic Primary Balance: -1.7; -0.8; -0.3; -0.1; 0.5; 1.0; 0.1; 0.4; 0.6; 1.0; 1.4
- Overall Balance, cash basis (incl. change in arrears): -5.4; -5.0; -4.8; -4.6; -4.3; -4.0; 0.1; 0.4; 0.7; 1.1; 1.5
- Financing Needs: 0.0; 0.9; 0.8; 0.6; 0.1; 0.0; -0.1; -0.4; -0.6; -1.0; -1.4
- Memorandum Items:
  - Public Debt: 62.5; 61.7; 61.0; 60.3; 59.4; 55.3; -0.1; -0.3; -0.6; -1.1; -1.9
  - Current Account Balance: -12.3; -11.1; -10.4; -9.8; -9.2; -8.6; 0.2; 0.4; 0.6; 0.8; 1.0

### Impact of recommended measures and implementation priorities
- Effect of recommended steps would stabilize and gradually reduce public debt from a peak of 58 percent of GDP in 2014 to 55 percent by 2020, helping avoid high debt distress classification.
- Staff noted continued exposure to exchange rate risks and rollover/refinancing risks due to domestic debt composition and maturities.
- Prioritized institutional and PFM measures advised given political and capacity constraints:
  - Leverage the OTR to modernize revenue administration: appoint the OTR Board of Directors; each exemption backed by an agreement specifying exempted goods for ex-post verification; ideally replace exemption regime with a tax reimbursement regime; prohibit immediate release of imports beyond customary goods and process all imports through ASYCUDA; segment taxpayers based solely on company turnover.
  - Improve Treasury cash management and complete establishment of the TSA.
  - Continue implementing key PFM reforms transposed from WAEMU directives; complete TSA implementation; enhance liquidity forecasts and budget execution practices.

*TOGO — INTERNATIONAL MONETARY FUND*

### 23.      The authorities agreed with the thrust of staff advice, and emphasized that capacity

### _cr15309 - 23.      The authorities agreed with the thrust of staff advice, and emphasized that capacity

### Revenue administration and public financial management (PFM) reforms
- Capacity shortfalls need to be supported by technical assistance.
- Specific challenge: find IT expertise to establish links between customs and internal revenue systems to reap synergies from the establishment of the OTR.
- Reform plan spans:
  - fiscal reporting,
  - organization of the MEF,
  - budget preparation and execution,
  - cash management,
  - treasury single account (TSA),
  - module on revenue administration reform.
- Tax exemptions and tax expenditures are increasing and their lack of specificity is making ex-post controls difficult.
- Committees on exemptions, tax expenditures on projects, and industrial zones should provide recommendations on operational reforms to reduce revenue leakages.
- Priorities for Treasury cash management:
  - (i) feed the Treasury Forecast model with quality data;
  - (ii) establish an operational process to regularly update the Treasury Plan;
  - (iii) enact the decree committing line ministries to draft an engagement plan.
- Priorities for TSA:
  - (i) integrate the central administration entities in the TSA and finalize the TSA at the level of the BCEAO;
  - (ii) analyze the balance sheets of the other entities that are to join the TSA and find solutions for those which will be found in deficit;
  - (iii) sign and implement immediately the TSA’s Cashier Agreements between the Treasury and the identified agent banks.
- State Minister of Economy, Finance and Development Planning intends to proceed with the reorganization of his ministry as soon as work for the 2016 budget is completed.

### Financial sector description and trends
- Financial sector is competitive with a significant presence of foreign banks.
- Foreign banks account for 66 percent of the banking system assets.
- Financial depth increased over the past decade but degree of financial intermediation (loans’ term structure and diversification across sectors) remains limited.
- Banks’ credit portfolio serves mainly large and medium sized businesses in retail trade, public works, and transportation.
- Since December 2013, loans to companies performing public works (mainly roads) have increased in the banking system portfolio, substituting for other economic activities such as manufacturing and transportation.
- This shift has been facilitated by a rapid increase in BCEAO financing.

### Financial soundness (key indicators, end-of-period unless noted)
- Overall system is sound, but financial condition of some banks weakened since 2013.
- Banking sector respects minimum solvency ratio (8 percent) as a whole, but 3 out of 13 banks were under-capitalized as of March 2015.
- Large exposures to single creditors remain widespread; only 5 banks out of 13 respected the prudential ratio as of March 2015.
- Text Table 4: Togo: Financial Soundness Indicators, 2011–15 (in percent, end of period). Data for 2015 corresponds to end of March.
  - Solvency Ratios
    - Regulatory Capital / Risk-weighted Assets: 2011: 11.7, 2012: 11.4, 2013: 11.4, 2014: 8.5, 2015: 8.9
    - Base Capital / Risk-weighted Assets: 2011: 10.6, 2012: 9.8, 2013: 10.0, 2014: 7.2, 2015: 7.5
  - Asset Quality
    - NPLs / Gross Loans: 2011: 10.9, 2012: 11.4, 2013: 12.5, 2014: 15.4, 2015: 15.6
  - Profitability
    - Return on Assets: 2011: 2.0, 2012: 1.6, 2013: 1.6, 2014: 0.9, 2015: n.a
    - Return on Equity: 2011: 13.6, 2012: 22.9, 2013: 24.0, 2014: 19.4, 2015: n.a
  - Liquidity
    - Liquid Assets / Total Assets: 2011: 33.4, 2012: 44.6, 2013: 43.8, 2014: 43.5, 2015: 41.7
    - Liquid Assets / Total Deposits: 2011: 46.4, 2012: 65.7, 2013: 67.3, 2014: 63.6, 2015: 58.9

### Risk assessment and microfinance sector
- WAEMU-level consultation highlighted Togo’s financial system is among the most vulnerable in the region; potential deterioration in credit risk or default of concentrated exposures would affect Togo among the most.
- A large state-owned bank continues to have difficulty respecting solvency ratios, constituting a fiscal risk.
  - Provisional administrator (PA) term ended at end-June 2015; PA proposed recapitalization and improvement of the bank over a year; general assembly approved the proposal.
- A second bank under provisional administration since 2013 is a small private bank representing 0.5 percent of the banking system assets.
- Microfinance sector:
  - Greater reach in Togo than in other WAEMU countries but plagued by structural weaknesses and unregulated activity.
  - As of July 2015, about 100 out of 185 microfinance institutions operated without license.
  - Sector suffers governance problems, weak information systems and capacity, difficulty adapting to new regulatory framework, and deterioration in the credit portfolio.
  - Three microfinance institutions under provisional administration have showed little progress.
  - Microfinance supervisor, CAS-IMEC (a division of the MEF), is grossly understaffed and needs significant institutional strengthening.

### Staff-recommended urgent actions for the financial sector
- Stricter enforcement of the current regulatory framework, including regarding the relatively lax single large exposure limit to reduce credit risk.
- Banks not properly capitalized should be called to increase their capital to improve their ability to face shocks.
- Banks not respecting regulatory minima should take immediate remediation action or be subject to resolution.
- Adopt the least-cost resolution option when dealing with nonviable financial entities to limit budgetary impact.
- Strengthen the supervisory body for microfinance institutions and prepare a strategy to either incorporate illegal decentralized financial institutions into the regulatory system or close them.
- Decide on institutions under provisional administration and those facing financial difficulties (recapitalization or restructuring).

