Public Information Notice: IMF Concludes 2003 Article IV Consultation with Togo

May 13, 2004

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board.

On April 28, 2004, the Executive Board of the International Monetary Fund (IMF) concluded the 2003 Article IV consultation with Togo.1


The Togolese economy recovered in 2002-03 following two years of decline in economic growth. Real GDP is estimated to have expanded by 4.2 percent in 2002 and 2.7 percent in 2003, driven by increased agricultural and phosphate production. Notwithstanding this recovery in growth, domestic demand remained weak, as the low level of government spending and the accumulation of domestic payments arrears dampened private sector activities. Furthermore, policy weaknesses continue to be a deterrent to private investment. Inflationary pressures abated, as food prices declined, following an increase in food production. The average annual inflation rate declined by 0.9 percent in 2003 compared with increases of 3.1 percent and 3.9 percent in 2002 and 2001 respectively.

The fiscal position was difficult during 2002-03, in view of the low revenue performance and the continued suspension of external budgetary aid. As a result, expenditure declined by almost 4 percentage points of GDP, to 13.7 percent, during 2000-03; meanwhile, domestic and external payments arrears increased, reaching 7 percent of GDP and 18.7 percent of GDP, respectively, at end-2003. With the authorities' increased efforts to collect back taxes, revenue increased by some 2 percentage points of GDP to 14.5 percent in 2003 and provided some room for increasing non wage primary spending. The overall budget (on a commitment basis and excluding grants) recorded a surplus estimated at 0.8 percentage point of GDP, which was used to repay domestic liabilities, including domestic payment arrears.

Togo's external position improved in 2003, reflecting mainly favorable developments in the country's main exports and increased private transfers. A bumper cotton crop in 2002 boosted the volume of cotton exports by more than 40 percent in 2003, while phosphate export volume rose, following the rehabilitation of production equipment in 2002, by the newly created phosphate management company IFG-TG (International Fertilizers Group Togo). As a result, the current account deficit (excluding official transfers) narrowed to 11.9 percent of GDP, down from 14.4 percent of GDP in 2002.

In the monetary sector, money supply grew by 11.2 percent in 2003, with a significant rise in private sector deposits in 2000-03. Net credit to the government declined by 7.8 percent relative to beginning-of-period broad money, as the government repaid the central bank. Credit to the private sector rose by 20.4 percent, mainly reflecting the financing of imports for reexport. The Central Bank of West African States (BCEAO) lowered its discount rate by a total of 150 basis points in July and October 2003 to 5 percent, in view of the favorable developments in inflation and international reserves in the monetary union. Togo's banking system has been adversely affected by the economic downturn, the buildup of domestic payments arrears by the government, and persistent weaknesses in the judicial system.

Executive Board Assessment

Directors welcomed the recent improvement in Togo's macroeconomic situation, marked by a rise in economic growth, a decline in inflationary pressures, and an improvement in the external position. Directors observed, however, that Togo's economy continues to face important challenges posed by the country's limited resources and its vulnerability to exogenous shocks, and that in recent years, these challenges had been exacerbated by lapses in policy and reform implementation and by weaknesses in the banking and judicial systems. They urged the authorities to strengthen economic management and the rule of law, and to improve relations with donors and creditors to ensure progress on poverty reduction and achievement of the Millennium Development Goals.

Directors were concerned about the continued accumulation of domestic and external payment arrears in 2002-03. Against this backdrop, they urged the authorities to take decisive measures aimed at consolidating the fiscal position. Directors particularly stressed the need to improve revenue collection, and to strengthen expenditure and treasury cash flow management. They underscored the importance of pursuing further revenue-enhancing measures initiated in 2003, including improving efficiency in tax administration, broadening the tax base, and recovering back taxes; as well as tax policy reforms for the medium-and longer term. They urged the authorities to exceed the revenue target in the budget to help meet expenditure commitments, including payments on external debt obligations, and to reduce domestic and external payment arrears.

Directors endorsed the authorities' decision to keep the wage bill under tight control and to give priority to spending in the education and health sectors, while restraining non priority expenditures. They encouraged the authorities to seek grants for funding public investment.

Directors observed that the government's financial situation would continue to be difficult without external budgetary support. Hence, they urged the authorities to take the measures needed to normalize relations with creditors and donors, including with the European Union, to facilitate the resumption of its budgetary aid.

Directors noted that monetary policy, conducted at the regional level, had remained broadly appropriate; and that favorable developments with regard to inflation and international reserves had provided room for the Central Bank of West African States to lower its discount rate in 2003.

Directors were encouraged by the privatization of three commercial banks and by the authorities' resolve to sell a majority shareholding in the remaining state-owned commercial banks. They observed, however, that the precarious financial health of the banking system and high incidence of nonperforming loans were sources of concern. Directors emphasized that restoring the viability and credibility of the banking system was crucial for a much-needed deepening of financial intermediation. They urged the authorities to take the necessary actions to strengthen banking supervision and the legal and judicial framework for the financial system. In this regard, Directors welcomed the preparation of the legal documentation needed for the implementation in Togo of the regional uniform law on money laundering and encouraged the authorities to take the necessary actions for its enactment. They also supported strengthening controls and management in the micro-finance sector to enhance its contribution to growth.

Directors noted that despite some progress in recent years, overall structural reform efforts require renewed vigor. Of particular concern are reforms in the cotton sector, given its key role in the economy and its impact on rural incomes. Directors encouraged the authorities to carry out a diagnostic study of the cotton sector that would serve as a basis for formulating a reform plan.

Looking ahead, Directors remarked that further progress toward fiscal consolidation and successful implementation of structural reforms would improve Togo's growth prospects, lead to economic diversification, and help maintain competitiveness. In this context, they urged the authorities to strengthen financial policies, enhance good governance and the rule of law, strengthen the civil service, and undertake further reform and liberalization in key sectors. Directors stressed that rehabilitation measures currently underway in the phosphate sector, which have produced encouraging results for economic growth and for the external position, should continue. To further stimulate private investment, they also advocated improvements in the investment code and land tenure system.

Directors urged the authorities to adopt without further delay the Interim Poverty Reduction Strategy Paper (I-PRSP) completed in 2002, and to continue seeking donors' support for activities relating to the preparation of the full PRSP, including broadening the consultation process, deepening poverty and social impact analysis, and developing a monitoring system for social indicators.

Directors observed that Togo's external debt burden remains high. As the country is eligible for assistance under the enhanced Heavily Indebted Poor Countries Initiative, they urged the authorities to take the necessary actions to benefit from debt relief under the HIPC Initiative, including establishing the required track record under a Fund-supported program.

Directors noted that Togo's statistical database is comprehensive, but needs to be strengthened, particularly in the areas of public finance and external debt. They urged the authorities to take corrective measures, and to that end, to continue seeking technical assistance from Togo's development partners.

Togo: Selected Economic Indicators







(Annual changes in percent)


Real GDP





Consumer prices















Real effective exchange rate 1/






(In percent of GDP, unless otherwise indicated)


Gross domestic investment





Gross national saving





External current account balance 2/






Government finances


Total revenue





Total expenditure





Overall balance 3/





Broad money (change in percent)





Velocity (GDP/average M2)





External public debt





Nominal GDP (in billions of CFA francs)










Sources: Togolese authorities; and IMF Staff estimates.


1/ Negative change indicates depreciation.


2/ Excluding official transfers.


3/ On commitment basis, and excluding grants.


1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


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