The World Bank Togo First Fiscal Management and Energy Reform DPF (P169867) Document of The World Bank Public Disclosure Authorized FOR OFFICIAL USE ONLY Report No: PGD79 INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSED DEVELOPMENT POLICY GRANT IN THE AMOUNT OF SDR 63.5 MILLION Public Disclosure Authorized (US$87.5 MILLION EQUIVALENT) AND A PROPOSED DEVELOPMENT POLICY CREDIT IN THE AMOUNT OF EUR 56.1 MILLION (US$62.5 MILLION EQUIVALENT) TO THE REPUBLIC OF TOGO Public Disclosure Authorized FOR THE FIRST FISCAL MANAGEMENT AND ENERGY REFORM DEVELOPMENT POLICY FINANCING November 15, 2019 Macroeconomics, Trade And Investment Global Practice Africa Region Public Disclosure Authorized 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. The World Bank Togo First Fiscal Management and Energy Reform DPF (P169867) REPUBLIC OF TOGO GOVERNMENT FISCAL YEAR January 1 – December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of October 31, 2019) Currency Unit = CFA Franc (CFAF) US$1.00 = CFAF 588 US$1.00 = Euro 0.89645899 US$1.00 = SDR 0.72495813 ABBREVIATIONS AND ACRONYMS ABP Annual Borrowing Plan AfD Agence Française de Développement (French Agency for Development) AfDB African Development Bank ARSE Autorité de Régulation du Secteur de la Communication Electronique et des Postes (Regulatory Authority of Posts and Electronic Communication Sector) ASA Advisory Services and Analytics BCEAO Banque Centrale des Etats d’Afrique de l’Ouest (Central Bank of West African States) BTCI Banque Togolaise pour le Commerce et l’Industrie (Togolese Bank for Commerce and Industry) CEB Communauté Electrique du Bénin (Electric Community of Benin) CEET Compagnie Energie Electrique du Togo (Togo Electric Power Company) CFAF Franc de la Communauté Financière Africaine (Franc of the African Financial Community) CPF Country Partnership Framework CPIA Country Policy and Institutional Assessment CwA Compact with Africa DDPF Direction de la Dette Publique et du Financement (Directorate of Public Debt and Financing) DPF Development Policy Financing ECF Extended Credit Facility EGP Togo Economic Governance Project EU European Union FDI Foreign Direct Investment FY Fiscal Year GDP Gross Domestic Product HFO Heavy Fuel Oil IBRD International Bank for Reconstruction and Development ICT Information and Communications Technology IDA International Development Association IFC International Finance Corporation IMF International Monetary Fund Page 1 ISP Internet Service Provider Kwh Kilowatt Hour MCC Millennium Challenge Corporation MEF Ministry of Economy and Finance MTDS Medium-term Debt Management Strategy NDP National Development Plan NPL Non-performing Loans NPV Net Present Value OTR Office Togolais des Recettes (Togo Revenue Authority) PDO Program Development Objective PEFA Public Expenditure and Financial Accountability PEMFAR Public Expenditure Management and Financial Accountability Review PFM Public Financial Management PIMA Public Investment Management Assessment PIP Public Investment Plan PPP Public-private Partnership PSIA Poverty and Social Impact Assessment SBEE Société béninoise d'Energie Electrique (Benin Electric Power Company) SCD Systematic Country Diagnostic SDR Special Drawing Rights SOE State-owned Enterprise SORT Systematic Operations Risk-rating Tool TA Technical Assistance TdE Togolaise des Eaux (Togo Water Utility) TESSIP Togo Electricity Sector Support and Investment Project TOGOCOM Togo Telecom TSA Transmission Service Agreement UTB Union Togolaise des Banques (Togolese Union of Banks) VAT Value-added Tax WAEMU West African Economic and Monetary Union WB World Bank WBG World Bank Group Regional Vice President: Hafez M. H. Ghanem Country Director: Coralie Gevers Regional Director: Elisabeth Huybens Practice Manager: Lars Christian Moller Task Team Leaders: Thomas Laursen, Ernest Sergenti, and Urbain Thierry Yogo .REPUBLIC OF TOGO FIRST FISCAL MANAGEMENT AND ENERGY REFORM DEVELOPMENT POLICY FINANCING TABLE OF CONTENTS SUMMARY OF PROPOSED FINANCING AND PROGRAM .......................................................................4 1. INTRODUCTION AND COUNTRY CONTEXT ...................................................................................6 2. MACROECONOMIC POLICY FRAMEWORK ....................................................................................9 2.1. RECENT ECONOMIC DEVELOPMENTS ............................................................................................ 9 2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY ........................................................ 13 2.3. IMF RELATIONS ............................................................................................................................ 