### Authorities’ views (financial sector and reforms)
- Authorities hold a more positive view of developments and options for the public bank facing difficulties; they perceive results achieved by the provisional administration as promising and are not considering restructuring or selling the bank at its current state.
- Authorities agreed on importance of addressing microfinance sector weakness.
- Actions noted: March 2015 WAEMU directive increasing minimum capital requirements:
  - Banking sector: from CFAF 5 billion to CFAF 10 billion.
  - Microfinance sector: from CFAF 1 billion to CFAF 3 billion.

### Promoting structural transformation to raise growth
- Growth in Togo has been weak and highly volatile; most growth over decades attributable to labor accumulation, while human capital accumulation remained low and total factor productivity negative.
- Government strategy emphasizes improving transport networks and ambitious investment plans including social infrastructure.
- Togo’s performance at all stages of the investment cycle lags behind WAEMU countries and fragile LICs.
- Staff noted increasing public investment alone may not unlock growth; complementary policies needed to achieve higher growth and sustainable debt:
  - improve quality of public investment,
  - crowd-in private investment,
  - widen economic space for SMEs and FDI,
  - boost exports.
- Staff advice to look beyond physical investment:
  - Invest in investing: improvements in public investment management can significantly enhance quality and economic growth.
  - Open to more private sector competition in sectors with high government presence—mining, telecom, energy. Arrears to utility companies should be settled after verification.
  - Further improve the business environment: target specific Doing Business Indicators where Togo performs poorly (e.g., paying taxes, getting credit, land tenure) with a monitorable and highly publicized action plan.

### Authorities’ views (infrastructure, energy, mining)
- Authorities agreed with staff advice and felt more infrastructure could be delivered via public-private partnerships.
- Authorities aware that chronic lack of energy stifles growth and long-term solutions are needed to increase domestic generation.
- Medium-term: Adjarala dam project expected to provide more than half of Togo’s electricity imports.
- On mining: a new mining code under finalization should lay the foundation for more development and foreign participation.

### External sustainability — challenges and recommendations
- Large current account deficit poses a risk to external stability; related to relatively loose fiscal stance and high level of private and public investment.
- Current account deficit mainly financed by concessional lending and grants; increased use of commercial sources (e.g., China) renders Togo more vulnerable.
- Different assessments of the real exchange rate point towards an overvaluation between 7 and 14 percent.
  - Text Table 5: Exchange Rate Assessment (EBA-lite) — Real Exchange Rate Gap (Positive value indicates overvaluation)
    - CA model- NormUnderlying: -6.8-12.3 13.8
    - External Sustainability- -4.5-9.6 12.8
    - IREER--7.0
- Exports fairly diversified but concentrated in low value-added products and re-exports: mining (phosphate, clinker), cash-crops (cotton, cocoa), cement, re-exports (oil-related products, vehicles, fertilizers, cosmetics, textiles).
- Progress in non-price competitiveness: reduced time to start a business and to register property, but lags behind in other business environment indicators.
- Togo’s export share in the regional market did not improve during 2008–14.
  - Text Table 6: Togo: Exports' market share in the WAEMU
    - Togo exports (% of WAEMU exports): 2008–2014: 5.4, 6.1, 6.3, 6.2, 6.0, 5.6, 5.7
    - Togo exports (% of GDP): 2008–2014: 36.2, 35.9, 37.8, 40.9, 44.9, 44.7, 42.2
    - WAEMU (% of GDP, excl. intraregional trade): 24.9, 26.5, 28.2, 28.2, 28.1, 26.0, 25.6

- Staff recommendations on external sustainability:
  - Pursue a tighter fiscal stance to reduce the current account deficit and ensure long-term external stability; fiscal consolidation would help eliminate external financing gaps and attract additional financing, including donors.
  - Be prudent in borrowing on non-concessional terms; borrowing plans for investment should consider medium and long-term debt sustainability.
  - Increase the value-added component of exports; pursue efforts to increase productivity in agriculture (e.g., PNIASA) and implement an agro-industrial development strategy focused on productivity and participation in global value-added chains.

### Authorities’ views (external position)
- Authorities consider recent large public investments in infrastructure will foster development and growth.
- They view the large current account deficit mainly as a by-product of the temporary increase in public and private investment.
- They project a more accelerated reduction in the current account than staff and expect a faster pick-up in exports (in particular clinker and extracting industries) and contraction of imports related to roads construction projects coming to an end.
- They do not think the wider current account deficit is linked in the short term to a possible overvaluation of the real exchange rate.

*IMF staff report excerpt: _cr15309 - 23. The authorities agreed with the thrust of staff advice, and emphasized that capacity*

### 43.      The authorities noted that they remain vigilant in terms of their borrowing strategy.

### _cr15309 - 43.      The authorities noted that they remain vigilant in terms of their borrowing strategy.

### Borrowing strategy and financing
- The authorities remain "vigilant in terms of their borrowing strategy."
- To finance from domestic sources investments in infrastructure, the authorities are relying on the WAEMU bond market, where, in their view, "there is ample appetite for Togolese bonds."

### Business climate
- The authorities agreed that "improving the business climate is paramount to ensure sustainable and inclusive growth."
- They plan to "accelerate improvements in business environment."

### Data issues and statistical capacity
- Establishment of the National Statistics, Economic and Demographic Studies Institute (INSEED) in February 2015 is described as "a positive development."
- National accounts timing:
  - "National accounts are finalized with a very long lag."
  - "National accounts for 2010 were finalized in May 2015."
  - Given limited resources, plans to build quarterly national accounts have been cancelled to prioritize the preparation of "2011-15 national accounts, and work on the transition to the System of National Accounts 2008."
- Consumer Price Index coverage and plans:
  - "The Consumer Price Index covers only Lomé."
  - Work on a national consumer price index "has already started and its publication is scheduled for January 2016."
- Fiscal data production issues:
  - Data production is "compartmentalized and not checked for consistency across departments."
  - "The quarterly validation meetings of the TOFE reports have not yet resulted in important improvements in quality, particularly in the areas of end-of-year operations and accounting of arrears and payment delays."
  - "The budget preparation process is weakened by limited information on execution during the year."

### Staff recommendations on statistics and fiscal data
- National accounts:
  - "To reduce the lags in production of national accounts and improve the production of preliminary GDP data, the authorities need to strengthen the staffing of the INSEED."
- New statistical initiatives:
  - Projects to be finalized because they "would contribute greatly to inform economic policy decisions":
    - Clearing the lags in national accounts by 2017.
    - A household budget survey (Quibb) for 2015.
    - A CPI with national coverage.
    - New economic activity indices on international trade and firm sales.
- Consistency of fiscal data:
  - "A new Steering Committee (SC) should provide direction on priority improvements (e.g., arrears) to technical staff."
  - "The budget projection for the following year should be based on projection for budget execution in the current year."

### Authorities’ views on data governance
- The authorities "agreed with the importance of developing economic statistics and strengthening statistical units with staffing and resources."
- They considered that establishing a Steering Committee "is not necessary, as the recently established TOFE Validation Committee is gathering momentum."

### Staff appraisal — macroeconomic assessment and risks
- Growth and development:
  - "Economic growth in Togo has been strong reflecting productivity gains in the agricultural sector and major transport infrastructure projects."
  - The pace of growth "has contributed to improving human development indicators, though poverty remains high, particularly in rural areas."
- Public investment and vulnerabilities:
  - "The fast pace of public investment has laid the basis for higher growth but has also contributed to a pronounced increase in public debt and current account deficit."
- Debt and fiscal sustainability:
  - To ensure debt and external sustainability, "fiscal balances need to be placed on a sustainable path, while generating fiscal space for social spending to make growth more inclusive."
  - Given "Togo’s high debt vulnerability and low debt management capacity, the risks of slipping into debt distress are now more elevated, warranting fiscal adjustment."
  - Public finances need to be anchored on "a domestic primary balance that would gradually reduce the public debt-to-GDP ratio over the medium term."

