February 19, 1998
| Public Affairs | Media Relations | |||
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| 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. |
The IMF Executive Board on Wednesday, January 21, 1998, concluded the 1997 Article IV consultation1 with Togo.
Background
Following the devaluation of the CFA franc in January 1994, Togo adopted a comprehensive adjustment strategy supported by the IMF under a three–year arrangement under the Enhanced Structural Adjustment Facility (ESAF), aimed at achieving sustained economic growth and financial viability over the medium term. The macroeconomic and structural policies implemented by Togo under the program have led to significant improvements in a number of areas, including per capita GDP growth, the decline in inflation, and the reduction of internal and external imbalances.
Following large increases in 1995 and 1996, Togo’s economic growth for 1997 is estimated at 4.8 percent. This reflects higher phosphate production and cash crop output, and some strengthening of secondary sector activity, although manufacturing activity is still affected by weak domestic demand and low levels of capacity utilization, and growth in the tertiary sector has been modest. There was a surge in transportation prices at the beginning of the year, owing to the increase in the VAT rate and higher petroleum product prices, and food prices also rose, reflecting supply constraints. As a result, annual inflation was just over 7 percent, compared with 4.9 percent in 1996.
The government’s overall deficit (on a payment order basis and excluding grants) narrowed from 6.3 percent of GDP in 1996 to 3.6 percent in 1997, reflecting efforts to rationalize the tax system and broaden the tax base, improve the tax and customs administration, and strengthen budgetary and treasury operations. The government’s external debt burden declined from about 100 percent of GDP in 1996 to 94 percent in 1997, but still remains relatively high. The government also initiated a comprehensive restructuring of its domestic debt, repaying a substantial amount of domestic arrears in cash, and settled all its external payments arrears. The authorities aim to further improve the fiscal situation in the coming year, while pursuing civil service employment rationalization and domestic debt restructuring.
Broad money rose by 15.5 percent in 1997, reflecting a sharp rise in money in circulation linked to the expansion of agricultural production. Credit to the private sector picked up in the last quarter of the year, while net bank credit to the government was held to the program limits. The net foreign assets of the banking system increased by CFAF 15 billion, reflecting the improved external trade balance and inflows of proceeds from privatization. Togolese commercial banks continued their efforts to strengthen their balance sheets and substantially reduced their recourse to refinancing from the central bank. However, banks still carry a substantial amount of nonperforming loans, and their compliance with the prudential ratios set by the regional banking commission failed to improve significantly during the year. A financial sector restructuring program with the World Bank is expected to be launched in the first half of 1998.
The external current account deficit (excluding official transfers)narrowed from 6.2 percent of GDP in 1996 to 5.3 percent in 1997. The improvement stemmed from a considerable strengthening of export earnings in 1996-97, in particular in agricultural exports, which benefitted from favorable exchange rate developments and world market prices for the main commodity exports.
Prospects for 1998
Real GDP growth is projected at 5.2 percent in 1998, as phosphate production increases and the output of cash crops, particularly cotton, strengthens. After the exceptional surge in 1997, end–year inflation is expected to subside to 3.7 percent, while the external current account deficit (excluding official transfers) is projected to be roughly stable at 5.2 percent of GDP. The primary fiscal surplus is projected to increase from 0.8 percent of GDP in 1997 to 1.5 percent in 1998, reflecting the ongoing efforts to improve tax collection and to contain nonpriority outlays, while the overall fiscal deficit (excluding official transfers) is expected to widen from 3.6 percent of GDP in 1997 to 4 percent in 1998.
Executive Board Assessment
Executive Directors noted the continued recovery of economic activity in Togo, the encouraging developments in the balance of payments, and the progress made in improving the public finances and in reestablishing the momentum of structural reforms. Directors welcomed the improved performance under the program supported by the third annual arrangement under the ESAF, particularly after the slippages that had occurred in 1996. They noted the observance of most of the quantitative and structural performance criteria and benchmarks under the program, including the regularization of Togo’s relations with its external creditors.
Nevertheless, Directors noted that the economy is still vulnerable to climatic and other external shocks, while macroeconomic management needs to be strengthened and structural weaknesses need to be addressed. They, therefore, urged the authorities to continue to persevere in their reform efforts aimed at promoting savings and investment, especially by the private sector, and accelerating economic diversification. Such measures would lay the basis for high quality growth and poverty alleviation, and help improve donor confidence.
