INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND TOGO Joint World Bank-IMF Debt Sustainability Analysis1 April 2020 Prepared jointly by the staffs of the International Development Association (IDA) and the International Monetary Fund (IMF) Approved by Marcello Estevão (IDA) and Dominique Desruelle (IMF) Joint Bank-Fund Debt Sustainability Analysis Risk of external debt distress Moderate2 Overall risk of debt distress High Granularity in the risk rating Substantial space to absorb shocks on external debt Application of judgment Yes: Historical vulnerability to multiple shocks This Debt Sustainability Analysis (DSA) confirms Togo’s moderate risk of external debt distress and high risk of overall public debt distress —unchanged from the previous DSA update published in October 2019. While the mechanical results point to a low risk of external debt distress, judgment was applied given domestic debt vulnerabilities; external debt distress is therefore considered to be moderate. The overall risk of debt distress is assessed as high considering that the present value (PV) of total public and publicly guaranteed (PPG) debt-to-GDP ratio breaches the debt distress benchmark through 2021 under the baseline scenario. This analysis highlights the need for sustained fiscal consolidation, improved debt management, and strong macroeconomic policies to reduce public debt to prudent levels over the medium term. 1 This DSA was prepared jointly with the World Bank and in collaboration with the Togolese authorities. 2 Togo’s Composite Indicator (CI) is 2.91, which corresponds to a medium debt -carrying capacity as confirmed by the October 2019 WEO data and the 2018 Country Policy and Institutional Assessment (CPIA). PUBLIC DEBT COVERAGE 1. Togo ’s public debt includes obligations of the central government and public entities. Debt data include external and domestic obligations of the central government, including arrears to suppliers and guaranteed debt, as well as external and domestic debt of state-owned enterprises (SOEs). As such, it also includes debt of the Caisse Nationale de Sécurité Sociale (Social Security Fund), which is considered as an SOE. As for local authorities, they cannot contract new debt, and the central government is in the process of identifying residual local debt that is gradually repaid, akin to arrears to the national electricity company that have been totally reimbursed. The Central Bank of the currency union (BCEAO) does not issue debt on behalf of its member countries. Domestic debt is defined as debt denominated in franc de la Communauté Financière d’Afrique (CFAF), while external debt is defined as debt contracted or serviced in a currency other than the CFAF. The choice of coverage based on currency, rather than residency, is due to the difficulty of monitoring the residency of creditors for debt traded in the WAEMU regional market. Text Table 1. Togo: Public Debt Coverage Subsectors of the public sector Sub-sectors covered 1 Central government X 2 State and local government 3 Other elements in the general government 4 o/w: Social security fund X 5 o/w: Extra budgetary funds (EBFs) 6 Guarantees (to other entities in the public and private sector, including to SOEs) X 7 Central bank (borrowed on behalf of the government) X 8 Non-guaranteed SOE debt X 1 The country's coverage of public debt The central government plus social security, central bank, government-guaranteed debt, non-guaranteed SOE debt Used for the Default analysis Reasons for deviations from the default settings 2 Other elements of the general government not captured in 1. 0 percent of GDP 0.0 3 SoE's debt (guaranteed and not guaranteed by the government) 1/ 2 percent of GDP 0.0 All SOE debt is already included in the country's coverage of public debt. 4 PPP 35 percent of PPP stock 6.8 5 Financial market (the default value of 5 percent of GDP is the minimum value) 5 percent of GDP 5.0 Total (2+3+4+5) (in percent of GDP) 11.8 1/ The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country's public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE's debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to 0%. BACKGROUND ON DEBT 2. After a peak in 2016, the debt ratio fell significantly from 81.4 percent of GDP in 2016 to 70.9 percent of GDP in 2019, owing to the important fiscal consolidation. Togo’s domestic debt burden reflects previously high deficits and recognition of government debt of accumulated liabilities from pre-financing, liquidated loss-making SOEs, and arrears accumulation. Weak public fiscal management, including limited debt management capacity, has played a role in these developments. While total external debt has slightly increased since 2016 (notably through a reprofiling operation and multilateral lending), domestic debt has declined gradually from a record high of 61.2 percent of GDP in 2016 to 47.1 percent of GDP in 2019, driven down mainly by the reimbursement of domestic arrears 2 (including CNSS in 20193) and early repayment of costlier domestic obligations. Its composition has evolved towards more Treasury bonds (emprunts obligataires) and less commercial loans (banking system, Text Table 2). 3. In 2020, the debt ratio is expected to be further reduced by about 4 percentage points. This would be mainly due to the early reimbursement of domestic loans, notably enabled by the reprofiling operation (1.9 percentage points)4, and GDP growth, despite the detrimental effect of the Coronavirus outbreak on growth. The external debt ratio is expected to increase in 2020, from 23.7 percent of GDP at end-2019 to 25.2 percent of GDP at end-2020. The projected increase in official external financing (including additional IMF ECF financing) would be partly offset by a reduction in external borrowing from commercial banks —assuming no other reprofiling operations are implemented in 2020. As the government borrowed externally in December 2019 to reimburse domestic loans in January 2020, the proceeds of the external loan are supposed to have been saved as financial assets in 2019, with the reimbursement being financed by a reduction in financial assets in 2020.5 Any further accumulation of financial assets would contribute to increase the debt ratio, compared to the projections. By the end of the projection period, continued fiscal consolidation is expected to substantially reduce domestic debt and total public and publicly guaranteed (PPG) debt. Text Table 2. Togo: Composition of Public Debt, 2016 - 2019 End-2016 End-2017 End-2018 End-2019 Billions of Percent of Percent of Billions of Percent of Percent of Billions of Percent of Percent of Billions of Percent of Percent of CFAF public debt GDP CFAF public debt GDP CFAF public debt GDP CFAF public