### Key reforms and policy recommendations
- Institutional and public financial management reforms with maximum impact:
  - "(i) reorganization of the Ministry of Finance, in particular to improve debt management, strengthen budget preparation and monitoring, develop medium-term budget frameworks, and design tax policy;"
  - "(ii) developing an effective Treasury cash management;"
  - "(iii) establishing a Treasury Single Account."
- Revenue administration:
  - Following establishment of the OTR, "the reforms in revenue administration have resulted in improvement in revenue performance."
  - OTR "should be leveraged to fully modernize revenue administration."
- Financial sector and supervision:
  - "There is need to enforce the regulatory framework in the financial sector, solve problem banks, and strengthen supervision in the microfinance sector."
  - "Banks not respecting the regulatory indicators should take immediate corrective action or be subject to resolution."
  - "The authorities should implement least-cost resolution options when dealing with nonviable financial entities."
  - Strengthen supervision in the microfinance sector, which is "plagued by structural weaknesses and unregulated activity."
- Structural transformation and competitiveness:
  - Improve transport networks (already a principal component of the government’s strategy).
  - Complement transport improvements with:
    - "improvements in public investment management;"
    - "opening to private sector competition key economic sectors, such as mining, telecom, and energy;"
    - "further improvements in the business environment."

### Implementation priorities for data and fiscal transparency
- Complete INSEED projects on national accounts, CPI, and economic activity indices and "its staffing should be strengthened."
- Fiscal data production improvements:
  - Implement "a more formal budget execution monitoring exercise and communication across departments for consistency."

*Source: IMF staff report content (sections 43–56).*

### 57.      It is proposed that the next Article IV consultation take place on the standard 12–

### _cr15309 - 57.      It is proposed that the next Article IV consultation take place on the standard 12–

### Economic activity (2011–14)
- Agricultural production supported activity in 2014:
  - Foodstuff agricultural production (Volumes, base=100 in 2011): Yam, Manioc, Corn (Figure shows indices up to 2014; source: Togolese authorities; IMF staff estimates).
  - Internationally traded agricultural products improved: Cocoa, Cotton, Coffee (indices base=100 in 2011).
- Extraction and industrial activities underperformed in 2014 due to technical difficulties and strikes (cement, phosphate, clinker volumes in millions of tonnes declined).
- Services weakened in 2014:
  - Transit activity at the Port of Lomé (millions of tonnes) weakened.
  - Airport passenger arrivals flattened (number of individuals).
- Inflation dynamics:
  - Food inflation was negative in 2014 and core inflation was subdued.
  - Time-series plot of Food Inflation and Measures of Core Inflation (year-on-year change, in percent) from Apr-10 to Apr-15 shows Food inflation, Non-food inflation, and Non-food non-transportation components.

### External sector (2010–14)
- Current account dynamics (percent of GDP):
  - Balance of goods, services, primary income, secondary income shown for 2010–2014 (Figure).
  - The current account deteriorated recently mainly due to an increase in the trade deficit.
- Trade and imports composition:
  - Trade Balance (percent of GDP) and exports/imports of goods and services plotted 2010–2014.
  - Increase in imports between 2012 and 2013 driven by a surge of imports, especially higher intermediary goods and oil imports.
  - Imports by category (percent of GDP) highlight Petroleum products, Capital goods, Consumption goods, Intermediate goods shares.
- Financing and capital flows:
  - Financing is mostly accounted for in the capital account and FDI (chart: Other investment, Portfolio, FDI, Capital account, Current account(-) BOP Financing in percent of GDP).

### Medium-term macroeconomic prospects (2010–20)
- Growth and inflation:
  - Real GDP (Percent change) series for 2010–2020 plotted for Togo, SSA, WAEMU excl. Togo.
  - Consumer Price Index (Percent change) series for 2010–2020 plotted for SSA, Togo, WAEMU excl. Togo.
  - Text: Growth is expected to remain sustained thanks to agricultural production and investments in infrastructure; inflation to pick up reflecting normalization in food prices, then stabilize.
- Fiscal outlook:
  - Government Revenue (Percent of GDP) plotted 2010–2020 (Tax revenue, Non-tax revenue).
  - Government Expenditure (Percent of GDP) plotted 2010–2020 (Primary domestic current, Interest payments, Capital).
  - Text: Total revenue would gradually increase supported by revenue administration reforms; government expenditures expected to stabilize as big infrastructure projects are finalized; leading to improvement in the fiscal position.
- External position:
  - External Position chart includes WAEMU reserves in months of imports (RHS), Trade balance and Current account balance (LHS).
  - Text: External position would stabilize but remain negative.

### Comparison of Article IV projections (2010–15)
- Fiscal and debt comparisons 2013 Article IV vs 2015 Article IV (Figure 4):
  - Domestic Primary Balance (Percent of GDP): 2013 Art IV vs 2015 Art IV series for 2010–2015.
  - Overall Fiscal Balance, cash basis (Percent of GDP): 2013 Art IV vs 2015 Art IV.
  - Total Public Debt (Percent of GDP): 2013 Art IV vs 2015 Art IV.
  - Tax Revenue (Percent of GDP) and Domestically Financed Public Investment (Percent of GDP) comparisons.
  - Current Expenditure (Percent of GDP) comparison.
- Text findings:
  - The domestic primary deficit is now larger than projected at the time of the 2013 Article IV.
  - The overall fiscal deficit is larger than projected, mainly due to slower than expected increases in tax revenue and higher than projected domestically financed investments, while current expenditures remain contained.
  - Deficits contributed to higher debt accumulation, together with POEs arrears and new debt, and loans for public investment.

### Fiscal adjustment scenario, 2015–20 (Figure 5)
- Scenario comparisons (Baseline vs Fiscal Adjustment Scenario) for 2015–2020:
  - Domestic Primary Balance (in percent of GDP): Baseline and Fiscal Adjustment Scenario series from 2015 to 2020.
  - Total Revenue (in percent of GDP): Baseline and Fiscal Adjustment Scenario series (values increase under adjustment).
  - Current Expenditure (in percent of GDP): Baseline and Fiscal Adjustment Scenario.
  - Domestic Capital Investment (in percent of GDP): Baseline and Fiscal Adjustment Scenario.
  - Current Account Balance (in percent of GDP): Baseline and Fiscal Adjustment Scenario.
  - Public Debt (in percent of GDP): Baseline and Fiscal Adjustment Scenario (series 56, 57, 58, … 63 shown on chart vertical axis ticks).
- Text findings:
  - Returning to a positive primary domestic balance would require a significant revenue effort, control of current spending, and prioritized domestic investments.
  - These measures would lead to an improved current account and more sustainable debt levels.

