Document of The

FOR OFFICIAL USE ONLY

Public Disclosure Authorized

Report No. 74161-TG

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROGRAM DOCUMENT

FOR A PROPOSED CREDIT

Public Disclosure Authorized IN THE AMOUNT OF SDR 9.2 MILLION (US$14 MILLION EQUIVALENT)

TO THE

REPUBLIC OF

FOR THE

SIXTH ECONOMIC GROWTH AND GOVERNANCE CREDIT (EGGC-6)

Public Disclosure Authorized

November 6, 2013

Poverty Reduction and Economic Management 4

Public Disclosure Authorized Country Department AFCF2 Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS As of November 1, 2013 Currency Unit = CFA Franc (CFAF) US$1 = 485 C.F.A.

FISCAL YEAR January 1 – December 31

ABBREVIATION AND ACRONYMS

AfDB AFRITAC East Africa Regional Technical Assistance Center API/ZF Agence de Promotion des Investissements / Zone Franche (Investment Promotion Agency / Free Zone) BCEAO Banque Centrale des États de l’Afrique de l’Ouest (Central Bank of West African States) BIA-T Banque Internationale pour l'Afrique au Togo (International Bank for Africa) BNPP Bank- Partnership Program BTCI Banque Togolaise pour le Commerce et l’Industrie (Togolese Commerce and Industry Bank) BTD Banque Togolaise de Développement (Togolese Development Bank) CAGIA Centrale d’Achat et de Gestion des Intrants Agricoles (Centre for the Purchase and Management of Agricultural Inputs) CEB Communauté Electrique du (Electric Company of Benin) CEET Compagnie d’Energie Electrique du Togo (Togo Electric Energy Company) CEM Country Economic Memorandum CFAF Franc of the African Financial Community CPA Comprehensive Political Agreement CPAR Country Procurement Assessment Report CPS Country Partnership Strategy DGE Direction Générale de l’Economie (General Directorate of Economy) CPDS Cadre Permanent pour le Dialogue et la Concertation (Permanent Framework for Dialogue and Reconciliation) DGSCN Directorate Générale de la Statistique et de la Comptabilité Nationale (General Directorate of Statistics) DNCMP Direction Nationale de Contrôle des Marchés Publics (National Department for the Oversight of Public Procurement) DPO Development Policy Operation DSA Debt Sustainability Analysis EC European Commission ECF Extended Credit Facility ECOWAS Economic Community of West African States EI Extractives Industry EITI Extractive Industry Transparency Initiative EGGC Economic Growth and Governance Credit ERGC Economic Recovery and Governance Credit ERGG Economic Recovery and Governance Grant ESDP Energy Services Delivery Project ESW Economic and Sector Work

i EU FAD Fiscal Affairs Department FDI Foreign Direct Investment FZ Free Zone GDP FNGPC Fédération Nationale des Groupements de Producteurs de Coton (National Federation of Producer Groups) GEF Global Environment Facility HIPC Heavily Indebted Poor Countries HIV/AIDS Human Immunodeficiency Virus/Acquired Immune Deficient Syndrome IBRD International Bank for Reconstruction and Development IDA International Development Association ICR Implementation Completion Report IGE Inspection Générale de L’Etat (State Finance Inspectorate) IGF Inspection Générale des Finances (General Finance Inspectorate) IMF International Monetary Fund IPP Independent Power Producers ISN Interim Strategy Note ISP Internet Provider MDG Millennium Development Goal MDRI Multilateral Debt Relief Initiative MEF Ministry of Economy and Finance MTEF Medium-term Expenditure Framework MVNO Mobile Virtual Network Operator NSCT Nouvelle Société Cotonnière du Togo (New Togo Cotton Company) OECD/DAC Organization for Economic Cooperation and Development/Development Assistance Committee OHADA Organization for the Harmonization of Business Law OTR Office Togolais de Recettes (Togo Revenue Authority) PAL Port Autonome de Lomé (Lomé Autonomous Port Company) PAP Plan of Priority Actions PASA Sector Support Project PEFA Public Expenditure and Financial Accountability PEMFAR Public Expenditure Management and Financial Accountability Review PER Public Expenditure Review PFM Public Financial Management PPA Program Preparation Advance PRSP Poverty Reduction Strategy Paper QUIBB Questionnaire Des indicateurs Base Du Bien-Etre RPT Rassemblement du peuple togolais (Togolese People’s Rally) SDR Special Drawing Rights SIGFIP Système Intégré de Gestion des Finances Publiques (Integrated Public Financial Management System) SIGMAP Information Management System for Public Procurement SNPT Société Nouvelle des Phosphates de Togo (New Phosphate Company of Togo) SYGADE Système de Gestion et d'Analyse de la DEtte (Debt Analysis and Management System) SOTOCO Société Togolaise de Coton (Togo Cotton Company) TA Technical Assistance TFP Total Factor Productivity

ii

TFSCB Trust Fund for Statistical Capacity Building TOFE Tableaux des Opérations Financières de l’Etat (State Finance Operations Tables) UN United Nations UNDP United Nations Development Program UNFPA United Nations Population Fund UTB Union Togolaise de Banque (Togolese Bank’s Union) VAT Value-Added Tax WACS West Africa Cable System WAEMU West African Economic and Monetary Union WAPP West African Power Pool WARCIP West Africa Regional Communication Infrastructure Program WEO World Economic Outlook

Vice President: Maktar Diop Country Director: Madani M. Tall Sector Director: Marcelo Giugale Sector Manager: Miria Pigato Task Team Leader: Johannes Hoogeveen

iii

REPUBLIC OF TOGO

SIXTH ECONOMIC GROWTH AND GOVERNANCE CREDIT

TABLE OF CONTENTS

CREDIT AND PROGRAM SUMMARY ...... VI 1. INTRODUCTION ...... 1 2. TOGO’S DEVELOPMENT CHALLENGES AND PROSPECTS ...... 3 A. Background ...... 3 B. Recent Economic Developments ...... 8 C. Macroeconomic Outlook and Debt Sustainability ...... 12 3. THE GOVERNMENT’S REFORM PROGRAM ...... 15 4. BANK GROUP’S SUPPORT TO THE GOVERNMENT'S PROGRAM ...... 16 A. Link to the Interim Strategy Note and the Africa Strategy ...... 16 B. Complementarity with Other Bank Group Activities ...... 17 C. Complementarity with Other Development Partner Programs ...... 18 D. Analytical Underpinnings ...... 19 E. Lessons Learned ...... 21 5. THE PROPOSED SIXTH ECONOMIC GROWTH AND GOVERNANCE CREDIT ...... 22 A. Description of the Operation ...... 22 B. Prior Actions for EGGC-6 ...... 40 C. Anticipated Results of the Program ...... 41 6. OPERATION IMPLEMENTATION ...... 42 A. Country Ownership ...... 42 B. Fiduciary Aspects ...... 42 C. Credit Administration, Disbursement and Auditing ...... 43 D. Environmental Aspects ...... 43 E. Poverty and Social Impact ...... 44 F. Monitoring and Evaluation ...... 46 G. Risks and Risk Mitigation ...... 46

List of Annexes:

Annex 1: Letter of Development Policy ...... 49 Annex 2: Government Policy Matrix ...... 75 Annex 3: IMF Relations Note ...... 78 Annex 4: Status of Anticipated Results of the fifth ERGC ...... 80 Annex 5: Debt Sustainability Analysis (2011)...... 81 Annex 6: Togo at a Glance ...... 92 Annex 7: Country Map ...... 96

iv

List of Tables:

Table 2.1: CPIA Components ...... 6 Table 2.2: Government’s Budget by Function, 2009-13 (as a share of GDP) ...... 6 Table 2.3: Execution Ratios by Sector, 2009-12...... 7 Table 2.4: GDP Growth and Contributions (%) - 1961-2011 ...... 7 Table 2.5: Central Government Financial Operations 2009-2015 (% of GDP) ...... 9 Table 2.6: Key Macro-Economic Indicators (2009-2015) ...... 11 Table 2.7: General Budget Support in 2012, 2013 & 2014 ...... 13 Table 2.8: Togo’s Performance on the WAEMU Convergence Criteria ...... 14 Table 5.1: Togo Power Sector Net Results (Billion CFAF) ...... 32 Table 5.2: Financial Sector Prudential Norms ...... 36 Table 5.3: Loans to Government and Loans to Private Sector ...... 36 Table 5.4: Performance on the Ease of Doing Business Index 2014 ...... 38 Table 5.5: EGGC-6 Prior Actions ...... 40

List of Boxes:

Box 5.1: Good Practice Principles on Conditionality ...... 41

List of Figures:

Figure 1.1: Togo Governance Indicators ...... 1 Figure 1.2: Gross national income per capita ...... 2 Figure 2.1: Growth Incidence Curve: 2006-2011 ...... 8 Figure 2.2: Global and food price index (January 2011-July 2013: January 2011=100) ...... 8 Figure 4.1: Poverty Incidence in 2006 and 2011, by Region ...... 20 Figure 5.1: Cotton Production ‘000 tons ...... 26 Figure 5.2: Phosphate Production in Togo ...... 28 Figure 5.3: Percent of households using electricity and average spending per household (CFAF)...... 30 Figure 5.4: Percent of Households not Using a Mobile Phone (2012: Selected African Countries) ...... 33 Figure 5.5: Cost of Communications relative to overall CPI (Price index: Jan 2011=100) ...... 34 Figure 5.6: Distance to the Doing Business Frontier ...... 39 Figure 6.1: Lorenz Curve for 2006 and 2011 ...... 44

The Sixth Economic Growth and Governance Credit was prepared by a team led by Johannes Hoogeveen (Senior Economist, AFTP4) and consisted of: Yemdaogo Tougma (Economist), Francisco Ahued (Consultant), Eric Brintet (Lead Financial Management Specialist), Alain Hinkati (Financial Management Specialist), Itchi Ayindo (Senior Procurement Specialist), Brigitte Bocoum (Senior Mining Specialist), Jerôme Bezzina (Senior Regulatory Specialist), Christian Berger (Senior Agriculture Specialist), Benjamin Billard (Operations Officer), Franklin Gbedey (Energy Specialist), Bronwyn Grieve (Governance Specialist), Anca Dumitrescu (Senior Transport Specialist), Adja Dahourou (Private Sector Development Specialist), Philippe Aguera (Senior Financial Sector Specialist), Leonardo Iacovone (Senior Economist), Maguye Dia (Private Sector Development Specialist), Sylvie Nenonene (Communications Officer), Nneoma Nwogu (Counsel), Aissatou Diallo (Senior Finance Officer) and Judite Fernandes (Language Program Assistant). Peer reviewers were: Yutaka Yoshino (Senior Economist) and Katherine Bain (Senior Governance Specialist). Overall guidance was provided by Miria Pigato (Sector Manager), Volker Treichel (Lead Economist), Madani M. Tall (Country Director), Hervé Assah (Country Manager), and Katrina Sharkey (Country Program Coordinator).

v

THE REPUBLIC OF TOGO

SIXTH ECONOMIC GROWTH AND GOVERNANCE CREDIT (EGGC-6)

CREDIT AND PROGRAM SUMMARY

Recipient: Republic of Togo.

Implementing The Ministry of Economy and Finance (MEF) coordinates the Agency: implementation in association with several line ministries.

Financing Data: IDA Credit Amount: SDR 9.2 million; (US$14 million equivalent); standard IDA terms: 40-year maturity with a 10-year grace period; single tranche.

Operation Type: Programmatic Development Policy Lending.

Main Policy The proposed series focuses on two main pillars: (i) enhance the efficiency Areas: and transparency of public finance management; (ii) strengthen economic governance and the foundations for growth.

Key Results By April 2016: (i) up to date detailed budget, budget execution, revenue Indicators: and debt information are accessible on-line and budgetary oversight has been strengthened; and (ii) public procurement has been automated;. In addition (iii) cotton farmers receive a pre-agreed share of the world market price; and (iv) a strategy to stimulate fertilizer use by smallholder farmers is being implemented; (v) non-carbonated phosphate production has doubled relative to 2012 and carbonated phosphate mining is under development; (vi) the electricity sector is funded transparently; (vii) additional operators are active in the telecom sector; (viii) the state is no longer active (as a majority shareholder) in commercial banking and the microfinance sector is being sanitized. Finally (ix) a well-functioning investment authority has been created.

Program The proposed series supports Government-owned reforms to strengthen Development economic governance, to improve the efficiency of resource use as well as Objective(s) and to implement growth enhancing structural reforms in agriculture, energy, Contribution to telecommunications, mining and banking. Interim Strategy Note (ISN): This series supports two pillars of the new ISN for FY12-13 and provides financing for the 2013, 2014 and 2015 budgets. The reforms supported by the series improve the Government’s ability to use public resources efficiently and effectively, enhance oversight and transparency and strengthen the foundations for accelerated and inclusive growth. The credit is coordinated with other IDA lending operations, with the IMF and the EU, as well as with AfDB, UNDP and French bilateral aid.

vi

Risks and risk The main risks associated with this series are: Mitigation: Political risk. Social and political unrest surfaced in the run up to the parliamentary elections held in June 2013. The elections themselves, however, were largely peaceful and have given new impetus to the Government to continue with the reform process. Presidential elections are slated for March 2015 and it cannot be excluded that social and political unrest will re-emerge in the run up to these elections.

The World Bank has prepared a political economy analysis to gain a deeper understanding of the situation and, in collaboration with our partners, monitors the situation closely. Reform measures proposed under this series are expected to contribute to more inclusive and enhanced growth. When the benefits of this growth are used to improve living conditions for the poorer segments of the population, it can be expected to help ease existing tensions.

Vested interests risk. Successful debt relief and the rehabilitation of key public companies may have reduced the appetite for further transparency and governance enhancing reforms. On the other hand, reforms are starting to pay off in terms of increased rates of growth, making it attractive to proceed with subsequent reforms. Electoral pressures to demonstrate results may further entice the authorities to continue to implement the reform agenda.

With the proposed policy actions, the Bank strikes a balance between enhancing transparency and oversight, governance reforms in public companies and strengthening the foundations for economic growth. Close coordination with the IMF, EU, and bilateral donors will help ensure that the Government continues to give priority to structural and governance enhancing reforms.

Macroeconomic risks. Macroeconomic management risks are manageable. Key risks come from exposure to exogenous shocks, e.g. weather; prices of export .

The supplementary budget that was adopted in June 2013 demonstrates the Government’s continued commitment to prudent macroeconomic management. Revenue collection efforts, debt indicators and economic growth are satisfactory, and prospects for further growth acceleration are good. The Bank continues to work closely with the authorities and the IMF on macroeconomic management to ensure that the current macroeconomic stance is maintained and has stepped up its efforts to monitor macro- economic aggregates (including debt).

Exogenous shocks. As a rural economy and exporter of primary

vii

commodities, Togo is exposed to adverse weather shocks, to a slowdown in world demand for primary commodities, and to negative shocks to its terms of trade, particularly for its major exports and imports (phosphates, cotton and oil). Given Togo’s role as a hub for regional trade, shocks in neighboring countries, or in the world economy, could also hurt Togo’s economic prospects. Presently, none of these risks is pressing.

Weather shocks (such as the floods that occurred in 2008 and 2009) could have a substantial impact. Rains have been insufficient in Togo this year but the country is expected to remain self-sufficient in food. As long as fiscal policies remain prudent, they will offer a sufficient buffer to deal with weather shocks in case they materialize.

Fiduciary risk. Exposure to fiduciary risk cannot be fully prevented and improving fiduciary standards remains an important objective of the proposed series. The policy actions of the present series, particularly those related to enhanced transparency and oversight, are expected to help mitigate the fiduciary risk, and their effective implementation will be closely monitored.

Implementation risk. Implementation risk arises from capacity problems and limited coordination within the Ministry of Finance and between sector Ministries. The implementation risk related to PFM is mitigated through the provision of technical assistance by the IMF (supported by the EU) and . The planned restructuring of the Ministry of Economy and Finance is expected to address coordination issues within the Ministry.

Operation ID: P132208

viii

REPUBLIC OF TOGO

SIXTH ECONOMIC GROWTH AND GOVERNANCE CREDIT

1. INTRODUCTION

1.1 Located on the Gulf of Guinea between Benin and , Togo is one of the smaller countries in Africa. Bounded by to the north, the country has an estimated land surface area of 56 600 square km and, according to the 2010 census, a population of 6.2 million with an annual population growth of about 2.7%. Togo is one of the poorest countries in the world and ranks 159th out of 187 countries in the 2012 UNDP .

1.2 The main economic activities are mining, agriculture, sea port activities and re- exporting. Agriculture employs 40 percent of the population and accounts for about 28 percent of gross domestic product (GDP). The secondary sector, including phosphates, cement , construction and energy employs about 17 percent of the population and accounts for about 34 percent of GDP. Services, dominated by commerce and transport, employ about 43 percent of the population and generate about 38 percent of GDP. The most important exports are cement and clinker which go entirely to the West African regional market, followed by phosphate and cotton, both processed and marketed by public enterprises. Togo also exports gold and produces and cocoa, and has considerable agricultural potential.

1.3 With a CPIA score of 3.0 in 2012 the country is classified as fragile. Togo continues to carry the burden of a tumultuous period of socio-political instability and economic mismanagement which started in the early 1990s and ended in 2006. Since that time much has improved and growth rates currently hover around 5.5 percent per annum. Yet, governance indicators, while improving, remain weak (Figure 1.1) and per capita income is at the same level as it was 45 years earlier (Figure 1.2).

Figure 1.1: Togo Governance Indicators 100 90 Voice and accountability Political stability/absence of violence 80 Government effectiveness 70 Regulatory quality 60 Rule of law Control of corruption 50 40

Percentile rank 30 20 10 0 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: World Governance Indicators, World Bank 2012.

1.4 Despite the progress made since 2006, not everyone benefits from the new-found stability and growth and the socio-political situation remains frail. Legislative elections which

1 constitutionally had to be held by November 2012 were postponed and only took place in June 2013, while municipal elections were postponed further. The dialogue on political and constitutional reforms between the Government and opposition groups is haphazard and public demonstrations are common, particularly in urban areas. Social tensions are partly fed by the fact that the benefits from growth are not broadly shared. Between 2006 and 2011, inequality increased (the Gini index increased from 0.36 to 0.39), and for the poorest four wealth deciles, consumption declined or remained stagnant. In other dimensions of welfare, progress has been mixed as well.

Figure 1.2: Gross national income per capita (Constant US$ per capita: atlas method) 400 350 339 294 300 250 267 252 200 212 150 176 100 Constant (2000) US$ Constant 50 0

1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 Source: World Development Indicators 2011.

1.5 The proposed series comes at a critical juncture in Togo’s development trajectory. The adoption of a 2013 budget with a deficit of over 10 percent of GDP along with incidents of civil unrest in the run-up to the elections and the burning of the markets in Lomé and Kara in January 2013 created a semblance of instability and a return to poor economic management. The adoption of a revised and much more prudent budget in June 2013 and the peaceful conclusion of Parliamentary elections in July mark a turning point, however, and provide the opportunity for renewed attention to the reform agenda.

1.6 The proposed series supports the authorities in their objective of continuing the reform program. Many of the reforms that the Government currently faces are structural and require a longer time horizon to complete. The opening up of the telecommunications market, divesting from the commercial banking sector and developing the country’s mining potential are longer term objectives, requiring a well laid out program to reach critical milestones like the introduction of additional telecom operators, bank privatization and the identification of a consortium that can develop the carbonated phosphate reserves and create a phosphoric acid cum fertilizer industrial complex.

1.7 Reforms supported by this series are closely aligned to the second Poverty Reduction Strategy Paper (PRSP-II) for the period 2013-2017, the World Bank’s Interim Strategy Note for Togo and the Africa strategy. The PRSP II presents an ambitious platform of reforms directed at reinvigorating growth and reducing poverty. It identifies the centrality of improving governance,

2

and embraces a private sector led growth strategy.1 The proposed series is aligned with the World Bank’s Interim Strategy Note for Togo for the period FY12-13 and the Africa Strategy. The first operation in the series (EGGC-6) is expected to represent around 1 percent of the financing needs of the 2013 budget and represents around 40 percent of all budget support provided by development partners in 2013. The amount of EGGC6 is SDR 9.2 million (US$14 million equivalent) and is provided on IDA credit terms.2 The terms of IDA financing for FY14 and FY15 will be confirmed based on the latest DSAs available at the time when the allocations exercises for these years are performed.

1.8 The proposed series builds on reforms supported by ERGC-5 and its predecessors but puts more emphasis on growth enhancing measures and strengthening economic governance and oversight of public enterprises. Previous Development Policy Operations primarily dealt with rebuilding public financial management systems and facilitating economic recovery. The proposed series focuses on enhancing the efficiency and transparency of the public finance management, strengthening economic governance and the foundations for economic growth. While other development partners are supporting PFM reforms, the proposed series will also focus on the oversight of public enterprises. As there may be considerable resistance to economic governance reforms of this type, the series also focuses on enhancing growth so that benefits from growth could be used to reduce opposition to governance reforms. Compared to its (stand-alone) predecessors, the focus of this series shifts from economic recovery (which has largely been achieved) to economic growth while the focus on economic governance remains. Accordingly, the name has changed from Economic Recovery and Governance Credit to Economic Growth and Governance Credit.

1.9 The proposed series supports a number of policy reforms that will be particularly beneficial to poor households. Between 2006 and 2011 poverty in Togo declined from 62 to 59 percent. At the same time, the severity and depth of poverty increased, suggesting that the poorest did not benefit from Togo’s recent recovery. This operation aims to contribute to a reversal of this trend and supports a set of policy reforms that are expected to specifically target the most destitute. Proposed reforms in agriculture are meant to ensure that cotton farmers, who are largely found in the poorest, rural areas of the country, benefit from a more transparently governed sector while all smallholder farmers are expected to benefit from enhanced access to fertilizer once the current approach to fertilizer provisions has been overhauled. Measures to improve the microfinance sector, a sector serving over 800,000 households who lack access to the formal financial system, and reforms to bring more competition to the telecom sector, are expected to not only reduce the cost of communication, but also to introduce services (such as mobile banking) from which poor households will disproportionately benefit.

2. TOGO’S DEVELOPMENT CHALLENGES AND PROSPECTS

A. BACKGROUND

2.1 Thanks to abundant supplies of high quality phosphate, a favorable climate for agriculture, a natural deep sea port and a traditionally dynamic tertiary sector (especially

1 The preparation of this second PRSP involved the participation of all development actors (private sector, religious groups, non-Governmental organizations, Parliament and the technical and financial partners) and regions. This ensured that the PRSP is broadly owned. 2 In FY12 Togo was assessed to face a moderate risk of debt distress, as a result of which the country received 55 percent of its FY12 IDA allocation as credits and 45 percent as grants. 3

commerce) Togo has good prospects for sustained economic growth. Between independence (1960) and the mid-1970s, much of this potential was realized and the economy grew at a rate of 7 percent per year. Prudent economic policies, high international prices for coffee and cocoa, the rapid expansion of phosphate mining and an open economy favoring commerce gave Togo a reputation as one Africa’s best economic performers.

2.2 Encouraged by a sizable primary surplus, the Government embarked in the mid 1970s on an ambitious public investment program to modernize and industrialize the economy, primarily through the creation of public enterprises. When prices for phosphate, cocoa and coffee fell and the price of investment-related imports rose following the first oil crisis, the government’s finances relied increasingly on external borrowing. Consequently public debt increased and public debt service went from 11 percent of revenues in 1973 to 76 percent in 1981. The economy rapidly deteriorated and during the 1980s Togo was forced to implement wide- ranging economic adjustments during which (1980-83) real GDP declined by more than 4 percent a year, while real per capita incomes fell by almost 7 percent a year. A period of structural adjustment helped the country achieve a substantial liberalization of its economy and restored economic growth. Real GDP grew by 3.4 percent a year on average during the 1984-89 period and private investment more than doubled, increasing from 4 to 10 percent of GDP.

2.3 In 1991, following the introduction of multi-party democracy, an eight month long nation-wide strike paralyzed the country. It led to a collapse of economic performance and caused social and political tensions. Key state institutions crumbled in an environment of civil strife, and the economy came to a virtual standstill. Real GDP fell by a cumulative 22 percent and revenue collection collapsed from 22.5 percent of GDP in 1990 to 11.2 percent in 1993. The budget deficit sky-rocketed, financed through the accumulation of external and domestic payments arrears and through extraordinary borrowing from large public enterprises. In compensation for these ad hoc contributions, public enterprises began to withhold tax payments, further exacerbating the revenue decline.

2.4 Continued demands for extra-ordinary financing aggravated the financial situation of state enterprises and damaged their ability to service bank loans. This in turn affected the soundness of the financial sector which had been among the strongest in West Africa in the 1980s. The economy was further weakened by the withdrawal of donor support in the 1990s. This led to more than a decade of isolation, mounting arrears, a dire financial situation of state-owned enterprises operating in cotton and phosphate, an excessive share of nonperforming loans in the banking sector, and declining per capita incomes.

2.5 The Global Political Accord, signed between the main political parties in August 2006, laid the foundation for parliamentary elections in 2007 and reengagement by the donors. Togo reached the HIPC completion point in December 2010, qualified for additional debt relief under the MDRI and benefited from the cancellation of other bilateral debt. Debt relief is not the only kind of assistance Togo has received: donors have also increased grants and loans in productive sectors, particularly in social infrastructure and services (education, health, water supply and sanitation, government and civil society). As of 2010 and excluding debt relief, the EU, IDA, and France were the three largest donors in Togo in terms of disbursements.3

3 Source: Creditor Reporting System, OECD. 4

2.6 To recover from its period of poor economic management, and in the run up to the HIPC completion point (December 2010), significant reforms were introduced. A new cotton company was created, which oversaw the increase in production from 28,000 tons in 2009 to an estimated 100,000 tons in 2012. In the phosphate sector, the state company revived production to reach 1.1 million tons in 2012 (up from 800,000 in 2010). Efforts to develop Togo’s huge carbonated phosphate reserves were initiated as well. Togo joined EITI, received candidacy status in October 2010 and became a full member in May 2013. In telecommunications, a roadmap to open the sector to competition was adopted and a new Telecommunications Act was approved in January 2013. In the electricity sector, generating capacity was expanded with a 100MW power generation plant operated under a public-private partnership, and tariffs were adjusted upward. The Government made significant progress clearing arrears to the private sector, and in the financial sector, three ailing state-owned banks were recapitalized by an exchange of provisioned bad debt for Government securities in 2008. These three banks, plus one other state owned bank, were subsequently put up for privatization. To date, privatization has succeeded for two of these four banks. Togo’s rating on the 2014 Doing Business Index improved 2 places (largely because of improvements in the ease with which a business can be started and with which construction permits can be obtained) and an initiative to create a new investment authority that will deal with Togo’s Free Zone was launched.

2.7 The Togolese Government implemented important PFM reforms guided by WAEMU directives. The most recent reforms include the preparation of legal acts to transpose the WAEMU directives into national law, the publication of quarterly budget execution reports, the setting up of an integrated financial management system (SIGFIP), setting up of oversight bodies such as the Court of Accounts and the IFG (Inspection Générale des Finances) and the creation of a procurement website and the publication of a procurement newsletter. The Togolese Government is creating a revenue authority to unify tax and customs administration and is releasing all budget and budget execution data publicly using the BOOST platform.

2.8 Reforms are paying off. Growth rates keep moving upward as cotton and phosphate production increase and credit to the private sector is expanding. Togo is also starting to attract interest from private investors. In 2010 for instance, Asky, Africa’s first private pan-African airline, started operations from Lomé, and is rapidly expanding its route network (the latest addition to the route network are flights to Sao Paolo and Rio de Janeiro three times a week). Works for a privately funded expansion of the deep sea port of Lomé with a new container terminal has started, a cement factory has initiated a $250 million investment and, with the aid of a large loan from ’s EXIM bank, the airport of Lomé is being expanded.

2.9 The quality of institutions has improved. Togo’s CPIA score has improved steadily since 2005 (Table 2.1), even though it reached a plateau in 2012. The main gains took place in the areas of economic management and public sector management and institutions. The area of structural policies is the only one that remained unchanged. Despite the progress made, Togo’s CPIA at 3.0 remains low. It is below WAEMU and IDA averages, and the country is qualified as a fragile state and a weak performer.

5

Table 2.1: CPIA Components 2005 2006 2007 2008 2009 2010 2011 2012 Economic management 2.0 2.0 2.2 2.7 2.8 3.0 3.2 3.0 Structural policies 3.2 3.2 3.2 3.2 3.2 3.2 3.0 3.2 Policies for social inclusion and 2.6 2.6 2.6 2.7 2.7 2.8 3.0 3.0 gender Public sector management and 2.2 2.2 2.2 2.2 2.4 2.6 2.8 2.7 institutions Overall Rating 2.5 2.5 2.5 2.7 2.8 2.9 3.0 3.0 Source: World Bank, 2012.

2.10 Public investments in infrastructure are the most important budgetary outlay. In an effort to rehabilitate the economy, the budget for infrastructure increased rapidly, from 3.4 percent of GDP in 2009 to 11.2 percent in the original budget for 2013. The latter proved to be unsustainable financially and was subsequently reduced to 6.6 percent of GDP when a revised budget was adopted in June 2013. The social sectors (health, education and social protection) also registered an increase reaching 7.6 percent of GDP in 2013. In terms of composition, social spending changed drastically. Whereas in 2009, 35 percent of social spending went to investments, by 2013 this had dropped to 22 percent. Spending on staff, on the other hand, increased from 32 percent in 2009 to 42 percent in 2013, while spending on goods and services declined from 7 percent of total social sector spending in 2009 to 5 percent in 2013.

Table 2.2: Government’s Budget by Function, 2009-13 (as a share of GDP) 2009 2010 2011 2012 2013 2013 (revised) (initial) (revised) Sovereignty 1.1% 1.1% 1.3% 1.3% 1.4% 1.3% Defense, Order, and Security 2.3% 2.4% 2.2% 2.8% 2.4% 2.3% General and Financial Administration 5.0% 6.7% 5.9% 4.2% 7.8% 7.6% Education and Research 3.5% 4.4% 4.6% 4.6% 4.8% 4.8% of which: Staff expenditures 2.0% 2.3% 2.4% 2.7% 2.6% 2.6% Goods and services 0.3% 0.3% 0.2% 0.2% 0.2% 0.2% Transfers 1.1% 1.1% 1.0% 1.1% 1.1% 1.2% Investments 1/ 0.2% 0.6% 0.9% 0.6% 0.9% 0.8% Culture, Sports, and Leisure 0.3% 0.6% 0.7% 0.6% 0.8% 0.6% Health and Social Action 3.9% 3.2% 2.2% 2.5% 2.9% 2.8% of which: Staff expenditures 0.4% 0.5% 0.5% 0.7% 0.6% 0.6% Goods and services 0.2% 0.3% 0.2% 0.2% 0.2% 0.2% Transfers 0.8% 0.9% 0.8% 0.9% 1.1% 1.1% Investments 1/ 2.4% 1.6% 0.7% 0.7% 1.0% 0.9% Infrastructure 3.4% 7.0% 9.4% 7.9% 11.2% 6.6% Production and Trade 1.2% 3.9% 2.4% 4.6% 3.6% 3.8% Other services 2.9% 2.4% 2.8% 2.4% 2.0% 2.5% GDP (CFAF billion) 1,494 1,581 1,739 1,947 2,137 2,137

1/Includes projects financed and co-financed by donors. Sources: Togo-BOOST (version 2.5) and Bank staff calculations.

2.11 Budget management deserves further attention. The budget is a strategic document and its preparation needs careful planning and contributions from many departments in the Ministry of Finance and from all other Ministries. Presently, the strategic orientation of the budget is not always clear. The large number of investment projects in the budget, for instance, in combination with low

6

execution rates (Table 2.3), suggest the absence of a clear prioritization. Simple accounting errors and a late submission to Parliament further undermine the value of the budget as a strategic document. Table 2.3: Execution Ratios by Sector, 2009-121/ 2009 2010 2011 2012 Sovereignty 86% 83% 76% 83% Defense, Order, and Security 97% 101% 102% 86% General and Financial Administration 112% 90% 85% 100% Education and Research 100% 86% 87% 86% Culture and Sports 103% 91% 96% 100% Health and Social Actions 42% 40% 77% 75% Administration and Development of Infrastructures 63% 21% 27% 37% Production and Trade 71% 48% 53% 32% Other Services 78% 158% 73% 98% Sources: Togo-BOOST (version 2.5) and Bank staff calculations. 1/ Excludes projects financed and co-financed by donors.

2.12 Also the real economy continues to face major challenges. Growth prospects remain constrained by underdeveloped infrastructure, weak governance structures, inadequate attention to implementation (as opposed to formulating plans and strategies) and vulnerability to trade and weather shocks. The contribution of total factor productivity to growth is negligible (Table 2.4), mining activities continue to contribute little to the budget, not all banks are solvent and the business environment remains poor: in the latest Doing Business ranking, Togo ranked 157th. Telecommunication services are of low quality and are costly, as evidenced by Togo’s ranking in the ITU’s cost of telecom index (161st out of 165 countries).