debt GDP Total Public Debt 2,155 100.0 81.4 2,118 100.0 76.0 2,266 100.0 76.2 2,266 100.0 70.9 Total Central Government 2,066 95.8 78.0 2,028 95.7 72.7 2,191 96.7 73.6 2,197 96.9 68.7 Total SOEs 90 4.2 3.4 90 4.3 3.2 74 3.3 2.5 70 3.1 2.2 External Debt 535 24.8 20.2 562 26.5 20.1 610 26.9 20.5 759 33.5 23.7 Central Government 519 24.1 19.6 550 26.0 19.7 601 26.5 20.2 750 33.1 23.5 Multilateral 168 7.8 6.3 204 9.6 7.3 238 10.5 8.0 331 14.6 10.3 o/w IMF 42 2.0 1.6 68 3.2 2.4 94 4.2 3.2 127 5.6 4.0 Bilateral 1 43 2.0 1.6 41 1.9 1.5 41 1.8 1.4 32 1.4 1.0 Paris Club 6 0.3 0.2 6 0.3 0.2 6 0.3 0.2 6 0.3 0.2 Non-Paris Club 37 1.7 1.4 35 1.7 1.3 35 1.5 1.2 26 1.2 0.8 Commercial Banks 308 14.3 11.6 305 14.4 10.9 322 14.2 10.8 387 17.1 12.1 SOEs 16 0.7 0.6 12 0.6 0.4 9 0.4 0.3 8 0.4 0.3 Multilateral 3 0.1 0.1 2 0.1 0.1 2 0.1 0.1 2 0.1 0.1 Commercial 14 0.6 0.5 9 0.4 0.3 7 0.3 0.2 6 0.3 0.2 Domestic Debt 1,621 75.2 61.2 1,556 73.5 55.8 1,656 73.1 55.7 1,508 66.5 47.1 Central Government 1,547 71.8 58.4 1,478 69.8 53.0 1,590 70.2 53.5 1,446 63.8 45.2 T-Bills (Bons du Tresor) 189 8.7 7.1 148 7.0 5.3 127 5.6 4.3 51 2.3 1.6 Bonds (Emprunts Obligataires) 1 574 26.6 21.7 807 38.1 28.9 958 42.3 32.2 1,070 47.2 33.4 Domestic Arrears 334 15.5 12.6 310 14.6 11.1 225 10.0 7.6 85 3.8 2.7 Pre-2006 173 8.0 6.5 173 8.2 6.2 155 6.8 5.2 49 2.2 1.5 Post-2006 122 5.6 4.6 100 4.7 3.6 34 1.5 1.2 - 0.0 0.0 Liquidated SOEs 39 1.8 1.5 36 1.7 1.3 36 1.6 1.2 36 1.6 1.1 Banking System 451 20.9 17.0 213 10.1 7.6 280 12.4 9.4 240 10.6 7.5 SOEs 74 3.4 2.8 79 3.7 2.8 66 2.9 2.2 61 2.7 1.9 Sources: Togolese authorities and Staff calculations. 1 Includes SUKUK. 3 The repayment of arrears owed to the social security fund (CNSS) is recorded as a disinvestment (negative item) under domestically-financed capital expenditure in line with GFSM 1986 guidelines. 4 This is because the reprofiling operation has happened in two steps. The external borrowing has increased total public debt end December 2019, while the related reimbursement of domestic loans has happened in January 2020. 5 The positive residuals seen in the historical decomposition of debt dynamics, before 2020 (Table 2), are explained by i) the so- called pre-financing of public investment which created discrepancies between debt and fiscal data when the stock of corresponding debt was added to government debt (2016); ii) differences in fiscal and debt data reporting (the former being reported on an “extended” calendar year), for 2018; and iii) the accumulation of financial assets as a result of the external borrowing in e nd- December, in the context of the reprofiling operation. 3 BACKGROUND ON MACRO FORECASTS 4. The baseline macroeconomic assumptions for the present DSA rely on sustainable real GDP growth, price stability with inflation below the WAEMU criterion of 3 percent, a stabilizing current account deficit, and continued fiscal discipline. The short-term projections have been lowered because of the Coronavirus outbreak, while long-term growth projections remain moderate —at an annual average of 3 percent for 2020, 4 percent in 2021 and 5.5 over 2022-30, supported by stronger private sector activity. The overall primary balance (commitment basis, including grants) is anchored on a surplus of 1.0 percent of GDP over 2021-30 to bring public debt comfortably below the debt distress threshold, after which it would decrease and approach a deficit of around 2 percent of GDP by 2040 to provide more space for social and investment spending while safeguarding debt vulnerabilities. Total PV of PPG debt would decline below the new benchmark (PV of debt-to-GDP ratio of 55 percent) in 2022; the PV of debt-to-GDP ratio is projected to decline further to 30.6 percent by 2030 and around 24.3 percent by 2040.6 The current account deficit is projected to stabilize in the range of 4 percent of GDP over the medium term, as exports of cotton, phosphates, agriculture, and light manufacturing goods recover from the crisis and then continue to grow, gradually offsetting the effect of imports, which, after having recovered as well, should continue to be sustained in relation with the National Development Plan. Inflation is projected to remain below the WAEMU regional convergence criterion of 3 percent.7 Box 1. Main Assumptions in the Macroeconomic Framework Real GDP growth is expected to be reduced in the near term, as a result of the Coronavirus outbreak, at 3 percent for 2020 and 4 percent in 2021. Over the long term (2022-40), potential growth is estimated at an annual average of 5.5 percent supported by structural reforms and stronger private sector activity. Public investment is projected at 9.6 percent of GDP in 2020 and is projected to grow and reach 11 to 14 percent of GDP in the medium and long term. Project loans are expected to grow in line with GDP, while project grants grow in line with GDP up to 2028 and then remain constant in nominal terms. As a result, the share of domestically-financed investment grows over time. Key commodity price projections (i.e., for oil, cotton, cocoa, and coffee) through 202 5 are sourced from the April 2020 WEO and are assumed to remain constant in real terms for the remainder of the forecast period. Medium-term inflation projections are unchanged from the previous DSA. Average inflation was 0.7 in 2019 slightly down from 0.9 percent in 2018 driven by lower costs for food, clothing, and communication. Inflation is expected to reach 2 percent in the medium -term, below the WAEMU convergence criteria. Medium-term projections of total revenue and grants are similar to those in the previous DSA update in October 2019, due to higher grants projections that are offset by lower revenues expected as a result of the Coronavirus outbreak. Tax revenue projected at 17.5 percent of GDP in 2020 would meet the WAEMU 6 At the time of program approval, the benchmark of PV of public debt-to-GDP ratio of 38 percent under the November 2013 LIC Debt Sustainability Framework (DSF) was expected to be reached by 2026. Under the new LIC DSF and following th e upward adjustment of Togo’s debt carrying capacity, the benchmark has been increased to 55 percent. 7 Compared to the October 2019 DSA update, the key macroeconomic assumptions remain broadly unchanged, except to account for impacts of COVID-19 in 2020. 