### Public and publicly guaranteed external debt under alternative scenarios (2015–2035)
- Stress-test framework (Figure 6 and Figure 7):
  - Panels show Debt Accumulation; PV of debt-to-GDP ratio; PV of debt-to-exports ratio; PV of debt-to-revenue ratio; Debt service-to-exports ratio; Debt service-to-revenue ratio; Rate of Debt Accumulation; Grant-equivalent financing (% of GDP); Grant element of new borrowing (% right scale).
  - Footnotes: The most extreme stress test is the test that yields the highest ratio on or before 2025. Specific shocks identified in panels: Less Favorable Terms shock, Exports shock, Combination shock.
- Figure 7 panels:
  - PV of Debt-to-Revenue Ratio 2015–2035 with Baseline, Public debt benchmark, Most extreme shock, Historical scenario, Fix Primary Balance scenarios.
  - PV of Debt-to-GDP Ratio and Debt Service-to-Revenue Ratio 2015–2035 under alternatives.
- Text implication:
  - Stress tests indicate vulnerability under less favorable terms, exports shocks, and combinations; scenarios including fixing the primary balance and historical scenario provide alternative debt paths.

### Key macroeconomic and fiscal indicators (selected values and series from Tables)
- National income, prices, and exchange rates (Table 1: Selected Economic and Financial Indicators, 2012–20):
  - Real GDP (annual percent change series): 5.9 5.4 5.4 5.4 5.6 5.6 5.6 5.5 5.5
  - Real GDP per capita (percent series): 3.2 2.7 2.7 2.7 2.9 2.9 2.9 2.8 2.8
  - GDP deflator series: 6.5 2.0 0.5 2.5 2.4 2.4 2.3 2.3 2.2
  - Consumer price index (average): 2.6 1.8 0.2 1.9 2.1 2.5 2.5 2.5 2.5
  - GDP (CFAF billions): 1,999 2,149 2,277 2,459 2,659 2,875 3,106 3,352 3,614
- Government budget (percent of GDP series, Table 1):
  - Total revenue and grants: 19.2 20.9 19.7 21.0 21.4 21.6 21.6 21.8 21.7
  - Revenue: 17.6 18.0 17.7 18.8 19.0 19.1 19.5 19.7 19.8
  - Total expenditure and net lending: 26.4 25.5 25.0 26.3 26.1 26.2 26.3 26.6 26.6
  - Domestic primary balance (percent of GDP, definition note 1): -2.7 -1.8 -1.5 -1.7 -1.7 -0.9 -0.7 -0.7 -0.5 -0.3 (series shown for 2012–20)
  - Overall balance (cash basis): -7.8 -5.3 -6.4 -5.4 -5.2 -5.2 -5.3 -5.4 -5.4
- External sector (Table 3: Balance of Payments, 2012–20, Billions of CFA francs and percent of GDP memoranda):
  - Current account balance (Billions CFAF): -150.1 -280.0 -291.4 -303.0 -301.2 -309.8 -323.0 -335.2 -346.9
  - Trade balance (Billions CFAF): -284.8 -439.6 -445.8 -475.9 -491.5 -516.4 -536.1 -571.1 -597.5
  - Exports (goods and services, Billions CFAF): 660.3 741.9 652.0 703.1 776.4 861.9 959.7 1,059.9 1,170.3
  - Imports, f.o.b. (Billions CFAF): -945.1 -1,181.5 -1,097.8 -1,178.9 -1,267.9 -1,378.2 -1,495.8 -1,631.0 -1,767.8
  - Petroleum products (component of imports): -184.9 -213.7 -242.8 -168.8 -188.5 -209.2 -230.4 -247.6 -259.3
  - Current account balance (percent of GDP memoranda): -7.5 -13.0 -12.8 -12.3 -11.3 -10.8 -10.4 -10.0 -9.6
- Central government financial operations (Tables 2a and 2b, selected aggregates, 2012–20):
  - Revenue and grants (CFAF billions): 383.5 449.1 448.2 534.4 517.2 568.8 619.9 669.9 729.2 785.6 (2012–20 series with 2015 Proj.)
  - Total revenue (CFAF billions): 351.7 386.4 402.4 475.4 461.7 505.4 550.5 605.0 660.0 714.8
  - Tax revenue (CFAF billions): 307.9 338.4 358.1 423.3 414.3 453.0 493.9 543.8 593.9 643.6
  - Public investment (CFAF billions): 175.1 177.5 207.3 257.3 239.5 255.2 268.8 281.1 303.3 327.1
  - Domestically financed public investment (CFAF billions): 70.9 76.9 104.1 142.6 131.0 130.3 127.9 145.0 153.5 168.7
  - Domestic primary balance (CFAF billions): -53.3 -38.6 -33.0 -42.1 -41.7 -24.7 -19.1 -22.0 -16.5 -12.6
  - Overall balance, payment order basis (incl. grants) (CFAF billions): -144.7 -99.4 -120.6 -130.9 -128.7 -125.0 -134.2 -146.2 -161.3 -175.7
  - Overall balance, cash basis (incl. grants; incl. change in arrears) (CFAF billions): -156.2 -113.7 -145.6 -133.9 -133.7 -137.6 -150.8 -164.1 -180.6 -196.5
  - Financing (CFAF billions): 146.6 100.1 137.3 89.6 122.8 110.9 116.9 127.1 143.5 146.2
  - Domestic financing (net, CFAF billions): 85.1 79.7 95.0 46.3 86.2 73.1 66.1 79.4 87.1 90.3
  - External financing (net, CFAF billions): 61.5 20.5 42.3 43.3 36.6 37.8 50.8 47.6 56.3 55.9
  - Residual/unidentified financing (CFAF billions): -6.7 4.6 1.2 0.0 26.7 33.8 37.1 37.1 50.3
- Monetary and financial indicators (Table 4: Monetary Survey, 2012–20):
  - Money supply (M2, CFAF billions): 905.6 999.0 1,096.9 1,212.3 1,341.1 1,460.6 1,586.6 1,712.3 1,846.2
  - Currency in circulation (CFAF billions): 161.5 161.5 145.8 175.7 181.0 184.6 191.4 195.2 199.2
  - Bank deposits (CFAF billions): 744.0 837.5 951.1 1,036.6 1,160.2 1,276.0 1,395.2 1,517.1 1,647.1
  - Net foreign assets (CFAF billions): 273.8 315.4 238.3 245.8 282.3 339.8 411.3 479.7 568.4
  - Credit to nongovernment sector (CFAF billions): 601.7 682.9 762.1 853.6 956.0 1,051.6 1,156.8 1,272.5 1,399.7
  - Annual percent change of M2: 8.9 10.3 9.8 10.5 10.6 8.9 8.6 7.9 7.8
  - Velocity (GDP/end-of-period M2): 2.2 2.2 2.1 2.0 2.0 2.0 2.0 2.0 2.0

### Policy implications and recommendations (as presented in the materials)
- Fiscal consolidation and revenue efforts:
  - Significant revenue effort required to return to positive primary domestic balance.
  - Control of current spending and prioritization of domestic investments necessary to improve fiscal sustainability.
- Debt sustainability:
  - Stress tests point to vulnerabilities under adverse external shocks; strengthening revenue and expenditure control can moderate debt accumulation.
- External financing and reserves:
  - Continued reliance on capital account and FDI for financing; the external position is expected to stabilize but remain negative.
- Monetary stance:
  - Money supply growth and credit expansion to the nongovernment sector continue; monitoring of net foreign assets and central bank positions remains important.

*Sources: Togolese authorities; IMF staff estimates and projections (from the provided content unit).*

### Annex I. Authorities Response to Main Recommendations from

### Annex I. Authorities Response to Main Recommendations from the 2013 Article IV Consultations

### Improve debt management and fiscal consolidation
- Staff recommendation: Improve debt management by seeking financing on terms consistent with debt sustainability and further reducing the fiscal deficit in the medium term.
- Authorities response:
  - "An effort was made to mobilize financing from WAEMU and from concessional loans. Togo has not had access to international markets."