Table 2.4: GDP Growth and Contributions (%) - 1961-2011 1961- 1984- 1991- 1994- 1998- 2005- 2011 1990 1993 1997 2004 2011 Real GDP growth 3.50 3.29 -7.04 10.85 0.53 2.92

Contribution from: Physical capital 1.73 0.98 -0.52 -0.35 0.25 1.19 Labor force 1.74 1.97 1.48 1.97 2.02 1.68 Total factor productivity 0.03 0.34 -8.01 9.24 -1.74 0.04 Sources: World Development Indicators and World Bank staff calculations.

2.13 Poverty has started to decline, but remains high. In 2006 poverty was 62 percent; in 2011 it was 59 percent. This decline has largely been achieved by consumption growth for those in the fifth and sixth consumption deciles. This can be concluded from the growth incidence curve presented in Figure 2.1. It shows that between 2006 and 2011, consumption declined or remained stagnant for the poorest four consumption deciles; only the six top wealth deciles benefited from growth. As a consequence, the depth and severity of poverty has increased since 2006 as the poor got poorer. Also, in other aspects of welfare, progress has been limited. According to the 2010 MICS survey, infant mortality increased in urban areas from 49 per 1,000 life births in 2006 to 66 in 2010, while it declined in rural areas (from 89 per 1,000 life births in 2006 to 83 in 2010). Access to education improved, but not for the poorest wealth quintile in urban areas. The same

7

holds for access to drinking water, which increased on average but not for the poorest wealth quintiles in rural and urban areas. Access to health services deteriorated across the board but mostly for the poorest wealth quintile. Figure 2.1: Growth Incidence Curve: 2006-2011

Source: QUIBB 2006 and 2011 and staff calculations.

B. RECENT ECONOMIC DEVELOPMENTS

2.14 Economic growth is expected to reach 5.6 percent in 2013 about the same level as in 2012 (5.9 percent). Growth in 2013 is expected to be highest in the secondary sector, followed by the agricultural sector. In the primary sector, growth has mainly been driven by a rebound in cotton production and, to a lesser degree, by cocoa production.

Figure 2.2: Global and food price index (January 2011-July 2013: January 2011=100) 110

105

100

95

90 Food and non-alcoholic beverages 85 Price index 2011 = 100) (Jan index Price Overall CPI 80 Jan Mar May July Sep Nov Jan Mar May July Sep Nov Jan Mar May July 2011 2012 2013

Source: DGSCN 2013.

8

2.15 tends to be low and in line with the WAEMU average. In 2011, inflation in Togo (3.6 percent) was slightly below the WAEMU average of 3.9 percent; in 2012 it was slightly higher (2.6 percent for Togo versus 2.4 percent of the WAEMU zone). Up to July 2013, inflation for 2013 was around 2 percent. Towards the end of the year inflation may go up to 3.2 percent, particularly when the envisaged reduction in fuel price subsidies is implemented and if a disappointing harvest due to inadequate rainfall creates upward pressure on food prices.

2.16 In June 2013 the Government adopted a revised budget which is amenable to macro- economic stability and debt sustainability. In the budget the Government continues to fund its ambitious public investment program amounting to 10.8 percent of GDP. This is less than what was included in the revised budget for 2012 (11.2 percent), but substantially more than what was actually realized in 2012 (8.8 percent of GDP). Authorities expect to achieve this increase in spending (and reduction in under-execution) through better planning of investment activities. The revised 2013 budget shows some modest traces of electoral pressure as the budget for salaries increased from 6.0 to 6.3 percent of GDP.

2.17 The projected fiscal deficit remains on the high side (-5.0 percent). However with nominal revenue growth of over 11 percent per annum between 2005 and 2012, and with an expected increase of 20.2 percent of GDP to 24.5 percent of GDP in 2013, such a deficit is manageable. Moreover, the deficit is expected to come down in the coming years as the authorities continue focusing on ensuring good revenue performance and intend to wind down fuel subsidies. In the coming years, revenue collection may be affected by the establishment of an Independent Revenue Authority (OTR), but generally revenue projections remain strong.4

2.18 Expenditures are projected to increase to 29.5 percent of GDP (up from 26.8 percent in 2012). This increase is driven by increases in public investment (from 8.8 to 10.4 percent of GDP), salaries (from 6.0 to 6.3 percent of GDP) and spending on interest (from 0.9 to 1.4 percent of GDP). Despite these increases and thanks to excellent projected revenue performance, the overall fiscal deficit (on payment ordered basis) is expected to reach -5.0 percent of GDP in 2013, down from - 6.6 percent in 2012.

2.19 Containing expenses on salaries will remain an important issue. Under electoral pressure, the authorities agreed to increase civil servant salaries. This is reflected in the budget as outlays for salaries increased from 6.0 to 6.3 percent of GDP between 2012 and 2013. However, as revenues are increasing, expressed in terms of revenue collected (the WAEMU convergence criteria), spending on salaries is decreasing. With presidential elections looming, pressure to increase salaries can be expected to persist. The Government intends to resist this and aims to maintain spending on salaries constant (expressed in percent of GDP); expressed as a ratio of total revenues, spending on wages is expected to decline marginally from 33.7 percent in 2013 to 33.0 percent in 2015.

4 The establishment of the OTR is closely followed by the IMF as well as by the AfDB, who are also providing technical assistance. 9

Table 2.5: Central Government Financial Operations 2009-2015 (% of GDP) 2009 2010 2011 2012 2013 2014 2015 Act. Act. Est. Proj. Proj. Proj. Proj. Revenue and grants 18.4 20.8 21.0 20.2 24.5 24.7 24.8 Tax revenue 15.3 15.6 16.4 16.4 18.7 18.9 19.1 Nontax revenue 1.6 3.2 1.4 2.2 2.4 2.2 2.1 Grants (projects) 1.5 2.0 3.1 1.6 3.4 3.6 3.6

Expenditure and net lending 21.2 22.4 23.8 26.8 29.5 29.0 28.1 Current expenditure 15.7 14.6 15.7 18.0 19.1 18.6 17.2 Wages and salaries 6.3 5.2 5.9 6.0 6.3 6.3 6.3 Goods and services 4.3 3.8 3.6 4.8 4.9 5.4 4.6 Transfers and subsidies 4.0 4.4 5.5 6.3 6.5 5.5 4.8 Of which: Oil prices support 0.0 0.2 1.8 2.1 2.0 1.0 0.3 Interest 0.9 1.0 0.6 0.9 1.4 1.3 1.4 Public investment 5.5 7.8 8.1 8.8 10.4 10.4 10.9 Domestically financed 2.5 2.9 3.8 3.5 3.7 3.7 4.0 Foreign financed 3.0 4.9 4.3 5.2 6.7 6.7 6.9

Domestic primary balance -0.4 2.2 -1.0 -2.0 -0.3 0.1 1.4 Overall balance, payment order basis (incl. -2.8 -1.6 -2.8 -6.6 -5.0 -4.3 -3.3 grants) Excluding grants -4.3 -3.6 -6.0 -8.2 -8.4 -7.9 -7.0 Change in arrears -1.1 -2.3 -0.1 -0.6 -1.1 -0.8 -0.9 Overall balance, cash basis (incl. grants & -3.9 -3.9 -2.9 -7.2 -6.1 -5.1 -4.2 change in arrears)

Financing 1.1 1.1 0.2 7.3 5.0 4.0 2.9 Domestic financing (net) 0.9 -0.8 -0.9 4.3 2.6 1.8 0.5 External financing (net) 0.2 1.9 1.1 3.1 2.4 2.2 1.4 Nominal GDP (CFAF billions) 1,494 1,581 1,772 1,999 2,154 2,337 2,539 Source: IMF 2013.

2.21 In the coming years the authorities intend to reduce spending on fuel subsidies and interest payments. The fuel price subsidy absorbed 2.1 percent of GDP in 2012 and is projected to absorb 2.0 percent of GDP in 2013. (Strictly speaking, this is not a fuel subsidy, but a partial rebate of taxes collected on legally imported fuel.) The authorities intend to reduce this rebate by increasing fuel prices by up to 10 percent. The degree to which fuel prices can be increased is constrained by the price difference with fuel smuggled from . If this difference becomes too large, and many substitute legal for illegal fuel, then the state could end up losing net tax revenue. To avoid this, the authorities intend to increase fuel prices in a stepwise manner so as to gauge the market’s reaction.5 By relying less on expensive commercial bank credit, the authorities also expect to be able to stabilize interest payments – particularly on domestic debt.

5 Analytical work by the team shows that of every CFAF 10 spent on fuel subsidies, at most 1 benefits those in the bottom two wealth quintiles. Reducing fuel subsidies will thus not only help raise additional revenue, if some of the 10

Table 2.6: Key Macro-Economic Indicators (2009-2015) 2009 2010 2011 2012 2013 2014 2015 Actual Est. Est. Est. Proj. Proj. Proj. (Percentage growth, unless otherwise indicated) National income, prices, and exchange rates Real GDP 3.4 4.0 4.8 5.9 5.6 6.0 6.0 Real GDP per capita 0.9 1.5 2.6 3.7 3.4 3.8 3.8 Consumer price index (average) 1.9 1.4 3.6 2.6 3.2 3.1 2.9 GDP (CFAF billions) 1,494 1,581 1,772 1,999 2,154 2,337 2,539 Exchange rate CFAF/US$ (annual average level) 471 494 471 510 … … … Terms of trade (deterioration = –) 4.6 -3.7 -2.1 -0.2 0.3 0.4 0.5 Monetary survey (Annual change, percent of beginning-of-period broad money) Net foreign assets1 0.7 3.0 4.4 -2.1 -2.3 -0.6 1.7 Credit to government1 6.4 3.0 -5.6 3.7 0.9 0.9 0.9 Credit to nongovernment sector 9.7 10.3 20.5 11.5 10.0 6.6 6.6 Broad money (M2) 16.2 16.3 15.9 8.9 15.9 9.5 9.2 Investment and savings (Percent of GDP, unless otherwise indicated) Gross domestic investment 18.0 18.8 18.6 19.1 20.5 20.9 21.9 Government 5.5 7.8 8.1 8.8 10.4 10.4 10.9 Nongovernment 12.5 11.0 10.5 10.3 10.1 10.5 11.0 Gross national savings 11.3 11.7 9.6 7.3 9.9 10.1 11.8 Government 2.7 6.2 5.3 2.2 5.4 6.1 7.6 Nongovernment 8.7 5.5 4.2 5.1 4.5 4.0 4.3 Government budget Total revenue and grants 18.4 20.8 21.0 20.2 24.5 24.7 24.8 Revenue 16.9 18.8 17.9 18.6 21.1 21.1 21.2 Total expenditure and net lending 21.2 22.4 23.8 26.8 29.5 29.0 28.1 Domestic primary expenditure 17.3 16.6 18.9 20.6 21.4 21.0 19.8 Overall balance (payment order basis) -2.8 -1.6 -2.8 -6.6 -5.0 -4.3 -3.3 Domestic primary balance2 -0.4 2.2 -1.0 -2.0 -0.3 0.1 1.4 External sector Current account balance -6.6 -5.9 -9.1 -11.8 -10.6 -10.8 -10.1 Exports (goods and services)3 36.7 39.9 40.7 39.6 39.5 39.2 39.4 Imports (goods and services)3 -52.3 -55.0 -61.4 -61.1 -62.2 -62.5 -62.0 External public debt4 52.6 17.1 15.6 18.1 19.2 20.4 21.7 External public debt service (percent of exports)4 4.6 4.7 2.0 2.8 3.5 3.9 4.2 Total public debt4 67.7 32.1 44.0 45.2 44.4 44.7 43.2 Source: IMF 2013. 1) Change as a percentage of broad money at the beginning of the period. 2) Revenue minus expenditure, excluding grants, interest, and foreign-financed expenditure. 3) Aggregate import and export figures, both for historical data and for projections, now include separately the imports and exports from the bi-national electricity generating company CEB, which were previously netted out when calculating aggregate numbers. 4) Includes arrears and state-owned enterprises external debt.

additional revenue that is generated is allocated to e.g. the education sector raising fuel prices will be pro-poor policy as well. 11

2.22 The current account balance is projected to slightly improve in 2013: it is expected to be -10.6 percent of GDP in 2013 compared to -11.8 percent in 2012. Exports of primary commodities (cotton, phosphate and cement) will increase in value terms but not in terms of GDP (39.5 percent of GDP). Imports which will remain at about 62 percent of GDP. Foreign direct investment is expected to pick up from CFAF 32 billion in 2012 to CFAF 37 billion in 2013 and is projected to increase to over CFAF 60 billion in the following years. The large current account deficit makes the economy vulnerable to shocks in foreign exchange receipts, which might threaten the country’s foreign reserves. To date, however, international reserves are adequate; they cover approximately 5 months of imports.

2.23 A new ECF program with the IMF is expected. The government completed the ECF- supported program in July 2011 in a generally satisfactory manner. A new ECF arrangement was expected to be agreed between the IMF and the authorities in the course of 2012, but questions surrounding the creation of the OTR prevented the conclusion of these negotiations. A mutual understanding on the OTR and the continued commitment to budget orthodoxy, thanks to the adoption of a revised budget in June 2013, cleared the way for a new round of negotiations. These negotiations were successfully concluded at the staff level in September 2013 and are expected to result in the adoption of a new program once the authorities have met all prior actions.6

C. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY

2.24 Growth will remain robust. GDP growth is projected to be 5.6 percent in 2013, 6.0 percent in 2014 and 6.0 in 2015, supported by high levels of public investment and driven by an expected improvement in phosphate production, sustained clinker/cement production, and anticipated increases in cocoa and cotton production. FDI, transit trade and port activities are expected to contribute to growth driven by the expansion of the container terminal. Over the medium-term, private investment in sectors that are currently undergoing structural reforms (bank privatization, opening up of the telecom sector) increased private sector participation and expansion in mining, coupled with improved financial intermediation and upgrades to public infrastructure are expected to contribute to higher growth.

2.25 While the economic slowdown in Europe and the US is reaching a turning point for the better, this is not expected to have an immediate impact on Togo’s economy. The economy has been relatively shielded from the global economic downturn, and now that global economic growth is about to pick up again, it may not affect Togo much either. The economy is affected by prices for its export commodities (phosphate, cotton) and these are expected to remain attractive; any impact of price declines on the terms of trade is likely to be compensated by higher levels of production. The main risks to the country’s growth outlook are related to weather shocks (there are presently some concerns about the adequacy of rainfall).

2.26 Inflation is projected to remain modest. The WAEMU currency union and continued fiscal moderation are expected to anchor inflation and ensure price stability. Inflation could prove to be erratic in the event of unfavorable weather, leading to increases in food prices.

2.27 The fiscal outlook for 2013 is good. Revenue performance has been strong and the authorities remain committed to fiscal discipline. Some uncertainty remains around the financing of

6 Initially it was envisaged that an ECF program would be submitted to the IMF Board by December 2013 but this may slip to early 2014. 12

the budget deficit, expected to be -5.0 percent in 2013, as an agreement with the IMF on a new ECF program has not been formally reached. If an agreement is reached, the financing gap will be closed as both the IMF and EU will release their budget support. In case the IMF program is formally adopted early 2014, the Government of Togo may have to issue additional treasury bills to cover the ensuing liquidity shortfall.

Table 2.7: General Budget Support in 2012, 2013 & 2014 (CFAF bn)

Donor 2012 2013 2014

IDA 6.85 6.85 6.85

EU 0 9.05/1 5.90 /1 AfDdB 7.34 0 0 France 0 0 0.50 / 1 IMF 0 0 6.50 /1 Not yet formally decided.

2.28 The medium term fiscal outlook reflects the government’s efforts to improve public infrastructure. For 2014 the domestic primary balance is expected to remain negative before turning positive in 2015. The main reason for this is that in an effort to improve infrastructure, levels of public investment are expected to reach 10.4 percent of GDP in 2013 and to remain at such elevated levels in 2013, 2014 and 2015. Total revenue (including grants) is expected to increase from 20.2 percent of GDP in 2012 to 24.8 percent of GDP in 2015. Public expenditure is expected to remain relatively high in 2013 and 2014 at around 29 percent of GDP, and to come down to 28 percent of GDP by 2015. Oil subsidies are expected to be phased out, or at least significantly reduced, by 2015.

2.29 Stress-testing of the Togolese banking system reveals a number of credit and liquidity risks. In the event of the default of the largest borrower in the system, for instance, the capital adequacy ratio falls substantially for banks of all sizes from an average ratio of 14.7 to 4.5. In a situation in which the third largest bank failed to be privatized because the bidder asked for substantial guarantees for the loan portfolio, this stress test is not completely imaginary (the authorities are taking emergency measures to stabilize the situation). Similarly, tests for concentration risk of loans to certain sectors (commerce, manufacturing and transportation) demonstrated that stagnation in each of these sectors would put medium and large banks at risk. Close monitoring of aggregate risk, as well as individual institutions that can pose systemic risk, remains crucial. However, with strong public confidence in the banking sector, additional oversight and with the Government intending to divest its shares in commercial banks by 2016, the risk of an emergency is manageable.

2.30 Togo’s external position is projected to remain largely unchanged. The current account deficit for 2013 is projected to be at about 10 percent of GDP and is expected to stay at that level until 2015. The balance of payments will remain vulnerable to terms of trade shocks (in particular from oil prices and changes in the prices of cotton and phosphate) and exchange rate volatility of the Euro (to which Togo’s currency is fixed) vis-à-vis the US dollar. FDI, private capital inflows and foreign aid are expected to increase over the medium-term, as structural reforms unfold, economic confidence is regained and overall governance improves. Remittances are expected to remain at around CFAF 130 billion outperforming FDI by a factor 3. FDI is expected to increase rapidly, however, from CFAF 37 billion in 2013, to CFAF 64 billion in 2015 and CFAF 69 billion in 2016. 13

2.31 Togo reached the completion point under the Enhanced HIPC Initiative in December 2010 and qualified for additional debt relief under the Multilateral Debt Relief Initiative (MDRI). The HIPC assistance in present value terms was estimated at completion point to be US$282 million: US$155 million was delivered by multilateral creditors and US$127 million by bilateral and commercial creditors.7 As a result, the nominal debt stock fell from US$1.7 billion at end 2009 to US$0.5 billion at end 2010. The authorities continue to make efforts to reach agreements with the non- bilateral creditors as well as with other official and commercial creditors on the provision of debt relief on terms comparable to the relief accorded in the context of the HIPC initiative.

2.32 The draft update of the Debt Sustainability Analysis (October 2013) indicates that, like the 2011 DSA, Togo is at moderate risk of debt distress. Under the baseline scenario, Togo is estimated to grow at around 4 percent per annum. Inflation over the long-term is projected to remain stable at around 2.2 percent and external financing is provided on grant and highly concessional terms, with less concessional financing gradually picking up, leading to a decrease in the grant element of new financing (see Annex 6 for more details). Under this baseline scenario, the present value of Togo’s public and publicly guaranteed debt is around 14 percent of GDP in 2013 and will remain below the 30 percent threshold until the end of 2033. On average, the present value of the debt-to-GDP ratio is around 15 percent over the whole period. The present value of external debt to revenues and exports will comfortably stay below the 200 percent and 100 percent thresholds, respectively, until the end of the same period. Nevertheless, stress tests suggest that the debt outlook is vulnerable to some shocks and is sensitive to less favorable terms on new financing. This emphasizes the need for a prudent approach to new borrowing. Moreover, the debt sustainability analysis only focuses on external debt and leaves aside the considerable accumulation of debt denominated in CFA-francs. The development of this ‘domestic’ debt stock will need to be followed closely, along with the fact that a number of parastatals (SNPT, Togo Telecom) have started accumulating significant amounts of debt. Table 2.8: Togo’s Performance on the WAEMU Convergence Criteria 2009 2010 2011 2012 2013 2014 2015 Primary Criteria Primary balance/ GDP >=0 -0.4 2.2 -1.0 -2. 0 -0 .3 0. 1 1.4 Inflation (annual average) <=3 1.9 1.4 3.6 2.6 3.2 3.1 2.9 Stock of external debt/ GDP <=70 52.6 17.1 15.6 18.1 19.2 20.4 21.7 Domestic arrears accumulation, net (bn CFAF) <=0 -15.6 -35.2 -2.4 -11.7 -24.4 -18.7 -22.8 External arrears accumulation, net (bn CFAF) <=0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Secondary criteria Wages and salaries/ tax revenue <=35 41.2 33.3 36.0 36.6 33.7 33.3 33.0 Domestically financed investment/ tax revenue >=20 16.3 18.6 23.2 21.6 21.8 21.4 25.6 Tax revenue/ GDP >=17 15.3 15.6 16.4 16.4 18.7 18.9 19.1 External current account deficit, excl. official <=-5 -6.6 -5.9 -9.1 -11.8 -10.6 -10.8 -10.1 transfers/ GDP (Grey box suggests that an indicator is being met). Source: Calculated from IMF 2013.

2.33 Togo meets most WAEMU convergence criteria. The regional Convergence, Stability, Growth and Solidarity Pact, adopted by the Conference of Heads of State of WAEMU in December

7 , and cancelled Togo's bilateral debt and the cancellation of debt to the African Development Bank is underway. 14

1999 as an additional act to the WAEMU Treaty, is a formal agreement among the member countries of the WAEMU aimed at (i) strengthening convergence of the economies of the member countries; (ii) reinforcing macroeconomic stability; (iii) accelerating economic growth; and (iv) enhancing solidarity among the member countries. One notes that in the medium term, Togo is expected to meet all 5 primary convergence criteria: the criteria on inflation and the primary balance (which is related to Togo’s public investment drive) are likely not to be met in 2013. Of the secondary criteria, Togo meets 3 out of the 4.

2.34 The authorities’ macroeconomic framework is judged to be appropriate and provides an adequate basis for the proposed operation. The adoption of a revised budget in June 2013 demonstrates that the Government remains committed to prudent macroeconomic policies. The WAEMU convergence criteria are largely met, and the primary budget deficit is manageable, as revenue performance is expected to remain strong and as a program with the IMF is expected to be concluded soon (assuring concessional financing from the EU and the IMF).

3. THE GOVERNMENT’S REFORM PROGRAM

3.1 Togo adopted its second Poverty Reduction Strategy Paper (PRSP-2) in August 2013. The PRSP-2, better known by its French acronym SCAPE (Strategy for Accelerated Growth and Employment Creation) lays out Togo’s development strategy for 2013-2017. Its overarching objective is to become, by 2030, a middle income country in which human rights and the rule of law are respected.

3.2 The SCAPE was prepared in a participatory manner. It involved all major actors engaged in Togo’s development process (including civil society and development partners) in a way that ensured participation from all of Togo’s regions. Consultations were held during three stages of the preparation: the adoption of a road map outlining the PRSP process, the diagnostic phase, which included an evaluation of what was achieved under the first PRSP, and the preparation and adoption of the final document. The SCAPE comprises a Plan of Priority Actions (PAP), contains various growth scenarios and has been costed.

3.3 To realize the long term vision formulated in the SCAPE, the Togolese authorities focus on strengthening the foundations for future growth. Background work to the SCAPE identified four major challenges: (i) how to accelerate economic growth in a way that increases employment and improves regional and international integration; (ii) how to improve economic, social and political governance; (iii) how to manage Togo’s rapid population growth and (iv) how to manage rapid urbanization while promoting sustainable and secure land use and protecting the environment. To address these challenges, the SCAPE identifies five strategic areas for reform. They are: (i) develop and promote sectors with high growth potential; (ii) strengthen economic infrastructure; (iii) develop Togo’s human capital base through good health and education services and by enhancing opportunities for social protection and employment; (iv) strengthen governance; and (v) promote a model of participatory development that is balanced and sustainable.

3.4 The SCAPE presents a continuation of reform policies outlined in Togo’s first PRSP but puts more emphasis on establishing an environment conducive to private sector development. The Togolese authorities subscribe to the importance of an enabling business environment as precondition for private sector development, economic growth and the creation of

15

jobs and wealth and recognize that bringing about such an environment will require a strong commitment by the government as well as private sector and social partners.

3.5 A conducive business environment requires good economic infrastructure. For this reason the SCAPE emphasizes the need to develop the port of Lomé, the main transport corridors to Ghana, Benin and Burkina Faso, as well as the rail network and the national airport. SCAPE also pays considerable attention to the need to ensure reliable and affordable electricity, financial and telecommunication services and to promote the rule of law. In this context prominence is given to the continued implementation of the Initiative for Transparency (EITI) as a means to ensure the proper management of Togo’s important and rapidly expanding extractive industry sector.

3.6 The proposed series supports the Government’s reform program and its preparation was guided by the strategic directions outlined in the SCAPE. The series helps improve economic governance while strengthening the basis for rapid economic growth; more specifically the series supports the implementation of reforms under the first strategic area of the SCAPE (sectors with high growth potential), the second (economic infrastructure), and the fourth (governance).

4. BANK GROUP’S SUPPORT TO THE GOVERNMENT'S PROGRAM

A. LINK TO THE INTERIM STRATEGY NOTE AND THE AFRICA STRATEGY

4.1 An Interim Strategy Note (ISN) was presented to the Board in January 2012. The ISN updates the 2008 ISN and is based on the Government's first (and extended) PRSP. The ISN reflects key issues identified in the SCAPE, as the preparation of the ISN benefited from the background work that was ongoing for the SCAPE and as the SCAPE continues to focus on the same themes as the first PRSP. Informed by the SCAPE, the Bank intends to support the authorities’ plan to organize a consultative group meeting and has started preparations for a Country Partnership Strategy (CPS).

4.2 Consistent with the PRSP I and the SCAPE, the ISN supports the following objectives:

(i) deepen economic recovery and promote sustainable development, through a focus on improving the business and investment climate, increased agriculture productivity and crop output, and improved access to productive infrastructure; (ii) improve economic governance through improved management and restructuring of key public enterprises and banks, improved and transparent public financial management, and enhanced procurement system and external budget controls; and (iii) address urgent poverty reduction and social needs through improved access of communities to basic social and local development services, improved quality of and access to basic education and health services, improved access to social protection services, and improved management of environmental and natural disasters.

4.3 The proposed operation is closely aligned with the ISN’s strategic objectives as identified in the first and second pillar. It supports the deepening of economic growth through its focus on reforms in agriculture, energy, infrastructure, banking and the investment climate and combines this with a focus on improving economic governance with reforms providing support to

16

oversight institutions and facilitating more transparency, directed towards improved public financial management as well as support to key public companies in cotton, phosphate mining and telecommunications.

4.4 By emphasizing the role for oversight institutions and transparency and through reforms in the main public companies, the proposed series helps Togo move into a more robust socio-economic territory in which pro-poor policies can effectively be implemented. Togo remains a country with weak institutions, influential vested interests, a divided civil society and emerging oversight institutions. In this setting the risk of relapse to the ‘old ways’ which prevented the country from achieving meaningful progress between 1990 and 2005 is not trivial. The contribution of the EGGC series to the third pillar of the ISN is therefore primarily through creating an environment in which pro-poor policies can thrive. In addition reforms in cotton, fertilizer, micro-finance and telecommunications are expected to directly benefit poor households.

4.5 The areas of focus of this series are closely aligned with the Africa Strategy. The Africa strategy has three themes: competitiveness and employment, vulnerability and resilience and governance and public sector capacity. With its focus on enhancing competitiveness through real sector reforms, the proposed series is aligned with the first pillar of the Africa Strategy. Attention given to reforms in public enterprises speaks directly to enhancing the resilience of the state through strengthening oversight institutions, the public availability of budget documents, and by strengthening oversight in the mining sector. This series is therefore closely aligned with the Strategy’s foundation of Governance and Public Sector Capacity.

B. COMPLEMENTARITY WITH OTHER BANK GROUP ACTIVITIES

4.6 The proposed series complements several ongoing IDA operations. EGGC’s focus on enhancing competitiveness is completed by work on Doing Business, and the Private Sector Development Operation (FY11, US$13 million), which supports investment climate reforms, the development of a new Free Zone, and which provides business training to targeted micro and small enterprises. Work on the banking sector is complemented by the Financial Sector Reform and Governance Project (FY09). Activities in agriculture benefit from support offered by the multi- donor Agriculture Sector Support Project (PASA, FY11, US$37 million) to strengthen the cotton producer organization and to enhance the use of fertilizer. Dialogue on telecommunications is complemented by the West Africa Regional Communications Infrastructure Program (WARCIP, FY13, US$30 million), which deals with ensuring Togo's access to international communications infrastructure. Work on energy is complemented by preparations for a multi-sectoral dam project (Adjarala) which is in the pipeline (FY14) and the Emergency Infrastructure Rehabilitation and Energy Project (FY09, US$41.82 million). This project is helping to rehabilitate critical infrastructure in and around Lomé, including roads, drainage and water supply. A mining TA operation, has been requested by the authorities; support from EI-TAF to prepare the Mining Act and to strengthen the cadastre is under preparation.

4.7 Non-lending instruments complement EGGC support. The series benefits from support given to EITI-Togo under the EI Trust Fund, and from the PSIA TF to support cotton sector reforms. The EGGC team has offered training to the Court of Accounts and works closely with the Bureau of Statistics (DGSCN) to implement a Trust Fund for Statistical Capacity Building (TFSCB) to strengthen national accounts and to facilitate the dissemination of data. The team has offered training in poverty analysis using the POVMAP and ADEPT software developed by the Bank and,

17

with the support from the BNPP TF, is setting up a representative and rapid welfare monitoring system which uses mobile phones to collect information from randomly selected respondents.

4.8 The team benefits from the launch of the BOOST database. This database makes detailed public finance data accessible. It was developed in a close collaboration between the World Bank Institute and the authorities. BOOST presents the budget (and expenditure) data for 2009- 2013 in Microsoft Excel with a PivotTable user interface. This ensures easy access to and use of the budget information. BOOST-Togo is the first such data base for the WAEMU. It is available online and is updated annually. Togo’s BOOST is disseminated through a web-based application that can be accessed through www.togoreforme.com.

C. COMPLEMENTARITY WITH OTHER DEVELOPMENT PARTNER PROGRAMS

4.9 The European Union supports the Government’s reforms through its budget support series. IDA collaborates closely with the EU to avoid duplication of effort and to ensure complementarity.

4.10 IMF and IDA staffs coordinate closely regarding advice, missions and technical assistance. The latest IMF ECF-supported program ended in July 2011 and a new assistance program is under negotiation. IDA staff provided feedback to the concept note for the next ECF and participated in the review meeting. Similarly IMF staff commented on the concept for this series. Analytical work is shared between the staffs and technical assistance to the country is coordinated. A policy note on fuel price reforms was initially prepared by IDA, was reviewed by the IMF and finally used by both institutions in its policy dialogue; a policy note on poverty was prepared jointly.

4.11 The EU, IMF, AfDB and IDA coordinate their interventions on PFM reforms. The European Union has provided resources to the IMF to offer technical assistance for the implementation of PFM reforms. IDA PFM staff participated in the IMF’s inception mission and ensured that IDA’s activities are complementary to those of the IMF/EU. This resulted in a division of labor in which IDA focuses on oversight institutions, procurement reform and analyses on the efficiency of spending, while IMF deals with treasury management, reform coordination and sequencing of PFM reforms. The IMF also offers technical assistance for monitoring budget execution, implementing a functional budget classification, and strengthening tax administration and tax policy. Meanwhile, the European Union focuses its assistance on enhancing transparency, while AfDB deals with public procurement, capacity building for control institutions as well as the OTR.

4.12 The World Bank participates in sector groups to help improve donor coordination. In November 2011, the government initiated a framework to better coordinate development actions and donors’ activities. To this end, a decree was adopted to create eleven sectoral committees which focus on: (i) political and administrative governance; (ii) justice, human rights, and security; (iii) defense; (iv) economic governance and institutional capacities; (v) agriculture and food security; (vi) private sector and competitiveness; (vii) infrastructure; (viii) water, sanitation, and environment; (ix) education; (x) health and HIV/AIDS; and (xi) social protection and employment. These committees are responsible for ensuring coherence between sector policies and the poverty reduction strategy, and to coordinate donors’ actions in each of the sectors. The World Bank is a member of most of these committees and leads discussion in four of them: (a) economic governance

18

and institutional capacities; (b) agriculture and food security; (c) private sector and competitiveness; and (d) infrastructure.

D. ANALYTICAL UNDERPINNINGS

4.13 Three studies helped identify the main areas of focus for this series. The first is the Ex Post Assessment of the IMF’s Longer Term Program Engagement prepared by the IMF (2006). It provides an in-depth analysis of the events that led to donor disengagement. The study stresses the importance of improving economic governance and transparency and the need to reduce scope for extra-budgetary financing. To realize this, the report suggests focusing on strengthening fiscal management (including through enhanced oversight and external controls), enhancing the autonomy of public enterprises (including through privatization) and financial sector reform through bank restructuring, privatization and improved supervision. The study also points to the need to address capacity constraints, particularly in (i) the Ministry of Finance, to support budget preparation and expenditure management; (ii) tax and customs administration; (iii) banking supervision, to support efforts to improve the soundness of the financial sector; and (iv) statistical agencies, notably agencies in charge of national accounts and the debt department.

4.14 The Ex Post Assessment of the Longer Term Program Engagement points to the need for a genuine commitment by the authorities for reform. Following the Global Political Accord and in the run up to the HIPC completion point, such a commitment was evidently present. Yet following HIPC completion, and in the face of uncertainties surrounding the timing of the legislative and municipal elections and occasional civil unrest, political attention may have shifted. A second background study informed this series, and is a political economy study prepared by PREM to identify pathways to enhance incentives for reform within the administration.