4 Box 1. Main Assumptions in the Macroeconomic Framework (continued) revenue criteria of 20 percent of GDP in 2028 and then stabilize around 22 percent of GDP starting in 2031. Improved revenue performance is supported by several measures introduced recently by the authorities to bolster permanent revenue, on tax policy mea sures, tax Box 1. Table 1. Togo: Key Macroeconomic Assumptions administration reforms and efforts to recover large stocks (DSA October 2019 vs Current DSA) Box Table 1. Togo: Key Macroeconomic Assumptions of tax arrears. Such measures (DSA October 2019 vs Current DSA) include the phasing out of 2020 2021-30 reduced VAT rates, Real GDP Growth (percent) enhancement of property Current DSA 3.0 5.3 DSA Update October 2019 5.5 5.5 taxation, reduction of tax Inflation (average, percent change) exemptions, cross-checking of Current DSA 2.0 2.0 taxpayers between tax and DSA Update October 2019 2.0 2.0 customs administrations, and Total Revenue (percent of GDP) 1 control over import Current DSA 23.8 25.3 DSA Update October 2019 23.7 25.4 valuations. Total revenue and Fiscal Primary Balance (commitment basis, incl. grants, percent of GDP) grants are projected to average Current DSA -0.7 1.0 about 25 percent of GDP over DSA Update October 2019 1.0 1.0 2021-30. Exports of goods and services (percent of GDP) Current DSA 28.4 28.9 DSA Update October 2019 32.0 34.5 The overall primary fiscal Current Account Balance (percent of GDP) balance (commitment basis, Current DSA -4.9 -4.0 including grants) is estimated DSA Update October 2019 -6.0 -5.3 Sources: Togolese authorities and Staff calculations. to have remained broadly 1 Total revenue, including grants. unchanged at 1.5 percent of GDP in 2019 (excluding the transaction with the social security fund) compared with 1.6 percent in 2018. It is projected at -0.7 percent of GDP in 2020, lower than in the latest DSA (as a result of the Coronavirus outbreak). Starting in 2021 and up to 2029, the overall primary fiscal balance is anchored on a surplus of 1 percent of GDP, after which it would decrease and approach a deficit of 2 percent of GDP by 2040. The projected current account deficit has been reduced significantly, which is attributable to a downward revision of the reported deficit in 2018 (essentially due to higher secondary income), as well as to the effects of the Coronavirus outbreak, in 2020 and 2021. Compared to the last DSA, exports are expect ed to improve less rapidly over the medium term, which is partly offset by imports that are expected to be less dynamic as well. The current account deficit is assumed to have deteriorated in 2019, as a result of lower exports (due to lower export prices a nd production of main export goods) and still sustained imports related to the National Development Plan. In 2020, it is likely to deteriorate further, mainly due to lower exports of services linked to the Coronavirus outbreak, while the reduction in good exports is likely to be offset by the reduction in good imports. In the medium term, gradually increasing exports should allow the current account to improve gradually. The current account is projected to stabilize at about 4 percent of GDP over the medium to long term, ensuring consistency with the fundamentals and desirable policy settings. Foreign direct investment has been very volatile over the past years and data for 2018 was revised substantially to a net FDI outflow, driven by Ecobank’s acquisition s abroad. These net FDI outflows, as well as net portfolio outflows, are expected to decrease less rapidly as expected in 2020, as a result of the outbreak. Net FDI outflows are expected to decrease afterwards and stabilize at 2 percent of GDP in 2022 and evolve in line with GDP over the medium term. However, these FDI flows, as well as grants, are subject to significant risks, which may consequently alter the debt dynamics assumed in the baseline. 5 5. Togo’s debt is projected to be financed through a mix of domestic and external financing sources: • New external disbursements are expected to evolve in line with GDP, starting in 2021. However, while new external financing is assumed to come solely from official creditors until 2020 included (end of the current Extended Credit Facility), commercial banks are projected to provide one fifth of the new external financing starting in 2021. The grant element of new public sector external borrowing is projected to decrease from 35.3 percent in 2020 to around 32 percent in 2021 and to remain stable afterwards. On the domestic side, new domestic debt is assumed to be issued as a mix of bonds with a maturity of 1-3 years (15 percent of total), 4-7 years (60 percent of total), and over 8 years (25 percent of total). The total value of new domestic issuances is projected to decrease as a share of GDP from about 6 percent a year over 2020 -25 to about 3 percent a year over 2036-40. • The authorities launched a debt reprofiling operation in 2019 supported by a guarantee from the African Trade Insurance Agency (ATI). The reprofiling operation consisted of borrowing EUR 103.6 million (2.0 percent of GDP) externally at an interest rate of 4.7 percent, which is below the interest rate on the existing domestic and regional debt that was repaid in January 2020 (FCFA 65 bn, or 1.9 percent of GDP with interest rate of around 7 percent8). While the ECF program sets a zero ceiling on the contracting or guaranteeing of new non-concessional external debt, giv en the ‘moderate’ risk of external debt distress, and to alleviate the heavy debt service burden, the program conditionality on non-concessional borrowing was modified in 2018 on the basis that Togo can accommodate non-zero non-concessional borrowing limits if they are related to debt management operations, do not lead to an external risk rating downgrade, and reduce the NPV of total public debt. At the second review of the ECF arrangement, the authorities’ program includes a debt reprofiling operation of up to CFAF 260 billion in total (about $447 million or 8 percent of GDP), the amount that was estimated to keep the external debt risk rating unchanged at moderate. The information received suggests that the recent operation complies with these criteria, embedding a marginalt reduction in the NPV of total public debt of FCFA 1.3 billion (EUR 2 million), or 0.04 percent of GDP. While the authorities might proceed with further debt reprofiling operations in 2020, the current DSA does not include any such assumptions. 6. The realism of the baseline scenario for external and public debt does not indicate any peculiarity compared to cross-country distributions or Togo’s historical experience. • Drivers of debt dynamics (Figure 3). The evolution of projections of external and public debt-to-GDP ratios are consistent in the current and previous DSA vintage, while they reflect major deviations from the DSA from 5 years past. This is because the public 8 The two loans repaid in January 2020 are a debt obligation signed in 2018, with a remaining maturity of 3 years, and a BOAD loan signed in 2013, with a remaining maturity of 8 years. 