While welcoming the progress made in improving the public finances, Directors observed that the overall fiscal position remains fragile and called for further fiscal consolidation. On the revenue side, they noted the strengthening of revenue collections in the second half of 1997, after the shortfalls incurred in the first few months of the year. They encouraged the authorities to continue their efforts to enhance revenue collection. Moreover, they urged the authorities to pursue vigourously the measures necessary to broaden the tax base and to reduce tax exemptions. They also stressed the need to proceed with plans to reduce the statistical tax on imports ahead of the regional schedule set for the introduction of the common external tariff. On the expenditure side, Directors emphasized that a marked improvement in expenditure control and treasury procedures was essential to ensure effective management of the cash-flow situation and to avoid any recurrence of domestic or external payments arrears. They also encouraged the authorities to integrate all financial activities of the government into the general budget and to proceed apace with the implementation of the civil service employment strategy. They also encouraged the authorities to reorient expenditures to meet social needs.
Directors welcomed the implementation of the domestic debt restructuring plan and the substantial repayments of domestic arrears, underscoring their importance for strengthening the financial situation of public and private enterprises. They urged the authorities to continue the repayment of domestic arrears during 1998.
Directors were disappointed by the slow progress toward full compliance of banks operating in Togo with the established prudential norms, and expressed concern about the significant level of nonperforming loans. They urged the authorities to cooperate closely with the regional banking commission to strengthen the position of weak banks, to reduce government involvement in the banking sector and privatize state-owned banks, and to reform the legal environment for banking operations in order to facilitate loan recovery.
Directors noted the efforts of the authorities to reestablish the momentum of structural reforms following the slippages of 1996, particularly in the areas of public enterprise reform and privatization. They encouraged the authorities to proceed expeditiously with the new phase of the privatization program, and to complete soon the sale of part of the government’s shares in the phosphate company. Directors also stressed the importance of prompt implementation of the planned reforms of the legal and regulatory framework for economic activity, particularly the envisaged strengthening of the judiciary. These reforms would help to create a more propitious environment for private saving and investment. In this context, they encouraged the authorities to press ahead with the regional integration initiatives that were under way, and to ensure that the regulatory framework would encourage private capital flows.
Directors stressed the need to improve further the availability, quality, and timeliness of Togo’s core economic and financial data, particularly as regards the monetary and balance of payments data, and to take prompt action to strengthen the statistical apparatus.
| Togo: Selected Economic Indicators | |||||
| 1993 | 1994 | 1995 | 1996 | 19971 | |
|---|---|---|---|---|---|
| Annual percentage change | |||||
| Domestic economy | |||||
| Change in real GDP | -16.4 | 16.8 | 6.8 | 8.2 | 4.8 |
| GDP deflator | -6.8 | 33.6 | 12.7 | 5.2 | 5.4 |
| Change in consumer prices (end of period) | 2.4 | 48.5 | 6.4 | 4.9 | 7.2 |
| In percent of GDP2 | |||||
| Gross fixed investment | 7.6 | 15.1 | 16.1 | 16.3 | 15.2 |
| Gross domestic savings | -0.1 | 11.4 | 11.9 | 11.4 | 11.2 |
| Gross national savings | 1.1 | 9.3 | 12.0 | 12.3 | 13.1 |
| In millions of U.S. dollars2 | |||||
| External economy | |||||
| Exports, f.o.b. | 215.0 | 226.0 | 355.1 | 376.5 | 378.3 |
| Imports, f.o.b. | -251.1 | -212.0 | 350.0 | 382.9 | 373.9 |
| Current account balance | -80.8 | -56.2 | -54.3 | -58.2 | -34.5 |
| Capital account balance | -137.6 | -50.4 | -10.2 | 62.8 | 51.6 |
| Gross official reserves | 162.7 | 90.9 | 128.1 | 147.2 | 156.3 |
| Current account balance (in percent of GDP) | -9.2 | -8.1 | -6.7 | -6.2 | -5.3 |
| Change in real effective exchange rate (in percent 3 | -3.5 | -33.5 | 15.9 | 2.6 | ... |
| External public debt (in percent of GDP) | 104.2 | 205.4 | 108.3 | 99.4 | 93.8 |
| Public debt service (in percent of GDP) | 9.3 | 18.5 | 7.7 | 6.4 | 5.3 |
| In percent of GDP2 | |||||
| Financial variables | |||||
| Government revenue | 10.9 | 12.1 | 14.7 | 14.8 | 15.2 |
| Government expenditure and net lending | 27.0 | 25.1 | 22.5 | 21.1 | 18.8 |
| Primary fiscal balance | -11.2 | -5.9 | -2.1 | -1.4 | 0.8 |
| General government balance | -16.1 | -13.1 | -7.8 | -6.3 | -3.6 |
| Change in broad money (in percent) | -15.5 | 32.3 | 16.8 | -9.9 | 15.5 |
| Interest rate (in percent)4 | 12.3 | 12.1 | 8.4 | 7.3 | 6.2 |
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1IMF staff estimates. 2Unless otherwise noted. 3(+) = appreciation. 412-month rediscount rate. |
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1Under 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 directors, and this summary is transmitted to the country's authorities. In this PIN, the main features of the Board's discussion are described. | |||||