### Free budget space for social and infrastructure spending
- Staff recommendation: Free budget space for social and infrastructure spending to support implementation of policies that raise incomes of the poor (rural feeder roads, mini dams for irrigation, off-grid energy alternatives).
- Authorities response:
  - "Significant investments have been made to narrow the infrastructure gap that had developed over more than 15 years of socio-political crisis."
  - "Several rural roads were completed and a program of village electrification with solar panels or grid extension started."
  - "Funds allocated for mini-dams could not be used because feasibility studies could not be completed."

### Fuel subsidies, social safety nets, and public sector wages
- Staff recommendation: Progressively reduce poorly-targeted fuel subsidies, while broadening and improving social safety nets, and lower growth of public sector wages.
- Authorities response:
  - "Fuel subsidies have been virtually eliminated by January 2015."
  - "The government took temporary social protection measures towards the most disadvantaged groups when retail fuel prices where increased in 2011."
  - "The negotiations surrounding the 2013 Public Service Statute established expectations of large increases in wages and remuneration. So far, these have been resisted as they would not be compatible with budget equilibrium. But pressure from trade unions is strong."

### Public financial management (PFM) and revenue administration reforms
- Staff recommendation: Implement long-planned PFM and revenue administration reforms.
- Authorities response:
  - "In the context of the 2013 PFM reform plan, the WAEMU directives have been transposed in local legislation; their implementation is progressing; the OTR has been established; and the Computerised System for Public Financial Management (SIGFIP) is being enhanced."

### Financial sector oversight and microfinance supervision
- Staff recommendation: Intensify financial sector oversight and solve problem banks. Put in place stronger supervision of microfinance.
- Authorities response:
  - "The provisional administration is improving the financial condition of a large state-owned bank. A strategy is being developed for the future of the public banks BTCI and UTB."
  - "In microfinance, several funds to promote financial inclusion for targeted groups were created by the Ministry of Grassroots Development. The government intends to remove the license from bankrupt microfinance institutions and ban activities of institutions operating without a license."

### Reform of phosphate, telecommunication, and energy sectors
- Staff recommendation: Reform the phosphate, telecommunication and energy sectors, where state-owned enterprises dominate. The World Bank plays a key support role in this area.
- Authorities response:
  - "Substantial investments were made to rehabilitate the production equipment in the phosphate company."
  - "The World Bank is assisting the government with a project to initiate reforms that will open the telecom sector to more private sector competition."
  - "The energy issue has an important regional dimension. The presence in Togo of the independent power producer Contour Global resulted in less power cuts. In the long term, the hydroelectric dam Adjarala should alleviate the demand gap."

### Improve the business environment
- Staff recommendation: Improve the business environment.
- Authorities response:
  - "In 2015, Togo moved from 164th to 142nd rank in Doing Business Indicators. More remains to be done."

### Retain poverty reduction, agricultural productivity, and employment as top priorities
- Staff recommendation: Retain as top policy priorities poverty reduction, agricultural productivity and employment.
- Authorities response:
  - "Targeted microfinance funds are contributing to lift people out of poverty."
  - "Agricultural productivity is improving through the PNIASA project (World Bank) and the agricultural mechanization program initiated by the government."

*Source: Annex I. Authorities Response to Main Recommendations from the 2013 Article IV Consultations (Togo).*

### 1.      Data provision is broadly adequate for surveillance, but weaknesses in the quality and

### 1.      Data provision is broadly adequate for surveillance, but weaknesses in the quality and timeliness of data hamper staff’s analysis.

### National accounts and CPI
- National accounts:
  - Compiled based on very limited information, with only few surveys and scarce data on primary agriculture and private sector services.
  - Published with considerable delays and are only available on annual frequency.
  - Base year for constant price GDP is 2007.
  - Implementation of 1993 SNA using ERETES began in late 2002; new base year (2007) national accounts completed in 2012.
  - DGSCN published National Accounts GDP numbers covering 2000-2007 in 2013; 2009 and 2010 GDP numbers were finalized and published in 2014 and 2015 respectively.
  - INSEED (established February 2015) is executing a plan, with AFRITAC West support, to clear the delay in National Accounts for 2011–15 by 2017.
  - Plans to build quarterly NA were cancelled to prioritize closing publication delays and transition to SNA 2008.

- Consumer Price Index (CPI):
  - Base year for CPI index is 2008, with coverage of only the capital city.
  - CPI basket was revised in 2010.
  - WAEMU commission revision launched in 2008 included expanding CPI surveys and updating weights.
  - INSEED is constructing a consumer price index with national coverage; first observations started in January 2015.
  - The national CPI index will be published in January 2016 when the first 12 month variation becomes available.
  - Inflation: 0.2 percent in 2014; projected to increase to 2.5 percent in 2017 and remain stable afterwards.

### Fiscal sector statistics and government accounts
- Government finance statistics:
  - Derived from a weak accounting and reporting system.
  - Often large discrepancies between transactions that yield net lending/borrowing and its financing, and large inconsistencies between stock and flow data.
  - Significant delays in compilation and dissemination.
  - Limited or no data on public entities outside of (budgetary) central government.
  - Government finance statistics compiled by the Ministry of State from customs, tax, and treasury departments and consolidated as TOFE.
  - New WAEMU budget nomenclature permits economic and ministerial classification of expenditure; functional classification under development.
  - Monthly TOFE is based on a mixture of administrative and accounting data and is sent to AFR with a two-month lag.
  - Debt database weakened since the HIPC completion point at end 2010; recognition of old domestic arrears and liabilities complicates compilation of a reliable 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 2013 Article IV consultation, a bridge table was established to transpose TOFE (GFS86) to GFSM01; updated Government Financial Operations for 2011-20 based on GFSM01 presented in Appendix III.

- Fiscal balances and projections:
  - Domestic primary fiscal balance projected to improve marginally to -1.7 percent of GDP in 2015 compared to -1.8 percent in 2013.
  - Domestic primary fiscal balance projected to reach -0.3 percent in 2020.
  - Overall fiscal balance programmed to decline from -6.4 in 2014 to -5.4 percent in 2015 and to gradually revert back to around -5 percent.

### External sector statistics
- Balance of payments statistics:
  - Data are reported on an annual frequency with long lags.
  - Data corresponding to 2012 were published in February 2015; balance of payments data for 2013 were published in June 2015.
  - Balance of payments and international investment position compiled from bank reports, enterprise surveys, and customs data, following the principles of the 6th balance of payment manual.
  - Central bank continues efforts to better cover informal trade, notably with sub-regional unit for reconciliation of intra-WAEMU trade.
- Current account:
  - Deteriorated in 2013 and 2014 to -13.0 and -12.8 percent of GDP respectively.
  - Deficit expected to remain around 11 percent in the medium term, before converging back to below 10 percent in the long run.
  - Underlying causes: large increase of imports in 2013 (intermediary goods and oil) and relative underperformance of exports.
- External financing and FDI:
  - FDI flows expected to stay stable at around 5 percent of GDP over the medium term.
  - Initially, all new external financing expected to be received at concessional terms; concessionality assumed to decline after 2018.
  - Non-concessional new borrowing assumed at 1.5 percent of GDP in 2018, increasing gradually to 2.5 percent of GDP in 2035.
  - Share of concessional loans in new financing projected to decline from nearly 50 percent to around 23 percent over 2015–2035.
  - Rate of debt accumulation projected to increase from 0.9 to 1.8 percent over the same period.