6 debt ratio increased significantly after 2013 and reached its highest level in 2016, which raised sustainability concerns. In terms of projections, the fiscal consolidation under the ECF arrangement, which aims at putting debt on a sustainable path, is the main reason why the current and recent DSA vintages deviate from the DSA prepared in 2013. For external debt, projected debt levels remain broadly constant, while the projected debt creating flows deviate from the five-year historical change because of projected smaller current account deficits and smaller residuals. The small increase in external debt in 2019, compared to the last DSA, is due to the debt reprofiling operation launched in late 2019. In 2020, it is due to the ECF augmentation that was not expected in the last DSA. For total public debt, projected debt levels are declining because of real GDP growth and a positive primary balance 9, while the five-year historical change indicates a significant increase triggered by large primary deficits and a positive residual (primarily because of the past recognition of government guarantees related to pre-financing agreements). The slight decrease in the debt trajectory, compared to the previous DSA, is explained by a reduction in the debt ratio in 2019, compared to the previous DSA, which is essentially imputable to the repayment of arrears to the CNSS (partly offset by the ECF augmentation). • Planned fiscal adjustment. The primary balance is projected at -0.7 percent of GDP in 2020 and is projected to stabilize at a surplus of about 1 percent of GDP in the medium term. • Fiscal adjustment and possible growth path (Figure 4). Projected economic growth of 3 percent in 2020 is much lower than growth rates implied by the different multipliers (6.4 to 9.7 percent), which is due to the expected impact of the Coronavirus outbreak on growth. Growth is projected at 4 percent in 2021, which is still slightly below the potential growth rates based on plausible fiscal multipliers (5.6 to 6.6 percent). • Public investment and growth. Public and private investment projections are significantly higher under the previous DSA than under the current DSA, which is mainly due to the effects of the Coronavirus outbreak (see Figure 4), and to a lesser extent to lower investment execution. COUNTRY CLASSIFICATION AND DETERMINATION OF SCENARIO STRESS TESTS 7. Togo’s debt carrying capacity remains unchanged at medium. The composite indicator (CI), which captures the impact of several factors through a weighted average of an institutional 9 Other debt creating flows are also contributing to the reduction in the debt ratio over the next 5 years, mainly driven by th e reimbursement of the CNSS arrears, which is recorded below the line and therefore integrated in other debt creating flows. 7 indicator10, real GDP growth, remittances, international reserves, and world growth, remains constant at 2.91 (Text Table 3). This value is within the band in which the debt carrying capacity is classified as ‘medium’. The debt carrying capacity, in turn, determines the PPG external debt thresholds and total public debt benchmarks (see Text Table 4). 8. Standardized stress tests are run to determine Togo’s debt sustainability rating. The six standardized tests run to assess Togo’s sustainability rating are assuming default shocks to real GDP growth, the primary balance, exports, other flows and the exchange rate. They also include a scenario of combined shocks. In addition, the contingent liability stress test assumes a shock of 11.8 percent of GDP. The shock includes the default value of 5 percent for financial markets, a 6.8 percent for risks associated with private-public partnerships (PPPs) given Togo’s stock of such partnerships of around 20 percent of GDP, and 0 percent for SOE debt given that it is already included in public debt (Text Table 1). The baseline debt projections and the projections under these standardized stress tests are assessed against the thresholds that are determined by the medium debt carrying capacity of Togo, i.e. a threshold of 55 percent of GDP for the present value of total public debt over GDP (see Text Table 4 below). Togo does not have prominent economic features such as natural disasters, significant reliance on commodity exports, market financing, etc. that require additional tailored stress tests. Text Table 3. Togo: Calculation of the Composite Index Components Coefficients (A) 10-year average values CI Score components Contribution of (B) (A*B) = (C) components CPIA 0.4 3.2 1.2 42% Real growth rate (in percent) 2.7 5.3 0.1 5% Import coverage of reserves (in percent) 4.1 38.4 1.6 53% Import coverage of reserves^2 (in percent) -4.0 14.7 -0.6 -20% Remittances (in percent) 2.0 5.6 0.1 4% World economic growth (in percent) 13.5 3.5 0.5 16% CI Score 2.91 100% CI rating Medium Text Table 4. Togo: Applicable Thresholds for ‘Medium’ Debt-Carrying Capacity 10 Th e World Bank’s Country Policy and Institutional Assessment (CPIA). 8 APPLICABLE APPLICABLE EXTERNAL debt burden thresholds TOTAL public debt benchmark PV of total public debt in PV of debt in % of percent of GDP 55 Exports 180 GDP 40 Debt service in % of Exports 15 Revenue 18 MODEL-BASED EXTERNAL DEBT SUSTAINABILITY ANALYSIS 9. The model still signals a low risk of external debt distress, as none of Togo’s PPG external debt burden indicators breach their thresholds under the baseline nor under the most extreme shocks (Table 3, Figure 1). The PV of PPG external debt is projected at 19.5 percent of GDP in 2020 and will decrease to around 12.8 percent of GDP by 2030 in the baseline scenario. The ratio of the PV of PPG external debt relative to exports is projected at 68.6 percent of GDP in 2020 and to decrease to 43.5 percent of GDP by 2030, significantly below its indicative threshold. Similarly, debt service indicators remain well below their thresholds. Moreover, all external debt indicators remain below their respective thresholds under the stress test scenarios. Improvements in debt-management practices envisaged in the authorities’ Fund-supported program and under technical assistance provided by the World Bank will give further resilience to shocks affecting debt service needs. 10. Under the historical scenario, which sets key macroeconomic parameters to their 10- year historical averages, external debt indicators breach their respective thresholds in outer years. In particular, the PV of debt-to-GDP breaches the threshold from 2026. All external debt indicators remain below their respective thresholds under the most extreme shock scenario. 