The FINANCIAL — The Executive Board of the International Monetary Fund (IMF) completed on December 14 the first review of Togo’s performance under the program supported by the Extended Credit Facility (ECF) on a lapse-of-time basis.
The completion enables the release of SDR25.17 million (about US$35.61 million), bringing total disbursements under the arrangement to SDR50.34 million (about US$71.22 million). The ECF arrangement for SDR176.16 million (120 percent of Togo’s quota in the IMF) to support the country’s economic and financial reforms was approved on May 5, 2017, according to IMF.
Program implementation under the ECF-supported program has been good. All quantitative performance criteria and prior actions were met as well as four out of five structural benchmarks.
The fiscal consolidation envisaged under the ECF-supported program has begun. The primary deficit improved from an annual average of about 6 percent of GDP in 2013-16 to a surplus of 1.4 percent of GDP in the first half of 2017, due primarily to expenditure rationalization and the halting of non-orthodox financing of public investment. Public debt is projected to decline from the peak of 81.5 percent of GDP at end-2016 to 77.3 percent of GDP by end-2017. Economic activity is estimated to have expanded by 4.8 percent in 2017, with low inflation. The current account deficit remains large but is expected to narrow gradually.
The medium-term growth projections were revised slightly downward and the balance of risks is tilted to the downside. The recent infrastructure upgrading and external concessional financing are expected to support productivity, stimulate private investments, and thus compensate for the negative fiscal impulse resulting from the fiscal consolidation. However, country-specific and regional/global factors may cloud program implementation. In particular, if the tensions in recent months persist, the private investment boost that is expected to compensate for the public investment retrenchment may not fully materialize.
Fiscal consolidation is set to continue in 2018, while accommodating tighter domestic and external constraints. Sustained fiscal efforts will help reduce debt further and create room for additional social spending, which is critical for poverty reduction. Strengthening fiscal institutions and debt management is essential. The efficiency of public spending will be improved by requiring that public investment projects follow established procurement and budgetary processes. The authorities are enhancing controls to broaden the taxpayer base and improve revenue collection. Improved cash management and prudent borrowing policies will result in lower government borrowing costs, further helping the fiscal adjustment. Moreover, given the harmful impact of government payment arrears on economic activity, the authorities plan to step up efforts to verify the arrears stock, proceed with its clearance, and strengthen the system of public financial management to prevent new arrears accumulation.
The restructuring of weak banks should be accelerated to help restore financial stability and prevent the reemergence of risks to the state budget. The restructuring should be guided by sound principles, which will provide a solid basis for the operations of the newly-merged bank. The timely finalization and adoption of a comprehensive restructuring plan, including measures to restore financial viability and a business plan of the new bank, are priorities.
Broader structural reforms are essential to boost productivity, competitiveness, and inclusive growth. As public investment returns to a sustainable level, the private sector is expected to play an increasing role as the engine of growth. It is essential to improve the business climate, including by opening-up some key sectors.