### Monetary statistics
- Monthly monetary data for Togo and WAEMU members are regularly disseminated by BCEAO with a lag of about two months.
- Monetary data are reported by the BCEAO and sent to AFR within 45 days.
- Data on lending and borrowing rates charged by domestic banks are compiled and available monthly.
- Table of Common Indicators Required for Surveillance (as of August 2015) summary highlights:
  - Exchange Rates: Date of latest observation July 2015; Date received August 2015; Frequency Monthly; Publication Published.
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date latest observation June 2015; Date received August 2015; Frequency Monthly; Publication Published.
  - Reserve/Base Money, Broad Money, Central Bank Balance Sheet, Consolidated Balance Sheet of the Banking System: latest observation June 2015; Date received August 2015; Frequency Monthly; Publication Published.
  - Interest Rates: latest observation June 2015; Date received July 2015; Frequency Monthly; Publication Published.
  - Consumer Price Index: latest observation July 2015; Date received August 2015; Frequency Monthly; Publication Published.
  - Revenue, Expenditure, Balance and Composition of Financing – General Government: n.a. for latest observation, received, frequency, and publication; Not published.
  - Revenue, Expenditure, Balance and Composition of Financing – Central Government: latest observation June 2015; Date received July 2015; Frequency Monthly; Publication Published.
  - Stocks of Central Government and Central Government-Guaranteed Debt: latest observation June 2015; Date received July 2015; Frequency Monthly; Publication Not published.
  - External Current Account Balance: latest observation December 2013; Date received June 2015; Frequency Annually/on mission; Publication Published.
  - Exports and Imports of Goods and Services: latest observation December 2013; Date received June 2015; Frequency Annually/on mission; Publication Published.
  - GDP/GNP: latest observation December 2012; Date received August 2013; Frequency Annually/on mission; Publication Not published.
  - Gross External Debt: latest observation June 2015; Date received July 2015; Frequency Monthly; Publication Not published.
  - International Investment Position: latest observation December 2013; Date received June 2015; Frequency Annually/on mission; Publication Published.

### Public debt levels and composition (2010–2014)
- Total Public Debt:
  - End-2010: 785.1 (in billions of CFAF)
  - End-2011: 1,005.0
  - End-2012: 788.4
  - End-2013: 1,044.5
  - End-2014: 1,075.9, 1,330.9 (table entries reflect composition and totals in multiple columns)
- External Debt (public and publicly guaranteed):
  - PPG external debt CFAF 614 billion at end-2014 (text).
  - End-2010: 312.1 (in billions of CFAF)
  - End-2014: 361.3 and 346 (table shows multiple columns of composition across years).
  - Share owed to multilateral creditors around 51 percent at end-2014.
  - Central government external debt examples: End-2014 central government 70.5 (in billions of CFAF) and 350.3 in table columns; multilateral, bilateral, commercial bank shares noted across years.
  - Central government borrowing from commercial banks rose from around CFAF 31 billion in 2010 to CFAF 201 billion in 2014.
  - Share of commercial bank borrowing to total borrowing increased from 10.1 percent in 2010 to 32.7 percent in 2014.
- Public domestic debt:
  - Increased from CFAF 473 billion at end-2010 to CFAF 717 billion at end-2014.
  - Domestic debt-to-GDP ratio: declined to 28½ percent in 2011, then increased to 31½ percent in 2014.
  - Stock of government securities on regional market increased from 9.2 percent of GDP in 2010 to 18.4 percent in 2014; increasing use of Treasury bills.
  - Domestic arrears and T-Bills + Bonds figures are shown in the composition table (e.g., Domestic Arrears 276.6 at end-2010; T-Bills + Bonds 143.9 at end-2010).

### Debt Sustainability Analysis — Introduction and Main Findings
- DSA prepared jointly by IMF and World Bank; updates 2013 DSA based on most recent external debt data and macro framework from 2015 IMF Article IV consultation.
- Public and publicly guaranteed (PPG) external debt was CFAF 614 billion at end-2014; PPG external debt-to-GDP dropped from 53.9 percent in 2009 to 19.9 percent in 2010 after HIPC completion, then increased to 26.9 percent at end-2014.
- Around 51 percent of external debt stock owed to multilateral creditors; remainder to bilateral and commercial creditors.
- Public domestic debt amounted to CFAF 717 billion at end-2014 from CFAF 473 billion at end-2010.
- Togo had the highest level of domestic debt-to-GDP ratio within the WAEMU region at end-2014.

### Baseline assumptions used in the DSA
- Real GDP growth:
  - Estimated at 5.4 percent in 2014.
  - Would average about 5½ percent over 2015–18.
  - Long-run real GDP growth estimated to settle at 4.5 percent.
- Public investment:
  - Projected to increase to 9.7 percent of GDP in 2015 (8.3 percent in 2013; 9.1 percent in 2014).
  - Expected to stabilize around 9.1 percent of GDP in medium term.
  - About 50 percent of public investments financed domestically.
- Commodity prices:
  - Projections for oil, cotton, cocoa, and coffee through 2020 based on WEO August 2015 and assumed constant in real terms afterwards.
- Concessionality of new external financing:
  - Share of concessional loans in new financing projected to decline from nearly 50 percent to around 23 percent over 2015–2035.
- Non-concessional new borrowing path:
  - 1.5 percent of GDP in 2018, gradually increasing to 2.5 percent of GDP in 2035.

### External debt sustainability results
- Baseline scenario:
  - Under baseline, external debt indicators remain below indicative policy-relevant thresholds.
  - PV of PPG external debt projected at 19 percent of GDP in 2015 and remains below the 30 percent threshold until end of projection period.
  - PV of external debt relative to revenues and exports stay relatively stable and below respective indicative thresholds until 2035.
- Alternative scenarios and stress tests:
  - External debt outlook vulnerable to shocks, especially toward end of projection period.
  - Policy thresholds for four key ratios are breached under alternative scenarios and stress tests:
    - PV of external debt-to-GDP breaches threshold in 2022 under scenario with new loans on less favorable terms.
    - PV of debt-to-revenue breaches 200 percent threshold in 2028 under same less-favorable-terms scenario.
    - PV of debt service-to-revenue surpasses indicative thresholds at end of period under combination shock on growth, exports, exchange rate, and non-debt creating flows.
    - Under historical scenario, PV of debt-to-GDP, PV of debt-to-revenue, PV of debt-service-to-revenue, and PV of debt-to-exports breach thresholds (debt-to-exports less relevant given currency union membership).
- Risk assessment:
  - Togo remains at moderate risk of debt distress based on public external debt assessment, but at a heightened overall risk of debt distress reflecting significant domestic debt vulnerabilities.
  - Limited space for higher fiscal deficit if moderate risk rating is to be preserved or improved.
  - Highlights need to enhance debt management capacity.

*Prepared by the International Monetary Fund and the World Bank; October 7, 2015.*

### 7.      In light of the results from the baseline and alternative scenarios as well as the stress tests,

### 7.      In light of the results from the baseline and alternative scenarios as well as the stress tests, staff concludes that Togo remains at moderate risk of external debt distress.

### Public sector debt sustainability — key findings
- Inclusion of Togo’s domestic public debt emphasizes vulnerability of the baseline scenario.
- Drivers of domestic debt increase:
  - Recognition as debt of accumulated liabilities from liquidated loss-making SOEs.
  - Increasing use of domestic borrowing to finance the budget.
  - Persistently high deficits and weak public financial management, including very limited debt management capacity.