11. The assumptions for the baseline scenario deviate from the historical scenario in key areas: • Non-interest current account deficit. Togo’s large non -interest current account deficits during the last ten years were primarily driven by imports for big public investment projects, which led to an excessive accumulation of public debt. The current fiscal consolidation and reforms to improve the investment and debt management capacity aim to keep public investment within limits that do not jeopardize debt sustainability. • Export growth. Export growth is higher in the baseline scenario based on policy commitments in the National Development Plan, which is aiming to make Togo a regional commercial and transportation hub and a manufacturing base. The reforms have started to have an impact, as seen for example in the World Bank’s 2020 Doing Business Report, where Togo is one of the top ten improvers. Togo has also started to 9 export new products (plastic products and organic produce, for example), which should help diversify exports. • Non-debt carrying flows. The baseline projects average FDI outflows of 2 percent of GDP starting in 2021 compared to historical outflows of 3.7 percent of GDP on average. Net FDI outflows in 2018-19 were attributed to a specific company that is expected to continue with additional acquisitions abroad. 11 OVERALL PUBLIC DEBT SUSTAINABILITY ANALYSIS 12. Togo’s overall risk of public debt distress remains high, as the PV of total public debt remains above the indicative benchmark through 2022 (Table 4, Figure 2). Under the baseline scenario, overall public debt is now forecasted at 67.1 percent of GDP in 2020, falling below 70 percent that year. By 2040, continued fiscal consolidation (primary surplus assumed at about 1 percent of GDP up to 2029) coupled with favorable growth rates are expected to significantly reduce domestic debt and total public and publicly guaranteed debt. Under the most extreme shock scenario, the ratio of PV of overall public debt-to-GDP would briskly rise in 2021 and decline below the indicative benchmark in 2025. Under the historical scenario, this ratio would remain above the indicative threshold during the entire projection period. The analysis highlights the need for sustained fiscal consolidation, improved debt management, and macroeconomic policies aiming to reduce the level of public debt to prudent levels over the medium term. APPLICATION OF JUDGMENT 13. Fund and Bank staff are of the view that the risk of external debt distress should be maintained at moderate, unchanged from the rating at the time of the last DSA update of October 2019. All PPG external debt sustainability indicators are expected to remain below their indicative thresholds throughout the projection period (2020-40) under the baseline and the most extreme stress test. However, while these mechanical results point to a low risk of external debt distress, judgment was applied given vulnerabilities arising from the high domestic debt, leading to the assessment of a moderate risk of external debt distress. Such vulnerabilities could arise because of risks related to local-currency debt owed to non-residents (currently integrated as domestic debt—defined on a currency basis), to possible further debt reprofiling operations, or to the need to incur fiscal costs to facilitate the privatization of the two public banks (see above). RISK RATING AND VULNERABILITIES 11The large negative residuals seen in the breakdown of the external debt variation (Table 6) is likely to be linked to the rec ording of FDIs, for two reasons. First, the reliability of the historic numbers might be in doubt because years with reported larg e FDI outflows coincided with large negative residuals, which suggests unreported non -debt carrying capital inflows in those years. Second, the external debt projections only cover public external debt, while FDIs are including net acquisitions by the priv ate sector, which are creating unreported private (not public) sector external debt. 10 14. Togo remains at moderate risk of external public debt distress and high risk of overall public debt distress: • Togo ’s overall public debt stood at 70.9 percent of GDP at end -2019 (68.7 percent of GDP excluding debt of SOEs). The ratio of NPV of overall public debt-to-GDP remains above the indicative benchmark through 2021 —but on a steady declining trend, under the assumption of a continued primary surplus of about 1 percent of GDP and substantial reduction in the domestic debt. • For the external debt, under the baseline scenario, all PPG external debt sustainability indicators are expected to remain well below their indicative thresholds throughout the projection period (2020 – 40). While the mechanical results point to a low risk of external debt distress, judgment was applied given vulnerabilities arising from the existing high domestic debt, possible further debt reprofiling operations, or the need to incur fiscal costs to ease the privatization process of the two public banks. 15. Togo is considered to have substantial space to absorb shocks on external debt (Figure 5). Under the granularity module used for countries rated at moderate risk of external debt distress, Togo is considered to have substantial space to absorb shocks, as all baseline external debt indicators are well below their respective thresholds, such that only shocks in the upper quartile of the observed distribution of shocks would downgrade Togo to high risk of debt distress. AUTHORITIES’ VIEWS 16. The authorities broadly agreed with staff's assessment of Togo's public debt situation and recommendations. They concurred with staff’s assessment of risk ratings and distress level. Given that Togo's overall risk of debt distress remains high, they recognize that the fiscal consolidation must continue in order to bring public debt down below the relevant benchmark. Besides, they presented their 2020-24 medium-term debt strategy, which broadly intends to increase the share of foreign currency debt over total debt, towards 50 percent in 2024. This should be achieved notably through reprofiling operations and continued concessional external financing (from the World Bank and African Development Bank), as well as semi-concessional financing (Eximbank India, Kuwaiti Funds, and Saudi Funds for which projects are under execution). Domestic issuances are expected to cover the remaining financing needs, through a mix of 1 to 10-year maturity obligations. The average maturity of total debt is expected to increase from around 5 years in 2019 to 7 years in 2024. 