Recent Economic Developments

Recent Economic Developments

1. 
   The Togolese economy progressed at a generally sustained pace during 2006-2011 (common report, Table I.1), despite a difficult environment (catastrophic floods and global food, oil and financial crises). Economic growth has been fostered by the major political and economic reforms undertaken by Togo since the previous review in 2006, and by the resumption of cooperation with the international community. The economic reforms, some of which were structural, covered several fields.
   
2. 
   Thus, with a view to enhancing fiscal performance, the authorities have reduced the rates of certain direct taxes; exemptions from import duties and taxes, afforded to imports released for domestic consumption (33 per cent of the total in 2009), have also been curbed.¹ Although the results have been encouraging, Togo continues to rely heavily on the taxation of foreign trade (Table I.1). The country has not yet managed to meet the WAEMU-defined reference threshold (17 per cent) for the tax ratio. This situation is believed to be attributable to the important role played in the Togolese economy by agricultural activities (including livestock and fishing), which are generally more difficult to tax.
   
3. 
   The improvement of public finance management also involved measures relating to the planning of priority expenditure, financial controls and greater discipline in the award of public contracts. Nevertheless, non‑grant budget deficits persisted throughout the period 2005-2011, because of the scale of public spending linked to the food and oil crises, and to projects aimed at improving basic infrastructure. In general, the financial support given by development partners has almost been sufficient to offset the deficit (Table I.1). Apart from one slip in 2009, linked to recruitment in the education and health spheres, Togo has met the community target concerning the ratio of the wage bill to tax revenue (35 per cent maximum); whether this target will be met in 2011 remains uncertain.
   
4. 
   Togo applies the WAEMU monetary and exchange policies (common report, Chapter I). Inflation, generally moderate, has risen only in isolated instances, essentially as a result of food shortages and oil price peaks. Like other WAEMU countries, Togo has taken exceptional measures to curb inflation, in particular by releasing cereal reserves for sale and subsidizing fertilizer and seed prices. The prices of petroleum products and electricity have also been held down artificially, with the Government foregoing part of the duties and taxes it should have collected.
   
5. 
   Substantial non‑performing loans, particularly to public enterprises, accumulated during the socio-political crisis, leading the authorities to recapitalize Togo's five main banks in 2008. The cost of this financial restructuring, including the assumption of unproductive debts by the State, was estimated at 6.2 per cent of GDP. According to the IMF, the renewed flow of credit to the economy has not yet restored the viability of financial intermediation in Togo, because no fundamental operational restructuring has taken place.²
   
6. 
   The balance of payments current account deficit continued to show a downward trend, falling from 15.3 per cent to 6.7 per cent of GDP during the period 2006-2011 (Table I.2). This trend reflects the sustained increase in current transfers and the stability of the trade deficit (goods and services). The capital and financial operations account continued to record a surplus balance.
   

(US$ million)

1. 
   Overall, the Togolese economy remains vulnerable to external shocks, including weather factors and fluctuations in global commodity prices. This vulnerability is aggravated by the lingering effects of Togo's protracted socio political crisis. Given the scale of the investment needed to rehabilitate basic infrastructure and expand social services, in the medium term the fiscal (non‑grant) and trade imbalances are very likely to persist. Recourse to external financing, including support from development partners, still appears to play a vital role in the acceleration of economic activity.
   
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