4.15 Governance enhancing reforms will be much easier to implement, if losers of such reforms can be compensated. Economic growth is thus an important prerequisite (as well as outcome) for the success of the proposed governance reforms. A third and critical background study is the 2010 Country Economic Memorandum (CEM). This study comprises a growth diagnostic and provides in-depth analysis of the sources of economic growth. The study finds that while Togo faces numerous constraints, human capital, geography and macro-economic stability are probably not binding constraints. Infrastructure and access to credit are flagged as potential binding constraints along with governance issues, particularly related to the business environment. The agricultural sector, finally, is identified as a key sector for the economy. Not only is it the sector with the largest contribution to GDP and employment, it is also a sector with much potential to increase output and productivity.

4.16 In combination these three studies allowed the EGGC team to identify the main areas for reform: enhanced transparency to facilitate bottom-up accountability, enhanced internal and external oversight of public institutions and strengthening the foundations for rapid and inclusive economic growth.

4.17 An Investment Climate Assessment completed in FY10 provides another crucial diagnostic of the business environment. This study reinforces the notion that the business environment is in need of improvement. Barriers and costs of doing business are high, especially when starting a business, and compare poorly to countries at the same level of development level. The study stresses the need to improve the business environment across the board, and identifies

19

some priorities. It notes how tax administration requires particular attention while labor market regulations seem less of a problem. Trading across borders is a relative strength compared to other countries and other constraints but would need to improve further if Togo is to take advantage of its geographical location and to evolve into a regional logistics hub. The new investments in the container terminal, ongoing reforms in the telecom market and the envisaged growth corridor are a good start, but will need to be implemented and result in concrete improvements in logistics, telecommunication and infrastructure. Togo will also need to prove to potential investors that political stability is permanent and that corruption, poor budget execution and mismanagement of state owned enterprises belong to the past.

4.18 Reforms in PFM are underpinned by analytical work carried out in the context of the PEFA (2008) and a PEMFAR (2009). Procurement reforms are particularly informed by the roadmap included in the PEMFAR report. These studies are complemented with a review of the PFM reform strategy (2011) prepared by the IMF, UNDP and AFRITAC, a report by the EU on the General Financial Statistics (2012), and a report by the IMF’s Fiscal Affairs Department (2012) prepared after the inception mission for the IMF’s technical assistance to the PFM reform process in Togo. In combination these reports provide the necessary diagnostic analysis of the strengths and weaknesses of the country’s public financial management system and practices.

4.19 EGGC policy dialogue benefits from a number of policy notes. In the context of the ongoing Public Expenditure Review, an analysis was prepared on the quality of data included in the IFMIS. This analysis demonstrated shortcomings such as the absence of revenue information, non- reporting of investment spending by donors and a continued reliance on special procedures. The EGGC team used this analysis as a basis for its dialogue on strengthening the IFMIS system. Recommendations from this policy note, and an associated institutional analysis, help guide the selection of triggers for later operations in the EGGC series. Figure 4.1: Poverty Incidence in 2006 and 2011, by Region 100 90.8 86.7 90 80.2 74.2 75.1 80 74.6 73.4 67.1 64.7 68.4 70 61.1 61.7 58.7 60 53.9 50 37.1 40 32.8 34.6 27.2 30 20

Poverty headcount rate (%) rate headcount Poverty 10 0

2006 2011

Source: QUIBB 2006 and 2011 surveys.

4.20 With respect to the dialogue on poverty the team benefits from the release of the QUIBB 2011 survey report and the poverty assessment. The new poverty numbers show that between 2006 and 2011 poverty declined slightly from 62% to 59% while inequality increased considerably as demonstrated by the Gini index which increased from 0.36 to 0.39. The overall picture that emerges is of a slow and highly variable progress. A regional disaggregation of poverty incidence reveals not only large welfare differences, with poverty in Lomé being about one third of the level in Savannes, the results also show that in certain regions, Savannes and Plateaux, poverty

20

incidence increased between 2006 and 2011. Even though poverty levels are much lower in urban areas (35%) compared to rural areas (73%), and while poverty in urban areas has dropped faster than in rural areas in other dimensions of welfare, performance in urban areas has deteriorated. These results underscored to the team the need to create the right conditions for growth and income generation which would ensure the availability of more resources to households and for service delivery.

4.21 To further explore the link between growth, inequality and poverty reduction, the team assessed whether growth alone could contribute to a significant reduction in poverty. The findings demonstrate that even if the current growth profile (which favors rich households) is adjusted in favor of poor households, levels of poverty will remain high. The reason for this is that the depth of poverty is such (particular in northern Togo) that growth alone is insufficient to lift many out of poverty. The conclusion is therefore that an inclusive growth strategy will need to be combined with (conditional) cash transfers targeted toward the poorest 40 percent of the population. This finding is informing the country program. Already the Togo Community Development and Safety Nets Project (FY13, US$ 14mn) has a cash transfer component, which is to be scaled up through additional financing.

4.22 The team prepared a number of additional policy notes to inform the series. A note on telecommunications helped clarify the case for more competition in the telecom sector by demonstrating the benefits a vibrant telecommunications market brings in the form of reduced transaction costs, improved access to information, innovation (particularly banking services) and enhanced government revenue. A note on informal enterprises highlighted the difficulties these enterprises face in dealing with the authorities. A note on procurement demonstrated the continued importance of non-competitive procedures in public procurement. Finally, notes about phosphate marketing and the electricity sector are under preparation.

E. LESSONS LEARNED

4.23 Factors that contribute to achieving development outcomes through DPLs include having a multi-year perspective, reform ownership by the authorities, selectivity and complementarity and the availability of analytical work. More specifically, lessons learned include:

• The ICR for the ERGC-4 noted that as reforms may take years to complete, annual stand- alone DPLs are less suited for a country with a long-term reform agenda. A series of annual stand-alone operations could mimic a DPL series but lacks the consistency of a multi-year series. To address this question, the proposed credit is the first in a series of three operations.

• Reforms require ownership to be effectively implemented and building ownership may take time, particularly when reforms are sensitive, and requires flexibility from the World Bank. At the same time, there needs to be a firm commitment to completing the reform process. For instance, ERGC-5 fostered ownership for reforms in the telecommunications sector by requesting a Government endorsed strategy with well-defined milestones. The proposed strategy differed from the strategy initially envisaged by IDA, but was realistic and had the advantage of ownership by the authorities. The formulation of the strategy was a prior action in ERGC5, while the achievement of the milestones is followed through the policy actions of the current series. The proposed EGGC series follows a similar approach with respect to

21

cotton sector and fertilizer reform. Prior actions are about the formulation by the authorities of a strategy to achieve well defined objectives while indicators and subsequent policy actions follow the implementation of the strategy.

• The availability of analytical work is of paramount importance to any operation. This has been the case for previous ERGGs and also holds for this series which benefited from the CPAR, the EPA, PEMFAR, and the recently completed Country Economic Memorandum and the Poverty Assessment. To inform the preparation of this series, team members actively engaged in the preparation of background notes, including a study on Togo’s political economy. The latter was an explicit recommendation of the ICR of ERGC-5.

5. THE PROPOSED SIXTH ECONOMIC GROWTH AND GOVERNANCE CREDIT

A. DESCRIPTION OF THE SERIES

5.1 The reform program supported by the proposed operation is rooted in the Government’s reform program outlined in Section 3. The series builds on reforms supported by ERGG-5 and its predecessors but with increased focus on economic governance with the ultimate objective of rapid poverty reduction through improved competitiveness and enhanced growth. Relative to ERGC-5 and its predecessors the EGGC series is more selective with the choice of PFM reforms, as the EU and IMF have become very active in this area. Instead this series puts more emphasis on reforms in the real sector of the economy. A number of sectors follow: agriculture, mining, energy, telecommunication, banking and private sector development. These sectors were included because of their centrality to the economy of Togo and because the Bank, through its investment and TA portfolio, is already active in these sectors. The proposed operation and associated policy actions are complementary to these ongoing activities.

Policy Areas

Pillar 1: Enhance the efficiency and transparency of public finance management

5.2 The Government is committed to improve public financial management through the implementation of its PFM strategy, which addresses challenges highlighted in the 2008 PEFA and 2009 PEMFAR. To address these issues, the authorities adopted an updated Action Plan (2012-2014) to modernize the PFM system. The Action Plan identifies nine areas of action starting with the alignment of the legal framework through the transposition of the new WAEMU PFM directives into national law. The WAEMU directives aim to achieve program budgeting by 2019 and the reforms are aligned with this objective. They include: (i) improvement of domestic revenue collection and external resource mobilization; (ii) strengthening budget planning and execution through the preparation of sector MTEFs using ceilings determined by a global MTEF that reflect PRSP priorities; (iii) strengthening internal and external controls; (iv) further development of various financial information systems (SIGFIP, SYDONIA and SYGADE) to improve coordination between line ministries and the Treasury; (iv) improving public procurement processes; (v) de- concentration and decentralization of the financial administration; (vi) improvement in public accounting and budget execution statistics, notably the annual financial statements; and (vii) strengthening institutional capacities and coordination.

22

5.3 To address shortcomings with respect to procurement, the government aims to improve transparency and efficiency in line with the WAEMU procurement guidelines. Specific actions include: (i) elaboration of procurement audits; (ii) publication, in the procurement journal and on the website, of the outcomes of all public tenders including those of state enterprises and concessions; (iii) use of standardized bidding documents; and (iv) implementation of the public procurement information management system (SIGMAP).

5.4 In 2011 and 2012, the authorities continued to implement the PFM reform agenda with a focus on the legal framework, budget execution, public procurement and enhancing transparency. Reforms undertaken included inter alia: (i) the adoption by Cabinet of the six draft texts regarding the WAEMU directives pertaining to the (1) state budget, (2) budget classification, (3) public accounting, (4) chart of accounts, (5) government financial statistics (TOFE) and (6) transparency in public financial management and their submission to parliament for adoption (to date parliament has not adopted the texts); (ii) operationalization of the cash management planning system through the preparation of a treasury management plan including monthly tables, which present estimated and realized revenues and expenditures;8 (iii) adoption of a decree establishing the thresholds for public procurement9 and operationalization of a public procurement website10; (iv) publishing all information contained in the SIGFIP online through BOOST; and (v) adopting standardized bidding documents (and training spending departments in their use).

5.5 Progress was made in strengthening internal and external controls, but more needs to be done. With regard to the internal control of public financial management, the IGE performed inspection missions and submitted its mission reports to the President of the Republic and the Court of Accounts. Their impact has been limited because a mechanism to ensure follow up on IGE recommendations is not in place. The IGF also undertook control missions in 2012 – a total of 9 missions, including controls at the FNGPC, and six audits of public procurements. IGF also carried out another ten follow up missions to ensure compliance with its previous recommendations, and participated in training sessions on the risk based auditing approach.

5.6 PFM reforms need to deepen if Togo is to comply with its regional commitments regarding the adoption of the WAEMU directives. The directives aim to improve transparency and accountability, with a move to accrual accounting and a greater role for Parliament in the budget process. For these reforms to take effect, two key laws will first need to be adopted by Parliament (they have already been adopted by Cabinet). To further help strengthen the PFM system, the IMF (with assistance from the EU) has placed two technical advisors in the Ministry of Finance, who on one hand will focus on the coordination of reforms and on the other on strengthening treasury management.

Prior Actions under the proposed EGGC-6 and triggers for EGGC-7 and 8

5.7 The proposed series supports two sets of policy actions which have been selected for their ability to enhance the efficiency and transparency of the public finance management. The actions aim to enhance transparency, to strengthen external oversight and to automate

8 These still require ensuring consistency between various entries and the final estimated and realized amounts. 9 Decree on Public Procurement Thresholds, Publication, Control and Approval of Procurement Contracts (Décret no. 2011-059 portant fixation des seuils de passation de marchés, de publication, de contrôle et d’approbation des marchés publics) of May 4, 2011. 10 www.marchespublics-togo.com. 23

procurement and are in line with the reforms identified in the Government’s medium term Action Plan.

Prior action EGGC-6: Budget data for 2009 – 2013 and budget execution data for 2009 – 2012 are available online using a user friendly interface. 5.8 This prior action aims to improve access to budget and execution information. The authorities have opted to operationalize this prior action by publishing the budget data using the BOOST tool. This tool provides an easy navigation through the budget and allows the user to aggregate data using different combinations of budget classifications or to choose (using filters) individual items of spending by sector, region, or budget holder and to drill down further to get a better understanding of how that spending has evolved. The data can be downloaded directly into Excel. The tool is accessible on the www.togoreforme.com website and on: http://www.openlooksolutions.com/boost_togo/

5.9 The first trigger for 2014 as well as the trigger for 2015, expands the information that is made available. In 2014 information on revenues and debt is added, although in a stand-alone manner; with the trigger for EGGC-8, the debt information is integrated in SIGFIP (and consequently also BOOST).

Trigger EGGC-7: Togoreforme.com published detailed revenue information (annually) as well as detailed information about domestic and foreign debt (quarterly).

Trigger EGGC-8: SYGADE (debt database software) has been integrated into SIGFIP and staff of the debt department has been trained in its use.

5.10 One additional trigger has been identified for ERGC 7. This trigger aims to strengthen oversight of the Court of Accounts and Parliament.

Trigger EGGC-7: By the opening of the Parliamentary budget session, Parliament has received the report from the Court of Accounts regarding 2011.

5.11 This trigger increases the visibility of the Court of Accounts (an institution that was created only recently in 2009), and ensures that when Parliament discusses the budget for next year, it has independent information about the Government’s budget execution performance.

5.12 The second set of prior actions relative to public finance management deals with the automation of Togo’s procurement systems. The first prior action lays the basis for the implementation of an automated procurement system (which will increase the ability for controls and reduce the scope for errors) that is linked to the IFMIS system.

Prior action EGGC-6: SIGMAP has been installed (for testing purposes).

5.13 This prior action is part of a series of policy actions leading to the strengthening of the procurement system at central and regional level. The development of this system is spearheaded by the Procurement Regulatory Authority, which was established in 2009. Triggers for EGGC7 and 8 ensure the SIGMAP system becomes fully operational and is linked into the budget system (SIGFIP).

24

Trigger EGGC-7: Procurement plans for six ministries (health, water, primary and secondary education, agriculture and public transport) are incorporated into SIGMAP.

Trigger EGGC-8: SIGMAP is interfaced with SIGFIP.

Pillar 2: Strengthen economic governance and the foundations for growth

Agriculture:

5.14 Agriculture is the key source of livelihood for the majority of households in Togo. Modernizing the sector is an important development objective of the authorities. This series focuses on two reforms critical to a more vibrant agricultural sector related to the cotton value chain and to fertilizer use.

Cotton

5.15 Cotton in Togo is produced in an integrated production chain in which one (state- owned) company (NSCT) is responsible for the purchase and collection of cotton from farmers, its processing and sale on the world market. The same company provides farmers –who at the village level are organized in “village societies” – with seed, fertilizer and pesticide on credit. The presence of a sole buyer of cotton offers opportunities to avoid market failures, such as the under or non-provision of extension services and inputs on credit. It also offers farmers a certain degree of security as minimum cotton purchase prices are announced at the beginning of the season, if world market prices turn out to be good, farmers qualify for an extra payment on top of the minimum payment. In combination with support for the village societies, which regularly take on functions beyond organizing the sale of cotton and the distribution of inputs and maintenance of rural roads by the cotton company, a well-functioning integrated cotton sector can be a vehicle for broad based rural development.

5.16 The provision of inputs on credit and minimum price guarantees make the cotton sector vulnerable to exogenous (price and weather) shocks, while integration makes the sector prone to capture and abuse. In 2007/8 the Government commissioned a financial audit of SOTOCO as well as a strategic audit. These audits highlighted pervasive commercial and financial mismanagement across all layers of SOTOCO. Based on this diagnostic, the medium-term cotton sector reform program was formulated. As a first step, the government liquidated SOTOCO and set up NSCT with a capital of CFAF 2 billion, 60 percent of which is held by the government and 40 percent by the producers association (FNGPC). The new company is allowed to use the assets of the former SOTOCO and has taken over its activities. A regulatory framework for the cotton sector that specifies the roles, responsibilities, and obligations of sector stakeholders was developed. Farmer leaders were trained about better participation within the NSCT board to strengthen the participation of cotton producers in the decision-making process of NSCT. Other reforms included the development of an accounting system that provides a detailed breakdown of NSCT’s variable and fixed cost by season and institutional strengthening of FNGPC (with PASA support).

5.17 Despite these improvements, governance problems continue to affect the sector. For instance, in 2012 and following an inspection by the IGF, it became evident that FNGPC management had mismanaged resources at its disposal. Swift action by the authorities resolved the issues, but also demonstrated the lack of internal oversight and control mechanisms within the federation.

25

Figure 5.1: Cotton Production ‘000 tons 187 200 174 180 168 164 160 140 117 120 120 100 100 79 80 65 49 46 60 40 31 40 28 20 0

Production season

Source: NSCT 2012.

5.18 NSCT has done a remarkable job reviving the cotton sector. Under NSCT’s management, cotton production increased from 28,000 tons in 2009/10 to a projected 100,000 tons in the current season (2012/13). High world market prices and a cotton price mechanism according to which farmers can expect to be paid a significant proportion (61 – 63 percent, depending on the volume of production) of the world cotton price also played an important role in the rebounding of the sector.

5.19 To facilitate the expansion of the cotton sector and to put the sector at arm’s length from the Government, it was decided in 2008 to privatize NSCT in due course. However a failed cotton sector privatization in Benin and the realization that with the small size of Togo’s production a state monopoly would be exchanged for a private monopoly have raised questions about whether NSCT should be privatized or whether NSCT should continue as a public company.

5.20 The objective of EGGC6-8 is to bring light to the question of privatization and to strengthen governance of the sector. To this end the authorities committed to preparing a cotton strategy which presents the Government’s position vis-à-vis privatization, and addresses other pressing (governance) aspects of the cotton sector such as (i) the valuation (and transfer to NSCT) of assets that previously belonged to SOTOCO; (ii) the financing of investments in transport capacity and processing facilities; (iii) access to technical expertise; (iv) the functioning of the price mechanism; (v) the functioning of the accounting system; (vi) price risk management; and (vii) mechanisms that need to be put in place for a transparent and professional management of the sector. The strategy was formulated and approved in May 2013.

Prior action EGGC-6: A new cotton sector strategy has been adopted and has been validated by the Ministers of Finance and of Agriculture. 5.21 The strategy identified two actions that are critical to improve governance of the sector: the first is the revision of the price formula (which turned out to be incomplete) and the creation of an inter-professional body. The first measure will ensure that farmers are paid according to a clearly defined set of rules; the second measure provides another means for coordination and oversight in the sector.

26

Trigger ERGC7: FNGPC and NSCT agree on a new price formula defining the price that should be paid to farmers; this price formula has been validated by the Ministers of Finance and of Agriculture.

Trigger EGGC-8: The inter-professional body for the cotton sector is operational.

Fertilizer

5.22 Fertilizer use in Togo is among the lowest in the world. According to the agricultural PER published in December 2011, an estimated 16 percent of the land area receives fertilizer. The FAO estimates that in Togo, on average 3 kg per hectare of fertilizer is used. This compares poorly with the average for Africa of 19 kg per hectare and very poorly with the global average of 106 kg/ha. Following global price increases for oil (and fertilizer) in 2008, the Government started subsidizing fertilizer at a rate of between 25 percent and 40 percent depending on the year. The price at which fertilizer can be bought is fixed annually by ministerial decree and announced publicly. Fertilizer is provided by two public entities: CAGIA (Center for the Purchase and Management of Fertilizer) and NSCT (which provides fertilizer specific to cotton). The arrangement is rather costly for the Government, which spent on average 2.9 billion (US$6 million) on fertilizer subsidies annually between 2008 and 2011, or the equivalent of 28% of the budget of the Ministry of Agriculture.

5.23 The current fertilizer supply mechanism poses a number of problems. First, its cost poses a heavy burden on the Ministry of Agriculture. In addition, in the face of a sector that is dominated by two public bodies, the private sector remains at the sideline. It is estimated that private operators are only responsible for the importation and distribution of 10% to 15% of all the fertilizer used in Togo. Finally, the distribution of (subsidized) fertilizers is not well targeted and a non-negligible quantity ends up in neighboring countries.

5.24 The Togolese government has indicated that it is ready to reform the current system of fertilizer supply and to migrate to a better way of providing public support to fertilizer use. Doing so would be in accordance with the Abuja Convention and the Plan for Agricultural Development (2008) prepared by the WAEMU, to which Togo is a signatory, and which commits the government to move to approaches to subsidize fertilizer that are compatible with a liberalized fertilizer market.

5.25 The objective with respect to fertilizer is to make sure that (subsidized) fertilizer becomes more accessible by smallholder farmers. The approach followed is similar to that followed for cotton: first a strategy is defined which is subsequently implemented. Because discussions about reform in the fertilizer sector have only just started (while for cotton they started in December 2011), it was decided that by the second year of the series, a strategic document outlining fertilizer reform would have been adopted by Cabinet. In year 3 the DPO will ensure that the new strategy is being put to practice.

Trigger EGGC-7: A new approach to the provision of (subsidized) fertilizer which supports increased fertilizer use by smallholder farmers been adopted.

Trigger EGGC-8: The new approach to providing fertilizer is being implemented.

27

Mining Sector

5.26 Togo is rich in natural resources, most of which are not yet exploited. Togo has large and high quality phosphate reserves, mining of which started in 1962. In addition to phosphate, limestone is mined, which is used to produce cement and clinker. Together they constitute Togo’s largest export commodities: in 2010 cement and clinker were 10% of exports; phosphates were 8% of exports. Recently the exploitation of iron and marble started, manganese reserves have been confirmed, while prospecting for oil, gold, uranium, diamond and nickel are ongoing.

5.27 The history of phosphate production illustrates the risks associated with large scale mining. Mining of high quality, non-carbonated phosphate began in 1962 with a private company. Production took off rapidly, reaching 2.6 million tons in 1973. After a sharp drop to 1.2 million tons per annum following the nationalization of Phosphate Company in 1974, production recovered and stabilized around 2.5 million tons. In 1980 the state-owned Office Togolese Phosphates (OTP) was created which took over all phosphate operations. Under OTP production ranged from 2 million tons in 1982 to a peak of 3.4 million tons in 1989. From 1989 onward production started to decline as a result of the socio-political crisis of 1991-1993 and because of the frequent recourse by the authorities to short-term cash advances from public enterprises (including OTP) to finance on and off-budget activities. Intending to boost production and in association with foreign private partners a new company was established in 2001: the International Fertilizer Group (IFG). IFG did not meet its expectations and was placed under provisional judicial management in late 2003. In 2007 the government created the Société Nouvelle des Phosphates Togo (SNPT) which took over the assets and operations of OTP and IFG. Since that time production has started to increase, but at a slow pace and from a very low base of around 800 thousand tons. In 2012, total production was 1.1 million tons.

Figure 5.2: Phosphate Production in Togo 4,000 3,500 3,000 2,500 2,000 1,500

million million tons 1,000 500 0 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

2013 (proj.) 2013 Source: SNPT.

5.28 Assets obtained by SNPT - mining and transport equipment, as well as the plant, were old, outdated and in poor condition. To correct this situation, but also to prepare for mining Togo’s carbonated phosphate reserves, the Council of Ministers adopted in March 2010, an ambitious strategy for reviving the phosphate sector in Togo. This strategy can be summarized as follows:

• Phase 1: rehabilitate SNPT and bring the production of non-carbonated phosphate to a level of 3 million tons a year by 2012; 28

• Phase 2: Prepare to mine carbonated phosphate and bring total phosphate production (carbonated and non-carbonated) to 6 million tons per year by 2014; and • Phase 3: Invest in the processing of phosphate with the construction of a phosphoric acid plant and to bring production to a level of 10 million tons by 2017.

5.29 If the rapid increase in phosphate production materializes and if additional mining operations start, Togo could become a natural resource economy. This creates risks and opportunities. To create the right context for these developments, a new mining code is needed. This code is currently under preparation. It is equally of critical importance that qualified and robust private sector partner(s) are identified to develop Togo’s carbonated phosphate reserves and the associated industrial complex. The World Bank is providing technical assistance to assist with the selection of a strategic investor. To date, collaboration took place in a tense atmosphere that is characterized by a minimal exchange of information. The team is working to improve this, is seeking to offer more practical advice and is considering a mining sector operation. Nonetheless, in the opinion of the team, the risk that a less qualified investor will be identified is significant.

5.30 To enhance transparency in the natural resources sector, Togo joined the EITI initiative. To date it has published two reports. The first report covering 2010 showed that slightly more than 5 percent of the 33.7 billion CFAF of payments made by mining companies, could not be reconciled with the Government’s accounts. A second report, dealing with 2011 found no significant discrepancies between payments made by the extractives companies and revenues received by the state.

5.31 The objective of EGGC6-8 is to help enhance Togo’s mining production. The first prior action to help achieve this aims to facilitate SNPT reach its production objective:

Prior action EGGC-6: An evaluation of the investments in non-carbonated phosphate carried out under phase 1 of the phosphate strategy has been prepared along with an action plan to implement its main findings.

5.32 SNPT estimates to have invested by the end of 2012 47 billion CFA francs (almost US$100 million) to rehabilitate its mine, transport equipment, factory and loading facility, almost twice as much as was foreseen in the phosphate strategy. Despite these investments, production has only reached 1.1 million tons, slightly more than a third than what was expected to have been reached by the end of phase 1. Moreover, SNPT expects to have to invest another 33 billion CFAF (US$70 million) in order to reach by 2016 (not 2012) a level of production of 3 million tons. The review helps establish the reasons for the cost overruns, and the realism of the phase 1 phosphate strategy.

5.33 To further scale up mining production, the Government has moved forward with the identification of a strategic partner to develop its carbonated phosphate reserves. Three consortia were pre-qualified in early 2013 and the selection process needs to be completed. The Government has also started preparations for a new Mining Act and has asked IDA for assistance (through EITAF). As both processes are critical for the future of mining in Togo, EGGC-7 and 8 accompany these processes:

29

Trigger EGGC-7: The government has launched the call for proposals for the development of Togo's carbonated phosphate reserves in form and substance and in accordance with procedures satisfactory to the Bank.

Trigger EGGC-8: A strategic partner to develop the carbonated phosphate reserves has been selected who meets the criteria set out in the call for proposals and a new mining code has been submitted to Parliament for approval.

Electricity Sector

5.34 Access to electricity in Togo has increased considerably since 2006. In 2006, access to electricity was 28 percent of Togo’s households, with a 65 percent access in urban areas and a 6 percent access in rural areas. By 2011 this had changed considerably and coverage had increased to 39 percent. Use of electricity remains largely confined to better off, urban households. In urban areas, 77 percent of households use electricity; in rural areas less than 10 percent. The level of spending varies accordingly: households in the poorest quintile spend on average 10 CFAF per month on electricity; those in the top wealth quintile spend almost 7,000 CFAF (Figure 5.3). During consultations held with rural and peri-urban communities in July 2010 in the context of the World Bank’s new energy strategy, it became clear that gaining access to electricity ranks among the top priorities for Togo’s population. Figure 5.3: Percent of households using electricity and average spending per household (CFAF) 8000 100% Percent of households paying for electricity91% FCFA spent 7000 90% 80% 6000 6,886 FCFA 67% 70% 5000

60% 4000 50%

FCFA 3,752 FCFA 3000 40% 29% 30%

2000 Percent of households 20% 1000 7% 1% 10% 137 FCFA 640 FCFA 0 10 FCFA 0% Poorest 2nd 3rd 4th Wealthiest Quintile Source: Staff calculations based on QUIBB 2010.

5.35 Most electricity used in Togo is imported. Traditionally, 65-70 percent of the electricity demand in Togo is satisfied by imports from Ghana, Côte d’Ivoire and Nigeria. In Togo the CEET (Compagnie d’Energie Electrique de Togo) is in charge of retail distribution and sale of electricity, while imported electricity is provided by the Communauté Electrique du Benin (CEB). The CEET is a state-owned company since its foundation; CEB is jointly owned by Togo and Benin. Power shortages in Togo are often associated with insufficient electricity imports from Ghana and Nigeria associated with gas shortages, low hydrology, obsolete production equipment of the exporting

30

electricity companies in the neighboring countries, and delays in building new electricity generating projects (regional electricity generation projects, hydropower project of Adjarala).

5.36 Faced with acute power shortages in the recent past, the authorities purchased emergency diesel generators to be operated by CEET and signed a power purchasing agreement with an independent power producer (IPP), Contour Global (CG), for a 100 MW heavy fuel oil /gas fired turbine. As a gas supply contract has not yet been secured, Contour Global is operating with heavy fuel with a production cost in the range of CFAF 70-80/Kwh. This cost exceeds the cost of energy (CFAF 55/Kwh) supplied by CEB and is therefore not attractive. Once natural gas is secured, production costs will drop to CFAF 35 – 45/Kwh. Under the agreement with Contour Global, CEET is bound to pay a capacity charge, irrespective of the amount of electricity procured. The cost to CEET of relying on electricity from Contour Global is expected to drop once an agreement has been reached under which Contour Global will deliver electricity to Togo as well as Benin. Such an arrangement, if agreed, could reduce the capacity charges by around 30 percent.

5.37 The recent adjustment in the electricity tariff has enhanced CEET’s financial situation. In June 2009, CEB increased its electricity tariffs by 10 percent through a bi-statal decision of both Benin and Togo. Initially CEET was not permitted to pass through this increase except to industrial customers leading to substantial financial losses (Table 5.1). As of January 2011, a tariff adjustment was implemented leading to a surplus of CFAF 2.4 billion in 2011 compared to a loss of CFAF 3.8 billion at the end of 2010.

5.38 Inadequate bill recovery continues to affect the sector’s financial sustainability. CEET’s financial situation was further strengthened by the clearance of arrears by the public sector, but despite arrears clearance in 2009, CEET is accumulating new arrears as the budget allocations for the electricity consumption of public administration (including hospitals, universities and state- owned enterprises) continue to remain below the actual billed amounts. In 2010, the budget allocation was around CFAF 5 billion, but the electricity bills amounted to around CFAF 6.4 billion, although the CEET provided electricity consumption estimates as inputs for budget preparation. In addition, the old age of some of the distribution equipment (dating to the 1950s and 1960s) renders the electricity system inefficient and unreliable, encouraging electricity leakages.

5.39 CEET’s management is improving. CEET has always been under public management, except during 2000 and 2006, when the company was operated under a private concession by the consortium, Elyo/Hydro Quebec. This concession ended in 2006 and was not renewed because it was generally felt that the consortium had not managed the sector well. In March 2008, new institutional structures were established, a Board of Directors and General Manager were appointed, and regulations for CEET were adopted consistent with those of the Organization for the Harmonization of Business Law in Africa (OHADA). Since February 2009 and following a negative assessment by the Supervisory Board of the progress made in implementing the Action Plan and reducing energy losses, the position of General Manager was vacant. The Deputy General Manager filled the position in the interim until December 2011 when the CEET Board appointed a new General Manager. Under the new management, significant progress has been made: for instance efficiency losses were reduced from 19.2 percent in December 2011 to 17.4 percent in June 2013.

31

5.40 CEET continues to receive subsidies from the Government. CEET receives a variable amount in subsidies every year. In 2011 CEET received around 3 billion CFAF (approximately $6 million, 3% of total turnover), in 2010 6.4 CFAF billion ($13 million, 11% of turnover) and in 2009 3.5 billion CFAF ($7 million, 6% of turnover).

5.41 There is scope for CEET to improve its financial performance. The most obvious solution would be for electricity tariffs to rise. But this may not be necessary as CEET also has options to reduce cost. Further reductions in technical losses, or sharing access to the (back-up) capacity of Contour Global with Benin or Ghana, are ways in which costs could be reduced.

5.42 While CEET is now profitable, CEB is incurring losses. Table 5.1 illustrates how following the increase in electricity prices at CEB became profitable. CEB started to make losses largely because the price paid by CEET for electricity provided by CEB does not cover CEB’s costs. Consequently, the sector as a whole continues to be loss making. This not only reflects a budgetary risk for the Government and limits the sector’s ability to invest and expand, by being structurally under-funded, the sector remains unattractive for potential private providers of electricity.

Table 5.1: Togo Power Sector Net Results (Billion CFAF) 2012 2013 2007 2008 2009 2010 2011 (est.) (est.) CEB (Togo only (*)) 0.8 1.5 1.1 1.0 -1.6 -12.3 -8.5 CEET -3.2 -0.02 0.14 -3.81 2.41 3.2 1.1 Total -2.4 1.48 1.24 -2.8 0.8 -9.1 -7.4 (*) CEB is jointly owned by Togo and Benin. Shown is Togo’s share (50 percent) Source: CEET 2013.

5.43 The objective of EGGC6-8 is to move to a situation in which the electricity sector is funded transparently. This requires transparency about the cost of production of the sector (CEB and CEET), the income in the form of tariffs and subsidies and the performance of each actor (CEB, CEET and State). To this end the following set of prior actions and triggers have been agreed.

Prior action for EGGC-6: CEET finalizes its financial model and uses it to prepare a commentary assessing the adequacy of the electricity tariff.