11 Table 1. Togo: External Debt Sustainability Framework, Baseline Scenario, 2017 –40 (In percent of GDP, unless otherwise indicated) Actual Projections Average 8/ Historical Projections 2017 2018 2019 2020 2021 2022 2023 2024 2025 2030 2040 External debt (nominal) 1/ 20.1 20.5 23.7 25.2 24.5 23.8 22.9 22.0 21.0 17.9 19.7 18.1 21.1 Definition of external/domestic debt Currency-based of which: public and publicly guaranteed (PPG) 20.1 20.5 23.7 25.2 24.5 23.8 22.9 22.0 21.0 17.9 19.7 18.1 21.1 Is there a material difference between the two Yes criteria? Change in external debt 0.0 0.3 3.2 1.4 -0.7 -0.7 -0.8 -0.9 -1.0 0.0 0.1 Identified net debt-creating flows -1.9 6.0 7.4 8.0 6.5 5.2 5.1 4.9 4.8 5.2 7.7 10.3 5.3 Non-interest current account deficit 1.6 3.2 4.0 4.6 4.0 4.1 4.0 3.7 3.5 3.7 6.2 7.2 3.7 Deficit in balance of goods and services 10.5 11.7 12.1 12.9 12.3 12.3 12.2 12.0 11.8 11.7 13.3 16.3 12.0 Exports 33.1 31.8 31.3 28.4 28.4 28.5 28.6 28.8 29.0 29.3 29.0 Imports 43.5 43.5 43.4 41.3 40.7 40.8 40.8 40.8 40.8 41.0 42.3 Debt Accumulation 6.0 36.0 Net current transfers (negative = inflow) -8.3 -7.9 -7.5 -7.6 -7.6 -7.6 -7.6 -7.6 -7.6 -7.3 -6.2 -7.6 -7.6 of which: official -2.2 -1.8 -2.0 -2.1 -2.1 -2.1 -2.1 -2.1 -2.1 -1.7 -0.7 Other current account flows (negative = net inflow) -0.5 -0.7 -0.7 -0.7 -0.7 -0.7 -0.7 -0.7 -0.7 -0.7 -0.8 -1.5 -0.7 5.0 35.0 Net FDI (negative = inflow) -2.5 4.7 3.6 3.7 3.1 2.0 2.0 2.0 2.0 2.0 2.0 3.7 2.3 Endogenous debt dynamics 2/ -1.0 -1.8 -0.1 -0.3 -0.6 -0.9 -0.8 -0.8 -0.7 -0.6 -0.6 4.0 34.0 Contribution from nominal interest rate 0.4 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.3 0.4 Contribution from real GDP growth -0.8 -0.9 -1.1 -0.7 -0.9 -1.2 -1.2 -1.2 -1.1 -0.9 -1.0 3.0 33.0 Contribution from price and exchange rate changes -0.6 -1.2 0.7 … … … … … … … … Residual 3/ 1.9 -5.7 -4.2 -6.5 -7.1 -5.9 -6.0 -5.8 -5.7 -5.2 -7.6 -12.9 -5.9 of which: exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.0 32.0 Sustainability indicators 1.0 31.0 PV of PPG external debt-to-GDP ratio ... ... 18.4 19.5 19.0 18.5 17.8 17.0 16.1 12.8 14.0 PV of PPG external debt-to-exports ratio ... ... 58.9 68.6 67.0 65.1 62.3 59.0 55.5 43.5 48.3 0.0 30.0 PPG debt service-to-exports ratio 5.9 4.8 4.9 4.8 4.4 5.1 5.8 6.3 6.7 4.6 3.8 2020 2022 2024 2026 2028 2030 PPG debt service-to-revenue ratio 10.7 7.5 7.8 6.9 6.2 7.2 8.1 8.9 9.3 5.7 4.5 Gross external financing need (Billion of U.S. dollars) 0.3 0.0 0.1 0.1 0.1 0.2 0.3 0.3 0.3 0.4 1.6 Rate of Debt Accumulation Grant-equivalent financing (% of GDP) Key macroeconomic assumptions Grant element of new borrowing (% right scale) Real GDP growth (in percent) 4.4 4.9 5.3 3.0 4.0 5.5 5.5 5.5 5.5 5.5 5.5 5.7 5.1 GDP deflator in US dollar terms (change in percent) 2.9 6.4 -3.2 4.1 5.5 3.4 3.2 3.1 3.1 2.9 2.9 -0.5 3.4 Effective interest rate (percent) 4/ 2.0 1.7 1.4 1.5 1.5 1.6 1.7 1.8 1.8 2.1 2.1 1.6 1.8 External debt (nominal) 1/ Growth of exports of G&S (US dollar terms, in percent) 0.6 7.3 0.2 -2.6 9.7 9.2 9.5 9.6 9.5 8.5 4.6 4.3 8.1 of which: Private of which: public and publicly guaranteed (PPG) Growth of imports of G&S (US dollar terms, in percent) -12.9 11.5 1.7 2.0 8.0 9.5 9.0 8.6 8.8 8.8 9.6 4.4 8.1 30 Grant element of new public sector borrowing (in percent) ... ... ... 35.3 31.8 31.8 31.8 31.8 31.8 31.8 31.9 ... 32.1 Government revenues (excluding grants, in percent of GDP) 18.2 20.3 19.5 19.7 19.9 20.0 20.3 20.5 21.0 23.2 24.0 18.3 21.2 25 Aid flows (in Billion of US dollars) 5/ 0.4 0.4 0.6 0.3 0.3 0.3 0.4 0.4 0.4 0.5 0.7 Grant-equivalent financing (in percent of GDP) 6/ ... ... ... 5.6 4.8 4.8 4.8 4.8 4.8 4.2 2.3 ... 4.8 20 Grant-equivalent financing (in percent of external financing) 6/ ... ... ... 66.3 74.7 74.7 74.7 74.7 74.7 72.0 58.3 ... 73.6 Nominal GDP (Billion of US dollars) 5 5 5 6 6 7 8 8 9 14 31 Nominal dollar GDP growth 7.4 11.6 1.9 7.3 9.7 9.1 8.9 8.8 8.8 8.6 8.6 5.1 8.7 15 Memorandum items: 10 PV of external debt 7/ ... ... 18.4 19.5 19.0 18.5 17.8 17.0 16.1 12.8 14.0 In percent of exports ... ... 58.9 68.6 67.0 65.1 62.3 59.0 55.5 43.5 48.3 5 Total external debt service-to-exports ratio 5.9 4.8 4.9 4.8 4.4 5.1 5.8 6.3 6.7 4.6 3.8 PV of PPG external debt (in Billion of US dollars) 1.0 1.1 1.2 1.3 1.4 1.4 1.5 1.7 4.3 0 (PVt-PVt-1)/GDPt-1 (in percent) 2.5 1.4 1.1 0.9 0.7 0.5 1.0 1.3 2020 2022 2024 2026 2028 2030 Non-interest current account deficit that stabilizes debt ratio 1.7 2.8 0.7 3.1 4.6 4.8 4.8 4.6 4.5 3.8 6.1 Sources: Country authorities; and staff estimates and projections. 0 1/ Includes debt of the central government and public entities. 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/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ 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). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. Table 2. Togo: Public Sector Debt Sustainability Framework, Baseline Scenario, 2017– 40 (In percent of GDP, unless otherwise indicated) Actual Projections Average 6/ 2017 2018 2019 2020 2021 2022 2023 2024 2025 2030 2040 Historical Projections Public sector debt 1/ 76.0 76.2 70.9 67.1 63.1 59.3 55.9 52.6 49.5 35.8 30.1 63.8 50.2 of which: external debt 20.1 20.5 23.7 25.2 24.5 23.8 22.9 22.0 21.0 17.9 19.7 18.1 21.1 Definition of external/domestic debt Currency-based of which: local-currency denominated Change in public sector debt -5.4 0.2 -5.3 -3.7 -4.1 -3.7 -3.4 -3.3 -3.1 -2.4 0.6 Is there a material difference between Identified debt-creating flows -5.7 -1.8 -7.8 -1.7 -3.8 -3.5 -3.2 -3.1 -3.0 -2.3 0.6 0.8 -2.9 Yes the two criteria? Primary deficit -1.5 -1.6 -4.8 0.7 -1.0 -1.0 -1.0 -1.0 -1.0 -0.8 2.0 2.5 -0.8 Revenue and grants 21.4 23.9 23.4 23.8 23.9 24.1 24.3 24.5 25.1 26.7 25.5 21.2 25.1 of which: grants 3.2 3.6 3.8 4.0 4.0 4.0 4.0 4.0 4.0 3.4 1.5 Public sector debt 1/ Primary (noninterest) expenditure 19.9 22.3 18.5 24.5 22.9 23.1 23.3 23.5 24.1 25.9 27.4 23.8 24.3 Automatic debt dynamics -4.2 -1.4 -1.9 -2.4 -2.8 -2.5 -2.2 -2.1 -2.0 -1.5 -1.4 of which: local-currency denominated Contribution from interest rate/growth differential -2.3 -2.3 -2.3 -1.5 -2.1 -2.2 -2.0 -1.9 -1.8 -1.4 -1.2 of which: foreign-currency denominated of which: contribution from average real interest rate 1.1 1.2 1.6 0.6 0.5 1.0 1.1 1.0 1.0 0.6 0.3 of which: contribution from real GDP growth -3.4 -3.6 -3.8 -2.1 -2.6 -3.3 -3.1 -2.9 -2.7 -2.0 -1.5 80 Contribution from real exchange rate depreciation -1.9 0.9 0.4 ... ... ... ... ... ... ... ... 70 Other identified debt-creating flows 0.0 1.2 -1.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 60 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 50 Recognition of contingent liabilities (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 40 CNSS arrears repayment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 30 2018 revenue arrears paid in 2019 0.0 1.2 -1.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Residual 0.3 2.0 2.5 -3.0 -1.0 -0.5 -0.4 -0.4 -0.4 -0.2 -0.2 -1.7 -0.6 20 10 Sustainability indicators 0 PV of public debt-to-GDP ratio 2/ ... ... 