Press Release: IMF Approves Third Annual ESAF Loan for Togo
July 1, 1997
The International Monetary Fund (IMF) today approved the third annual loan under the Enhanced Structural Adjustment Facility (ESAF)1 for Togo in an amount equivalent to SDR 21.72 million (about US$30 million) to support the government’s 1997 economic program. The loan is available in two semiannual installments, the first of which is available immediately.
Togo’s performance in 1996 under the program supported by the second annual ESAF loan was mixed, and the midterm review of the program could not be completed. Performance was satisfactory in terms of a robust 6 percent annual GDP growth and the slowing of inflation to 4.6 percent from 15.9 percent in 1995. However, both the primary fiscal balance and the external current account were well short of the program’s original targets, and new domestic and external arrears were accumulated. The implementation of the structural reform program was also uneven. There was mixed progress in liberalizing the agricultural sector, restructuring telecommunications, and implementing price reforms, but significant delays occurred in the privatization program.
The 1997 Program
The objectives of the 1997 program are to correct the weaknesses that occurred in 1996, particularly in the fiscal consolidation effort, and to accelerate the implementation of the agreed structural reforms. The government’s revised medium-term macroeconomic projections for the period 1997-99 are to achieve an average annual real GDP growth of more than 5.5 percent, reduce annual average inflation to 3 percent by the end of the period, and lower the external current account deficit (excluding grants) to an annual average of less than 5 percent of GDP. Overall investment is projected to increase to 17.1 percent of GDP in 1999 from 13.7 percent in 1996, while domestic saving is expected to rise to 13.2 percent in 1999 from 6.4 percent in 1996. For 1997, real GDP is expected to grow at a rate of 5.8 percent, the rate of inflation to be reduced to 3.9 percent on average for the year, and the current account deficit is to be narrowed to 6.6 percent of GDP, from 8.5 percent in 1996.
To achieve these objectives, the fiscal program for 1997 aims at reducing the overall deficit to 4.3 percent of GDP from 6.5 percent in 1996, while improving the primary balance (excluding interest payments, foreign-financed investment, and privatization receipts) to a surplus of 0.8 percent of GDP from a deficit of 1.4 percent in 1996. To attain these targets, the reforms of the tax system and of tax administration will be continued with technical support from the IMF. On the expenditure side, the authorities intend to increase outlays in real terms for the health andeducation sectors, and for the rehabilitation and maintenance of infrastructure, while curtailing nonpriority spending. Budgetary and treasury procedures will enhance the control of expenditures, and a comprehensive civil service employment strategy is being prepared.
The government will also undertake in 1997 a comprehensive restructuring of its domestic debt, including the settlement of outstanding domestic payment arrears, funded in part by resources from the privatization program.
Togo’s monetary program, coordinated with that of its partners in the West African Economic and Monetary Union (WAEMU), calls for the continuation of a prudent policy stance that aims to strengthen Togo’s contribution to the net external position of the regional central bank, while lowering the rate of inflation. Key policy elements are market-determined interest rates through the use of indirect instruments of monetary policy and the deepening of financial intermediation. A financial sector restructuring program aimed at strengthening the banking system and other financial institutions is under preparation.
The 1997 program entails a further strengthening of the structural reform effort and the completion of reforms delayed in 1996. A key aspect is the conclusion of the first phase of the privatization program, and the rehabilitation of enterprises remaining under government control. A new regulatory framework for telecommunications has been introduced in preparation for the partial privatization of the sector during 1998. These reforms, together with the rehabilitation of the electricity company and measures taken in the area of road and maritime transportation, should improve Togo’s economic infrastructure significantly over time. Finally, the authorities have begun the process of reforming the legal and regulatory framework in order to improve the climate for private economic activity.
Addressing Social Needs
Togo continues to have a high poverty rate, with 75 percent of the population having difficulty meeting basic health, education, nutritional, and housing needs, particularly in the rural areas. The government intends to pursue the fight against poverty through an appropriate investment policy in the areas of health, basic education, and vocational training. The government will seek to improve coordination with donors and NGOs active in these areas in order to optimize the use of available financial resources. To protect the most vulnerable segments of society, the government will also continue its labor-intensive public works projects.
The Challenge Ahead
The resumption of fiscal consolidation and successful implementation of the various structural reforms in 1997 will be the determining factors of the government’s commitment to accelerating the reform process and creating the conditions for sustained growth. The various regional initiatives underway in the WAEMU will reinforce the reform effort. Togo has already made substantial progress in liberalizing its trade system, and the planned West African customsunion should expand, thereby reducing Togo’s dependence on receipts from commodity exports, which remain vulnerable to world market price fluctuations.
Togo joined the IMF on August 1, 1962, and its quota2 is SDR 54.3 million (about US$76 million). Togo’s outstanding use of IMF financing currently totals SDR 59 million (about US$82 million).
1 The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years with a 5½-year grace period.