5.44 The financial model gives insight in the cost structure of CEET. It allows identifying opportunities to reduce costs, and their impact on production cost and helps clarify any need to increase tariffs or subsidies. Once the financial model relevant to CEET has been finalized, a combined financial model will be prepared which captures information relevant to CEB. This combined model can then be used to obtain detailed information for the sector as a whole on costs and revenues as well as the critical determinants of outcomes (analytical accounting). In the last year of the series, finally, the regulator is empowered and is expected to use the model to help ensure the financial sustainability of the sector.

Trigger EGGC-7: The draft financial model of CEB is available.

32

Trigger EGGC-8: Based on the new law, an independent (autonomous) regulator supervises the electricity sector, including the implementation of a tariff (and subsidy) mechanism that ensures that the costs of CEET and CEB are fully covered.

Telecommunications

5.45 Mobile phone communication has taken off. Around the start of the millennium very few people owned a mobile phone; 10 years later, more than 2.4 million mobile telephone connections exist, a forty fold increase. Over the same period the number of fixed lines increased five-fold from 42,000 in 2000 to 224,000 in 2010 and mobile phone connections have overtaken landlines by a factor of 10.

5.46 The telecommunication sector has significant untapped potential. Togo had a mobile phone penetration in 2011 of 48.9%, below the ECOWAS average of 54 percent and a growth rate of around 26 percent. Nevertheless, Togo’s mobile telephony sector is not living up to its potential. Togo's mobile market continues to be run under a duopoly regime with Togo Cellular, the mobile unit of fixed-line incumbent operator Togo Telecom, and Etisalat-owned Moov. Togo Cellular is the biggest mobile operator by subscribers, with a subscriber base of around 1.9 million at the end of December 2011 and a market share of 61.1%. Second-ranked Moov had around 1.2 million subscribers at the end of December 2011, with a market share of 38.9%. Togo Cellulaire enjoys 87 percent of the volume (dialed-out minutes) and 79 percent of turnover. Currently there are only about 26,700 mobile 3G subscribers, all on Togo Cellular (MOOV has yet to provide 3G services).

Figure 5.4: Percent of Households not using a Mobile Phone (2012: Selected African Countries)

60

50

40

30 Percent 20

10

0 Togo Benin Ghana Kenya Liberia Nigeria Malawi Zambia Uganda Lesotho Burundi Namibia Tanzania Mauritius Botswana Zimbabwe Cape VerdeCape Sierra Leone Sierra South Burkina Faso Source: Staff calculations using Afrobarometer (2012) data.

5.47 The fixed voice and data/internet market is dominated by state-owned incumbent operator Togo Telecom. The operator offers ADSL broadband and CDMA-based narrowband services to corporate and residential users. There were 240,512 fixed-line connections in Togo at the end of December 2011, a penetration rate of 3.8%. Togo Telecom launched its CDMA-based wireless local loop service under the brand Illico in 2006. The service's good coverage and low

33

prices have made it especially popular in rural areas. The service also allows users to use e-mail and access Internet pages at low speeds on their mobile phones. There were 5081 ADSL and 171,174 Illico subscribers at the end of 2011.

5.48 The number of Internet subscribers remains very limited and growth in the internet industry is still slow and highly constrained by limited access and high cost to end users: Togo had around 371,000 regular Internet users and 36,000 broadband subscriptions, with internet and broadband penetration rates of 6% and 0.6% respectively. This is expected to increase significantly in the next few years as a result of the recent connection to the West Africa Cable System (WACS) submarine cable, which now lands in Lomé, the extension of the Togo Telecom's national fiber backbone and introduction of 3G services in the market. Currently, Togolese consumers pay higher rates for Internet services than consumers in neighboring countries. The high cost of broadband Internet access prevents Togo from reaping the benefits of the ICT revolution. Business users and private citizens have to pay US$160 per month for fixed broadband Internet access, while consumers in Senegal and Ghana pay only US$29 and US$64 respectively. The cost of dedicated 2 Mbps link is as high as 2348 US$/month. This can be attributed to several factors such as (i) the high cost of international bandwidth, especially before Togo Telecom was able to secure Togo’s first connection to a submarine cable; (ii) the lack of an Internet Exchange Point (IXP) to reduce the cost of local Internet traffic; (iii) a monopoly structure for access to international capacity; and (v) limited regulatory activity to promote more competition or fair and equitable access to bandwidth.

Figure 5.5: Cost of Communications relative to overall CPI (Price index: Jan 2011=100) 110

105

100

95

90 Communication 85 Price index 2011 = 100) (Jan index Price Overall CPI 80 Jan Jan Jan Sep Sep Mar Mar July Mar July July Nov Nov May May May 2011 2012 2013

Source: DGSCN price statistics.

5.49 The connectivity status of Togo has improved dramatically in the last few years thanks to investments by Togo Telecom, but fixed access remains solely owned and managed by Togo Telecom. Togo is now connected to a WACS submarine cable with a landing station in Lomé. In addition Togo Telecom has rolled-out a national backbone up to the country's borders, ensuring the connectivity of Togo with Benin, Burkina Faso and Ghana, and creating additional access to other submarine cables via neighboring countries. Through Togo Telecom's investment in WACS and its national backbone, the country has a reliable and potentially cost-effective national and

34

international infrastructure in place. However as a monopoly, Togo Telecom has no incentive to lower prices, and the benefits of the investment for the country will not be fully realized unless the capacity is available to all operators on an equal basis.

5.50 The Government adopted a Sector Strategy on Promoting Information and Communication Technologies (ICT) 2011-2015 in May 2011 and a new Telecommunications Act in January 2013. This strategy lays down an ambitious vision for the sector focusing on free market forces and strengthening the legal and regulatory framework. The strategy intends to develop the telecom infrastructure and to stimulate reliance on ICT. The stated objective is to increase by 2015 the fixed and mobile phone penetration rates to 60 percent and the internet penetration rate to 15 percent from less than 1 percent today. The strategy is based on a holistic approach around four pillars: (1) Strengthen legal and regulatory framework and regulation; (2) Free market forces; (3) Develop infrastructure; and (4) Improve and stimulate usage of ICT.

5.51 The objective of the policy action in the telecommunications sector is to ensure the implementation of the telecommunications strategy and increase ccompetition. Reforms that are sought include (i) opening up the mobile phone sector to more competition by issuing MVNO licenses as well as a license for a third operator; (ii) enhancing competition in the internet sector by issuing additional ISP licenses; (iii) ensuring fair and equal access to the WACS submarine cable capacity; (iv) lifting restrictions on building transport infrastructure by licensed operators.

Prior action for EGGC-6: The prequalification to license eligible MVNOs to operate in Togo is completed.

Trigger EGGC-7: The decree concerning the interconnectivity between electronic communication networks and access to these networks has been adopted by the Council of Ministers.

Trigger EGGC-8: Licenses for at least two additional ISPs to operate in Togo have been issued and the call for bids for a 3rd telecommunications license has been published.

Financial Sector

5.52 Togo’s financial system remains fragile. The 2006 Financial Sector Review noted that the banking sector and the social security system in Togo are fragile. The legal and regulatory framework governing the financial system (and managed by the regional banking commission) is adequate but not properly enforced. The financial sector is undergoing a major revamping to restore business confidence and to reduce the risks of macroeconomic imbalances. This is paying off. Since 2008 the position of Togo’s commercial banks relative to prudential ratios has improved as highlighted by the table below, but remains far from comforting.

5.53 The Government’s medium-term financial sector reform program guides reforms in the sector. This strategy has been developed with assistance from the IMF and aims to finalize the restructuring of all banks in difficulty and to disengage the state from direct involvement in banking. It includes the following pillars: (i) ensure the liquidity of at least a portion of the bonds through access to BCEAO refinancing and the development of a secondary market; (ii) launch without delay the share cession process; and (iii) set up an efficient mechanism for loan recovery.

35

Table 5.2: Financial Sector Prudential Norms

Ratios Norm 12/2006 12/2007 12/2008 08/2009 12/2010 03/2013 Number of institutions that comply with the norm Minimum capital (CFAF >5 000 7 7 9 8 10 11 million) Solvency ratio >8 % 7 7 9 8 9 9 Transformation >75 % 5 6 5 5 5 5 Liquidity >75 % 7 4 7 7 7 5 Total number of financial 10 10 11 11 11 12 institutions Source: BCEAO, 2013.

5.54 To implement the strategy the Government initiated a restructuring of three state- owned banks in difficulty (BTCI, BIA-T and UTB). With support from the IMF and IDA, the three banks were recapitalized by an exchange of bad debt for Government securities (CFAF 88.1 billion or around US$176 million) in December 2008.11

5.55 The securitization has helped the banks increase their resource mobilization and lending. Since 2008 loans to the private sector more than doubled from 260 CFAF billion to 540 CFAF billion in 2012. The improvement in the banking sector was also noted by the Doing Business Survey which recorded that between 2011 and 2012 Togo improved an impressive 26 places on getting credit category. More recently, between 2012 and 2013, the situation has remained largely unchanged. Table 5.3: Loans to Government and Loans to Private Sector 600 Loans to Government 500 Loans to Private Sector

400

300

200 FCFA (billion) 100

0 2003… 2010… 2004 Jul 2004 Jul 2011 2001 Jan 2001 2008 Jan 2008 2007 Jun 2007 2002 Oct 2002 2009 Oct 2009 2005 Feb 2005 Sep 2005 Feb 2012 2006 Apr 2006 2003 Dec 2003 Dec 2010 2002 Mar 2002 2009 Mar 2009 2006 Nov 2006 2001 Aug 2001 2008 Aug 2008 Source: BCEAO 2012.

5.56 Securitization also paved the way to privatize four state owned banks (BTCI, BIA-T, BTD, UTB). After a delayed start (the launch of the call for bids was already a structural benchmark in the IMF-supported program in 2010 and in 2011) a Privatization Law was adopted in October 2010 following which a Privatization Committee was set up in early 2011. This cleared the

11 The basis of this restructuring is the securitization of the banks’ bad loans to allow them to meet again the solvency ratio (8 percent). 36

way for the actual privatization. By March 2012 all four banks had been put on offer, but in the end only two were sold.

5.57 With cessation by the state only half completed, it is important that the process is finalized. Cessation may be more complex than originally envisaged as one of the remaining two banks (BTCI), has a very weak portfolio and is in need of emergency measures to prevent a further deterioration. The second bank (UTB) has no such issues and the state should be able to part from it without major difficulties.

5.58 Supervision of microfinance institutions requires improvements. The microfinance sub- sector has an important weight in the economy as microfinance institutions count 811,311 clients (more than a quarter of the adult population) with around US$160 million in deposits and US$150 million in loans as of September 2010. This sub-sector is fragile – three large institutions are for all practical purposes bankrupt and many others are facing difficulties. Many of the problems are the result of insufficient oversight, coupled with a rapid growth and weak internal controls. With the adoption of the new WAEMU microfinance law by the Togolese Parliament on May 11, 2011, large micro finance institutions will move to the supervision authority of BCEAO but smaller ones will continue to be supervised by the Ministry of Finance.

5.59 Objective of the EGGC series is to accompany the Government in its withdrawal from commercial banking and to help sanitize the microfinance sector. In the case of commercial banking this first implies ensuring that the non-performing loan recovery company starts recouping some of the bad-assets taken over by the state as part of the restructuring exercise and taking a set of emergency measures needed before cessation of BTCI can be considered. In the case of micro- finance it requires the operationalization of the micro-finance law, before improvement of the sector can be considered. The following policy actions have been agreed:

Commercial banking

Prior action ERGC-6: The Non-Performing Loans Recovery Company has been created and is functioning (i.e. money is being recovered).

Prior action ERGC-6: The monitoring committee for the provisional management of BTCI that is mandated to review all commitments under preparation exceeding CFAF 500 million has been appointed and has held its first meeting.

Trigger ERGC-7: Steps to improve the (interim) management at BTCI have been taken in accordance with the recommendations of the Banking Committee.

Trigger ERGC-8: The state no longer owns a majority share in UTB and steps towards the privatization of BTCI have been taken such that before the closing date of the EGGC series (April 2016) the state no longer is majority shareholder in the bank.

Micro-finance

Trigger EGGC-7: The decree operationalizing the 'Loi Communautaire' of 2007, and transposed in May 2011, has been adopted by the Council of Ministers.

37

Trigger EGGC-8: The microfinance restructuring strategy is being implemented and restructuring (liquidation of insolvent institutions; formalization of informal institutions) of non-legal micro finance institutions has started.

Investment climate

5.60 An unfavorable investment climate. Private sector development in Togo is hindered by an unfavorable investment climate. Togo ranked at the 157th position in the 2014 Doing Business Report, as highlighted in table 5.2. Togo’s performance remains weak in the “Starting a Business” indicator (Togo ranks at the 168th position) despite the fact that the time it takes to register a firm was reduced to 1-2 days. Starting a business in Togo still takes seven procedures and 19 days (down from 38 days according to the 2013 Doing Business Report) and it cost 121 percent of per capita income. By comparison, the average numbers for the Organization for Economic Cooperation and Development (OECD) countries were respectively: 5 procedures, 11 days and 3.6 percent.

5.61 To realize its growth ambitions, the Togolese Government needs to strengthen its efforts toward the emergence of a strong and modern private sector which will drive growth, competitiveness, diversification of the economy and export promotion. To that end, key structural bottlenecks, notably with regard to investment generation, need to be addressed to unleash private-sector led growth. There have been improvements in the business environment and relative to 2012 Togo edged up three places in the 2013 Doing Business.

Table 5.4: Performance on the Ease of Doing Business Index 2014 Rank in 2014 Rank in 2013 Change in rank Change in rank 2013-2014 2012-2013 Starting a Business 168 165 -3 +11 Dealing with Construction Permits 114 141 +27 +2 Getting Electricity 96 94 -2 +2 Registering Property 159 163 +4 +1 Getting Credit 130 126 +4 -2 Protecting Investors 147 147 No change -3 Paying Taxes 172 172 No change -4 Trading Across Borders 110 108 +2 +2 Enforcing Contracts 153 160 -7 No change Resolving Insolvency 111 96 -15 +1 Overall rank (out of 189) 157 159 -2 +5 Source: World Bank: Ease of Doing Business 2014.

5.62 Much more needs to be done as Togo performance remains poor on all the other indicators (e.g. paying taxes (172nd), registering property (159th) and still ranks poorly in the overall Ease of Doing Business Index compared to the West African leader, Ghana, which is in 67th place worldwide. Alongside its fellow members of the West African Economic and Monetary Union (WAEMU) zone, Togo remains in the bottom quartile.

38

Figure 5.6: Distance to the Doing Business Frontier 80

70

60

50

40

30 Benin

20 Burkina Faso Ghana 10 Percentile (100 = best performer) best (100= Percentile Togo 0 DB DB DB DB DB DB DB DB DB 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Doing Business 2014.

5.63 Recent analysis identified several weaknesses holding back the performance and contribution to the economy of the Togolese Free Zone (TFZ). The main bottlenecks are the following: (i) dropping value-added; (ii) weak linkages with the local economy; (iii) limited capacity to compete on the global market; and (iv) weak productivity as compared to firms outside of the zone. Following consultations with the World Bank and private sector stakeholders, the government has decided to revamp the institutional, legal and regulatory framework for the Economic Zones, and has created a new zone with an enhanced role and contribution to the economy. The first phase of the audit of the current institutional framework has been carried out. The second phase will be initiated after a new authority is set-up (see below).

5.64 A new investment law was passed in January, promulgated in March 2012 but is not fully implemented yet. It provides, among other things, equal treatment for local and foreign investors and includes incentives to hire local workers. Most importantly, it sets up a one-shop investment promotion agency (API/ZF) with the mandate to manage free zones and to oversee domestic and foreign investments. This agency is potentially a key lever to a successful private sector led growth strategy.

5.65 The objective of the EGGC series is to contribute to an improved investment climate in Togo by facilitating the successful creation of this new API/ZF agency. The trigger for this activity (the new agency being operational) is put into the last year of the series, but preliminary activities (such as the adoption of a decree, preparation of manuals, and identification of staff) will be followed closely throughout the series and benefit from the support of the ongoing Private Sector project.

Trigger EGGC-8: The new API/ZF authority has been created and functions in a transparent and professional manner.

39

B. PRIOR ACTIONS FOR EGGC-6

5.66 The proposed credit supports selected reforms in the Government’s program described in the previous section. Table 5.5 details these prior actions and their implementation status.

Table 5.5: EGGC-6 Prior Actions Implementation status

1 Budget data for 2013 and budget execution data for Completed: A BOOST platform is available 2009 – 2012 are released on togoreforme.com. online and presents the data for 2009-2013.

2 SIGMAP has been installed (for testing purposes). Completed: SIGMAP has successfully installed and testing has started.

3 A new cotton sector strategy has been adopted. Completed: The new strategy was adopted and includes a roadmap with next steps.

4 An evaluation of the investments in non-carbonated Completed: The study was completed and a phosphate carried out under phase 1 of the phosphate schedule for the adoption of an action plan strategy has been prepared along with an action plan prepared. to implement its main findings.

5 CEET finalizes its financial model and uses it to Completed: CEET has finalized the model prepare a commentary assessing the adequacy of the and used the model to prepare a commentary electricity tariff. on the electricity tariff.

6 The prequalification to license eligible MVNOs to Completed: the expression of interest was operate in Togo is completed. published and the prequalification completed.

7 The monitoring committee for the provisional Completed: The committee with the required management of BTCI that is mandated to review all mandate was appointed and held its first commitments under preparation exceeding CFAF meeting late September. 500 million has been appointed and has held its first meeting.

8 The Non-Performing Loans Recovery Company has Completed: The Company is functional and been created and is functioning. has started to recover money.

40

Box 5.1: Good Practice Principles on Conditionality

Principle 1: Reinforce ownership

The EGGC-series is aligned with the Government’s reform program. This program of reforms is reflected in the PRSP, which was adopted by the Cabinet in 2013 and whose process of preparation involved the participation of all development actors (private sector, religious groups, non-Governmental organizations, Parliament and the technical and financial partners) and regions, thus ensuring that the PRSP articulates the country’s own priorities to reduce poverty and promote sustainable growth. The PRSP framework underlies the policy dialogue with the Bank, the IMF, the EU and the AfDB. The unit responsible for the program within the Government is the Ministry of Economy and Finance, which has championed these reforms over the past years during the five previous ERGGs. In order to reinforce ownership at the sectoral level, the Ministry of Economy and Finance has coordinated the dialogue with working groups and task teams including other Government agencies and relevant organizations (e.g., Ministry of Agriculture, Ministry of Telecommunications, Privatization Commission, Ministry of Mines and Energy, BCEAO).

Principle 2: Agree up front with the Government and other financial partners on a coordinated accountability framework

The Government’s reform program supported by this series is summarized in the policy matrix in Table 5.7. The core of the program builds on the findings of the PEFA, PEMFAR, CPAR, as well as lessons learned during previous ERGG operations, and on the analysis of preliminary results and weaknesses of ongoing reform efforts. It was further strengthened during intensive policy dialogue with the authorities in 2012 and 2013. The program has been closely coordinated with and supported by other development partners and bilateral donors such as the IMF, AfDB, the EU and France (especially in the areas on which these organizations have focused, notably public financial management and cotton). The expected results of the program supported by the proposed credit are detailed in Table 5.6.

Principle 3: Customize the accountability framework and modalities of Bank support to country circumstances

The series’ focus remains on governance in the public and private sectors, through a series of actions aimed at improving transparency and accountability of public financial management, and efficiency in critical sectors for the economy (namely cotton, electricity, telecommunications, banking and mining) which are crucial to promote sustainable growth and thus reduce poverty. The policy matrix was customized to the country circumstances to reflect the need to step up reforms and focus on real sectors.

Principle 4: Choose only actions critical for achieving results as conditions for disbursement

The policy matrix uses a limited set of prior actions and triggers for Board presentation and disbursement of the proposed support. The chosen policy measures were identified jointly with the Government and in close consultation with other development partners. Conditionality is focused only on key actions which are critical to strengthening public financial management and reforms in key sectors.

Principle 5: Conduct transparent progress reviews conducive to predictable and performance-based financial support

In preparing and monitoring the previous five ERGGs, the Bank has worked in close coordination with the IMF, AfDB, EU and bilateral donors in supporting the Government’s reform program. Under this series, the Bank will continue to coordinate closely with these institutions to support and monitor program implementation to contribute to predictable and performance based financial support in the future.

C. ANTICIPATED RESULTS OF THE PROGRAM

5.67 This series supports the Government’s reforms program; an overview of the results expected by closing date of the series of April 30, 2016 are outlined in Annex 2.12 The Annex presents the reform areas, objectives and outcome indicators which will be monitored by the Ministry of Economy and Finance whose staff will reports on progress in implementation. Prior actions and triggers are also included in Annex 2.

12 Note that the closing date of the financial agreement for EGGC6 is April 30th, 2014. 41

6. OPERATION IMPLEMENTATION

A. COUNTRY OWNERSHIP

6.1 The proposed series is supported and owned by the authorities. The specific reforms are critical elements of the Government’s strategy to consolidate growth and enhance governance and transparency in public resource management. These reforms were designed with the contribution of the Government’s relevant ministries and agencies under the championship of the Minister of Economy and Finance. They are embedded in the country’s PRSP (SCAPE pillars I -promote growth, II -economic infrastructure and III -governance) whose preparation process involved participation of all development actors and regions and has provided an opportunity to foster national consensus across the Togolese society and among Government representatives on this reform agenda.

B. FIDUCIARY ASPECTS

6.2 Although the Government has made encouraging progress under previous DPOs in implementing measures to strengthen public financial management and transparency, improving fiduciary standards remains a central objective of the proposed series. Reform measures already implemented include: (i) the full reinstatement and application of normal budget preparation and execution procedures; (ii) organization of the Treasury in line with WAEMU Directives; (iii) closing of over one thousand existing separate treasury accounts with a view to creating a single treasury account; (iv) creation of internal audit and inspection units at the Ministry of Finance; (v) adoption of a procurement law and code; establishment of a General Procurement Department and a Procurement Regulatory Authority; establishment of ex ante procurement control commissions in five ministries; (vi) establishment of the Court of Accounts; and (vii) the publication of the budget execution outcomes on the Government’s website. The proposed series will build on these earlier measures to deepen reforms and improve the country’s fiduciary management system.

6.3 Concerning the safeguards of the BCEAO, the latest assessment was completed on March 2010 and found that the BCEAO continues to have controls in place at the operational level. The overall governance framework could nonetheless be strengthened by the addition of an audit committee to ensure that the Board of Directors exercises appropriate oversight over the control structure, including the audit mechanisms and financial statements. These elements are being addressed through the Institutional Reform of the WAEMU and the BCEAO.

6.4 Durable gains in transparency, effectiveness of the financial management systems, and accountability will require sustained and coordinated engagement of Togo’s international partners in support of the Government’s reform process. The IMF, through the West Africa AFRITAC, is providing technical assistance in public financial management and tax administration to the Ministry of Economy and Finance. Other donors like the AfDB, the European Union and French cooperation also support capacity building in PFM. From a recent diagnostic mission conducted by AFRITAC, an action plan has been proposed to facilitate the implementation of Program Budgeting introduced with the latest WAEMU PFM Directives. The last PEMFAR (2009) has identified areas in particular need of remedial action, and a comprehensive Action Plan to address those has been prepared by the Government. A baseline of current procurement practices using the OECD/DAC guidelines, established as part of the PEMFAR, is also enabling evidence-

42

based monitoring of improvements in the near future. As a result of the PEMFAR, technical assistance to strengthen public financial management has been identified as a priority for additional coordinated donor support. Continued donor assistance will help the Government to ensure that appropriate fiduciary standards are applied to provide reasonable assurance that resources are used for the intended purposes.

C. CREDIT ADMINISTRATION, DISBURSEMENT AND AUDITING

6.5 Credit amount and tranching. The recipient is the Republic of Togo, represented by the Ministry of Economy and Finance. The credit will be released in one tranche of SDR 9.2 million (US$14 million equivalent) following its approval and notification by the Association of effectiveness of the Financing Agreement.

6.6 Disbursement and accounting. The proposed series will follow IDA’s disbursement procedures for development policy operations. Upon approval of the credit by the Board and effectiveness of the Financing Agreement, and provided the Association is satisfied with the program being carried out by the Recipient and with the appropriateness of the Recipient’s macroeconomic policy framework, the proceeds of the credit would be disbursed by IDA into an account at the central bank of Togo, the Banque Centrale des Etats de l’Afrique de Ouest (BCEAO), and forming part of the official foreign exchange reserves of Togo. The proceeds of the credit would not be used to finance expenditures excluded under the Agreement. The recipient shall ensure that upon deposit of the Credit into that account, an equivalent amount is promptly credited in the Recipient’s budget management system, in a manner acceptable to IDA. The Recipient will report to IDA on the amounts deposited in the foreign currency account and credited in local currency to the budget management system. Assuming that the withdrawal request is in Euro, the equivalent amount in CFAF reported in the budgetary system will be based on the market rate at the date of the transfer. The Recipient will promptly, within 30 days, notify IDA that an amount equivalent to the proceeds have been credited to an account available to finance budgeted expenditures, with an indication of the exchange rate applied.

6.7 Auditing. IDA reserves the right to request an audit of the foreign currency account, on terms of reference acceptable to IDA. If, after being deposited in this account, the proceeds of the Credit are used for ineligible purposes as defined in the Financing Agreement, IDA will require the recipient to promptly refund the amount directly to IDA. Amounts refunded to the Association upon such request shall be cancelled.

6.8 Closing date: The closing date of the Credit is April 30, 2014.

D. ENVIRONMENTAL ASPECTS

6.9 The reforms supported by the proposed development policy credit are not expected to have significant effects on the environment, forest or other natural resources. The prior actions are focused on increasing the effectiveness and efficiency of the government’s current strategy and policies and do not support any investments. Hence the prior actions are not likely to have adverse impacts on the country’s environment:

(i) In the agricultural sector, the prior actions support the preparation of a new cotton sector strategy which allows Government to improve management of the cotton sector by NSCT

43

and FNGPC. It is expected to lead to more transparent management practices, a clearer ownership structure and cost savings. (ii) In the energy sector, the prior action is about the adoption of a financial model which, ultimately, should lead to more efficient management and cost reductions, and lay the basis for a pricing mechanism that avoids subsidies to the sector. (iii) In the mining sector, the completion of an independent review to evaluate the investments made under phase 1 of the phosphate strategy is an oversight and transparency enhancing prior action unrelated to any direct mining activity. (iv) In the telecommunications sector, the prior action focuses on the licensing of new MVNOs. Adverse environmental effects are not expected from this action. (v) In the banking sector, operationalizing the Non-Performing Loan Recovery Company will strengthen the financial position of the Government and work towards the restoration of good creditor behavior. No adverse effect on the environment is expected. Similarly, the meeting of the oversight committee has no environmental implications.

E. POVERTY AND SOCIAL IMPACT

6.10 With a per capita income of US$ 267 dollar per capita (in constant dollars) Togo remains one of the world's poorest countries. Based on the 2011 QUIBB survey,13 an estimated 59 percent of Togo’s population lives below the poverty line, with the rural areas showing the highest share of poor people (73 percent versus 35 percent in urban areas).

Figure 6.1: Lorenz Curve for 2006 and 2011

Total 1 2006, Gini=36.12 2011, Gini=39.34

Line of equality .8

.6

Lorenz curve .4

.2

0 0 .2 .4 .6 .8 1 Cumulative population proportion

Source: QUIBB 2006 and 2011 and staff calculations.

6.11 Between 2006 and 2011 poverty declined from 62% to 59% while inequality deteriorated: the Gini index increased from 0.36 to 0.39. This is illustrated in Figure 6.1 which shows how the Lorenz curve has shifted outward. As a consequence of the slow decline in poverty

13 Standardized Survey on the Basic Indicators of Well Being. 44

incidence (and the rapid population growth in Togo) the absolute number of poor people increased by approximately 200,000 between 2006 and 2011. As summarized by the growth incidence curve presented in Section 2, consumption for the poorest four wealth deciles declined or remained stagnant since 2006 while only the six top wealth deciles benefited from growth. As a consequence the depth and severity of poverty increased. The poverty gap increased from 23.6 to 24.4 between 2006 and 2011 and the squared poverty gap increased from 11.6 to 13.1.

6.12 These results suggest that the benefits from new-found stability and growth are not broadly shared. In fact, since 2006 poor households got poorer while rich households got richer. This poses a dilemma for this series. On the one hand, the data suggests that a much greater focus on poverty reduction is desirable. At the same time, the fragile political situation, in combination with an unfinished economic governance reform agenda, suggests that the risk of instability remains real. If such instability becomes reality, poor households will be affected most. As a consequence, this series has opted to focus on economic governance reforms in combination with a focus on economic growth as a means to nudge the country toward greater stability.

6.13 Where possible, the operation supports reforms that benefit poor households in particular. Proposed reforms in agriculture are meant to ensure that cotton farmers, who are largely found in the poorest (rural) areas of the country, are expected to benefit from a more transparently governed sector while all smallholder farmers are expected to benefit from enhanced access to fertilizer once the current approach to fertilizer provision has been overhauled. Measures to reform the microfinance sector, a sector serving over 800,000 households who lack access to the formal financial system, and reforms to bring more competition to the telecom sector, are expected to not only reduce the cost of communication, but also to introduce services (such as mobile banking) from which poor households will disproportionately benefit.

6.14 With respect to the first operation in the series, EGGC6, the proposed policy actions are expected to be either poverty neutral or poverty reducing. No negative impacts on vulnerable households are envisaged:

(i) The prior actions related to the publication of budget and spending information, and the introduction of an automated procurement system are expected to enhance efficiency, transparency and oversight on public resource use, including for social sectors; (ii) The prior action to adopt a cotton strategy is expected to strengthen governance in the cotton sector and to ensure that farmers receive a fair share of the world market price; (iii) The review of investments in the phosphate sector and the subsequent follow up through the plan of action is expected to unblock obstacles to increasing the production of non- carbonated phosphate and to permit significant contributions to tax revenue; (iv) The prior action regarding the financial model for CEET is expected to contribute to financial transparency, which will, in turn, put the sector in a better position to attract private electricity providers, and to expand access in rural areas.

(v) The prior action regarding MVNOs is expected to make the telecommunications sector more competitive, leading to low costs for mobile phone calls and spurring pro-poor innovations such as mobile savings accounts and improving quality;

45

(vi) The prior actions regarding the loan recovery company and the emergency measures for BTCI are not expected to have a direct impact on poor households.

F. MONITORING AND EVALUATION

6.15 The Ministry of Economy and Finance will be responsible for overall implementation of the proposed series. Day-to-day monitoring of the DPL series will be the responsibility of the Permanent Secretariat for Policy Reform (Comité de Suivi des Programmes et Réformes), an existing high-level team within the Ministry, headed by the Permanent Secretary. This arrangement is justified by the strength and continuity of this team during the previous operations and their close involvement in the ongoing policy reform dialogue, including with the IMF and other development partners. The main technical responsibility for implementation of the public financial management reforms will stay with the Budget and Treasury Departments, whose representatives are part of the Public Finance Steering Committee (Comité de pilotage des finances publiques) created in 2005 as well as with the Procurement Authority. The sector reforms will be implemented by the respective technical departments in the sector ministries, under the oversight of the Ministry of Agriculture and Fisheries (cotton and fertilizer), the Ministry of Mines and Energy (mining and electricity), the Ministry of Post and Telecommunications, the Ministry of Commerce (Free Zone and Investment Promotion Authority) with the overall coordination provided by the Ministry of Economy and Finance.

6.16 The MEF economic team will also be responsible for monitoring and evaluating the results of the program. The Government will provide quarterly reports to IDA on implementation progress measured against the established timetables and the agreed performance indicators. The overall reform effort will be reviewed by the Government in close coordination with regular Bank supervision to ensure continued implementation of the program within an adequate macroeconomic policy framework.