65.7 61.4 57.6 54.1 50.8 47.6 44.6 30.6 24.3 2020 2022 2024 2026 2028 2030 PV of public debt-to-revenue and grants ratio … … 281.3 258.4 240.7 224.6 209.1 194.5 177.9 114.9 95.4 Debt service-to-revenue and grants ratio 3/ 101.7 57.7 66.5 52.7 46.7 53.3 32.2 36.7 32.8 21.3 12.1 Gross financing need 4/ 20.3 13.4 9.6 13.3 10.2 11.8 6.8 8.0 7.2 4.9 5.0 of which: held by residents of which: held by non-residents Key macroeconomic and fiscal assumptions 1 Real GDP growth (in percent) 4.4 4.9 5.3 3.0 4.0 5.5 5.5 5.5 5.5 5.5 5.5 5.7 5.1 Average nominal interest rate on external debt (in percent) 2.1 1.6 1.5 1.5 1.5 1.6 1.7 1.8 1.8 2.1 2.1 1.6 1.8 1 Average real interest rate on domestic debt (in percent) 1.9 2.6 3.0 1.2 1.4 3.1 3.6 3.4 3.5 3.2 3.2 1.8 2.9 1 Real exchange rate depreciation (in percent, + indicates depreciation) -10.0 4.7 2.1 … ... ... ... ... ... ... ... 3.2 ... n.a. Inflation rate (GDP deflator, in percent) 0.9 1.7 2.1 4.6 4.4 2.9 2.9 2.9 2.9 2.9 2.9 1.5 3.2 0 Growth of real primary spending (deflated by GDP deflator, in percent) -27.7 17.6 -12.5 36.0 -2.6 6.2 6.6 6.3 8.0 7.2 5.9 6.5 8.7 0 Primary deficit that stabilizes the debt-to-GDP ratio 5/ 3.9 -1.8 0.5 4.4 3.1 2.7 2.4 2.3 2.1 1.6 1.4 0.9 2.4 PV of contingent liabilities (not included in public sector debt) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 2020 2022 2024 2026 2028 2030 Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central government plus social security, central bank, government-guaranteed debt, non-guaranteed SOE debt. Definition of external debt is Currency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ 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 and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 13 Table 3. Togo: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2020–30 Projections 1/ 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 PV of debt-to GDP ratio Baseline 20 19 19 18 17 16 15 14 13 13 13 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 20 23 26 30 33 36 40 43 46 49 52 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 20 19 19 18 17 16 15 14 14 13 13 B2. Primary balance 20 21 22 22 21 20 20 19 18 18 18 B3. Exports 20 23 29 28 27 25 24 23 21 20 19 B4. Other flows 3/ 20 24 30 29 27 26 25 23 22 21 20 B5. One-time 30 percent nominal depreciation 20 24 19 18 18 17 15 14 14 13 13 B6. Combination of B1-B5 20 26 27 26 25 24 23 21 20 19 18 C. Tailored Tests C1. Combined contingent liabilities 20 22 21 21 20 19 19 18 17 17 17 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 40 40 40 40 40 40 40 40 40 40 40 PV of debt-to-exports ratio Baseline 69 67 65 62 59 56 52 48 46 44 44 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 69 80 92 104 115 125 136 146 157 167 178 0 69 55 44 33 20 8 -5 -16 -26 -34 -39 B. Bound Tests B1. Real GDP growth 69 67 65 62 59 56 52 48 46 44 44 B2. Primary balance 69 74 78 75 72 70 68 66 63 61 61 B3. Exports 69 95 141 135 128 121 114 107 101 95 92 B4. Other flows 3/ 69 86 105 100 95 90 85 80 75 71 68 B5. One-time 30 percent nominal depreciation 69 67 54 51 49 46 42 39 37 36 36 B6. Combination of B1-B5 69 96 91 109 103 97 91 86 81 76 74 C. Tailored Tests C1. Combined contingent liabilities 69 77 75 72 69 67 65 61 59 57 57 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 180 180 180 180 180 180 180 180 180 180 180 Debt service-to-exports ratio Baseline 5 4 5 6 6 7 7 7 6 6 5 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 5 5 6 7 8 10 11 11 11 12 11 0 5 4 5 5 5 5 6 5 3 1 -1 B. Bound Tests B1. Real GDP growth 5 4 5 6 6 7 7 7 6 6 5 B2. Primary balance 5 4 5 6 7 7 8 8 7 7 6 B3. Exports 5 5 8 10 10 11 12 11 11 11 9 B4. Other flows 3/ 5 4 6 7 7 8 8 8 8 8 7 B5. One-time 30 percent nominal depreciation 5 4 5 5 6 6 7 7 6 5 4 B6. Combination of B1-B5 5 5 7 8 9 9 10 10 10 9 7 C. Tailored Tests C1. Combined contingent liabilities 5 4 5 6 7 7 8 8 7 6 5 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 15 15 15 15 15 15 15 15 15 15 15 Debt service-to-revenue ratio Baseline 7 6 7 8 9 9 10 10 8 7 6 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 7 6 8 10 12 13 15 15 15 15 14 0 7 6 7 7 7 7 8 7 4 2 -2 B. Bound Tests B1. Real GDP growth 7 6 7 8 9 9 10 10 9 8 6 B2. Primary balance 7 6 7 9 9 10 11 10 9 9 7 B3. Exports 7 6 8 10 11 11 12 11 10 10 8 B4. Other flows 3/ 7 6 8 10 11 11 12 11 10 10 8 B5. One-time 30 percent nominal depreciation 7 8 9 10 11 11 12 11 10 8 6 B6. Combination of B1-B5 7 7 8 10 11 11 12 11 11 10 8 C. Tailored Tests C1. Combined contingent liabilities 7 6 8 9 9 10 11 10 9 8 6 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 18 18 18 18 18 18 18 18 18 18 18 Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. 2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 3/ Includes official and private transfers and FDI. Table 4. Togo: Sensitivity Analysis for Key Indicators of Public Debt 2020–30 Projections 1/ 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 PV of Debt-to-GDP Ratio Baseline 61 58 54 51 48 45 42 39 36 33 31 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 61 61 61 60 60 60 59 59 59 58 57 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 61 58 56 53 50 47 44 42 39 37 35 B2. Primary balance 61 64 68 64 61 57 54 50 47 44 41 B3. Exports 61 61 64 60 56 53 50 46 43 40 37 B4. Other flows 3/ 61 63 65 62 58 55 51 48 44 41 38 B5. One-time 30 percent nominal depreciation 61 59 54 49 45 41 36 32 28 25 21 B6. Combination of B1-B5 61 61 58 50 47 44 41 37 34 32 29 C. Tailored Tests C1. Combined contingent liabilities 61 68 64 61 57 54 50 47 44 41 38 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Public debt benchmark 55 55 55 55 55 55 55 55 55 55 55 PV of Debt-to-Revenue Ratio Baseline 258 241 225 209 195 178 163 149 136 125 115 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 258 254 250 247 243 236 230 225 219 215 212 0 52.740293 47.814631 54.602632 33.994286 40.096646 41.337427 46.342007 45.599051 43.408186 44.131868 40.91477 B. Bound Tests B1. Real GDP growth 258 244 231 217 203 188 174 161 149 139 130 B2. Primary balance 258 269 281 264 248 228 211 194 179 165 153 B3. Exports 258 255 264 247 230 211 195 179 164 150 137 B4. Other flows 3/ 258 263 272 254 237 218 201 185 169 154 141 B5. One-time 30 percent nominal depreciation 258 251 228 206 186 164 145 127 109 94 80 B6. Combination of B1-B5 258 256 241 209 194 177 162 145 131 120 110 C. Tailored Tests C1. Combined contingent liabilities 258 285 268 250 234 215 197 182 167 154 143 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Debt Service-to-Revenue Ratio Baseline 53 47 53 32 37 33 34 32 28 27 21 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 53 47 55 34 39 36 38 36 32 32 27 0 52.740293 47.814631 54.602632 33.994286 40.096646 41.337427 46.342007 45.599051 43.408186 44.131868 40.91477 B. Bound Tests B1. Real GDP growth 53 47 54 