The Executive Board of the International Monetary Fund (IMF) approved today a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) for Togo in an amount equivalent to SDR 66.06 million (about US$$108.4 million) to support the government’s economic program for 2008–10. An initial disbursement of SDR 13.26 million (about US$21.8 million) will become available immediately.
At the conclusion of the Executive Board’s discussion on Togo’s request for a PRGF arrangement, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:
“Togo has made significant progress since 2006 in advancing economic and political reforms. With the support of an IMF Staff-Monitored Program (SMP), the authorities have implemented important fiscal governance reforms that have boosted tax revenues and strengthened expenditure control. This has much improved the fiscal position and has reversed the accumulation of domestic arrears. Structural reforms in the banking, cotton, phosphate, and energy sectors have begun. The good performance under the SMP and the 2007 parliamentary elections have paved the way for major donors to resume their financial support for Togo after more than a decade of interruption.
“The authorities’ medium-term economic program, supported by the new PRGF arrangement, will help maintain the reform momentum. The program, anchored in Togo’s Interim Poverty Reduction Strategy Paper, is designed to preserve macroeconomic stability while reviving economic growth and reducing poverty.
“A central objective is to bring Togo’s excessive public debt to a sustainable level through gradual fiscal adjustment and debt relief. The program also envisages considerably higher spending on infrastructure, health, and education to promote economic growth and improve basic living conditions for the Togolese people. Prudent economic policies and close coordination with regional partners and donors will be critical for addressing external shocks like the recent surges in food and oil prices. The Fund stands ready to work with the Togo authorities on an appropriate policy response.
“The program’s short-term priority for structural reform is to consolidate fiscal governance reforms and strengthen the financial sector. Reforms of state-owned enterprises in the cotton and phosphate sectors, measures to address energy supply problems, investment in transport infrastructure, and improvement of the business environment will help to revive and sustain economic growth over the medium term.
“A coordinated effort to reengage with donors and creditors will be vital to the success of the program. A significant increase in concessional financing will be necessary for the growth-oriented investment and social expenditures envisaged in the program. Stepped-up technical assistance will be critical for rebuilding institutional capacity, which was eroded by the long sociopolitical crisis and the interruption in donor support.
“The PRGF arrangement will help Togo regain debt sustainability by regularizing relations with its creditors and moving toward comprehensive debt relief under the Heavily Indebted Poor Countries Initiative (HIPC) and the Multilateral Debt Relief Initiative. Good performance under the PRGF-supported program could bring the country to the HIPC decision point in the near future,” Mr. Kato said.
The PRGF is the IMF’s concessional facility for low-income countries. It is intended that PRGF-supported programs are based on country-owned poverty and reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.
Recent Economic Developments
Togo has made significant progress in economic and politic reforms over the past two years, paving the way for resumption of donor support after more than a decade of interruption. Performance under a recent Staff-Monitored Program (SMP) was good, with all quantitative targets comfortably met and significant progress in addressing governance issues in public finances.
After an upturn in 2006, real GDP growth moderated to about 2 percent in 2007 partly due to a severe region-wide energy crisis. The current account deficit increased to an estimated 6½ percent of GDP. The fiscal position improved substantially in 2007 as reforms in tax and customs administration boosted revenues and better fiscal discipline kept spending broadly in line with the budget, allowing a net reduction in domestic arrears.
The main objectives of the PRGF-supported program are to help Togo revive economic growth and improve living conditions within a stable macroeconomic environment. The program will focus on (i) bringing Togo’s excessive public debt to a sustainable level through fiscal adjustment and comprehensive debt relief under the HIPC and MDR Initiatives, (ii) facilitating the reengagement with Togo’s development partners, (iii) increasing resources for health, education, and infrastructures, (iv) strengthening fiscal governance, (v) restructuring state-owned banks, and (vi) initiating growth-oriented structural reforms to improve the business environment and reform state-owned enterprises.
Economic growth is projected to increase to 3 percent in 2008. This initial recovery phase is expected to be driven by donor-financed public investment, improved business confidence, growing regional trade, and a rebound in cotton and phosphate production. Real GDP growth is projected to reach an average of 4 percent over the medium term, supported by higher foreign direct investment, financial sector deepening, and an improved energy and transport infrastructure.
The authorities’ medium-term fiscal program aims for a moderate but sustainable primary fiscal surplus. The program will accommodate a significant increase in infrastructure and social spending, supported by the resumption of donor support. Revenues are projected at 17½ percent of GDP for 2008, supported by continued improvements in administration.
Key structural reforms under the program are geared toward supporting higher economic growth and macroeconomic stability within sustainable fiscal framework. Following the long period without donor support, institutional capacity building will be a central element, especially in the areas of revenue administration and tax policy, expenditure management, public debt and treasury management, bank restructuring, economic statistics, and public enterprise reform.