G. RISKS AND RISK MITIGATION

6.17 The following risks and risk mitigation strategies have been identified.

• Political risk. Togo remains a fragile country with a history of political instability and weak economic and financial management. In the 1990s the donors withdrew their support, leading to more than a decade of international isolation. A fresh start was made following elections confirming Faure Gnassingbé as president. The Global Political Accord was signed between the main political parties in August 2006. It laid the basis for parliamentary elections in 2007 and reengagement by the donors. Social and political unrest resurfaced following the publication, in February 2012, of two reports accusing the government of human rights violations. It inflamed human rights organizations and led to the creation of two new civil society organizations: “Collectif Sauvons le Togo” and “Coalition Arc-en-Ciel” (CST), which organized numerous demonstrations, many of which have been violently repressed by the police. Both movements were pressing for electoral and constitutional reforms to ensure free and fair upcoming legislative and local elections. When the legislative elections finally took place in July 2013, they took place largely peacefully. This seems to have given new impetus to the Government’s efforts to continue

46

with the reform process. The occurrence of more demonstrations in the future cannot be excluded, particularly as the country prepares for presidential elections (slated for March 2015). The degree to which the opposition manages to mobilize the population to demonstrate will also depend on whether the authorities are (perceived to be) able to improve living conditions for the poorer segments of the population. The World Bank has prepared a political economy analysis to gain a deeper understanding of the situation and in collaboration with our partners continues to monitor the situation closely. Reform measures proposed under this series are expected to contribute to enhanced growth. When the benefits of this growth are used to improve living conditions for the poorer segments of the population, it can be expected to help ease any possible tensions. • Vested interests risk. Successful reforms of recent years may have undermined incentives for deeper reform as debt relief under HIPC and the rehabilitation of key public companies improved opportunities for extra-budgetary financing, opportunities that were used in the past to deal with revenue shortfalls but which could also be used for politically motivated activities. Greater transparency and more accountable practices adopted by the Government in conjunction with citizens who expect to benefit from the new-found stability provide an incentive to maintain momentum in implementing the reform agenda. Vested interests are also expected to be more supportive of economic governance enhancing reforms, if these reforms contribute to higher rates of economic growth from which losers of reforms are compensated. With the proposed prior actions, the Bank strikes a balance between critical governance reforms (cotton, electricity, commercial banking) and strengthening the foundations for economic growth (telecommunications, mining). Close follow up by sector teams (in all critical sectors where the Bank implements investment operations) and coordination with the IMF, AfDB, EU, and bilateral donors, will help ensure that the Government continues to give priority to structural and governance enhancing reforms. • Macroeconomic risks. Macroeconomic management risks are manageable. The supplementary budget that was adopted in June 2013 demonstrates the Government’s continued commitment to prudent macroeconomic management. Revenue collection efforts, debt indicators and economic growth are all satisfactory (more than 5 percent for 2013), and the prospects for further growth acceleration in the coming years are good. Key risks come from exposure to exogenous shocks (weather; prices of export commodities), but these risks are manageable as long as a prudent macroeconomic management stance is maintained. Spending pressures (wage increases, public investments and elections) in combination with the ready availability of credit (on the internal WAEMU market but also from e.g. China’s EXIM Bank) continue to remain attractive politically, but raise the prospect of a rapid accumulation of debt, including on non-concessional terms. The Bank continues to work closely with the authorities and the IMF on macroeconomic management to ensure that the current orthodox macroeconomic stance is maintained. To this end it has stepped up its efforts to monitor macro-economic aggregates (including debt). • Exogenous shocks. As a rural economy and exporter of primary commodities Togo remains exposed to adverse weather shocks, to a slowdown in world demand for primary

47

commodities and to negative shocks to its terms of trade. Already prices of some of its major exports (phosphates, cotton) have declined from previous highs. Given Togo’s role as a hub for regional trade, shocks in neighboring countries could also hurt Togo’s economic prospects. Prudent fiscal policies are needed to provide a buffer against the impact of these shocks but their implementation requires discipline. In the cotton sector, the new sector strategy pays explicit attention to risk management. With the establishment of an inter-professional body, this risk management strategy will be operationalized. The negative impact of potential adverse price shocks on the trade balance are further mitigated by (i) increasing production in the phosphate and cotton sectors; and (ii) by the positive correlation between the prices of oil (imported) and phosphate (exported). At the time of writing it is too early to tell whether the current lack of rain will indeed translate into a drought, but if this happens one will need to plan for additional fiscal outlays within the cotton sector (as input credits cannot be fully recovered and production may be below break-even levels) as well as rising food prices that may be detrimental to poor (urban) households. • Fiduciary risk. Exposure to fiduciary risk cannot be fully prevented and improving fiduciary standards remains an important objective of the proposed series. The policy actions of the present series are expected to help mitigate the fiduciary risk, and their effective implementation will be closely monitored, particularly as they strengthen oversight institutions and enhance transparency. • Implementation risk arises from a limited coordination within the Ministry of Finance and between sector Ministries. Lack of professional staff, a weak institutional capacity and poor communication among departments in the civil service –consequences of Togo’s history of socio-political instability, further pose implementation risks. Implementation risks related to PFM are mitigated through the provision of technical assistance by the IMF (supported by the EU) and France. The planned restructuring of the Ministry of Economy and Finance is expected to address coordination issues within the Ministry. Implementation risk is further mitigated by the fact that frequent (quarterly) supervision missions are held and that the DPO only operates in sectors in which IDA has ongoing investment operations (with the exception of mining, where an operation is being prepared). This allows for an intensive daily engagement which is mutually beneficial and the various reform programs remain on track.

48

Annex 1: Letter of Development Policy

MINISTRY OF ECONOMY REPUBLIC OF TOGO AND FINANCE ------OFFICE OF THE MINISTER ------

No.______/MEF/CAB/SP Lomé, [DATE]

The Minister of Economy and Finance

Mr. Jim Yong Kim President of the World Bank 1818 H Street NW Washington, DC 20433 USA

Mr. President,

1. This Letter of Development Policy (LDP) presents the progress made and outlines the current socioeconomic situation and trends for the 2013-2015 period. It describes the development policies and objectives identified by the authorities with the aim of continuing their budget support program started in 2008. This program seeks to strengthen economic growth and to make this growth sustainable and inclusive. To achieve these objectives, the authorities are once again requesting the assistance of the international community and in particular the World Bank, through the Economic Growth and Governance Credit (EGGC-6).

I. Political and Socio-Economic Context

2. The tranquil political climate prevailing since 2007 facilitated the organization of the legislative elections of July 25, 2013, with the participation of all the political parties. These elections were considered peaceful, credible, and transparent, and the results were accepted by the international community. They also provided the political clarity sought and gave the new Government a clear and solid mandate to continue and step up Togo’s reform and economic and social development policy. Consequently, the Government will continue on this path with the aim of ensuring the success of the upcoming elections, in particular the local and presidential elections. It will continue to deepen dialogue in a democratic manner and will consistently seek broader participation of the Togolese people in the management of the country’s affairs, respect for the rights of the opposition, impartiality in government and the justice system, and strengthening of the rule of law in order to maintain peace and make Togo a truly law-governed country. 49

3. Continuing efforts to maintain a peaceful social and political climate, the Government has started to implement the recommendations of the Truth, Justice, and Reconciliation Commission. All the recommendations are set forth in a Green Book along with an action plan, as recommended by the Head of State in his 2013 New Year speech to the diplomatic corps. In the new Government, the Minister of Human Rights has been specifically tasked with the implementation of these recommendations.

4. Taking advantage of implementation of the Interim Poverty Reduction Strategy Paper (I- PRSP) and the full PRSP, the Government organized the national economic forum on the theme “Promoting Strong, Sustainable, and Inclusive Growth” in March 2012. The recommendations made at this forum served as a basis for drafting the Accelerated Growth and Job Promotion Strategy (Stratégie de Croissance Accélérée et de Promotion de l’Emploi SCAPE), adopted by the Government on August 29, 2013. The objective of this strategy is to address the Government’s main challenge—not only bolstering the progress made in recent years in the political, economic, and social areas but also strengthening the foundation for accelerated, inclusive, job-creating growth. The Government is cognizant that despite the progress made in recent years, there are still five major challenges to be addressed to ensure that the Togolese economy thrives and progress is made toward achievement of the MDGs, namely, (i) accelerating economic growth, creating jobs, and integrating the Togolese economy into the regional and international economies; (ii) improving governance; (iii) reducing inequalities; (iv) tackling socio-demographic problems; and (v) addressing urban development and land use and protecting the environment. The Government’s medium-term economic policy (2013-2017) will focus largely on establishing and strengthening the foundation for Togo’s future progress. To this end, it will be oriented toward the following new priorities: (i) accelerating growth; (ii) focusing on employment and inclusion; (iii) strengthening governance; and (iv) reducing regional disparities and fostering grassroots development. The economic recovery and poverty reduction program seeks to strengthen macroeconomic stability, continue efforts to establish sound public finances, improve the public procurement system, and strengthen public enterprise governance with a view to promoting robust economic growth that paves the way for a higher standard of living of the population. This program is covered in the second generation Poverty Reduction Strategy Paper (SCAPE).

5. Discussions are underway with the technical units of the International Monetary Fund with the view to concluding a new three-year program (2013-2016), supported by the Extended Credit Facility (ECF), in order to build on the gains of earlier programs.

6. Execution of the 2012 budget has not been very satisfactory owing to problems encountered toward the end of the year linked to revenue shortfalls relative to budgetary forecasts. According to the Government Flow of Funds Table (Tableau des opérations financières de l’Etat TOFE) as of December 31, 2012, total revenue received stands at CFAF 328 billion, which represents a 12.5 percent increase relative to 2011. This performance can be explained by the overall uptick in economic activity and public expenditure controls.

7. The reforms conducted in recent years have created favorable conditions for national economic recovery. Economic growth stood at 5.9 percent in 2012 compared to 4.8 percent in 2011, led mainly by public investment, agricultural production, particularly cotton and foodstuff, as well as mining and transport. The annual average inflation rate stood at 2.6 percent in 2012 as opposed to 3.6 percent in 2011 and 2.1 percent in 2010. Economic growth recorded in the wake of 50

Government initiatives has been positive but is inadequate given the development and poverty reduction goals. Sector reform, particularly in the banking, cotton, energy, telecommunications, and phosphate sectors, have therefore been continued.

8. The economic growth projections for 2013 point to a slowdown in economic growth to 5.6 percent. This growth is expected to pick up to 6 percent in 2014.

II. 2013-2015 Progam

General Objectives

9. During the 2013–2015 period, the Government intends to step up its economic growth program by continuing and strengthening the economic reforms started since 2006. Special emphasis will be placed on the conditions for inclusive and sustained economic growth. The Government’s efforts will be oriented toward the sectors with stronger growth potential, which should enhance the competitiveness of the Togolese economy. These reforms target maintaining a stable macroeconomic framework conducive to sustainable economic growth, capable of improving the population’s living conditions. The goals for 2013 are to (i) continue the economic reform program focused on achieving greater transparency by combating fraud and corruption; (ii) improve public finance management; (iii) adhere closely to the financial orthodoxy in budget execution; (iv) honor the commitments made to international financial institutions (IMF, World Bank, and African Development Bank, in particular) and bilateral and multilateral donors with a view to strengthening relations with these institutions; (v) further strengthen the audit system (the Audit Office [Cour des Comptes], the General State Inspectorate [Inspection Générale d’Etat IGE], and the General Finance Inspectorate [Inspection Générale des Finances IGF]); and (vi) strengthen the financial sector.

10. The measures planned to boost agricultural productivity, settle domestic debt, and increase both absorptive capacity and the level of public investment expenditure will pave the way for achieving a real GDP growth rate of over 5.6 percent in 2013 and more than 6 percent on average in the years ahead. The Government will place special emphasis on the promising growth sectors, in particular the agricultural (food crops and cotton), mining (phosphates), energy, and telecommunications sectors, and on improving the business climate. To this end, the National Agricultural Investment and Food Security Program [Programme National d'Investissement Agricole et la Sécurité Alimentaire PNIA-SA] adopted by the Government and officially launched on February 16, 2012 is being implemented. The objective of the agricultural sector is to achieve a strong growth rate of at least 6 percent a year.

11. Togo became an Extractive Industries Transparency Initiative (EITI)-compliant country in May 2013, after meeting all the requirements. It pledges to take action to improve transparency, burnish the appeal of the mining sector, and promote good governance.

12. The full Poverty Reduction Strategy Paper period for Togo (2009-2011) ended in 2011. The new Poverty Reduction Strategy Paper, called the Accelerated Growth and Job Promotion Strategy (SCAPE), was drafted and adopted by decree at a Council of Ministers meeting. This new strategy was prepared building on the gains of the full PRSP and is oriented toward accelerated, sustainable, inclusive, job-creating growth. Consequently, this LDP contains reform programs that facilitate achievement of the key areas of the SCAPE. These reforms essentially target (i) strengthening 51

public finance management; (ii) improving the investment climate so as to foster private sector growth; (iii) expanding access to health, education, and basic social services; (iv) continuing to build and rehabilitate road and energy sector infrastructure; and (v) continuing the financial sector restructuring process.

13. In the context of the business climate, a new and modernized investment code, prepared with World Bank assistance, was approved by the National Assembly in January 2012. The implementing documents are being finalized. Dissemination of the SME/SMI charter is continuing throughout Togo.

Governance and Structural Reforms

14. The Government is firm in its resolve to continue to improve public finance management in the context of economic and financial governance. To this end, implementation of the action plan for the public finance Reform Strategy is continuing. The Government also wishes to mobilize more internal and external resources and is committed to using these resources in an effective and transparent manner. Greater mobilization of internal resources will be achieved with the start of operations of the Togolese Revenue Office (Office Togolais des Recettes OTR). In order to enhance the predictability of external resources, the Government will continue discussions with the technical and financial partners so as to finalize and implement the Budget Support Coordination Framework (Cadre d’Organisation des Appuis Budgétaires COAB).

15. The Government is also committed to continuing efforts to combat corruption and fraud and to creating an economic and regulatory climate conducive to economic activity. The Government also intends to strengthen further the public procurement entities and is committed to the optimal functioning of the expenditure chain. In the context of the conclusion of a new program with the International Monetary Fund, special emphasis will be placed on improving cash flow management planning.

16. The 2012 budget was executed in a rigorous, transparent, and efficient manner, with no recourse to special public expenditure execution procedures. Revenues collected and expenditures made reflect the implementation of government reforms. The 2013 budget was adopted by the Council of Ministers and approved by the National Assembly on December 30, 2012. This budget, like the previous one, accords priority to expenditures on education, health, infrastructure rehabilitation, agriculture, energy, and water and sanitation.

17. In 2014, the Government will continue implementation of the reforms aimed at the following, in particular: (i) maintaining macroeconomic stability; (ii) tracking public expenditure on poverty reduction; (iii) submitting draft budget review laws to the Audit Office; (iv) strengthening public finance management transparency; (v) continuing publication of data on foreign and domestic revenue and debt; (vi) preserving the viability of public debt by giving priority to grants or concessional loans; (vii) strengthening implementation of the National Education Sector Plan; (viii) adopting a plan of action to strengthen, in the short term, capacity for rapid and efficient project execution; (ix) implementing the financial sector development strategy; (x) continuing reform of the public procurement system with the introduction and operationalization of the Integrated Public Procurement Management System software and its interface with SIGFiP software, and (xi) strengthening public enterprise reform.

52

18. In addition to these reforms, the Government undertakes to (i) adopt the implementing regulations for the WAEMU public finance management Directives once the National Assembly approves the Transparency Code and Organic Law for the approved budget derived from these Directives; (ii) adopt the decree establishing the authority to monitor implementation of recommendations through audit missions; (iii) integrate the debt database (SYGADE) into SIGFiP and provide user training for staff; (iii) based on the strategic vision document, agree on a new price structure for the New Cotton Company of Togo (NSCT) and National Federation of Cotton Producer Groups (FNGPC); (iv) based on a study, implement the new approach to fertilizer subsidies; (v) choose a strategic partner to develop carbonated phosphate reserves; and (vi) take concrete measures to award licenses to at least two additional Internet suppliers and measures to operationalize the new telecommunications law.

19. The remainder of this LDP sets forth the key actions taken by the Government in the different sectors for the 2013-2014 period.

Financial Orthodoxy

20. Public expenditure management has improved considerably owing to (i) sound execution of the 2012 budget; and (ii) strengthening of internal budget execution audits. The Government will continue to improve cash flow management and procurement procedures and will publish budget execution reports at periodic intervals. The activities listed below illustrate the Government’s reform efforts in the area of public finance:

• Budget allocations for investment spending were fully authorized since the start of the year;

• The draft budget for 2013, along with the program budgets for the Ministry of Primary and Secondary Education and Literacy, the Ministry of Technical Education and Vocational Training, the Ministry of Health, the Ministry of Water, Sanitation, and Village Water Development, and the MTEFs of the Ministry of Agriculture were submitted to the National Assembly, which approved them on December 30, 2012;

• 2012 budget execution reports are produced quarterly. This information is also available on the website of the Permanent Secretariat for Policy Reform and Financial Program Monitoring (www.togoreforme.com);

• The performance chart for the monthly tracking of budget execution was introduced. Preparation is ongoing and this chart has been published on the www.togoreforme.com website.

• The use of standard bidding documents to make the public contract award and thus budget execution process smoother. These standard bidding documents are available on the Public Procurement Regulatory Authority [Autorité de Régulation des Marchés Publics ARMP] website;

• The draft laws related to the WAEMU Directives were passed by the Government and transmitted to the National Assembly and the draft decrees have been prepared and transmitted to the General Secretariat of the Government [Secrétariat Général du Gouvernement];

• The cash balance is generated by SIGFiP;

53

• The draft budget review law for FY 2011 has been prepared and submitted to the Audit Office. The Audit Office submitted the 2010 budget execution report to the Government and the National Assembly. The 2011 version is being finalized for purposes of submission to the National Assembly;

• The 2009-2013 budgets have been published at regular intervals on the www.togorefrome.com website and the budget execution data for 2009-2012 are available online;

• The oversight entities (IGF and IGE) have been trained in planning risk-based approach audit missions and the mapping of risks is currently underway; • A cotton sector strategic vision document has been prepared and validated by the Ministries of Finance and Agriculture, setting forth the measures to be adopted for the efficient functioning and transparent management of the cotton sector;

• An assessment has been done of the investments made in non-carbonated phosphates during Phase 1 of the phosphate development strategy and the report is available;

• The Government has issued a call for expressions of interest to develop Togo’s carbonated phosphate reserves. The final bidding document has been sent to the World Bank for comments, which will be incorporated into the final version;

• In consultation with the regulator, the Togo Electricity Company (CEET) has completed its financial model and has begun to use this model on a trial basis;

• The call for expressions of interest from mobile virtual network operators (MVNOs) has been issued and a number of enterprises have been selected. In the next few days, the Government will send requests for proposals to the enterprises selected;

• The provisional management monitoring committee of the Togolese Bank for Commerce and Industry [Banque Togolaise pour le Commerce et l’Industrie BTCI] will be strengthened and will meet monthly. Going forward, the committee will review all BTCI commitments over 500 million;

• The Togolese Revenue Office has been created;

21. During the 2013–2014 period, the Togolese authorities intend to take further measures to strengthen public finance management.

22. The Government will continue to improve PEFA scores through implementation of the public finance management reform strategy. It will also continue to address the challenges pertaining to public expenditure management, which were highlighted in the Public Expenditure Management and Financial Accountability Review (PEMFAR) report. This includes (i) improving budget programming; (ii) observing the budget schedule; (iii) aligning, in a more effective manner, the composition of line item expenditures initially approved while maintaining the priorities identified in Togo’s poverty reduction strategy; (iv) increasing the share of expenditures of the priority sectors; (v) expanding use of SIGFiP; and (vi) continuing to publish budget information.

54

To this end, the Government intends to:

• Begin implementation of the six WAEMU public finance Directives incorporated into domestic legislation after their adoption by the National Assembly, along with their implementing regulations;

• Submit the draft 2014 budget to the National Assembly along with the program budgets for the twelve ministries, eleven of which have their policies or sectoral strategies and draft annual performance plans (education, health, agriculture, water and sanitation, infrastructure sectors, etc.).

Financial Sector Reforms

23. Implementation of the financial sector’s development strategy, which was developed in 2012 with support from technical and financial partners, including the World Bank and the International Monetary Fund, is in progress. The Government is committed to continuing the privatization process of State-owned banks, such as the Union Togolaise de banque (UTB), and to taking the appropriate steps to restructure the BTCI, which is currently facing difficulties.

24. The entity responsible for recovering non-performing loans acquired by the State [Société de Recouvrement des Créances improductives reprises par l’Etat] during the restructuring exercise for State-owned banks is operational and has already begun its work.

25. The microfinance sector plays a key role in efforts to reduce poverty, create jobs, and finance the Togolese economy. The Government therefore intends to continue its work in this sector with a view to its development, by building the capacity of this sector’s surveillance agencies through the Mutual Institutions and Savings and Credit Cooperatives Support and Monitoring Unit [Cellule d’Appui et de Suivi des Institutions Mutualistes et de Coopératives d’Epargne et de Crédit CAS- IMEC] in the Ministry of Economy and Finance. The “microfinance committee” comprising representatives from the Ministry of Economy and Finance, microfinance institutions, the BCEAO, and experts, was established and continues its work with a view to engaging in discussions to improve governance in this sector. The Government intends to strengthen the regulatory framework and supervision of sector institutions, and is counting on World Bank support.

26. The pension sector has faced a number of challenges. A financial and organizational audit and an actuarial review of Togo’s Pension Fund [Caisse de Retraites du Togo CRT]) were conducted to mitigate these challenges. The 2011 recommendations stemming from this audit and from the report prepared by the ad hoc Committee tasked with conducting discussions on the reform of the CRT’s pension system are being implemented. The Government will shortly be adopting reform options designed to gradually reduce CRT’s operational deficits.

27. The Government will build on the gains made by the financial system during the 2013-2014 period, by implementing a specific strategy and actions for each component, namely the banking sector, the pension system, the insurance sector, and the microfinance sector, in accordance with the recommendations emanating from the validation workshop for the financial sector’s development strategy and from the March 2012 national economic forum.

55

Mining Sector Reforms

28. Togo has been an EITI-compliant country since May 2013 and intends to implement the recommendations set forth in the most recent report. This report, and the one prepared by the independent auditor, were finalized and published in March 2013 on the Web site of the EITI-Togo secretariat, in accordance with EITI requirements. A new detailed action plan will be developed and implemented within the specified timeframe for the next EITI assessment for Togo.

29. As part of its efforts to promote transparency in the sector, the Government will continue to publish the sector’s financial flows, particularly the reconciliation of data on royalties and fees paid to the State in accordance with EITI requirements.

30. The Government is proceeding with the implementation of the development strategy for the phosphate sector, which was adopted in April 2010. To that end, efforts to find strategic partners will continue with support from partners, including the World Bank.

31. The restoration of good governance, underpinned by a sound strategic vision for the development of the mining sector as a whole, is the Government’s key objective and the challenge to be addressed in the coming years.

Agricultural Sector Reforms

32. Far-reaching reforms have been implemented in the cotton sector since 2008 and the Government intends to put mechanisms in place with a view to leveraging the country’s potential and the enthusiasm of producers. Although these reforms contributed to an uptick in cotton production in 2012, problems pertaining to the financing of inputs persist. The Government intends to implement the action plan for the strategy designed for this purpose, in order to remove all obstacles hobbling this sector’s operations. The Government is therefore counting on the support of technical and financial partners, including the World Bank.

33. The FNGPC and the NSCT are working on a new price structure for producers, which is based on the cotton sector’s strategy. At the most recent meeting, which was held from September 18 to 20, 2013, the parties agreed on the key aspects and scheduled the validation meeting for the new mechanism for end-October 2013.

34. A study on Togo’s fertilizer sector was conducted and presented during a workshop held on September 12, 2013. Contributions from the various stakeholders will facilitate the preparation of a document and an action plan for the introduction of a new fertilizer subsidy approach.

Energy Sector Reforms

35. Major reforms have been instituted in the energy sector, including the implementation of the recommendations from the various studies. In view of this sector’s importance, the Government has engaged in discussions aimed at enhancing Togo’s energy independence.

36. With a view to boosting energy capacity, a contract was signed with the Contour Global company for the production of 100 MW of thermal energy. Contour Global began production in October 2010, which eased energy supply constraints and strengthened the reliability of the energy 56

supply by enhancing the competitiveness of the enterprises. The Government also provided the CEET with an additional 20 MGW thermal power plant in 2009. Along with Benin and Ghana, Togo is also a member of the West African Power Pool (WAPP), which is working to construct the 330 kV line aimed at significantly increasing the electricity supply in countries in the subregion.

37. Despite the strides made, Togo remains a highly energy dependent country. Efforts to construct the Adjarala dam are continuing and the Government intends to explore other options to boost the energy supply. The Government will also implement a strategy for rural electrification and the use of renewable energy sources. In view of the energy sector’s key role in development, the Government will spare no effort to provide the Togolese people with an adequate energy supply.

38. The settlement of debt owed up to end-2009 to the CEET by the State, local governments, government offices, and government agencies with autonomous budgets, helped improve the CEET’s financial position. However, arrears have regrettably begun to accumulate since that time. The Government will outline a strategy to settle these arrears and seek solutions to the dysfunctions at the root of this debt accumulation. A medium-term strategy for the sector will be drafted.

39. With respect to governance of the CEET, the Government will implement the recommendations emanating from the accounting, financial, and organizational audit of the CEET with the aim of boosting the company’s performance.

40. The 2009-2013 performance contract concluded between the Government and the CEET is drawing to a close. The State intends to support the CEET in its effort to effectively fulfill its mandate for a successful outcome of this contract. Consultations for a new performance contract are underway.

41. The Government will continue carrying out activities already underway: (i) strengthening private sector participation in the development of energy production; (ii) increasing subregional cooperation in the production, purchase, sale, and transport of energy; (iii) promoting the general use of domestic gas (LPG); (iv) establishing a fund for rural electrification; (v) introducing a financing mechanism for the sector with the participation of donors and the domestic financial system; (vi) building awareness among households about the efficient use of all forms of energy; (vii) ensuring the sector’s financial sustainability through improved collection rates, the replacement of certain equipment, and routine payment of public consumption costs; and (viii) developing, in the longer term, a sector plan to provide low-cost electricity to customers.

Telecommunications Sector Reforms

42. In May 2011, the Government adopted its 2011-2015 telecommunications sector strategy, which is based on the promotion of information and communication technologies (ICTs). This strategy outlines an ambitious vision for the sector by focusing on market regulation power and strengthening the legal and regulatory framework. The strategy aims to develop the telecommunication infrastructure (including investment in national, regional, and international connectivity) and promote the use of ICTs, with a view to increasing landline and mobile penetration rates to 60 percent by 2015 and high-speed internet penetration to 15 percent (current rate is less than 1 percent). The strategy uses an integrated approach based on the following four pillars: (i) strengthen the legal and regulatory framework as well as regulations; (ii) promote

57

competition in the market; (iii) develop the infrastructure; and (iv) increase and promote the use of ICTs.

43. The law on electronic communication (Law No. 2012-018, amended by Law No. 2013-003 of February 19, 2013) replaces Law No. 98-005 and is a major development in the sector. This law incorporates the latest technological and market developments, as well as the ECOWAS directives and the additional acts to the WAEMU Treaty. The law’s main objectives are to boost competition, promote investment, increase access, and improve the sector’s regulations. A regulatory body for electronic communications [Autorité de régulation de la Communication Electronique ARCE], which replaces the ART&P, and a regulatory body for electronic radio services [Agence de régulation du spectre radio électronique ANSR] were established under the law. The implementing documents are in the process of being adopted.

44. The telecommunication sector’s priority reforms seek to ramp up competition and create a level playing field for sector actors. These reforms include the (i) lowering of mobile communication prices to bring them in line with regional benchmarks; (ii) opening up of the mobile telephone sector to increased competition by issuing MVNO licenses; (iii) transition to total competition in the internet sector with a plan for issuing additional ISP licenses; (iv) launch of the Togo Télécom restructuring process; (v) guarantee of fair and equitable access to the WACS undersea cable; (vi) lifting of restrictions on the construction of transport infrastructure by authorized operators; and (vii) introduction of regulatory mechanisms to ensure fair competition and prevent a market monopoly by a single operator. These reforms should have a profound impact on the sector, once implemented. The Government welcomes the implementation of these reforms and the myriad of support tools provided by the World Bank, including technical assistance and trust fund resources through the PPIAF. The WARCIP project, which was recently approved by the World Bank’s Executive Board, will focus on enhancing sector efficiency and broadband network coverage at a lower cost.

Transport Sector Reforms

45. In the area of land transport, the Government intends to continue improving the road infrastructure by constructing and rehabilitating highways and roads. The construction of bypasses around two geological obstacles—the Faille d’Alédjo and the Faille de Défalé—is proceeding. Several other segments in Lomé and the country’s inland areas are either being rehabilitated or rebuilt. The Government has secured funding for several works in the port area and the construction of a bypass for the city of Lomé. As was the case with previous budgets, substantial resources will be earmarked in the 2014 budget for road construction and rehabilitation in Lomé and the inland areas. In view of this sector’s tremendous needs, the Government has obtained financing for the rehabilitation of the Atakpamé-Blitta-Aouda segment, under a regional project linking Lomé to Ouagadougou, scheduled to be launched by year end. Expansion works are underway at the Gnassingbe Eyadéma International Airport to boost its capacity and enhance its competitiveness to meet international standards.

46. The Government is also counting on donor support for the road sector over the next five years.

47. The Government intends to continue executing the following activities: (i) the construction, rehabilitation, and maintenance of rural and agricultural roads, urban roads, bridge, and national and inter-State highways; (ii) the expansion or division of segments of the major access roads to the

58

capital; (iii) improvement of the road network layout; (iv) support of the private organization of mass transport; and (v) the resumption of the implementation of common policies and regional projects within ECOWAS and WAEMU in order to improve the movement of goods and people.

48. With respect to maritime transport, major reforms aimed at improving the quality of services at the Autonomous Port Authority of Lomé [Port Autonome de Lomé PAL] have been underway for several years. The introduction of the one-stop shop for foreign trade (GUCE) now underway will enhance the competitiveness of PAL. In addition, the installation of the ASYCUDA world software in the Port Authority’s customs offices will help enhance the efficiency and speed of port operations. Additional steps will be taken in the medium term to improve the competitiveness of the PAL. To that end, in an effort to provide high-quality services to its customers, PAL designed a port development program that includes, inter alia, the construction of a third dock, for which work is already underway, and a harbor basin to transform the Lomé port into a hub for the subregion through an increase in port capacity, the rehabilitation of several parking areas, and the construction of an inland dry port.

49. The Government also intends to outline a long-term vision for the development and positioning of the PAL. Plans to conduct a study are therefore in place.

Social Sectors Reforms

50. With respect to the health sector, the Government will ensure the implementation of activities such as (i) the continued strengthening of health infrastructure and equipment, scaling-up of human resources, and the preparation of a health map to accord greater priority to areas poorly covered by the health system; (ii) the promotion of child and maternal health through access to preventive and curative services, the implementation of an Expanded Program on Immunization (EPI), the prevention of sexually transmitted diseases and the implementation of primary health care for newborns, infants, and children; (iii) ongoing malaria prevention and treatment through the provision and distribution of insecticide-treated bed nets (ITNs), the lowering of the price of anti- malaria medication, and the implementation of a malaria treatment policy; (iv) the ongoing strengthening of tuberculosis screening and treatment through increased capacity to detect new cases of pulmonary tuberculosis (PTB+), and improvements in the quality of therapeutic care; and (v) continued HIV/AIDS prevention and treatment through awareness building among young people and sex workers, condom distribution, STI prevention, blood safety, counseling for voluntary and anonymous testing, and capacity building in patient care. Accordingly, the Government adopted a decree that provides health insurance for government employees, which came into force on March 1, 2012. The Government has stepped up efforts in this area in a bid to reduce the neonatal mortality rate and achieve one of the MDGs (with the launch of CARMA).

51. In the education sector, the Government organized a competitive process to recruit approximately 5,000 volunteer teachers as part of ongoing efforts to integrate volunteer and assistant teachers into the public service. Several other initiatives are also underway, including (i) ongoing construction and rehabilitation of educational infrastructure; (ii) training of trainers and educators, including the recruitment of teachers from the ENIs (primary teacher training colleges) and the ENS (teacher training college). All of these initiatives have been integrated into the Education For All – Fast Track Initiative, a sector program currently being executed. Other activities are also being conducted (i) the ongoing effort to improve teaching conditions in technical education and vocational training; (ii) the continued promotion of the education of young girls by 59

reducing schooling costs; (iii) further improvements in the quality of higher education and promotion of gender equity in this sphere; and (vi) the ongoing effort to strengthen facilities in order to accommodate the increasingly large number of students enrolling in the country’s universities.

52. The water and sanitation sector remains a priority for the Government, which intends to continue its efforts to improve access to potable water and sanitation infrastructure. To that end, the Government formulated and adopted the national water policy and the policy letter for water supply in urban areas. A draft action plan for the Integrated Management of Water Resources (GIRE) and the water code were developed. The activities outlined therein are being executed. Several potable water supply projects are currently being implemented, and the rate of access by communities to water was significantly increased with the construction and rehabilitation of boreholes. We will continue executing emergency storm water drainage works in the city of Lomé with World Bank support through the Emergency Infrastructure and Electricity Rehabilitation Project (PURISE), through which Togo welcomes the opportunity to benefit from a second additional fund, and developing sanitation master plans for the other cities. The Government wishes to continue constructing small dams and water systems in the rivers in order to facilitate the economic and social integration of poor and isolated communities.

53. Support for community development and youth employment: With a view to improving the living conditions of the poorest population groups, the Government, with World Bank support under the Community Development Project (PDC), undertook to provide these poor communities with greater access to high-quality public services and economic opportunities. The Government intends to increase the subsidy for the school nutrition programs in the 2014 budget. In a bid to enhance the inclusive nature of SCAPE, the Government will also scale up the other grassroots community development initiatives so as to increase the number of jobs for young people through the National Volunteer Program [Programme de Volontariat Nationale PROVONAT] and the implementation of the Support Fund for Young People’s Initiatives [Fonds d’Appui à l’Insertion Economique des Jeunes FAIEJ].

Monitoring and Evaluation

54. The Ministry of Economy and Finance is responsible for the overall implementation of the program funded by the Sixth Economic Growth and Governance Credit (EGGC-6). The Permanent Secretariat for Policy Reform and Financial Program Monitoring (PS-PRPF) is tasked with day-to- day monitoring and evaluation of the program, and coordinates the implementation of the Government’s program. The Government will submit quarterly reports to the World Bank on the program’s implementation progress, which is measured against agreed timetables and performance indicators.

55. The Government hopes that these political, economic, and social reforms will help strengthen its relations with the World Bank and its other bilateral and multilateral partners in order to marshal the resources needed to improve the Togolese people’s living conditions and achieve the Millennium Development Goals.