17 3. GOVERNMENT PROGRAM ........................................................................................................ 17 4. PROPOSED OPERATION ............................................................................................................ 18 4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION .......................................... 18 4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS .................................................. 20 4.3. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY .......................................... 30 4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS ............................... 31 5. OTHER DESIGN AND APPRAISAL ISSUES .................................................................................... 31 5.1. POVERTY AND SOCIAL IMPACT .................................................................................................... 31 5.2. ENVIRONMENTAL ASPECTS ......................................................................................................... 33 5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS .......................................................................... 34 5.4. MONITORING, EVALUATION AND ACCOUNTABILITY .................................................................. 36 6. SUMMARY OF RISKS AND MITIGATION ..................................................................................... 37 ANNEX 1: POLICY AND RESULTS MATRIX .......................................................................................... 39 ANNEX 2: LETTER OF DEVELOPMENT POLICY ..................................................................................... 42 ANNEX 3: IMFRELATIONS ANNEX ...................................................................................................... 56 ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE .................................................. 58 ANNEX 5: DPF PRIOR ACTIONS AND ANALYTICAL UNDERPINNINGS .................................................. 59 The World Bank Togo First Fiscal Management and Energy Reform DPF (P169867) SUMMARY OF PROPOSED FINANCING AND PROGRAM BASIC INFORMATION Project ID Programmatic If programmatic, position in series P169867 Yes 1st in a series of 2 Proposed Development Objective(s) The Program Development Objective (PDO) of the proposed operation is structured around two pillars: (i) enhancing fiscal and debt management; and (ii) strengthening energy sector financial viability and use of renewable energy. Organizations Borrower: MINISTÈRE DE L’ECONOMIE ET DES FINANCES Implementing Agency: MINISTRY OF ECONOMY AND FINANCE PROJECT FINANCING DATA (US$, Millions) SUMMARY Total Financing 150.00 DETAILS International Development Association (IDA) 150.00 IDA Credit 62.50 IDA Grant 87.50 INSTITUTIONAL DATA Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Overall Risk Rating Substantial Page 4 The World Bank Togo First Fiscal Management and Energy Reform DPF (P169867) . Results Indicator Baseline (2018) Target (2021) Pillar 1: Enhancing Fiscal and Debt Management 1. Total tax revenues (percent of GDP) 16.5 18.0 2. Officials involved in public procurement who have filled 0 90 financial disclosure forms (percent) 3. PPP contract award information and data published in 0 90 open data formats (percent) 4. Deviation of actual borrowing from Annual Borrowing Plan N/A 10 (percent) Pillar 2: Strengthening Energy Sector Financial Viability and Use of Renewable Energy 5. CEET overall public sector (central and local governments, 73.4 (2017) 95 SOEs) collection rate (percent) 6. CEET cost recovery ratio, revenue collected / costs of 80 (2017) 95 service (percent): 7. Cost of power production mix 74 CFAF/kWh (2017) 70 CFAF/kWh 8. Solar photovoltaics capacity installed 0 MW 30 MW . Page 5 The World Bank Togo First Fiscal Management and Energy Reform DPF (P169867) 1. INTRODUCTION AND COUNTRY CONTEXT 1.1 The proposed operation is the first of two Programmatic Development Policy Financing (DPF) operations. It builds on the reforms supported under the previous DPF series in 2017-2018, which achieved important results including: reduced tax exemptions (by 1.7 percent of gross domestic product (GDP)), increased energy utility revenue collection, and a doubling of the number of internet users. The proposed series supports pro-poor growth by increasing domestic revenue mobilization, enhancing public investment and debt management, and strengthening the financial viability of the energy sector, a necessary condition to expand access. Growth is expected to remain above 5 percent between 2019