### Baseline scenario — projections and vulnerabilities
- Under the baseline scenario, indicators of overall public debt burden (external plus domestic) show significant vulnerabilities.
- The PV of public debt to GDP breaches the benchmark level of 38 percent for most of the forecast period.
- The PV of debt-to-revenue ratio is projected to decline gradually into the long term, but its values are higher than in the previous DSA.
- The PV of debt service-to-revenue ratio tends to increase over time; the level is higher than in the previous DSA, reflecting increasing debt service vulnerabilities to variations in fiscal revenues.
- Projection period referenced: 2015–35.

### Alternative scenarios and stress tests — sensitivity and shocks
- Debt indicators are highly sensitive to:
  - Non-debt creating flows shocks.
  - Real depreciation shocks.
- Definitions of shocks (as used in the analysis):
  - Non-debt-creating flows shock: a one-time increase in other debt-creating flows amounting to 10 percent of GDP in the second year of the projection period.
  - Real depreciation shock: a one-time 30 percent nominal depreciation of the domestic currency in the first year of the projection period.
- Under these shocks, total public debt and debt service increase over the long run.
- Under the assumption of constant primary balance (i.e., assuming no fiscal adjustment), public debt ratios would increase steadily during the projection period.

### Conclusion — risk assessment and implications
- Overall assessment:
  - Togo remains at a moderate risk of external public debt distress.
  - Togo has a heightened risk of overall public debt distress, reflecting vulnerabilities in domestic debt.
- Under the baseline scenario, all external debt sustainability indicators are expected to remain below their indicative thresholds throughout the projection period (2015–35).
- Under alternative scenarios and stress tests, four out of the five indicators breach their threshold.
- The debt-to-GDP ratio remains above the indicative benchmark for most of the projection period, indicating heightened vulnerabilities.
- Key vulnerabilities highlighted:
  - Exposure to macroeconomic and financing shocks (in particular less favorable terms on new financing and lower revenue performance).
  - Need for a prudent approach to new borrowing.
  - Importance of improving debt management capacity to assess risks across sectors realistically.

### Policy implications and recommendations
- For debt ratios to remain at a reasonable level over the long run, critical factors include:
  - Improvement in the macroeconomic outlook.
  - Decrease of fiscal deficits.
  - A more cautious debt strategy.
- Authorities should prioritize:
  - Strengthening public financial management and debt management capacity.
  - Restructuring the banking system and promoting financial development.
  - Reforming state-owned enterprises.
  - Improving the investment climate to support private sector investment and growth.
- Caveats and downside risks:
  - Growth projections rely on high public investment and good fiscal and debt management; delays in structural reforms, weak expenditure efficiency, limited fiscal consolidation could dampen prospects.
  - Uncertainty in availability of external financing, especially from non-traditional donors, could hamper financing strategies.
  - Availability and quality of data is a caveat; Togo could benefit from enhanced capacity development in data.

*IMF staff assessment as presented in the source content.*

### 14.      The authorities have a different perspective on Togo’s debt sustainability risks. In particular,

### _cr15309 - 14.      The authorities have a different perspective on Togo’s debt sustainability risks. In particular,

### Authorities' view on debt sustainability and market conditions
- Authorities do not see risks associated with rising debt levels as long as they are below the WAEMU threshold of 70 percent (compared to 58 percent as at end-2014).
- Authorities do not consider the levels and dynamics of domestic debt as posing any liquidity or rollover risks, given the high demand for Togolese government securities so far shown by the regional financial market players.
- Authorities consider the baseline macroeconomic assumptions underlying this DSA to be too conservative, particularly those related to growth and external current account developments.
- Authorities agreed on the need to restructure and enhance the capacity of debt management to enable it to effectively carry out its functions.

### Staff–authorities technical difference on debt metrics
- WAEMU convergence criterion: debt-to-GDP ratio of 70 percent is measured in nominal terms.
- LIC-DSA debt burden indicator: debt-to-GDP ratio in the LIC-DSA is measured in present value terms.
- LIC-DSA also assesses debt sustainability using additional indicators: debt-to-revenue and debt-to-exports ratios, a country’s policy and institutional environment, and country-specific risks.

### Key baseline public and external debt indicators (selected figures from DSA tables)
- Debt-to-GDP (PV of PPG external debt): 17.5 (2012), 19.0 (2013), 18.6 (2014), projected 18.3–26.5 (various projection years shown).
- PV of debt-to-GDP ratio (external, selected projection points): 22.7, 25.7, 25.2, 24.8, 25.2, 25.5, 25.4, 28.3, 30.4 (table entries).
- PV of PPG external debt in percent of exports (selected): 56.4, 63.9, 61.3, 59.0, 58.4, 58.0, 56.6, 64.7, 70.5.
- PV of PPG external debt in percent of government revenues (selected): 99.2, 101.3, 97.7, 95.7, 97.0, 98.5, 98.7, 112.2, 125.8.
- PPG debt service-to-exports ratio (in percent, selected): 3.2, 3.5, 4.6, 3.3, 3.4, 2.9, 2.8, 3.1, 3.9, 6.0, 8.0.
- PPG debt service-to-revenue ratio (in percent, selected): 8.0, 8.8, 10.4, 7.1, 7.3, 6.4, 6.3, 6.9, 8.8, 12.9, 16.3.
- Total gross financing need (Billions of U.S. dollars, selected): 0.1, 0.4, 0.9, 0.5, 0.5, 0.5, 0.5, 0.5, 0.6, 0.7, 0.4.
- Nominal GDP (Billions of US dollars, selected): 3.9, 4.4, 4.6, 4.2, 4.5, 4.9, 5.4, 5.9, 6.4, 9.0, 17.4.
- Real GDP growth (in percent, selected): 5.9, 5.4, 5.4, 3.9, 1.6, 5.4, 5.6, 5.6, 5.6, 5.5, 5.5, 5.4, 5.4, 5.4, 4.6.

### Stress-test and sensitivity findings (selected)
- The DSA includes multiple stress tests and sensitivity analyses covering PV of debt-to-GDP ratio, PV of debt-to-exports ratio, PV of debt-to-revenue ratio, debt service-to-exports ratio, and debt service-to-revenue ratio.
- Table 1b (sensitivity for external debt indicators) shows baseline and alternative scenarios across years 2015–2035 with various shocks:
  - PV of debt-to-GDP ratio (baseline and scenarios, percent): Baseline 19 (2015), 19 (2016), 18 (2017), 19 (2018), 19 (2019), 20 (2020), 23 (2025), 27 (2035); alternative A2 (less favorable borrowing terms) produces values up to 55 (2035) in that panel.
  - PV of debt-to-exports ratio (baseline and scenarios, percent): Baseline 47 (2015), 45 (2016), 44 (2017), 44 (2018), 44 (2019), 44 (2020), 43 (2025), 36 (2035); alternative A2 produces higher values up to 127 (2035) in that panel.
  - PV of debt-to-revenue ratio (baseline and scenarios, percent): Baseline 101 (2015), 98 (2016), 96 (2017), 97 (2018), 98 (2019), 96 (2020), 97 (2025), 126 (2035); alternative scenarios and bound tests produce substantially larger ratios (e.g., A2 up to 260 (2035) in that panel).
- Table 2b (sensitivity for public debt indicators) shows:
  - PV of Debt-to-GDP Ratio (baseline and scenarios, percent): Baseline 52 (2015), 51 (2016), 51 (2017), 51 (2018), 51 (2019), 51 (2020), 51 (2025), 48 (2035); scenarios and shocks raise these ratios (e.g., B4 one-time 30 percent real depreciation in 2016 yields 66 (2016) and 56 (2025) in that panel).
  - PV of Debt-to-Revenue Ratio (baseline and scenarios, percent): Baseline 248 (2015), 240 (2016), 235 (2017), 236 (2018), 235 (2019), 221 (2020), 191 (2025), 167 (2035); scenarios show increases (e.g., A2 primary balance unchanged produces 274 (2035) in that panel).
  - Debt Service-to-Revenue Ratio (baseline and scenarios, percent): Baseline 8 (2015), 11 (2016), 9 (2017), 11 (2018), 12 (2019), 14 (2020), 18 (2025), 18 (2035); shocks can push ratios higher (panels show values under B1–B5 and others).