60

Request for Financing

56. The Government is determined to build on the gains made thus far with respect to political stability, continue structural reforms initiated in 2006, and benefit from the reduction in the country’s debt. To that end, the Government of Togo is committed to implementing the program outlined above and described in the matrix in the attached annex. The Government is therefore requesting that the World Bank provide technical and financial assistance for the execution of its ambitious program under the Sixth Economic Growth and Governance Credit (EGGC-6).

Very truly yours,

/s/

Adji Otèth AYASSOR Minister of Economy and Finance

61

MINISTERE DE L’ECONOMIE REPUBLIQUE TOGOLAISE ET DES FINANCES Travail-Liberté-Patrie ------CABINET ------

N°______/MEF/CAB/SP Lomé, le

Le Ministre de l’Economie et des Finances

À

Monsieur Jim Yong Kim Président de la Banque Mondiale 1818 H Street NW Washington DC 20433 USA

Monsieur le Président,

1. La présente Lettre de Politique de Développement (LPD) présente les avancées enregistrées et retrace la situation socio-économique actuelle ainsi que les tendances pour la période 2013-2015. Elle décrit les objectifs et les politiques de développement définis par les autorités pour la poursuite de leur programme d’appui budgétaire démarré en 2008. Ce programme vise à renforcer la croissance économique et à la rendre durable et inclusive. Pour atteindre ces objectifs, les autorités sollicitent une fois encore l’appui de la communauté internationale et notamment celui de la Banque Mondiale à travers le Crédit pour la Croissance Economique et la Gouvernance (CCEG-6).

I. Contexte politique et socio-économique

2. Le climat politique apaisé qui prévaut depuis 2007 a permis l’organisation des élections législatives du 25 juillet 2013 avec la participation de tous les partis politiques. Ces élections ont été jugées pacifiques, crédibles, transparentes et acceptées par la communauté internationale. Ces élections ont également apporté des clarifications politiques recherchées et données au nouveau Gouvernement un mandat clair et solide pour la poursuite et l’intensification de la politique de réformes et de développement économique et social du Togo. Ainsi, le Gouvernement poursuivra sur cette lancée pour la réussite des élections à venir notamment les élections locales et présidentielles. Il continuera l’approfondissement du dialogue démocratique et cherchera constamment la plus large participation des togolais à la gestion des affaires du pays, le respect des droits de l’opposition, l’impartialité de l’administration et de la justice ainsi que le renforcement de l’Etat de droit afin de maintenir la paix sociale et faire du Togo un véritable pays de droit.

62

3. Toujours dans l’esprit de l’apaisement du climat socio-politique, le Gouvernement a commencé à mettre en œuvre les recommandations de la Commission Vérité Justice et Réconciliation. L’ensemble des recommandations sont détaillées dans un Livre Vert avec un plan d’action comme l’a recommandé le Chef de l’Etat lors de la présentation des vœux de 2013 au Corps diplomatique. Ainsi, dans le nouveau Gouvernement, le Ministre des Droits de l’Homme a été spécialement chargé de la mise en œuvre de ces recommandations.

4. Tirant profit des acquis dans la mise en œuvre du Document Intérimaire de Stratégie de Réduction de la Pauvreté (DSRP-1) et du Document Complet de Stratégie de Réduction de la Pauvreté (DSRP-C), le Gouvernement a organisé le forum économique national portant sur le thème « Promotion d’une croissance forte, durable et inclusive » en mars 2012. Les recommandations issues de ce forum ont servi de base à l’élaboration de la Stratégie de Croissance Accélérée et de Promotion de l’Emploi (SCAPE) qui a été adopté par le Gouvernement le 29 août 2013. L’objectif de cette stratégie est de répondre au défi majeur du Gouvernement qui est non seulement le renforcement des progrès enregistrés ces dernières années dans le domaine politique, économique et social, mais aussi d’assurer la consolidation des bases d’une croissance accélérée, inclusive et génératrice d’emplois. Le Gouvernement est conscient que, malgré tous les progrès enregistrés au cours des dernières années, il y a encore cinq défis majeurs à relever pour assurer le décollage de l’économie togolaise et progresser vers la réalisation des OMD. Il s’agit de : (i) l’accélération de la croissance économique, de la création de l’emploi et de l’insertion régionale et internationale de l’économie togolaise; (ii) l’amélioration de la gouvernance; (iii) la réduction des inégalités; (iv) le traitement des problèmes sociodémographiques; (v) le développement urbain, l’aménagement du territoire et la protection de l’environnement. La politique économique du Gouvernement à moyen terme sur la période 2013-2017 s’emploiera pour l’essentiel à jeter et consolider les bases pour l’émergence future du Togo. Pour cela, elle s’orientera vers de nouvelles priorités qui sont: (i) accélération de la croissance; (ii) emploi et inclusion; (iii) renforcement de la gouvernance; (iv) réduction des disparités régionales et promotion du développement à la base. Le programme économique et de réduction de la pauvreté vise, à renforcer la stabilité macroéconomique, à poursuivre l’assainissement des finances publiques, à améliorer le système de passation des marchés publics et à renforcer la gouvernance dans les entreprises publiques en vue de renforcer la croissance économique qui permet d’améliorer le niveau de vie des populations. Ce programme est pris en compte par la deuxième génération du Document de Stratégie de Réduction de la Pauvreté (SCAPE).

5. Les discussions sont en cours avec les services techniques du Fonds Monétaire International en vue de conclure un nouveau programme triennal (2013-2016), appuyé par la Facilité Elargie de Crédit (FEC) afin de consolider les acquis des programmes précédents.

6. L’exécution du budget 2012 a été à peu près satisfaisante avec des difficultés rencontrées vers la fin d’année dues au fait que les recettes n’ont pas pu atteindre les prévisions budgétaires attendues. Sur la base du Tableau des opérations financières de l’Etat (TOFE) au 31 décembre 2012, les réalisations des recettes totales s’établissent à 328 milliards de F CFA, soit une augmentation de 12.5% par rapport à 2011. Cette performance peut s’expliquer par la reprise générale des activités économiques ainsi que par la maîtrise des dépenses publiques.

7. Les réformes réalisées au cours des dernières années ont créé des conditions favorables pour la relance de l’économie nationale. La croissance économique s’est établie à 5,9 % en 2012 contre 4,8% en 2011, tirée principalement par les investissements publics, la production agricole, 63

notamment cotonnière et vivrière, et les activités minières et de transport. Le taux d’inflation était de 2,6 % en moyenne annuelle en 2012 contre 3,6% en 2011 et 2,1% en 2010. La croissance économique enregistrée suite aux efforts du Gouvernement a été positive mais reste insuffisante face aux ambitions de développement et de réduction de la pauvreté. Ainsi, les réformes des secteurs notamment bancaires, cotonnier, énergétique, de télécommunications et des phosphates se sont poursuivies.

8. Les estimations de croissance économique en 2013 montrent un ralentissement de la croissance économique qui s’établit à 5,6 pour cent. Cette croissance va rebondir pour atteindre 6 pour cent en 2014.

II. Le programme 2013-2015

Objectifs généraux

9. Le Gouvernement entend renforcer au cours de la période 2013-2015 son programme de croissance économique à travers la poursuite et la consolidation des réformes économiques entamées depuis 2006. Un accent particulier sera mis sur les conditions d’une croissance économique inclusive et soutenue. Les efforts du Gouvernement seront orientés vers les secteurs à plus fort potentiel de croissance, ce qui devrait améliorer la compétitivité de l’économie togolaise. Ces réformes visent, le maintien d’un cadre macroéconomique stable favorable à une croissance économique durable susceptible d’améliorer les conditions de vie des populations. L’objectif de 2013 est: (i) de poursuivre le programme de réformes économiques axé sur l'amélioration de la transparence à travers la lutte contre la fraude et la corruption; (ii) d’améliorer la gestion des finances publiques ; (iii) d’exécuter le budget dans le strict respect de l’orthodoxie financière; (iv) de respecter les engagements pris vis-à-vis des institutions financières internationales (FMI, Banque Mondiale et Banque Africaine de Développement notamment) et les donateurs bilatéraux et multilatéraux dans le but de renforcer les relations avec ses institutions; (v) de consolider le renforcement du système de contrôle (la Cour des Comptes, l’Inspection Générale d’Etat et l’Inspection Générale des Finances); et (vi) de renforcer le secteur financier.

10. Les mesures prévues pour augmenter la productivité agricole, apurer la dette intérieure et améliorer la capacité d’absorption ainsi que le niveau des dépenses d’investissements publics permettront d'atteindre une croissance réelle du PIB supérieur à 5,6 pour cent en 2013 et de plus de 6 pour cent en moyenne dans les années à venir. Le Gouvernement mettra un accent particulier sur les secteurs porteurs de croissance économique notamment les secteurs de l’agriculture (produits vivriers et coton), minier (phosphates), le secteur de l’énergie, le secteur des télécommunications ainsi que l’amélioration du climat des affaires. A cet effet, les projets liés au Programme National d’Investissement Agricole et de Sécurité Alimentaire (PNIA-SA) adopté par le Gouvernement et lancé officiellement le 16 février 2012 sont en cours d’exécution. L’objectif visé par le secteur agricole est de réaliser une forte croissance dans le secteur, avec un taux d’au moins 6 pour cent par an.

11. Le Togo a été admis comme pays conforme à l’Initiative pour la Transparence dans les Industries Extractives (ITIE) en mai 2013 après avoir mis en œuvre toutes les exigences et s’engage à poursuivre les activités pour l’amélioration de la transparence, l’attractivité du secteur minier et la promotion de la bonne gouvernance.

64

12. Le Document Complet de Stratégie de Réduction de la Pauvreté du Togo 2009-2011 (DSRP-C) a pris fin en 2011. Le nouveau document de stratégie de réduction de la pauvreté dit de nouvelle génération dénommé Stratégie de Croissance Accélérée et de Promotion de l’emploi (SCAPE) a été élaboré et adopté par décret en conseil des ministres. Cette nouvelle stratégie a été élaborée en capitalisant les acquis du DSRP-C et elle est orientée vers une croissance accélérée, durable, inclusive et génératrice d’emploi. Ainsi, la présente lettre est assortie d’un programme de réformes qui permettent de réaliser les axes de la SCAPE. Ces réformes visent essentiellement à poursuivre: (i) le renforcement de la gestion des finances publiques; (ii) l’amélioration du climat des investissements pour favoriser la croissance du secteur privé; (iii) l’amélioration de l'accès à la santé, à l'éducation et aux services sociaux de base; (iv) la poursuite de la construction et de la réhabilitation des infrastructures routières et du secteur énergétique; (v) la poursuite de la restructuration du secteur financier.

13. Dans le cadre du climat des affaires, un nouveau code des investissements moderne a été élaboré avec l’appui de la Banque Mondiale et voté par l’Assemblée Nationale en Janvier 2012 et leurs décrets d’application sont en cours de finalisation. La vulgarisation de la charte des PME/PMI a été faite sur tout le territoire national.

Gouvernance et réformes structurelles

14. Le Gouvernement est déterminé à poursuivre l’amélioration de la gestion des finances publiques dans le cadre de la gouvernance économique et financière. A cet effet, la mise en œuvre du plan d’action de la Stratégie des Réformes des finances publiques se poursuit. Le gouvernement veut davantage mobiliser les ressources intérieures et extérieures et s’engage à les utiliser de manière efficace et transparente. L’intensification de la mobilisation des ressources intérieures va se faire par l’opérationnalisation de l’Office Togolais des Recettes (OTR). Afin d’améliorer la prévisibilité des ressources extérieures, le gouvernement va poursuivre les discussions avec les partenaires techniques et financiers en vue de finaliser et de mettre en œuvre le Cadre d’Organisation des Appuis Budgétaires (COAB).

15. Le Gouvernement s’engage également à poursuivre la lutte contre la corruption, et la fraude ainsi que l’établissement d’un environnement économique et réglementaire propice à l’activité économique. Par ailleurs, le Gouvernement entend renforcer davantage les organes de passation des marchés publics et s’engage à optimiser le circuit de la dépense. Dans le cadre de la conclusion d’un nouveau programme avec le Fonds Monétaire International, un accent particulier sera mis sur l’amélioration de la gestion prévisionnelle de la trésorerie.

16. Le budget 2012 a été exécuté avec rigueur, transparence et efficacité sans recours aux procédures exceptionnelles d’exécution des dépenses publiques. La réalisation des recettes et l’exécution des dépenses reflètent la mise en œuvre des réformes engagées par le Gouvernement. Le budget 2013 a été adopté en Conseil des Ministres et voté par l’Assemblée Nationale le 30 décembre 2012. Ce budget, comme le précédent, donne la priorité aux dépenses d'éducation, de santé, de réhabilitation des infrastructures, de l’agriculture, de l'énergie, de l’eau et assainissement.

17. Au cours de l’année 2014, le Gouvernement va poursuivre la mise en œuvre des réformes pour permettre, notamment , (i) le maintien d’une stabilité macro-économique, (ii) le suivi des dépenses publiques pour la réduction de la pauvreté, (iii) la soumission à la Cour des Comptes des projets de loi de règlement, (iv) le renforcement de la transparence dans la gestion des finances publiques, (v) 65

la poursuite de la publication des données sur les recettes et la dette extérieure et intérieure, (vi) la préservation de la viabilité de la dette publique, en favorisant des dons ou des prêts à des taux concessionnels, (vii) la consolidation de la mise en œuvre du Plan National du Secteur de l’Education, (viii) la poursuite de la mise en œuvre d’un plan d’action pour renforcer à court terme la capacité d’exécution rapide et efficace des projets, (ix) la mise en œuvre de la stratégie de développement du secteur financier, (x) la poursuite de la réforme du système de passation des marchés publics avec l’installation et l’opérationnalisation du logiciel dénommé: Système Intégré de Gestion des Marchés Publics (SIGMAP) et son interfaçage avec le SIGFIP, et (xi) la consolidation des réformes au niveau des entreprises publiques.

18. En plus de ces réformes, le Gouvernement s’engage à: (i) adopter les textes d'application des directives de l'UEMOA relatives à la gestion des finances publiques dès que la nouvelle Assemblée Nationale aura voté le code de transparence et la Loi Organique de Lois de Finances (LOLF) issus de ces directives; (ii) adopter le décret instituant l’Autorité de suivi de la mise en œuvre des recommandations par des missions de contrôle; (iii) interfacer le logiciel de base de données de la dette (SYGADE) dans le SIGFiP et former le personnel à son utilisation, (iii) basé sur le document de vision stratégique, la NSCT et la FNGPC s’accordent sur une nouvelle formule de prix; (iv) sur la base d’une étude, mettre en œuvre la nouvelle approche de subvention des engrais; (v) choisir un partenaire stratégique pour développer les réserves de phosphates carbonatés; (vi) prendre des mesures concrètes pour accorder les licences pour au moins deux fournisseurs supplémentaires d’internet et des mesures d’opérationnalisation de la nouvelle loi sur la télécommunication.

19. La suite de cette lettre décrit les actions clés que le Gouvernement a entrepris au niveau des différents secteurs pour la période 2013-2014.

L’orthodoxie financière

20. La gestion des dépenses publiques s’est considérablement améliorée avec: (i) la bonne exécution du budget 2012; et (ii) le renforcement du contrôle interne au niveau de l’exécution du budget. Le Gouvernement va poursuivre le renforcement de la gestion de la trésorerie et des procédures de passation des marchés et publier régulièrement les rapports sur l'exécution du budget. Les efforts de réformes entrepris par le Gouvernement dans le domaine des finances publiques sont illustrés à travers quelques réalisations:

• les allocations budgétaires pour les dépenses d’investissement ont été ouvertes à 100% dès le début de l’année;

• le projet de budget 2013 assorti des budgets programmes du ministère des enseignements primaire, secondaire et de l’alphabétisation, du ministère de l’enseignement technique et de la formation professionnelle, du ministère de la santé, et du ministère de l’eau, de l’assainissement et de l’hydraulique villageoise et des CDMT du ministère de l’agriculture a été déposé à l'Assemblée Nationale qui l’a voté le 30 décembre 2012;

• les rapports d’exécution du budget 2012 sont produits chaque trimestre. Ces informations sont également disponibles sur le site web du Secrétariat Permanent pour le suivi des Politiques de Réformes et des Programmes Financiers (www.togoreforme.com);

66

• le tableau de bord de suivi mensuel de l’exécution budgétaire a été institué et continue d’être élaboré et publié sur le site www.togoreforme.com.

• la mise en place des dossiers-types pour améliorer la fluidité dans le processus d’attribution des marchés publics et donc d’exécution du budget. Ces dossiers-types sont disponibles en ligne sur le site de l’Autorité de Régulation des Marchés Publics (ARMP);

• les projets de lois relatives aux directives de l’UEMOA sont adoptés par le gouvernement et transmis à l’Assemblée Nationale et les projets de décrets élaborés et transmis au Secrétariat Général du Gouvernement;

• la balance du trésor est générés par le SIGFiP;

• le projet de loi de règlement relatif au budget exercice 2011 a été élaboré et transmis à la Cour des Comptes. La Cour des Comptes a soumis le rapport sur l’exécution du budget 2010 au Gouvernement et à l’Assemblée Nationale et celui de 2011 est en cours de finalisation pour transmission à l’Assemblée Nationale;

• les budgets 2009-2013 ont été publiés régulièrement sur le site www.togorefrome.com et les données de l’exécution budgétaire pour les années 2009-2012 sont disponibles en ligne;

• les structures de contrôle (IGF et IGE) ont été formées sur la planification des missions d’audit selon l’approche risque et la cartographie des risques est en cours d’élaboration;

• un document de vision stratégique du secteur du coton a été élaboré et validé par le ministère en charge des Finances et celui de l’Agriculture, qui décrit les mesures qui seront prises pour arriver à un fonctionnement efficace du secteur du coton dans une gestion transparente;

• une évaluation des investissements dans les phosphates non carbonatés réalisée dans la phase 1 de la stratégie de développement des phosphates a été effectuée et le rapport est disponible;

• le gouvernement a lancé un appel à manifestation d’intérêt pour le développement des réserves de phosphates carbonatés du Togo. Le document d’appel d’offre final est transmis à la Banque Mondiale pour observations. Ce document final prendra en compte les observations de la Banque Mondiale;

• en consultation avec le régulateur, la CEET a finalisé son modèle financier et a commencé à l’utiliser à titre expérimental;

• l’appel à manifestation d’intérêt pour les MVNO a été lancé et un certain nombre d’entreprises ont été retenues. Le gouvernement va envoyer dans les prochains jours les demandes de propositions à ces entreprises retenues;

• le comité de suivi de la gestion provisoire de la Banque Togolaise pour le Commerce et l’Industrie sera renforcé et se réunira sur une base mensuelle. Le comité examinera désormais tous les engagements de la BTCI qui dépassent 500 millions;

• l’Office Togolais des Recettes a été créé. 67

21. Au cours de la période 2013-2014, les autorités togolaises entendent mettre en œuvre des actions additionnelles pour renforcer la gestion des finances publiques.

22. Le Gouvernement continuera à améliorer les notes obtenues dans le cadre du PEFA à travers la mise en œuvre de la stratégie de réforme de la gestion des finances publiques. Il continuera aussi à relever les défis de la gestion des dépenses publiques soulignés dans le rapport de la Revue de la Gestion des Dépenses Publiques et de la Responsabilité Financière (PEMFAR): ceci inclut (i) l’amélioration de la programmation budgétaire; (ii) le respect du calendrier budgétaire; (iii) un meilleur alignement de la composition des dépenses sur les lignes budgétaires initialement approuvées tout en respectant les priorités retenues dans la stratégie de lutte contre la pauvreté du pays; (iv) l’augmentation de la part des dépenses des secteurs prioritaires; (v) l’extension du SIGFIP; et (vi) la poursuite de la publication des informations relatives au budget.

A cet effet, le Gouvernement compte:

• commencer la mise en œuvre des six (06) directives de l’UEMOA relatives aux finances publiques transposées dans la législation nationale dès leurs adoption à l’Assemblée Nationale; ainsi que leurs textes d’application;

• soumettre le projet de budget 2014 à l’Assemblée Nationale assorti des budgets-programmes de douze ministères dont onze ayant leurs politiques ou stratégies sectorielles et des projets de performances (secteurs de l’éducation, de la santé, de l’agriculture, de l’eau et assainissement et des infrastructures, etc.).

Réformes du secteur financier

23. La stratégie du développement du secteur financier élaborée en 2012 avec l’appui des partenaires techniques et financiers notamment la Banque mondiale et le Fonds Monétaire International est en cours de mise en œuvre. Le Gouvernement s’engage à continuer le processus de privatisation des banques à capitaux publics notamment celui de l’Union Togolaise de banque (UTB) et de prendre des mesures idoines pour la restructuration de la BTCI actuellement en difficulté.

24. La Société de Recouvrement des Créances improductives reprises par l’Etat dans le cadre de l’assainissement des banques à capitaux publics est opérationnelle et a déjà commencé ses activités.

25. Le secteur de la micro finance joue un rôle important dans la réduction de la pauvreté, la création de l’emploi et le financement de l’économie togolaise. C’est pourquoi le gouvernement entend poursuivre ses efforts dans ce secteur en vue de son développement en renforçant les capacités des services de surveillance de ce secteur auprès du Ministère de l’Economie et des Finances à travers la Cellule d’Appui et de Suivi des Institutions Mutualistes et de Coopératives d’Epargne et de Crédit (CAS-IMEC). Le comité dénommé « comité micro finance » composé des représentants du Ministère de l’Economie et des Finances, des Institutions de micro finance, de la BCEAO et des personnes ressources a été mis en place et continue ses activités en vue de mener des réflexions pour l’amélioration de la gouvernance dans ce secteur. Le Gouvernement entend renforcer le cadre réglementaire et la supervision des établissements du secteur et compte sur l’appui de la Banque Mondiale.

68

26. Le secteur des pensions de retraites a connu des difficultés. Pour pallier ces difficultés, un audit financier et organisationnel et une étude actuarielle de la Caisse de Retraites du Togo (CRT) ont été réalisés. Les recommandations issues de cet audit ainsi que celles du rapport de la Commission ad hoc chargée de mener des réflexions sur la réforme du régime des pensions de la CRT, datant de 2011 sont en cours de mises en œuvre. Le gouvernement adoptera dans les jours à venir des options de réformes en vue de réduire progressivement les déficits opérationnels de la CRT.

27. Le gouvernement va consolider les acquis du système financier pour la période 2013-2014 par la mise en œuvre de la stratégie et des actions spécifiques à chaque composante à savoir le secteur bancaire, le système des pensions de retraites, le secteur des assurances et le secteur de la micro finance conformément aux recommandations de l’atelier de validation de la stratégie du développement du secteur financier et du forum économique national de mars 2012.

Réformes dans le secteur des mines

28. Le Togo est devenu pays conforme à l’ITIE depuis mai 2013 et entend mettre en œuvre les recommandations du dernier rapport. Ce rapport ainsi que celui de l’auditeur indépendant sont finalisés et publiés depuis mars 2013, sur le site du secrétariat de l’ITIE-Togo, conformément aux dispositions de l’ITIE. Un nouveau plan d’actions détaillé sera élaboré et mise en œuvre dans les délais requis pour la prochaine évaluation du Togo à l’ITIE.

29. Le gouvernement continuera dans le cadre de la promotion de la transparence dans le secteur, la publication des flux financiers issus du secteur notamment la réconciliation des données sur les redevances et taxes versées à l’Etat selon les critères de l’ITIE.

30. Le Gouvernement poursuit la mise en œuvre de la stratégie du développement du secteur des phosphates adoptée en avril 2010. A cet effet, le processus de recherche de partenaires stratégiques se poursuivra avec l’appui des partenaires notamment la Banque Mondiale.

31. La restauration de la bonne gouvernance soutenue par une vision stratégique forte pour le développement du secteur minier dans sa globalité est l’objectif clé du gouvernement et le défi qui reste à relever dans les années à venir.

Réformes dans le secteur agricole

32. D’importantes réformes ont été mises en place dans le secteur du Coton depuis 2008 et le gouvernement entend mettre en place des mécanismes afin de profiter du potentiel du pays et de l’engouement qui renait au niveau des producteurs. Ces réformes ont permis une croissance de la production du coton en 2012. Cependant, des difficultés pour le financement des intrants sont toujours d’actualité. Le gouvernement entend mettre en œuvre le plan d’action de la stratégie élaborée à cet effet pour lever tous les goulots d’étranglement qui minent ce secteur. Pour ce faire, le gouvernement compte sur l’appui des partenaires techniques et financiers notamment la Banque Mondiale.

33. Sur la base de la stratégie du secteur coton, la Fédération Nationale des Groupements des Producteurs de Coton (FNGPC) et la Nouvelle Société Cotonnière du Togo (NSCT) travaillent sur une nouvelle formule de prix aux producteurs. La dernière réunion du 18 au 20 septembre 2013 a

69

permis aux différentes parties de s’accorder sur les éléments essentiels et la réunion de validation du nouveau mécanisme est prévu pour la fin du mois d’octobre 2013.

34. Une étude sur le secteur des engrais au Togo a été réalisée et présentée au cours d’un atelier le 12 septembre 2013. Des apports des différentes parties prenantes permettront de disposer d’un document et d’un plan d’actions pour mettre en place une nouvelle approche de subvention des engrais.

Réformes du secteur énergétique

35. D’importantes réformes ont été mises en place dans le secteur de l’énergie notamment la mise en œuvre des recommandations des différentes études. L’importance de ce secteur amène le gouvernement à mener des réflexions afin d’augmenter son indépendance énergétique.

36. En vue du renforcement de la capacité énergétique, un contrat a été signé avec la société CONTOUR GLOBAL pour la production de 100 MW d’énergie thermique. Cette production de CONTOUR GLOBAL a démarré en octobre 2010, réduisant ainsi les contraintes d’offre d’énergie et permettant ainsi de renforcer la fiabilité de la fourniture en améliorant la compétitivité des entreprises. Le Gouvernement a, en outre, doté la CEET d’une centrale thermique supplémentaire de 20 MGW de puissance en 2009. Avec le Benin et le Ghana, le Togo est également membre du « West African Power Pool (WAPP)» pour le développement de 330 KV en vue de l’augmentation substantielle de l’électricité dans les pays de la sous-région.

37. Malgré les avancés réalisées, la dépendance énergétique demeure importante. Les démarches pour la construction du barrage d’Adjarala se poursuivent et le gouvernement entend explorer d’autres pistes pour augmenter l’offre d’énergie. Le gouvernement mettra également en place une stratégie pour l’électrification rurale et l’utilisation des énergies renouvelables. L’énergie étant un secteur important pour accompagner le développement, le Gouvernement ne ménagera aucun effort pour permettre à la population togolaise d’en disposer en quantité suffisante.

38. L’apurement des arriérés de l’Etat, des collectivités locales, des hôtels étatiques et des entités publiques à budget autonome envers la CEET jusqu’à fin 2009 a permis d’améliorer la situation financière de la CEET. Malheureusement, les arriérés commencent à s’accumuler depuis lors. Le gouvernement va définir une stratégie d’apurement de ces arriérés et s’impliquer dans la recherche de solutions aux dysfonctionnements qui ont été à l’origine de ces accumulations. Une stratégie à moyen terme pour le secteur sera élaborée.

39. Concernant la gouvernance de la CEET, le gouvernement mettra en œuvre les recommandations issues de l’audit Comptable, Financier et Organisationnel de la Compagnie Energie Electrique du Togo (CEET) en vue d’augmenter la performance de la compagnie.

40. Le contrat de performance (2009-2013) signé par le Gouvernement et la Compagnie est à fin de mise en œuvre et l’Etat va accompagner la CEET afin de mener à bien sa mission pour un heureux aboutissement de ce contrat. Des réflexions sont en cours en vue de l’élaboration d’un nouveau contrat de performance.

41. Le Gouvernement va poursuivre les actions déjà entamées en : (i) renforçant la participation du secteur privé au développement de la production d’énergie; (ii) intensifiant la coopération sous- 70

régionale dans le domaine de la production, de l’achat, de la vente et du transport de l’énergie; (iii) promouvant la vulgarisation de l’utilisation du gaz domestique (GPL); (iv) créant un Fonds destiné à l’électrification des localités rurales; (v) mettant en place un mécanisme de financement du secteur avec la participation des bailleurs de fonds et du système financier national; (vi) sensibilisant les ménages pour l’utilisation rationnelle de toutes les formes d’énergie; (vii) recherchant la soutenabilité financière du secteur par l’amélioration du taux de recouvrement, le renouvellement de certains équipements et le règlement systématique des coûts de la consommation publique; et en (viii) développant à plus long terme, un plan du secteur visant à assurer aux clients, la fourniture à moindre coût de l’électricité.

Réformes du secteur des télécommunications

42. Le gouvernement a adopté en mai 2011 sa stratégie sectorielle de télécommunication pour la période 2011-2015 basée sur la promotion des technologies de l’information et de la communication (TIC). Cette stratégie présente une vision ambitieuse pour le secteur en mettant l’accent sur le pouvoir de régulation du marché et en renforçant le cadre juridique et réglementaire. La stratégie vise le développement des infrastructures de télécommunication (incluant les investissements dans la connectivité nationale, régionale et internationale) et le recours aux TIC. L’objectif est d’augmenter les taux de pénétration du téléphone fixe et mobile à 60 pour cent d’ici 2015 et le taux de pénétration de l’internet à haut débit à 15 pour cent (contre un taux de moins de 1 pour cent actuellement). La stratégie est basée sur une approche intégrée autour de quatre axes à savoir: (i) renforcer le cadre juridique et réglementaire ainsi que la réglementation; (ii) promouvoir la concurrence sur le marché; (iii) développer les infrastructures; et (iv) améliorer et stimuler l’usage des TIC.

43. La loi sur la communication électronique (loi n° 2012-018, modifiée par la loi n°2013-003 du 19 février 2013) annule la loi n°98-005 et constitue un important développement dans le secteur. Cette loi traduit les derniers développements technologiques et ceux du marché ainsi que les directives de la CEDEAO et les Actes additionnels de l’UEMOA. Les principaux objectifs de la loi sont de renforcer la concurrence, promouvoir l’investissement, accroître l’accès et améliorer la réglementation du secteur. La loi crée une autorité de régulation de la Communication Electronique (ARCE) qui remplace l’ART&P et crée une agence de régulation du spectre radio électronique (ANSR). Les décrets d’applications sont en cours d’adoption.

44. Les réformes prioritaires du secteur de télécommunication visent à intensifier la concurrence et à uniformiser les règles de jeu pour les différents acteurs du secteur. Ces réformes comprennent: (i) la diminution des prix de la communication mobile et son rapprochement aux références régionales, (ii) l’ouverture du secteur du mobile à plus de concurrence à travers la délivrance de licences MVNO, (iii) le passage à la concurrence totale dans le secteur de l’internet avec un plan visant à accorder des licences supplémentaires d’ISP, (iv) le démarrage du processus de restructuration de Togo Télécom, (v) la garantie d’un accès juste et équitable à la capacité du câble sous-marin WACS, (vi) la levée des restrictions sur la construction d’infrastructures de transport par des opérateurs autorisés, et (vii) la mise en place de mécanismes réglementaires pour assurer une concurrence loyale et limiter la position dominante d’un seul opérateur sur le marché. Une fois mises en œuvre, ces réformes devraient avoir de profondes répercussions sur le secteur. Le Gouvernement se félicite de la mise en œuvre de ces réformes et de l’appui de la Banque Mondiale à travers de multiples instruments dont l’assistance technique et les ressources de fonds fiduciaires par le biais du PPIAF. Le projet WARCIP qui vient d’être approuvé par le Conseil d’administration 71

de la Banque Mondiale mettra l’accent sur l’amélioration de l’efficacité sectorielle et de la couverture des réseaux à larges bandes et à coût plus bas.

Réformes du secteur des transports

45. Dans le domaine du transport terrestre, le Gouvernement entend poursuivre le développement des infrastructures routières par la réhabilitation des routes et pistes ainsi que la construction de nouvelles routes et pistes. Les travaux de contournement de deux obstacles montagneux notamment la faille d’Alédjo et celle de Défalé se poursuivent. Plusieurs autres tronçons tant à Lomé qu’à l’intérieur du pays sont en cours de réhabilitation voire de reconstruction. Le Gouvernement a obtenu des ressources pour le financement de plusieurs travaux dans la zone portuaire et la construction d’une route de contournement de la ville de Lomé. Dans le budget 2014 comme les budgets précédents, d’importantes ressources seront prévues pour la construction et la réhabilitation des routes tant à Lomé qu’à l’intérieur du pays. Compte tenu des besoins énormes que nécessite ce secteur, le Gouvernement a obtenu le financement de la réhabilitation du tronçon Atakpamé-Blitta- Aouda dans le cadre d’un projet régional reliant Lomé à Ouagadougou dont les travaux seront lancés avant la fin de l’année. L’aéroport international GNASSINGBE Eyadéma est en cours d’extension afin d’augmenter sa capacité d’accueil et le rendre plus compétitif répondant aux normes internationales.

46. En outre, le Gouvernement attend le soutien des bailleurs de fonds dans ce secteur des routes pour les cinq prochaines années.