33 38 34 36 34 30 28 23 B2. Primary balance 53 47 55 36 40 43 51 42 31 32 30 B3. Exports 53 47 54 33 38 34 35 33 29 29 23 B4. Other flows 3/ 53 47 54 34 38 34 35 33 30 29 24 B5. One-time 30 percent nominal depreciation 53 45 52 32 37 33 34 32 28 26 21 B6. Combination of B1-B5 53 45 52 32 36 32 37 34 29 27 22 C. Tailored Tests C1. Combined contingent liabilities 53 47 56 34 39 46 47 35 30 31 28 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI. 15 Figure 1. Togo: Indicators of Public Guaranteed External Debt Under Alternatives Scenarios, 2020–30 1/ PV of debt-to GDP ratio PV of debt-to-exports ratio 60 200 180 50 160 140 40 120 30 100 80 20 60 10 40 Most extreme shock is Non-debt flows 20 Most extreme shock is Exports 0 0 2020 2022 2024 2026 2028 2030 2020 2022 2024 2026 2028 2030 Debt service-to-exports ratio Debt service-to-revenue ratio 16 20 18 14 16 12 14 10 12 8 10 8 6 6 4 4 2 2 Most extreme shock is Exports Most extreme shock is One-time depreciation 0 0 2020 2022 2024 2026 2028 2030 2020 2022 2024 2026 2028 2030 Baseline Historical scenario Most extreme shock 1/ Threshold Customization of Default Settings Borrowing Assumptions for Stress Tests* Size Interactions Default User defined Shares of marginal debt No No External PPG MLT debt 100% Tailored Tests Terms of marginal debt Combined CLs Yes Avg. nominal interest rate on new borrowing in USD 2.5% 2.5% Natural Disasters n.a. n.a. USD Discount rate 5.0% 5.0% 2/ Commodity Prices n.a. n.a. Avg. maturity (incl. grace period) 26 26 Market Financing n.a. n.a. Avg. grace period 6 6 Note: "Yes" indicates any change to the size or * Note: All the additional financing needs generated by the shocks under the stress tests are assumed interactions of the default settings for the stress tests. to be covered by PPG external MLT debt in the external DSA. Default terms of marginal debt are "n.a." indicates that the stress test does not apply. based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. Stress tests with one-off breaches are also presented (if any), while these one-off breaches are deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department. 16 Figure 2. Togo: Indicators of Public Debt Under Alternative Scenarios, 2020–30 PV of Debt-to-GDP Ratio 80 70 60 50 40 30 20 Most extreme shock is Combined contingent liabilities 10 0 2020 2022 2024 2026 2028 2030 PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio 300 60 250 50 200 40 150 30 100 20 50 Most extreme shock is Combined contingent 10 Most extreme shock is Combined contingent liabilities liabilities 0 0 2020 2022 2024 2026 2028 2030 2020 2022 2024 2026 2028 2030 Baseline Most extreme shock 1/ Public debt benchmark Historical scenario Borrowing Assumptions for Stress Tests* Default User defined Shares of marginal debt External PPG medium and long-term 34% 34% Domestic medium and long-term 66% 66% Domestic short-term 0% 0% Terms of marginal debt External MLT debt Avg. nominal interest rate on new borrowing in USD 2.5% 2.5% Avg. maturity (incl. grace period) 26 26 Avg. grace period 6 6 Domestic MLT debt Avg. real interest rate on new borrowing 3.3% 3.3% Avg. maturity (incl. grace period) 5 5 Avg. grace period 3 3 Domestic short-term debt Avg. real interest rate 3.3% 3.3% * Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 17 Figure 3. Togo: Drivers of Debt Dynamics – Baseline Scenario External Debt Gross Nominal PPG External Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Current DSA 60 25 80 Residual Previous DSA proj. 20 70 DSA-2013 40 15 Interquartile range (25-75) Price and 60 exchange rate 10 20 50 5 Real GDP growth 0 Change in PPG 40 0 debt 3/ 30 Nominal -20 -5 interest rate -10 20 -40 Median Current -15 10 account + FDI -20 0 -60 Contribution of Change in PPG 5-year 5-year -25 unexpected Distribution across LICs 2/ debt 3/ historical projected changes change change Public Debt Gross Nominal Public Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Current DSA Residual 40 Previous DSA proj. 25 DSA-2013 Interquartile range 90 Other debt 20 (25-75) 80 creating flows 20 15 70 Real Exchange rate depreciation 60 10 0 50 Real GDP growth Change in debt 5 40 30 Real interest rate -20 0 20 Primary deficit -5 10 -40 Median 0 5-year 5-year -10 Distribution across LICs 2/ 2024 2025 2026 2027 2028 2029 2030 2015 2016 2017 2018 2019 2020 2021 2022 2023 Change in debt Contribution of unexpected historical projected -15 changes change change 1/ Difference between anticipated and actual contributions on debt ratios. 2/ Distribution across LICs for which LIC DSAs were produced. 3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation. 18 Figure 4. Togo: Realism Tools 3-Year Adjustment in Primary Balance Fiscal Adjustment and Possible Growth Paths 1/ (Percentage points of GDP) 12 3 2 14 Distribution 1/ 10 1 Projected 3-yr adjustment In percentage points of GDP 12 3-year PB adjustment greater than 2.5 8 0 percentage points of GDP in approx. top 10 quartile In percent -1 6 8 -2 6 4 -3 -4 4 2 -5 2 0 -6 0 2014 2015 2016 2017 2018 2019 2020 2021 Baseline Multiplier = 0.2 Multiplier = 0.4 Multiplier = 0.6 Multiplier = 0.8 1/ Data cover Fund-supported programs for LICs (excluding emergency financing) approved since 1990. The size of 3- 1/ Bars refer to annual projected fiscal adjustment (right-hand side scale) and lines show possible real GDP year adjustment from program inception is found on the horizontal axis; the percent of sample is found on the vertical growth paths under different fiscal multipliers (left-hand side scale). axis. Public and Private Investment Rates Contribution to Real GDP growth (% of GDP) (percent, 5-year average) 30 6 28 26 5 24 22 20 4 18 16 3 14 12 10 2 8 6 1 4 2 0 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Historical Projected (Prev. DSA) Projected (Curr. DSA) Gov. Invest. - Prev. DSA Gov. Invest. - Current DSA Contribution of other factors Priv. Invest. - Prev. DSA Priv. Invest. - Current DSA Contribution of government capital 19 Figure 5. Togo: Qualification of the Moderate Category, 2020–30 1/ PV of debt-to GDP ratio PV of debt-to-exports ratio 45 200 40 180 Threshold 35 160 140 (1-X)*Threshold 30 120 25 (1-Y)*Threshold 100 20 80 15 60 10 40 5 20 0 0 2020 2022 2024 2026 2028 2030 2020 2022 2024 2026 2028 2030 Debt service-to-exports ratio Debt service-to-revenue ratio 16 20 18 14 16 12 14 10 12 8 10 8 6 6 4 4 2 2 0 0 2020 2022 2024 2026 2028 2030 2020 2022 2024 2026 2028 2030 Threshold Baseline Limited space Some space Substantial space Sources: Country authorities; and staff estimates and projections. 1/ For the PV debt/GDP and PV debt/exports thresholds, x is 20 percent and y is 40 percent. For debt service/Exports and debt service/revenue thresholds, x is 12 percent and y is 35 percent. 20