### Policy implications and agreed actions
- Despite differences in risk perception, authorities and staff concur on the need to restructure and enhance debt management capacity so debt management can effectively carry out its functions.
- Authorities reaffirm continued commitment to strong macroeconomic management, restoring macroeconomic stability, and promoting inclusive growth (as reflected in the government action plan summarized in the attached statement).

*Source: Country authorities; and staff estimates and projections (excerpts and tables from the DSA chapter).*

### 5.4 percent in 2013-14, is projected to remain stable in 2015 and to reach 5.6 percent in

### _cr15309 - 5.4 percent in 2013-14, is projected to remain stable in 2015 and to reach 5.6 percent in

### Economic performance (2013–2015)
- Growth recorded at "5.4 percent in 2013-14, is projected to remain stable in 2015 and to reach 5.6 percent in 2016" thanks to solid performance in the primary and tertiary sectors.
- Drivers of 2014 activity:
  - Recovery of agricultural production supported by good rainfall and increased use of fertilizers under the Programme National d’Investissement Agricole et de Sécurité Alimentaire (PNIASA).
  - PNIASA launched in 2011 aims to increase agricultural productivity by providing, among others, fertilizers to producers.
  - Improvement in agriculture enabled Togo to be among the 38 countries pointed out by the Food and Agriculture Organization of the United Nations (FAO).
  - Investments in extension of the Port of Lomé, the international airport, completion of major road infrastructures, and investments in a clinker and cement plant contributed to strong growth.
- Inflation and external sector:
  - Inflation was 0.2 percent in 2014 (1.8 percent in 2013, 1.9 percent in 2015), amid declining food prices and lower retail fuel prices.
  - Current account deficit widened from 7.5 percent of GDP in 2012 to 12.8 percent in 2014, putting pressure on the balance of payments.

### Medium-term outlook and policies
- Staff projection: around 5.6 percent in 2016-18.
- Authorities’ projection: economic growth will be above 6 percent over the medium-term.
- Authorities’ rationale for optimism:
  - Extension of the Port of Lomé and expanded capabilities of the international airport expected to boost private sector activities.
  - Continued agricultural reforms and the new industrial complex - ScanTogo mines - expected to expand activity and spur growth.
- Socioeconomic policy focus:
  - Continue efforts to strengthen macroeconomic performance, restore stability, and promote inclusive growth.
  - Strengthen economic and social institutions as described in the presidential program for national development – Togo Vision 2030.

### Fiscal and debt management policies
- Fiscal strategy:
  - Fiscal policy aims to increase domestic revenue mobilization while containing current spending.
  - 2015 budget was revised earlier this month to align with execution capacity and to reflect wage bill adjustments, shortfall in budgetary support, and other adjustments.
  - Authorities agree on the need to enhance fiscal efforts and pursue fiscal reforms to generate fiscal space for social spending.
- Revenue and expenditure measures:
  - Revenue to GDP in 2015 projected to be lower than budgetary estimates but higher than in 2014.
  - Revenue improvement attributed to revenue administration measures by the Office Togolais des Recettes (OTR).
  - Authorities will pursue efforts to reduce tax exemptions, streamline tax policies, and modernize revenue administration.
  - All current spending, except the wage bill and fuel subsidies, have been reduced.
  - Authorities determined to keep the wage bill unchanged in real terms and to continue resisting pressures from professions.
  - Intention to apply the oil price adjustment mechanism considering prices charged by neighboring countries and the value of their currencies against the CFAF.
- Public Financial Management reforms:
  - Implemented key reforms; urgent need to pursue remaining agenda including establishment of the Treasury single account and operationalization of the Treasury cash management system to curb risks and improve budget execution.
  - Need to reorganize the ministry of finance, especially establishing a tax policy unit.
  - Continued need for Fund technical assistance.
- Debt sustainability and management:
  - Updated joint Debt Sustainability Analysis (DSA) indicates Togo remains at a moderate risk of external public debt distress but has an increased risk of overall public debt distress reflecting vulnerabilities in debt management and domestic debt capacity constraints.
  - Authorities disagree with staff’s assessment of increased overall public debt distress, noting debt levels remain below the WAEMU convergence threshold and high demand for Togolese government securities in the regional market.
  - Staff assessment: under the baseline scenario, all external debt sustainability indicators expected to remain below their indicative thresholds throughout the projection period, with vulnerabilities only under alternative scenarios.
  - Authorities committed to a prudent borrowing strategy, have strengthened the Direction de la dette publique, and have requested additional technical assistance.

### Financial sector policies
- Authorities committed to safeguarding financial sector stability by following international standards in collaboration with the regional Banking Commission of the WAEMU.
- Microfinance sector:
  - Measures to enhance the microfinance regulatory and supervisory framework are underway.
  - CAS-IMEC (unit monitoring the microfinance sector under the Ministry of economy, finance and development planning) should see capacity improvements in staffing and resources.
- Troubled public banks:
  - Provisional administration undertook steps for two public banks facing financial difficulties.
  - A specialized firm has been requested to assess the situation and propose solutions.

### Structural reforms
- Authorities intend to strengthen structural reforms to achieve structural transformation and higher, sustained, inclusive growth.
- Policy priorities:
  - Consider policy recommendations in the Selected Issues paper on “Policies for sustainable growth”.
  - Continue investment plan in infrastructure networks that has proven effective.
  - Improve the role of the private sector by creating a favorable business climate, strengthening competitiveness, and addressing weaknesses in energy, mining, and telecom sectors.
  - Close infrastructure gaps and remove growth bottlenecks through public-private partnerships.

### Data issues
- Authorities share staff recommendations on data.
- Establishment in February 2015 of the national statistics institute, Institut National de la Statistique et des Etudes Economiques et Démographiques (INSEED), demonstrates commitment to improving data.
- Further strengthening INSEED capacities with development partner assistance will enhance Togo’s economic statistics compilation and dissemination and improve assessment of economic activity and major indicators.

### Conclusion and policy commitments
- Progress:
  - Togo has made important progress in macroeconomic performance and reforms over recent years.
  - Growth has been strong and the outlook positive.
- Remaining challenges:
  - Much remains to be done on growth inclusiveness and poverty reduction.
- Authorities’ commitments:
  - Pursue structural transformation via enhanced revenue mobilization, increased investment in infrastructure and education, health and training.
  - Continue to seek support from the Fund, the World Bank and other development partners in implementing the development agenda.

*IMF staff report content as provided in the supplied PDF excerpt.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15309.pdf_