47. Le Gouvernement entend poursuivre : (i) la construction, la réhabilitation et l’entretien des pistes rurales et agricoles, des voies urbaines, des ponts, des routes nationales et inter-Etats; (ii) l’élargissement ou le dédoublement des tronçons sur les grands axes d’accès à la capitale; (iii) l’amélioration de l’ossature du réseau routier; (iv) le soutien à l’organisation privée du transport de masse; et (v) la redynamisation de la mise en œuvre des politiques communes et de projets régionaux au sein de la CEDEAO et de l’UEMOA en vue d’améliorer la circulation des biens et des personnes.

48. Dans le cadre du transport maritime, des réformes importantes ont été engagées depuis plusieurs années pour améliorer la qualité des services au Port Autonome de Lomé (PAL). La mise en place du Guichet Unique du Commerce Extérieur (GUCE) dont le processus est en cours va permettre de rendre le PAL plus compétitif. En outre, l’introduction du logiciel Sydonia world au poste de douanes du Port va contribuer à l’amélioration de l’efficacité et la célérité des opérations portuaires. A moyen terme, des efforts supplémentaires seront faits dans le cadre de l’amélioration de la compétitivité du PAL. Dans cette perspective, le PAL, en quête de service de qualité pour ses clients, a élaboré un programme de développement portuaire qui comprend entre autres, la construction d’un troisième quai dont les travaux sont en cours et d’une darse pour faire du port de Lomé un hub pour la sous-région en augmentant la capacité du port, l’aménagement de plusieurs aires de stationnement, la construction d’un port sec à l’intérieur du pays.

49. Par ailleurs, le Gouvernement entend définir une vision à long terme pour le développement et le positionnement du PAL. A cet effet, il est prévu une étude.

72

Réformes des secteurs sociaux

50. Pour le secteur de la santé, le Gouvernement veillera à mettre en œuvre des actions telles que: (i) la poursuite du renforcement des infrastructures et équipements sanitaires, le renforcement des ressources humaines, l’élaboration d’une carte sanitaire en vue de favoriser davantage les zones mal couvertes par le système sanitaire; (ii) la promotion de la santé maternelle et infantile à travers l’accès aux services préventifs et curatifs, la mise en œuvre d’un Programme Elargi de Vaccination (PEV), la prévention des infections sexuellement transmissibles et la mise en œuvre des soins de santé primaire infantiles et néonataux; (iii) la poursuite de la prévention et du traitement du paludisme à travers l’approvisionnement et la distribution de la Moustiquaire Imprégnée d’Insecticide (MII), la réduction des prix des médicaments antipaludéens et la mise en œuvre d’une politique de traitement du paludisme; (iv) la poursuite du renforcement du dépistage et du traitement de la tuberculose à travers l’accroissement des capacités de détection de nouveaux cas de Tuberculose Pulmonaire (TPM+) et l’amélioration de la qualité de la prise en charge thérapeutique; et (v) la poursuite de la prévention et le traitement du VIH/SIDA à travers la sensibilisation des jeunes et des travailleuses de sexe, la distribution des préservatifs, la prévention des IST, la sécurité du sang, le conseil pour le dépistage volontaire et anonyme et le renforcement des capacités de prise en charge des malades. De ce fait, le gouvernement a adopté un décret portant assurance maladie aux agents publics qui est opérationnelle depuis le 1er mars 2012. En vue de réduire la mortalité néonatale et d’atteindre l’un des objectifs des OMD (avec la mise en œuvre du CARMA) le Gouvernement a entrepris d’accélérer les mesures dans ce domaine.

51. Dans le secteur de l'éducation, le Gouvernement a organisé un concours de recrutement des enseignants volontaires d’environ 5000 dans le cadre de la poursuite de l’intégration dans la fonction publique des enseignants volontaires et auxiliaires. Plusieurs autres actions sont en train d’être menées notamment (i) la poursuite de la construction et de la réhabilitation des infrastructures éducatives, (ii) la formation des formateurs et éducateurs notamment le recrutement des enseignants dans les ENI et l’ENS. Toutes ces actions ont été intégrées dans un programme sectoriel appelé l’Initiative de Mise en Accélération de l’Education Pour Tous (Fast Track) qui est en cours d’exécution. D’autres actions sont également en cours: (i) la poursuite de l’amélioration des conditions d’encadrement dans l’enseignement technique et la formation professionnelle; (ii) la continuité de la promotion de l’éducation de la jeune fille à travers la réduction des frais de scolarité; (iii) la consolidation de l’amélioration de la qualité et de la promotion de l’équité genre dans l’enseignement supérieur; (iv) la poursuite du renforcement des structures d’accueil pour faire face à l’augmentation de plus en plus importante des inscrits dans les Universités du pays.

52. Secteurs de l’eau et de l’assainissement: ce secteur demeure une priorité pour le gouvernement qui entend poursuivre l’amélioration de l’accès à l’eau potable et aux infrastructures d’assainissement. Pour ce faire, le gouvernement a élaboré et adopté la politique nationale de l’eau ainsi que la lettre de politique d’alimentation en eau potable en milieu urbain. Un projet de plan d’actions de la Gestion Intégrée des Ressources en Eau (GIRE) a été élaboré ainsi que le code de l’eau. Les actions qui y sont contenues sont en cours d’exécution. Concernant l’approvisionnement en eau potable, plusieurs projets sont en cours d’exécution. Ceci a augmenté considérablement le taux de desserte de la population en eau avec la réalisation et la réhabilitation des forages. Nous allons continuer l’exécution des travaux d’urgence en matière d’assainissement pluvial de la ville de Lomé avec l’appui de la Banque Mondiale à travers le Projet d’Urgence de Réhabilitation d’Infrastructures et de Service d’Electricité (PURISE) dont le Togo se félicite de bénéficier d’un second fonds additionnel et l’élaboration des schémas directeurs d’assainissement des villes autres 73

que Lomé. Le Gouvernement veut poursuivre la construction de mini-barrages et de prises d’eau sur les fleuves en vue de faciliter l’intégration économique et sociale des populations pauvres et isolées.

53. Soutien au développement communautaire et emplois de jeunes: en vue d’améliorer les conditions de vie des populations les plus démunies, le Gouvernement s’est engagé avec l’appui de la Banque Mondiale à travers le Programme de Développement Communautaire (PDC) à assurer à ces couches pauvres du pays, un meilleur accès aux services publics de qualité et des opportunités économiques. Le Gouvernement se propose d’augmenter la subvention aux programmes d’alimentation scolaire dans le budget 2014. En vue de renforcer le caractère inclusif de la SCAPE, le Gouvernement intensifiera également les autres actions de développement à la base pour augmenter le nombre d’emplois pour les jeunes à travers le Programme de Volontariat Nationale (PROVONAT) et l’opérationnalisation du Fonds d’Appui à l’Insertion Economique des Jeunes (FAIEJ).

Suivi et évaluation

54. Le Ministère de l'Economie et des Finances est chargé de la mise en œuvre générale du programme soutenu par le deuxième Crédit pour la Croissance Economique et la Gouvernance (CCEG-6). Le suivi quotidien et l'évaluation du programme sont de la responsabilité du Secrétariat Permanent pour le suivi des Politiques de Réformes et des Programmes Financiers (SP-PRPF). Cette structure coordonne la mise en œuvre du programme du Gouvernement. Le Gouvernement fournira des rapports trimestriels à la Banque Mondiale sur les progrès dans la réalisation du programme, mesurés par rapport aux calendriers et aux indicateurs de performance convenus.

55. Le Gouvernement souhaite que ces réformes politique, économique et sociale permettent de consolider les relations qui existent entre lui et la Banque Mondiale et l’ensemble des autres partenaires bilatéraux et multilatéraux afin de mobiliser les ressources nécessaires à l’amélioration des conditions de vie des populations et à l’atteinte des Objectifs du Millénaire pour le Développement.

Requête de financement

56. Le Gouvernement est déterminé à consolider les acquis de la stabilité politique, à poursuivre les réformes structurelles engagées depuis 2006 et à profiter des retombées de l’allègement de sa dette. Pour y parvenir, les autorités togolaises s’engagent à mettre en œuvre le programme présenté ci-dessus et détaillé dans la matrice ci-jointe en annexe. Le Gouvernement sollicite donc l’assistance technique et financière de la Banque Mondiale dans la réalisation de son ambitieux programme à travers le Crédit pour la Croissance Economique et la Gouvernance (CREG-6).

Veuillez agréer, Monsieur le Président, l’assurance de ma considération distinguée.

74

Annex 2: Government Policy Matrix Pillar 1: Improved budget transparency and procurement practices Enhance the efficiency and transparency of the public finance management through the public release of public finance information, by strengthening external oversight and by automating procurement Medium term Prior action EGGC6 Trigger EGGC7 Trigger EGGC8 Indicator Baseline Target objectives To be completed by Sept. To be completed by Mar. To be completed by Mar. (Nov. ’13) (April ’16) 2013 2014 2015 Enhance budget Prior action 1 Budget data Trigger 1 Trigger 1 SYGADE (debt Number of years for 5 7 transparency for 2013 and budget Togoreforme.com publishes database software) has which budget data execution data for 2009 – detailed revenue been integrated into are available on line 2012 are released on information (annually) as SIGFIP and staff of the by April of that togoreforme.com well as detailed information debt department have been year; about domestic and foreign trained in its use. debt (quarterly) Number of years for 4 6 which budget execution data are available on line by April of that year; Strengthen Trigger 2 By the opening of Number of years for 0 2 budget oversight the Parliamentary session which budget Government has sent to execution reports as Parliament the budget well as the report execution report for the from the Court of 2012 budget as well as the Accounts are report from the Court of available at the Accounts regarding 2011. budget session Automate Prior action 2 SIGMAP has Trigger 3 Procurement Trigger 2 SIGMAP is Number of 0 4 procurement been installed (for testing plans for six ministries are interfaced with SIGFIP. ministries that use purposes). incorporated into SIGMAP. SIGMAP. Pillar 2: Strengthened economic governance and growth Strengthen economic governance in the cotton, mining, electricity and banking sectors, and strengthen the foundations for economic growth through enhanced access to fertilizer, a competitive telecommunication sector, increased mining output, a sanitized microfinance sector and a better investment climate. Strengthen Prior action 3 A new cotton Trigger 4 FNGPC and Trigger 3 The inter- Number of years 0 3 governance of the sector strategy has been NSCT agree on a new price professional body for the that the price paid to cotton sector adopted. formula defining the price cotton sector is operational. producers is in that should be paid to accordance with the farmers. revised price formula

75 Increase access to Trigger 5 A new approach Trigger 4 The new No farmers Farmers fertilizer to the provision of approach to providing receive (>0) receive (subsidized) fertilizer which fertilizer is being fertilizer fertilizer supports increased fertilizer implemented. using the using the use by smallholder farmers new scheme new scheme been adopted. Increase mining Prior action 4 An Trigger 6 Government has Trigger 5 A strategic Non-carbonated 1.1 2.0 output evaluation of the launched the call for partner to develop the phosphate investments in non- proposals for the carbonated phosphate production (million carbonated phosphate development of Togo's reserves who meets the ton) carried out under phase 1 of carbonated phosphate criteria set out in the call the phosphate strategy has reserves in form and for proposals, has been been prepared along with an substance and in accordance selected and a new mining action plan to implement its with procedures satisfactory code has been submitted to main findings. to the Bank. Parliament for approval. The electricity Prior action 5 CEET Trigger 7 The draft Trigger 6 Using the Frequency with not done at least sector is funded finalizes its financial model financial model of CEB is harmonized financial which the electricity twice a year transparently and uses it to prepare a available. model for CEB and CEET tariff is reviewed commentary assessing the and based on a new law an using the financial adequacy of the electricity independent (autonomous) model tariff. regulator supervises the electricity sector, including the implementation of a tariff (and subsidy) mechanism that ensures that the costs of CEET and CEB are fully covered. Competition in Prior action 6 The Trigger 8 The decree Trigger 7 Licenses for at Number of MVNOs 0 at least 1 telecommunicatio prequalification to license concerning the least two additional ISPs to ns sector has eligible MVNOs to operate interconnectivity between operate in Togo have been Number of ISPs 2 at least 4 increased in Togo is completed. electronic communication issued and the call for bids networks and for access to for a 3rd Number of licensed 2 3 these networks has been telecommunications telecom operators adopted by the Council of license has been published. Ministers.

76

The state Prior action 7 A monitoring Trigger 9 Steps to improve Trigger 8 The state no Number of 2 0 withdraws from committee for the the (interim) management at longer owns a majority commercial banks in active engagement provisional management of BTCI have been taken in share in UTB and steps which the in commercial BTCI that is mandated to accordance with the towards the privatization of government is a banking review all commitments recommendations of the BTCI have been taken such majority shareholder under preparation exceeding Banking Committee. that before the closing date CFAF 500 million has been of the EGGC series (April appointed and has held its 2016) the state no longer is first meeting. majority shareholder in the bank. Prior action 8 The Non- Performing Loans Recovery Company has been created and is functioning. The microfinance Trigger 10 The decree Trigger 9 The Number of micro- 0 at least 2 sector is being operationalizing the 'Loi microfinance restructuring finance institutions sanitized Communautaire' of 2007 strategy is being that have been and transposed in May 2011 implemented and liquidated (or for has been adopted by the restructuring (liquidation which another Council of Ministers. of insolvent institutions; solution has been formalization of informal found) institutions) of non-legal micro finance institutions has started. The investment Trigger 10 The new No The API/ZF climate has API/ZF authority has been investment is reviewing improved created and functions in a applications investment transparent and are reviewed applications. professional manner. by API/ZF

77

Annex 3: IMF Relations Note

An IMF relations note was not requested as the Executive Board of the IMF plans to discuss the Article IV consultation on December 6th 2013. The Public Information Notice on the Executive Board discussion is not available yet, but will be circulated to the IDA Board as soon as it is released. Find below the press release from the latest IMF staff visit to Togo.

Togo and IMF Team Reach a Staff-Level Agreement on ECF-Supported Program

Press Release No. 13/333 September 9, 2013

An International Monetary Fund (IMF) mission led by Montfort Mlachila visited Togo during August 21-September 6, 2013 to conduct the annual Article IV consultation and to conduct policy discussions with the authorities about possible IMF support for the government’s economic program under a three-year Extended Credit Facility (ECF). The mission met with Prime Minister Kwesi Ahoomey-Zunu, Minister of the Economy and Finance Adji Otèth Ayassor, Minister of Rural Development, Handicrafts, Youth and Youth Employment Victoire Tomegah-Dogbé, Minister of Planning, Development and Regional Planning Mawussi Semodji, Minister of Transport and of Energy and Mining, DammipiNoupokou, Minister of Trade and Private Sector Promotion, Bernadette Legzim- Balouki, National Director of the Banque Centrale des États de l’Afrique de l’Ouest (BCEAO) Kossi Ténou, senior government officials, civil society, trade unions, the business community, and development partners. At the conclusion of the visit, Mr. Mlachila issued the following statement: “The mission has reached a staff-level agreement with the authorities on an economic program that could be supported by a three-year arrangement under the Extended Credit Facility totaling about SDR 55 million (about CFAF 41 billion). The agreement is subject to review by IMF Management and approval by the IMF Executive Board. “Economic conditions in Togo remain favorable and the outlook remains positive despite a weak global economic environment. Real economic growth accelerated in 2012 to 5.9 percent, from 4.8 percent in 2011, reflecting dynamism in agriculture, mining, and construction. Growth is expected to decelerate slightly in 2013 to about 5½ percent as a result of unfavorable weather and weakening mining activity. However, growth is expected to rebound to about 6 percent on average over the next three years on account of agricultural and export performance. Inflation in 2012 was low and averaged 2.6 percent, and the outlook is stable. The external current account balance deficit in 2012 is estimated at 11.8 percent of GDP, but is projected to decline markedly over the medium term. “Government finances in 2013 have come under pressure in part due to an expansionary budget. Recognizing this, the authorities took decisive action and a revised budget was approved in the middle of the year to stabilize the fiscal situation. Revenue performance has been strong,

78 notably in customs, but spending growth has outstripped that of revenues. In particular, election- related spending exceeded budgeted amounts, and fuel subsidies remain high. “The pace of structural reforms slowed significantly since the attainment of the completion point of the Highly-Indebted Poor Country initiative (HIPC), and public debt management weakened. The authorities were able to privatize two banks successfully, but the privatization of two other banks was unsuccessful. Reforms in mining, telecommunications and energy sectors have advanced slowly. “Policy discussions focused on resetting fiscal policy on a more solid footing to close remaining financing gaps for 2013 and agree on the framework for the 2014 budget; strengthening public financial management (especially public debt management); putting in place the revenue authority (Office togolais des recettes—OTR); addressing emerging financial sector vulnerabilities; addressing growth bottlenecks; and making growth more inclusive. “The authorities’ fiscal policies aim at significantly increasing revenue mobilization to finance much-needed infrastructure and social needs. Revenue collections are expected to improve on the basis of operational reforms which should be facilitated by the establishment of the OTR. Public financial management reforms will focus on improving cash and treasury management, simplifying the expenditure circuit, and measures to strengthen the technical and operational capacity of the debt management unit. “The authorities are committed to addressing emerging financial difficulties in the financial sector to ensure continued stability. They intend to step up their capacity to address financial weaknesses and improve monitoring of under-regulated and illegal entities in the microfinance sector. “An overriding objective of the authorities’ reforms is to ensure that growth is strong, sustainable, and inclusive. Weaknesses in the energy sector, especially financial difficulties faced by power companies and the rapid increase of demand for electricity, could lead to power shortages in the medium term, thereby undermining growth prospects. To address this potential challenge, the authorities intend to implement measures to address accumulated arrears to the electricity companies and to avoid their re-emergence. Specific measures to reduce poverty and make growth more inclusive, especially in rural areas, include constructing small dams and expanding feeder roads. “IMF staff would like to thank the Togolese authorities for the fruitful discussions and their warm hospitality.”

IMF COMMUNICATIONS DEPARTMENT Public Affairs Media Relations

E-mail: [email protected] E-mail: [email protected]

Fax: 202-623-6220 Phone: 202-623-7100

79

Annex 4: Status of Anticipated Results of the fifth ERGC (to be completed in conjunction with the ICR) Anticipated Result Actual Outcome (baseline 2010, unless otherwise indicated) Improved budget transparency Number of budgets that have been published on the Following the publication of the budget in PDF and excel Government website in PDF format, the Government decided to make all budget data available using the on-line BOOST platform. Number of days between a request for a budget in excel format and the receipt of the budget (less than 2 weeks). Improved budget control capacity IGF received training in the risk based approach; a follow up Number of audits that have used the risk based approach training needed to operationalize the approach was conducted in March 2013 after the closure of ERGC5. Following this Baseline (1 trimester 2012) 0; training, IGF is making the risk assessment needed as prior to Target (3rd trimester 2012) 75% adopting the risk based approach. Enhanced transparency and public procurement The three standard bidding documents were formally adopted The number of steps of contract review is reduced from 7 and spending agencies were trained in their use. Use has to 4. started in January 2013 and the number of procurement steps was reduced to 4. The bidding documents are easily The three standard bidding documents can be downloaded accessible, including on the PRA’s website. from the Procurement Regulatory Authority’s website

Strengthened efficiency of procurement controls The Procurement Regulatory Authority now carries out Procurement audits are carried out as part of the regular procurement audits as a routine activity. An audit of 2011 activities of the Procurement Regulatory Authority procurements has been completed and will be published in October. The audit for 2012 is ongoing. Enhanced NSCT financial management and fair Fertilizer was procured and was distributed to support a cotton price setting production of 100,000 tons of cotton.

Fertilizer purchased has increased from sufficient for A price was paid to farmers in accordance with the price cotton production of 75-80,000 tons to 95-100,000 tons formula. In addition a top up was paid

The price paid to the farmers is in accordance with the revised price formula

Strengthened CEET management Distribution losses declined to 18.4% by December 2012 and Distribution losses have reduced from 19.6% to 18.5% to 17.4% by June 2013. The number of clients increased to approximately 215,000 In December 2012. More clients are Number of clients has increased from 203,000 to 220,000 waiting to be connected and by June 2013 223,000 clients were connected. They will be served as soon as the necessary materials to establish the connections have been procured. Enhanced competition in the telecommunications The price of local calls fell in 2012 by more than 30 percent. market Peak tariffs fell by 38%, off peak tariffs by 31%. In January 2013, tariffs increased as a 5% surtax was raised to pay for The price in USD / minute for a local call in Togo is equal Togo’s participation in the African Cup. Presently prices are to or less than the WAEMU average. at the same level as in early 2012.

At least 2 new ISPs have started operating in Togo The number of ISPs has not changed. Strengthened financial intermediation on a All four banks have been put up for privatization and offers commercial basis were received for all four. For two banks the sale was completed. For the other two, a solution needs to be found. At least 3 state owned banks have been privatized (i.e. they have entered into a partnership in which the majority of shares is owned by a strategic partner)

80

Annex 5: Update of the Debt Sustainability Analysis (2011) Using the Low-Income Country Framework14

The analysis based on the joint IMF-World Bank debt sustainability framework for low-income countries shows that Togo is at moderate risk of debt distress. After full HIPC assistance, MDRI and beyond HIPC assistance, Togo’s external and public debt indicators have improved significantly and are projected remain below the relevant thresholds in the 20-year period under baseline assumptions, thanks to a stable economic and political climate and rehabilitation of key sectors. However, Togo remains vulnerable to certain shocks and could breach the policy-related thresholds for the PV of debt-to-GDP and the PV of debt-to-revenue ratios under some alternative scenarios in the latter years.

INTRODUCTION

1. The last joint DSA for Togo was prepared in November 2010 and concluded that Togo was at moderate risk of debt distress after full HIPC assistance, MDRI and beyond HIPC assistance. This debt sustainability analysis (LIC-DSA) for Togo assesses its external and public debt using the forward-looking debt sustainability framework (DSF) for low-income countries.15 The outcome of this analysis was in line with previous DSAs, finding generally favorable debt dynamics as a consequence of expected enhancements in the macroeconomic policy framework, notably fiscal discipline and solid implementation of growth-promoting structural reforms. Togo reached the completion point of the HIPC Initiative in December 2010 and was granted debt relief from several multilateral and bilateral creditors. As a result, the nominal debt stock fell from $1.7 billion at end-2009 to below $0.5 billion at end-2010.

2. In the LIC-DSA framework, the present value of Togo’s public and publicly guaranteed (PPG) external debt is $539 million at end-2010, after full delivery of HIPC, MDRI and beyond HIPC assistance. Around 56 percent of this stock of debt is owed to multilateral creditors and the remainder to bilateral and commercial creditors.

BASELINE ASSUMPTIONS

3. The baseline macroeconomic assumptions for the present DSA are the following:

• Real GDP growth is projected to exceed its estimated potential of around 4 percent in the period from 2012 to 2016, largely due to increases in public investment (see below). Subsequently, it will vary around 4 percent, driven by the ongoing rehabilitation of the phosphate and cotton sectors, growth in the agricultural sector (especially food production), an improved investment climate, increased financial intermediation; additional FDI and foreign aid; and growing regional

14 A new DSA is under preparation but has not been formally endorsed yet. It is expected to be available late November 2013. 15 This DSA update has been prepared by Fund staff using the Debt Sustainability Framework (DSF) for Low Income Countries (see “Applying the Debt Sustainability Framework for Low-Income Countries Post Debt Relief”, (http://siteresources.worldbank.org/INTDEBTDEPT/PolicyPapers/21154573/DMSDR1S3149398v1DSFPape rforweb.pdf). Togo’s quality of policies and institutions, as measured by the average World Bank’s Country Policy and Institutional Assessment (CPIA) for the period 2007–09 (2.7), places it as a “weak performer”. The corresponding indicative thresholds for the external debt indicators are 30 percent for the NPV of debt- to-GDP ratio, 100 percent of the debt-to-export ratio, 200 percent for NPV of debt-to-revenue ratio, 15 percent for the debt service-to-exports ratio, and 25 percent for the debt service-to-revenue ratio.

81

integration, thanks to Togo’s strategic geographical location and the role of the port of Lomé. The 4 percent potential growth was estimated based on a population growth rate of 2.5 percent (which reflects the latest available, finalized data) and by building-up sectoral growth rates under the assumptions outlined above and planned growth-enhancing reforms. The estimated potential growth rate exceeds historical rates, which were depressed by the dislocations caused by the protracted social, political, and economic crisis that the country experienced up to the mid-2000s. • Public investment is projected to accelerate starting in 2012, reaching 12.6 percent of GDP in 2013 and 2014 and then reverting back to 2011 levels. About 35 percent of this increase will be financed by loans (75 percent of which will be concessional loans). Public investment projects are expected to be mostly directed to infrastructure and will lead GDP growth to increase above its long-term trend for these years. • The projections for key commodity prices (oil, cotton, cocoa, and coffee) through 2016 are based on WEO projections of May 2011 and are assumed constant in real terms afterwards. • Inflation over the long-term is projected to remain stable at around 2 percent, reflecting sound monetary policy at the regional level. • There is a gradual improvement in the current account deficit over the medium-term, following a deterioration in first projection years. The deficit remains high, over 5 percent on average between 2017 and 2031, with higher exports of phosphates, cement and clinker being insufficient to fully compensate for a strong growth in imports as foreign aid is absorbed and foreign investment increases. • The domestic primary fiscal deficit is assumed to stay close to zero16 during the projected period, thereby providing a fiscal anchor to ensure fiscal sustainability over the long term. The scaling up of public investment in 2012-14 is projected to lead to a temporary deviation from this fiscal balance • FDI and donor flows are expected to increase over the medium-term reflecting improvements in the investment climate and overall governance. • External financing is initially mostly on grant and highly concessional terms, with less concessional financing gradually picking up, leading to a decrease in the grant element of new financing (as shown in Figure 1). Concessional external financing is expected to come largely from Togo’s traditional multilateral donors.

EXTERNAL DEBT SUSTAINABILITY ANALYSIS

Baseline

4. Under the baseline scenario, Togo’s external debt indicators remain below their relevant indicative thresholds (Table 1a, Figure 1). The present value (PV) of public and publicly guaranteed (PPG) debt equals to 15.2 percent of GDP in 2011 and remains below the 30 percent threshold until the end of the projected period. Furthermore, both the PV of external debt relative to revenues and exports stay below their respective indicative threshold until 2031. Nevertheless, the three PV ratios (under the baseline scenario) increase significantly over the projected period. This result reflects in part conservative

16 The primary deficit is projected to stay at around 2 percent of GDP over the projection period, with the temporary exception of 2012-14.

82

assumptions concerning the out years, particularly a declining share of concessional loans in new financing, which results in the concessionality of new loans decreasing from 35 percent to close to 5 percent over the period 2011 to 2031. In fact, as shown in Table 1a, the contribution of the nominal interest rate to endogenous debt dynamics increases significantly in the post-2016 period.

Alternative Scenarios and Stress Tests

Togo’s external debt outlook remains vulnerable to shocks especially toward the end of the projection period (Table 1b, Figure 1). The policy thresholds for two key ratios are breached under the most extreme stress tests. The PV of external debt to GDP indicator deteriorates significantly under the scenario in which new loans are obtained on less favorable terms. In this case, the threshold is breached in 2024. In addition, the PV of debt-to-revenue ratios also surpasses the indicative thresholds at the end of the period under the “less favorable terms” shock.

In light of the results from the baseline and alternative scenarios as well as the stress tests, IMF staff concludes that Togo still is at moderate risk of debt distress.

PUBLIC SECTOR DEBT SUSTAINABILITY

Baseline

5. The inclusion of Togo’s domestic public debt in the analysis emphasizes the vulnerabilities of the baseline scenario (Table 2a, Figure 2). Togo’s domestic debt burden reflects years of weak fiscal management and domestic arrears accumulation, as well as the need to recapitalize ailing banks. Much of this debt arose from losses at state-owned enterprises in the past, highlighting the need for further reforms in the governance of these enterprises. Under the baseline scenario, the PV of total public debt ratios are projected to decrease until 2018 before picking up gradually until the end of the period. On average, the PV of debt to GDP ratio amounts to around 23.2 percent over the overall period. Given the assumed improvement in the macroeconomic outlook and the cautious debt strategy in the baseline scenario, debt ratios would remain at a reasonable level over the long-run.

Alternative Scenarios and Stress Tests

6. The evolution of the debt indicators would be highly sensitive to the most extreme shock--a lower growth rate—which would increase the debt level and debt service over the long run. Total public debt dynamics are particularly vulnerable to a growth shock, which would lead the PV of debt to GPD ratio to break the 30 percent threshold by 2014 (Table 2b, Figure 2). This highlights the importance of a reform agenda that improves the business environment to support foreign investment and growth.17

CONCLUSION

7. The DSA indicates that Togo is at moderate risk of debt distress after reaching the completion point. Under the baseline scenario, the debt ratios remain below the thresholds for the projected period, but under less positive yet realistic alternative scenarios, certain thresholds would be

17 Note the historical scenario assumes that real GDP growth and the primary balance are set at historical averages (over the last 10 years). In the case of Togo, this yields a primary surplus 0.6 percent of GDP for the historical scenario, compared to a primary deficit in the baseline. As a result, gross financing needs and therefore gross new borrowing under the historical scenario are much lower than under the baseline. The large negative new borrowing compared to the baseline, eventually leads to negative PV ratios.

83

breached in the latter years. These dynamics highlight the vulnerability of the Togolese economy to certain shocks (in particular less favorable terms on new financing) and stress the need for a prudent approach to new borrowing and continuing to seek grant and highly concessional financing to the extent possible, as well as pursuing reforms to improve debt management capacity. The assumptions and conclusions of the DSA were discussed with the authorities, who broadly concurred.

8. Maintaining a robust external debt outlook will depend on a sustained pick-up in real GDP growth and foreign direct investment, as well as prudent debt management and solid fiscal performance. The inclusion of Togo’s domestic debt in the analysis reinforces the conclusions of the external DSA and stresses the risks to Togo’s debt prospects. In this context, it is essential that the Togolese authorities continue current efforts, particularly to strengthen public financial management (especially debt management), restructure the banking system, reform state-owned enterprises, and improve the investment climate hence laying the foundation for accelerating growth.

84

Figure 1. Togo: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2011-2031 1/

a. Debt Accumulation b.PV of debt-to GDP ratio 6 40 45 35 40 5 30 35 4 25 30 3 20 25 15 20 2 10 15 1 5 10 0 0 5 2011 2016 2021 2026 2031 0 Rate of Debt Accumulation 2011 2016 2021 2026 2031 Gra nt-equivalent financing (% of GDP)

Grant element of new borrowing (% right scale)

c.PV of debt-to-exports ratio d.PV of debt-to-revenue ratio 120 250

100 200

80 150 60 100 40

50 20

0 0 2011 2016 2021 2026 2031 2011 2016 2021 2026 2031

e.Debt service-to-exports ratio f.Debt service-to-revenue ratio 16 30

14 25 12 20 10

8 15

6 10

4 5 2 0 0 2011 2016 2021 2026 2031 2011 2016 2021 2026 2031

Baselin e H isto r ical scen ar io Most extreme shock 1/ Threshold

Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in 2021. In figure b. it corresponds to a Terms shock; in c. to a Exports shock; in d. to a Terms shock; in e. to a Exports shock and in figure f. to a One-time depreciation shock

85

Figure 2.Togo: Indicators of Public Debt Under Alternative Scenarios, 2011-2031 1/

Baselin e Fix Primary Balan ce Most extreme shock Growth H isto r ical scen ar io 60 PV of Debt-to-GDP Ratio 50

40

30

20

10

0

-10

-20

-30 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031

300 PV of Debt-to-Revenue Ratio 2/ 250

200

150

100

50

0

-50

-100

-150 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031

25 Debt Service-to-Revenue Ratio 2/

20

15

10

5

0 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031

Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in 2021. 2/ Revenues are defined inclusive of grants.

86

Table 1a.: External Debt Sustainability Framework, Baseline Scenario, 2008-2031 1/ (In percent of GDP, unless otherwise indicated)

Actual Historical 0 Standard Projections Average 0 Deviation 2011-2016 2017-2031 2008 2009 2010 2011 2012 2013 2014 2015 2016 Average 2021 2031 Average External debt (nominal) 1/ 61.6 53.9 19.1 18.2 19.7 22.1 24.0 24.2 24.4 27.4 33.1 o/w public and publicly guaranteed (PPG) 60.9 52.7 17.2 16.0 17.1 19.3 20.9 20.8 20.8 23.3 29.4 Change in external debt -17.5 -7.6 -34.8 -0.9 1.5 2.5 1.9 0.2 0.1 1.2 0.4 Identified net debt-creating flows -10.6 6.5 6.2 6.0 6.4 6.3 5.7 4.8 4.3 1.7 1.2 Non-interest current account deficit 6.4 6.3 6.7 6.4 0.5 7.3 7.8 8.0 7.9 6.9 6.4 4.4 3.6 4.3 Deficit in balance of goods and services 16.4 15.6 16.5 17.7 18.7 18.9 18.4 17.2 16.6 14.6 13.8 Exports 35.5 36.8 37.3 37.4 37.2 37.2 37.3 37.4 37.4 37.5 37.4 Imports 51.9 52.5 53.8 55.2 55.8 56.1 55.7 54.6 54.0 52.1 51.2 Net current transfers (negative = inflow) -10.1 -9.6 -10.2 -9.6 1.7 -11.0 -11.5 -11.5 -11.3 -11.0 -11.0 -10.6 -10.2 -10.5 o/w official -1.4 -1.5 -2.0 -3.4 -4.3 -4.2 -4.2 -4.1 -4.1 -3.5 -2.3 Other current account flows (negative = net inflow) 0.0 0.3 0.4 0.6 0.6 0.6 0.7 0.8 0.8 0.4 0.0 Net FDI (negative = inflow) -1.3 -0.4 -0.6 -2.8 1.7 -1.0 -1.0 -1.2 -1.5 -1.5 -1.5 -2.2 -2.0 -2.1 Endog enous debt dynamics 2 / -15.8 0.6 0.1 -0.3 -0.4 -0.5 -0.6 -0.6 -0.6 -0.5 -0.4 Contribution from nominal interest rate 0.4 0.4 0.4 0.3 0.3 0.3 0.4 0.4 0.4 0.6 0.9 Contribution from real GDP growth -1.5 -2.0 -2.0 -0.6 -0.8 -0.9 -1.0 -1.0 -1.0 -1.0 -1.4 Contribution from price and exchange rate changes -14.7 2.2 1.7 … … … … … … … … Residual (3-4) 3/ -6.9 -14.2 -41.0 -6.9 -4.9 -3.9 -3.8 -4.6 -4.1 -0.5 -0.8 o/w exceptional financing -2.3 -2.8 -2.6 -2.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 PV of external debt 4/ ...... 18.9 17.4 18.3 19.9 21.2 21.2 21.2 23.1 28.7 In percent of exports ...... 50.6 46.4 49.2 53.6 56.8 56.7 56.6 61.5 76.6 PV of PPG external debt ...... 17.0 15.2 15.8 17.1 18.0 17.8 17.6 19.0 24.9 In percent of exports ...... 45.5 40.6 42.4 45.9 48.3 47.6 47.0 50.7 66.6 In percent of government revenues ...... 90.1 80.4 85.7 92.3 97.4 96.2 95.0 102.6 133.1 Debt service-to-exports ratio (in percent) 1.2 4.6 5.1 2.9 2.8 2.9 3.7 3.9 4.3 4.1 7.3 PPG debt service-to-exports ratio (in percent) 1.2 4.6 5.1 2.9 2.8 2.9 3.7 3.9 4.3 4.1 7.3 PPG debt service-to-revenue ratio (in percent) 2.8 10.0 10.1 5.7 5.7 5.9 7.4 7.9 8.6 8.2 14.6 Total gross financing need (Billions of U.S. dollars) 0.2 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.8 Non-interest current account deficit that stabilizes debt ratio 23.9 13.9 41.6 8.2 6.3 5.6 5.9 6.7 6.2 3.2 3.2 Key macroeconomic assumptions Real GDP growth (in percent) 2.4 3.2 3.7 2.1 2.1 3.9 4.5 4.7 4.9 4.5 4.4 4.5 4.1 4.5 4.2 GDP deflator in US dollar terms (change in percent) 22.8 -3.5 -3.0 7.4 8.2 11.3 2.8 1.1 1.5 1.2 1.5 3.2 2.3 2.1 2.2 Effective interest rate (percent) 5/ 0.7 0.6 0.7 1.6 0.7 2.0 1.9 1.9 1.8 1.8 1.8 1.9 2.2 3.1 2.4 Growth of exports of G&S (US dollar terms, in percent) 22.2 3.4 1.9 10.9 12.9 16.2 6.6 6.0 6.6 6.1 6.0 7.9 6.7 6.5 6.5 Growth of imports of G&S (US dollar terms, in percent) 26.9 0.7 3.1 12.8 17.9 18.7 8.7 6.5 5.7 3.6 4.8 8.0 6.8 6.4 6.1 Grant element of new public sector borrowing (in percent) ...... 35.2 31.1 30.1 29.1 28.1 26.7 30.0 19.4 4.8 15.0 Government revenues (excluding grants, in percent of GDP) 15.6 16.9 18.9 18.9 18.4 18.5 18.5 18.5 18.5 18.6 18.5 18.7 18.6 Aid flows (in Billions of US dollars) 7/ 0.0 0.1 0.1 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4 0.4 o/w Grants 0.0 0.0 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.3 o/w Concessional loans 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Grant-equivalent financing (in percent of GDP) 8/ ...... 4.3 5.1 5.4 5.3 4.7 4.7 4.9 4.2 2.5 3.6 Grant-equivalent financing (in percent of external financing) 8/ ...... 72.2 73.2 66.8 66.0 75.4 73.4 71.2 59.5 39.0 55.0

Memorandum items: Nominal GDP (Billions of US dollars) 3.2 3.2 3.2 3.7 4.0 4.2 4.5 4.7 5.0 4.3 6.9 12.8 8.6 Nominal dollar GDP growth 25.7 -0.3 0.6 15.7 7.4 5.9 6.5 5.7 5.9 7.9 6.5 6.7 6.5 PV of PPG external debt (in Billions of US dollars) 0.5 0.6 0.6 0.7 0.8 0.8 0.9 0.7 1.3 3.2 1.8 (PVt-PVt-1)/GDPt-1 (in percent) 0.8 1.5 2.3 2.1 0.8 0.8 1.4 2.1 2.3 1.8 Gross workers' remittances (Billions of US dollars) 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.5 1.0 0.6 PV of PPG external debt (in percent of GDP + remittances) ...... 15.7 14.1 14.7 15.9 16.8 16.6 16.4 15.8 17.7 23.1 19.4 PV of PPG external debt (in percent of exports + remittances) ...... 37.4 33.8 35.6 38.4 40.6 40.2 39.6 38.0 42.6 55.0 46.4 Debt service of PPG external debt (in percent of exports + remittances) ...... 4.2 2.4 2.4 2.5 3.1 3.3 3.6 2.9 3.4 6.0 4.4

Sources: Country authorities; and staff estimates and projections. 0 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Assumes that PV of private sector debt is equivalent to its face value. 5/ Current-year interest payments divided by previous period debt stock. 6/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. 7/ Defined as grants, concessional loans, and debt relief. 8/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

87

Table 1b.Togo: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2011-2031 (In percent)

Projections 2011 2012 2013 2014 2015 2016 2021 2031

PV of debt-to GDP ratio

Baseline 15 16 17 18 18 18 19 25

A. Alternative Scenarios A1. Key variables at their historical averages in 2011-2031 1/ 15 13 11 9 7 6 14 31 A2. New public sector loans on less favorable terms in 2011-2031 2 15 16 19 21 21 21 27 40

B. Bound Tests

B1. Real GDP growth at historical average minus one standard deviation in 2012-2013 15 16 19 20 19 19 20 27 B2. Export value growth at historical average minus one standard deviation in 2012-2013 3/ 15 18 25 25 25 25 24 26 B3. US dollar GDP deflator at historical average minus one standard deviation in 2012-2013 15 16 18 19 19 18 20 26 B4. Net non-debt creating flows at historical average minus one standard deviation in 2012-2013 4/ 15 19 23 24 24 23 23 26 B5. Combination of B1-B4 using one-half standard deviation shocks 15 19 24 25 24 24 24 27 B6. One-time 30 percent nominal depreciation relative to the baseline in 2012 5/ 15 22 24 25 25 25 26 34

PV of debt-to-exports ratio

Baseline 41 42 46 48 48 47 51 67

A. Alternative Scenarios A1. Key variables at their historical averages in 2011-2031 1/ 41 34 29 25 20 16 37 84 A2. New public sector loans on less favorable terms in 2011-2031 2 41 43 50 56 56 57 71 108

B. Bound Tests

B1. Real GDP growth at historical average minus one standard deviation in 2012-2013 41 42 46 48 47 47 50 65 B2. Export value growth at historical average minus one standard deviation in 2012-2013 3/ 41 54 78 80 79 77 76 81 B3. US dollar GDP deflator at historical average minus one standard deviation in 2012-2013 41 42 46 48 47 47 50 65 B4. Net non-debt creating flows at historical average minus one standard deviation in 2012-2013 4/ 41 51 63 65 63 62 62 68 B5. Combination of B1-B4 using one-half standard deviation shocks 41 50 63 65 64 63 63 70 B6. One-time 30 percent nominal depreciation relative to the baseline in 2012 5/ 41 42 46 48 47 47 50 65

PV of debt-to-revenue ratio

Baseline 80 86 92 97 96 95 103 133

A. Alternative Scenarios

A1. Key variables at their historical averages in 2011-2031 1/ 80 68 58 50 40 33 74 167 A2. New public sector loans on less favorable terms in 2011-2031 2 80 88 101 112 114 116 144 215

B. Bound Tests

B1. Real GDP growth at historical average minus one standard deviation in 2012-2013 80 89 100 106 104 103 110 142 B2. Export value growth at historical average minus one standard deviation in 2012-2013 3/ 80 100 133 137 135 133 130 138 B3. US dollar GDP deflator at historical average minus one standard deviation in 2012-2013 80 88 97 102 101 99 107 137 B4. Net non-debt creating flows at historical average minus one standard deviation in 2012-2013 4/ 80 102 126 130 128 126 125 137 B5. Combination of B1-B4 using one-half standard deviation shocks 80 102 128 133 131 129 128 142 B6. One-time 30 percent nominal depreciation relative to the baseline in 2012 5/ 80 120 129 137 135 133 143 183

88

Table 1b.Togo: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2011-2031 (continued) (In percent) Debt service-to-exports ratio

Baseline 3 3 3 4 4 4 4 7

A. Alternative Scenarios A1. Key variables at their historical averages in 2011-2031 1/ 3 3 3 3 3 3 2 6 A2. New public sector loans on less favorable terms in 2011-2031 2 3 3 3 4 4 4 4 10

B. Bound Tests

B1. Real GDP growth at historical average minus one standard deviation in 2012-2013 3 3 3 4 4 4 4 7 B2. Export value growth at historical average minus one standard deviation in 2012-2013 3/ 3 3 4 5 5 6 6 9 B3. US dollar GDP deflator at historical average minus one standard deviation in 2012-2013 3 3 3 4 4 4 4 7 B4. Net non-debt creating flows at historical average minus one standard deviation in 2012-2013 4/ 3 3 3 4 4 5 5 8 B5. Combination of B1-B4 using one-half standard deviation shocks 3 3 3 4 5 5 5 8 B6. One-time 30 percent nominal depreciation relative to the baseline in 2012 5/ 3 3 3 4 4 4 4 7

Debt service-to-revenue ratio

Baseline 6 6 6 7 8 9 8 15

A. Alternative Scenarios

A1. Key variables at their historical averages in 2011-2031 1/ 6 6 5 6 6 6 4 12 A2. New public sector loans on less favorable terms in 2011-2031 2 6 6 6 7 8 8 8 19

B. Bound Tests

B1. Real GDP growth at historical average minus one standard deviation in 2012-2013 6 6 6 8 9 9 9 16 B2. Export value growth at historical average minus one standard deviation in 2012-2013 3/ 6 6 6 9 9 10 11 16 B3. US dollar GDP deflator at historical average minus one standard deviation in 2012-2013 6 6 6 8 8 9 9 15 B4. Net non-debt creating flows at historical average minus one standard deviation in 2012-2013 4/ 6 6 6 8 9 10 11 16 B5. Combination of B1-B4 using one-half standard deviation shocks 6 6 7 9 9 10 11 16 B6. One-time 30 percent nominal depreciation relative to the baseline in 2012 5/ 6 8 8 10 11 12 12 20

Memorandum item: Grant element assumed on residual financing (i.e., financing required above baseline) 6/ 9 9 9 9 9 9 9 9

Sources: Country authorities; and staff estimates and projections. 1/ Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 2/ Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline. 3/ Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels). 4/ Includes official and private transfers and FDI. 5/ Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent. 6/ Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

89

Table 2a.Togo: Public Sector Debt Sustainability Framework, Baseline Scenario, 2008-2031 (In percent of GDP, unless otherwise indicated)

Actual Estimate Projections Standard 2011-16 2017-31 Average 2008 2009 2010 Deviation 2011 2012 2013 2014 2015 2016 Average 2021 2031 Average

Public sector debt 1/ 83.1 67.8 32.3 27.4 27.1 27.8 27.9 26.4 27.0 25.1 30.5 o/w foreign-currency denominated 60.9 52.7 17.2 16.0 17.1 19.3 20.9 20.8 20.8 23.3 29.4

Change in public sector debt -22.5 -15.3 -35.5 -4.8 -0.3 0.7 0.0 -1.5 0.7 1.1 0.4 Identified debt-creating flows -9.3 -5.7 3.2 0.4 2.5 3.9 3.9 1.2 1.4 1.2 1.2 Primary deficit 0.1 1.9 0.6 -0.6 1.8 3.0 3.2 4.7 4.7 1.8 1.9 3.2 2.1 2.2 2.1 Revenue and grants 17.0 18.5 20.9 22.3 22.7 22.7 22.7 22.6 22.6 22.0 21.0 of which: grants 1.4 1.5 2.0 3.4 4.3 4.2 4.2 4.1 4.1 3.5 2.3 Primary (noninterest) expenditure 17.1 20.3 21.5 25.3 25.9 27.4 27.4 24.5 24.5 24.1 23.2 Automatic debt dynamics -9.4 -7.6 2.7 -2.6 -0.7 -0.7 -0.9 -0.6 -0.5 -0.9 -1.0 Contribution from interest rate/growth differential -14.7 -3.1 -2.6 -1.3 -0.9 -0.9 -1.0 -0.7 -0.6 -0.9 -1.0 of which: contribution from average real interest rate -12.2 -0.5 -0.2 -0.1 0.3 0.3 0.3 0.4 0.5 0.1 0.3 of which: contribution from real GDP growth -2.5 -2.6 -2.4 -1.2 -1.2 -1.2 -1.3 -1.2 -1.1 -1.0 -1.3 Contribution from real exchange rate depreciation 5.3 -4.4 5.3 -1.3 0.2 0.2 0.2 0.1 0.1 ...... Other identified debt-creating flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Recognition of implicit or contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other (specify, e.g. bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Residual, including asset changes -13.2 -9.7 -38.8 -5.2 -2.8 -3.2 -3.8 -2.7 -0.7 -0.1 -0.8

Other Sustainability Indicators PV of public sector debt ...... 32.0 26.6 25.7 25.6 25.0 23.3 23.9 20.8 26.1 o/w foreign-currency denominated ...... 17.0 15.2 15.8 17.1 18.0 17.8 17.6 19.0 24.9 o/w external ...... 17.0 15.2 15.8 17.1 18.0 17.8 17.6 19.0 24.9 PV of contingent liabilities (not included in public sector debt) ...... Gross financing need 2/ -3.1 4.1 2.7 4.8 4.9 6.3 6.7 3.9 4.1 3.7 5.0 PV of public sector debt-to-revenue and grants ratio (in percent) … … 153.3 119.4 113.4 112.7 110.1 103.1 105.7 94.6 123.9 PV of public sector debt-to-revenue ratio (in percent) … … 169.9 140.8 139.9 138.6 135.0 126.1 129.0 112.4 139.3 o/w external 3/ … … 90.1 80.4 85.7 92.3 97.4 96.2 95.0 102.6 133.1 Debt service-to-revenue and grants ratio (in percent) 4/ -18.8 12.2 10.4 7.9 7.5 7.3 8.6 9.1 10.0 7.4 13.1 Debt service-to-revenue ratio (in percent) 4/ -20.5 13.3 11.5 9.3 9.2 9.0 10.5 11.1 12.2 8.8 14.7 Primary deficit that stabilizes the debt-to-GDP ratio 22.6 17.2 36.1 7.8 3.5 4.0 4.7 3.3 1.2 1.0 1.8

Key macroeconomic and fiscal assumptions Real GDP growth (in percent) 2.4 3.2 3.7 2.1 2.1 3.9 4.5 4.7 4.9 4.5 4.4 4.5 4.1 4.5 4.2 Average nominal interest rate on forex debt (in percent) 0.7 0.6 0.7 1.6 0.7 2.1 2.1 2.0 2.0 1.9 1.9 2.0 2.4 3.3 2.6 Average real interest rate on domestic debt (in percent) -11.3 1.0 2.6 -1.0 6.6 0.8 3.3 3.7 4.5 6.9 10.2 4.9 3.2 0.1 2.8 Real exchange rate depreciation (in percent, + indicates depreciation) 7.8 -7.6 10.5 -3.3 10.6 -8.1 ...... Inflation rate (GDP deflator, in percent) 14.4 1.9 1.8 3.5 6.4 3.6 2.7 2.3 2.6 1.9 2.2 2.6 2.3 2.1 2.2 Growth of real primary spending (deflated by GDP deflator, in percent) -0.1 0.2 0.1 0.1 0.1 0.2 0.1 0.1 0.0 -0.1 0.0 0.1 0.0 0.0 0.0 Grant element of new external borrowing (in percent) ...... … … 35.2 31.1 30.1 29.1 28.1 26.7 30.0 19.4 4.8 ... Sources: Country authorities; and staff estimates and projections. 1/ [Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.] 2/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period. 3/ Revenues excluding grants. 4/ Debt service is defined as the sum of interest and amortization of medium and long-term debt. 5/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

90

Table 2b.Togo: Sensitivity Analysis for Key Indicators of Public Debt 2011-2031

Projections 2011 2012 2013 2014 2015 2016 2021 2031

PV of Debt-to-GDP Ratio Baseline 27 26 26 25 23 24 21 26

A. Alternative scenarios

A1. Real GDP growth and primary balance are at historical averages 27 23 18 13 10 8 -6 -21 A2. Primary balance is unchanged from 2011 27 26 24 22 21 23 24 35 A3. Permanently lower GDP growth 1/ 27 26 26 26 24 25 26 42

B. Bound tests

B1. Real GDP growth is at historical average minus one standard deviations in 2012-2013 27 28 30 31 31 33 36 52 B2. Primary balance is at historical average minus one standard deviations in 2012-2013 27 24 21 20 19 19 17 23 B3. Combination of B1-B2 using one half standard deviation shocks 27 24 20 21 21 22 25 41 B4. One-time 30 percent real depreciation in 2012 27 32 31 30 28 28 24 31 B5. 10 percent of GDP increase in other debt-creating flows in 2012 27 35 34 34 32 32 28 31

PV of Debt-to-Revenue Ratio 2/

Baseline 119 113 113 110 103 106 95 124

A. Alternative scenarios

A1. Real GDP growth and primary balance are at historical averages 119 100 80 58 42 36 -24 -93 A2. Primary balance is unchanged from 2011 119 113 105 96 94 101 109 167 A3. Permanently lower GDP growth 1/ 119 114 115 113 108 112 115 199

B. Bound tests

B1. Real GDP growth is at historical average minus one standard deviations in 2012-2013 119 121 131 135 134 143 161 246 B2. Primary balance is at historical average minus one standard deviations in 2012-2013 119 105 91 89 82 85 77 110 B3. Combination of B1-B2 using one half standard deviation shocks 119 105 89 92 90 98 113 192 B4. One-time 30 percent real depreciation in 2012 119 141 137 132 124 126 111 146 B5. 10 percent of GDP increase in other debt-creating flows in 2012 119 153 151 148 140 142 127 148

Debt Service-to-Revenue Ratio 2/

Baseline 8 7 7 9 9 10 7 13

A. Alternative scenarios

A1. Real GDP growth and primary balance are at historical averages 8 8 7 8 8 9 3 1 A2. Primary balance is unchanged from 2011 8 7 7 8 9 10 7 15 A3. Permanently lower GDP growth 1/ 8 8 7 9 9 10 8 17

B. Bound tests

B1. Real GDP growth is at historical average minus one standard deviations in 2012-2013 8 8 8 10 10 12 10 21 B2. Primary balance is at historical average minus one standard deviations in 2012-2013 8 7 7 8 8 9 6 12 B3. Combination of B1-B2 using one half standard deviation shocks 8 8 7 8 9 10 7 17 B4. One-time 30 percent real depreciation in 2012 8 8 9 11 12 13 11 22 B5. 10 percent of GDP increase in other debt-creating flows in 2012 8 7 9 10 10 11 10 16

Sources: Country authorities; and staff estimates and projections. 1/ Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period. 2/ Revenues are defined inclusive of grants.

91

Annex 6: Togo at a Glance

Togo at a glance 3/17/13

Sub- POVERTY and SOCIAL Saharan Low- Development diamond* Togo Africa income 2011 Population, mid-year (millions) 6.2 875 817 Lif e expectancy GNI per capita (Atlas method, US$) 570 1,258 571 GNI (Atlas method, US$ billions) 3.5 1,101 466

Average annual growth, 2005-11 Population (%) 2.2 2.5 2.1 Labor force (%) 2.9 2.8 2.6 GNI Gross per primary Most recent estimate (latest year available, 2005-11) capita enrollment Poverty (% of population below national poverty line) 59 .. .. Urban population (% of total population) 38 36 28 Life expectancy at birth (years) 57 55 59 Infant mortality (per 1,000 live births) 73 69 63 Child malnutrition (% of children under 5) 21 21 23 Access to improv ed water source Access to an improved water source (% of population) 61 61 65 Literacy (% of population age 15+) 57 63 63 Gross primary enrollment (% of school-age population) 139 100 105 Togo Low-income group Male 146 103 108 Female 133 96 103

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1991 2001 2010 2011 Economic ratios* GDP (US$ billions) 1.6 1.3 3.2 3.6 Gross capital formation/GDP 17.1 15.6 18.8 18.9 Trade Exports of goods and services/GDP 33.4 33.8 39.9 40.9 Gross domestic savings/GDP 9.0 0.9 1.8 1.4 Gross national savings/GDP 13.7 7.1 12.3 11.6 Current account balance/GDP -3.7 -8.5 -10.1 -10.6 Domestic Capital Interest payments/GDP 1.7 0.9 0.3 0.1 sav ings f ormation Total debt/GDP 84.3 106.6 38.9 17.8 Total debt service/exports 9.6 7.3 3.2 1.2 Present value of debt/GDP ...... 14.0 Present value of debt/exports ...... 40.7 Indebtedness 1991-01 2001-11 2010 2011 2011-15 (average annual growth) GDP 3.9 2.8 4.0 4.9 .. Togo Low-income group GDP per capita 1.0 0.6 1.9 2.7 .. Exports of goods and services 1.9 1.9 6.7 10.7 ..

STRUCTURE of the ECONOMY 1991 2001 2010 2011 Growth of capital and GDP (%) (% of GDP) 60 Agriculture 32.8 37.7 30.8 31.9 40 Industry 25.2 17.2 16.5 16.1 20 Manufacturing 11.1 8.8 7.8 8.4 0 Services 42.0 45.1 52.6 52.0 -20 06 07 08 09 10 11

Household final consumption expenditure 73.5 89.1 89.2 88.7

General gov't final consumption expenditure 17.5 10.0 9.0 9.9 GCF GDP Imports of goods and services 41.5 48.5 57.0 58.4

1991-01 2001-11 2010 2011 Growth of exports and imports (%) (average annual growth) Agriculture 4.0 -0.1 1.4 5.0 60 Industry 2.2 9.1 5.2 3.5 40 Manufacturing 3.2 2.4 4.5 7.4 20

Services 4.6 1.2 5.0 6.0 0 06 07 08 09 10 11 Household final consumption expenditure 5.4 -1.2 -1.7 1.5 -20 General gov't final consumption expenditure 1.0 2.3 -16.0 15.8 Gross capital formation 4.3 7.3 22.4 5.9 Exports Imports Imports of goods and services 3.6 -3.1 0.3 8.4

Note: 2011 data are preliminary estimates. This table was produced from the Development Economics LDB database. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.

92

Togo

PRICES and GOVERNMENT FINANCE 1991 2001 2010 2011 Inflation (%) Domestic prices 20 (% change) 15 Consumer prices .. 3.9 3.2 3.6 10 Implicit GDP deflator 2.7 7.7 1.8 3.0 5 0 Government finance -5 06 07 08 09 10 11 (% of GDP, includes current grants) Current revenue 17.5 15.2 19.3 21.4 Current budget balance .. 1.3 3.9 5.3 GDP deflator CPI Overall surplus/deficit .. -0.1 -2.8 -2.0

TRADE 1991 2001 2010 2011 Export and import levels (US$ mill.) (US$ millions) Total exports (fob) 287 287 736 855 2,000 Phosphates 126 63 15 40 Cotton 65 58 63 70 1,500 Manufactures 145 29 100 111 1,000 Total imports (cif) 535 517 1,225 1,473

Food 156 ...... 5 00 Fuel and energy 35 ...... Capital goods 113 ...... 0 05 06 07 08 09 10 11 Export price index (2000=100) 78 108 138 144 Import price index (2000=100) 90 108 138 144 Exports Imports Terms of trade (2000=100) 87 100 100 100

BALANCE of PAYMENTS 1991 2001 2010 2011 Current account balance to GDP (%) (US$ millions) Exports of goods and services 536 451 1,049 1,240 0 05 06 07 08 09 10 11 Imports of goods and services 665 647 1,707 1,993 -2 Resource balance -130 -196 -657 -753 -4

Net income -35 -29 -24 -30 -6 Net current transfers 106 112 360 398 -8 Current account balance -59 -113 -321 -385 -10

Financing items (net) 69 116 .. .. -12 Changes in net reserves -9 -2 .. ..

Memo: Reserves including gold (US$ millions) ...... Conversion rate (DEC, local/US$) 282.1 733.0 495.3 471.9

EXTERNAL DEBT and RESOURCE FLOWS 1991 2001 2010 2011 Composition of 2011 debt (US$ mill.) (US$ millions) Total debt outstanding and disbursed 1,351 1,421 1,242 643 IBRD 0 0 0 0 9 IDA 444 585 554 0 Total debt service 54 34 35 15 157 IBRD 6 0 0 0 IDA 4 15 26 0 254 Composition of net resource flows Official grants 81 33 455 .. Official creditors 51 20 58 19 Private creditors 0 0 0 0 Foreign direct investment (net inflows) 6 64 86 54 Portfolio equity (net inflows) 3 1 0 0 223 World Bank program Commitments 14 0 0 0 Disbursements 48 12 0 0 A - IBRD E - Bilateral B - IDA D - Other multilateral F - Pr i vate Principal repayments 7 10 22 0 C - IMF G - Short-term Net flows 41 1 -22 0 Interest payments 3 5 4 0 Net transfers 38 -4 -26 0

Note: This table was produced from the Development Economics LDB database. 3/17/13

93

Millennium Development Goals Togo

With selected targets to achieve between 1990 and 2015 (estimate closest to date shown, +/- 2 years) Togo

Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2008 Poverty headcount ratio at $1.25 a day (PPP, % of population) ...... 38.7 Poverty headcount ratio at national poverty line (% of population) 32.3 ...... Share of income or consumption to the poorest qunitile (%) ...... 5.4 Prevalence of malnutrition (% of children under 5) 21.2 .. 23.2 22.3

Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) 62 71 80 83 Primary completion rate (% of relevant age group) 35 40 63 61 Secondary school enrollment (gross, %) 21 21 31 41 Youth literacy rate (% of people ages 15-24) .. .. 74 84

Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) 58 61 69 75 Women employed in the nonagricultural sector (% of nonagricultural employment) 41 ...... Proportion of seats held by women in national parliament (%) 5 1 5 11

Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 150 142 124 100 Infant mortality rate (per 1,000 live births) 89 86 78 66 Measles immunization (proportion of one-year olds immunized, %) 73 53 58 77

Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) 650 550 450 350 Births attended by skilled health staff (% of total) 31 .. 49 62 Contraceptive prevalence (% of women ages 15-49) 34 .. 26 17

Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major diseases Prevalence of HIV (% of population ages 15-49) 0.7 3.0 3.6 3.3 Incidence of tuberculosis (per 100,000 people) 310 340 370 440 Tuberculosis case detection rate (%, all forms) 11 10 7 10

Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) 49 52 55 60 Access to improved sanitation facilities (% of population) 13 13 12 12 Forest area (% of total land area) 12.6 10.8 8.9 6.4 Terrestrial protected areas (% of surface area) ...... 11.1 CO2 emissions (metric tons per capita) 0.2 0.2 0.3 0.2 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) 2.7 2.1 2.0 2.0

Goal 8: develop a global partnership for development Telephone mainlines (per 100 people) 0.3 0.5 0.8 2.2 Mobile phone subscribers (per 100 people) 0.0 0.0 1.0 24.0 Internet users (per 100 people) 0.0 0.0 1.9 5.4 Personal computers (per 100 people) .. 0.3 1.9 3.1

Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 100 100 30

75 75 20 50 50 25 10 25 0 2000 2002 2004 2006 2008 0 0 1990 1995 2000 2008 2000 2002 2004 2006 2008

Primary net enrollment ratio Fixed + mobile subscribers Ratio of girls to boys in primary & secondary Togo Sub-Saharan Africa education Internet users

Note: Figures in italics are for years other than those specified. .. indicates data are not available. 2/25/11 Development Economics, Development Data Group (DECDG).

94

Millennium Development Goals Togo

With selected targets to achieve between 1990 and 2015 (estimate closest to date shown, +/- 2 years) Togo

Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2008 Poverty headcount ratio at $1.25 a day (PPP, % of population) ...... 38.7 Poverty headcount ratio at national poverty line (% of population) 32.3 ...... Share of income or consumption to the poorest qunitile (%) ...... 7.6 Prevalence of malnutrition (% of children under 5) 21.2 .. 23.2 ..

Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) 64 .. 77 77 Primary completion rate (% of relevant age group) 35 39 61 57 Secondary school enrollment (gross, %) 21 21 30 39 Youth literacy rate (% of people ages 15-24) .. .. 74 ..

Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) 59 .. 69 75 Women employed in the nonagricultural sector (% of nonagricultural employment) 41 ...... Proportion of seats held by women in national parliament (%) 5 1 5 11

Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 150 140 122 100 Infant mortality rate (per 1,000 live births) 89 86 76 65 Measles immunization (proportion of one-year olds immunized, %) 73 53 58 80

Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) ...... 510 Births attended by skilled health staff (% of total) 31 .. 49 62 Contraceptive prevalence (% of women ages 15-49) 34 .. 26 17

Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major diseases Prevalence of HIV (% of population ages 15-49) 0.7 3.0 3.6 3.3 Incidence of tuberculosis (per 100,000 people) 308 339 374 429 Tuberculosis cases detected under DOTS (%) .. 13 12 15

Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) 49 52 55 59 Access to improved sanitation facilities (% of population) 13 12 12 12 Forest area (% of total land area) 12.6 10.8 8.9 7.1 Nationally protected areas (% of total land area) ...... 11.1 CO2 emissions (metric tons per capita) 0.2 0.2 0.2 0.2 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) 2.6 2.1 2.0 2.0

Goal 8: develop a global partnership for development Telephone mainlines (per 100 people) 0.3 0.5 0.8 2.2 Mobile phone subscribers (per 100 people) 0.0 0.0 1.0 24.0 Internet users (per 100 people) 0.0 0.0 1.9 5.4 Personal computers (per 100 people) .. 0.3 1.9 3.1

Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 100 100 30

75 75 20 50 50 25 10 25 0

2000 2002 2004 2006 2008 0 0

1990 1995 2000 2007 2000 2002 2004 2006 2008 Primary net enrollment ratio Fixed + mobile subscribers Ratio of girls to boys in primary & secondary Togo Sub-Saharan Africa education Internet users

95

IBRD 33497 TToo Ouagadougou 1°E BURKINA FASO TToo Diapaga TOGO SELECTED CITIES AND TOWNS 11°N 11°N TToo PREFECTURE CAPITALS Navrongo Dapaong Mandouri TTÔNEÔ NE REGION CAPITALS TToo Natitingou NATIONAL CAPITAL

ti O RIVERS SASAVANNAVANNA MAIN ROADS OTI Mango RAILROADS PREFECTURE BOUNDARIES K oumongou REGION BOUNDARIES INTERNATIONAL BOUNDARIES 10°N KEREN KantKantéé DOUFELGOU

Kpagouda TToo Niamtougou BINAH This map was produced by the Map Design Unit of The World Bank. YYendiendi The boundaries, colors, denominations and any other information KARA TToo shown on this map do not imply, on the part of The World Bank GuGuérinérin K Kokoro a Group, any judgment on the legal status of any territory, or any Kouka ra Kara KOZAH endorsement or acceptance of such boundaries. ToTo BASSAR TamaleTamale ASSOLI Bafilo ToTo Parakou GHANA Bassar

TCHAOUDJO TTchambachamba TToo 9°N SokondéSokondé Parakou 9°N . s t

o o o M n o M o BENIN

a a a

z z z

a a

a CENTRAL

F F F Sotouboua NYALANYALA SOTOUBOUA

Blitta TToo Bimbila

A

n

i e OGOU

8°N Elavagnon 8°N TToo SavSavéé

AnjAnjéé WWAWAAWA AMOU NIGERIA

Badou AtakpamAtakpaméé AmlamAmlaméé Lake Amou PLAPLATEAUTEAU TToo ApApéyémééyémé Volta YYendiendi TToo KéKétoutou KLOTO HAHO 7°N Mont Agou NotséNotsé 7°N Kpalime (986 m) Agou S io ToTo YOTO Accra ZIO TTabligboabligbo

MARITIME LACS TOGO KKéveéve VO TToo Lagos TTséviésévié VVoganogan

Aného 0 20 40 60 Kilometers LOMÉ 6°N GOLFE 0 10 20 30 40 50 Miles TToo Accra Bight of Benin 0° 1°E 2°E3°E

NOVEMBER 2004