The World Bank Togo First Fiscal Management and Energy Reform DPF (P169867) Program Information Document (PID) Appraisal Stage | Date Prepared/Updated: 22-Oct-2019 | Report No: PIDA27492 Page 1 of 6 The World Bank Togo First Fiscal Management and Energy Reform DPF (P169867) BASIC INFORMATION A. Basic Project Data OPS TABLE Country Project ID Project Name Parent Project ID (if any) Togo First Fiscal Togo P169867 Management and Energy Reform DPF (P169867) Region Estimated Board Date Practice Area (Lead) Financing Instrument Macroeconomics, Trade Development Policy AFRICA 16-Dec-2019 and Investment Financing Borrower(s) Implementing Agency Ministère de l’Economie et Ministry of Economy and Finance des Finances 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. Financing (in US$, Millions) FIN_SUMM_PUB_TBL SUMMARY Total Financing 150.00 DETAILS -NewFin3 Total World Bank Group Financing 150.00 World Bank Lending 150.00 Decision The review did authorize the team to appraise and negotiate B. Introduction and Context Country Context 1. Togo’s recent economic performance has been relatively stable, despite political and social tensions, but poverty and vulnerability remain high. Growth remains robust, averaging 5.2 percent over the last four years, driven by public investment in infrastructure and the good performance of export-oriented sectors such as phosphates and Page 2 of 6 The World Bank Togo First Fiscal Management and Energy Reform DPF (P169867) cotton. Nevertheless, more than half of households are living below the poverty line and access to basic services, especially in the energy sector, remains challenging. In addition, despite recent bold reforms in public finance management, public debt remains at the highest levels in the WAEMU region at above 70 percent of GDP. 2. The macroeconomic framework is adequate for the purposes of this operation. Growth prospects are solid, supported by a rebound in industrial production and stronger growth in services (logistics, telecommunication and transport). The Government has maintained fiscal discipline, refrained from contracting non-concessional loans, and Togo is expected to remain below the 3 percent of GDP WAEMU deficit target over the medium term. Togo has also performed satisfactorily under the IMF ECF Program, which provides an anchor for the macroeconomic policy framework. Monetary and exchange rate policy is anchored in WAEMU membership. Debt is sustainable, with a moderate risk of external debt distress and high risk of overall debt distress. Relationship to CPF 3. The key areas of support under the DPF are consistent with the key pillars of the Togo Country Partnership Framework (CPF) FY17-FY20, discussed by the Board of Executive Directors on May 16, 2017. They are also consistent with the adjustments to the CPF proposed in the 2019 Performance and Learning Review. The DPF supports the CPF cross-cutting theme of governance, the foundation of the World Bank Group’s program in Togo building on the SCD, through measures aimed at strengthening key government institutions and bringing in private actors to deliver results under each of the CPF Focus Areas. The DPF supports directly Focus Area I on Private Sector Performance and Job Creation, by contributing to improving the business environment through strengthening fiscal policy and debt management and strengthening the energy sector; and CPF Focus Area II on Inclusive Public Service Delivery, by improving domestic revenue mobilization and promoting efficient public investment. The DPF measures are supported by World Bank investment projects, including the Togo Economic Governance Project (EGP) and the Energy Support and Investment Project (P160377). C. Proposed Development Objective(s) 4. 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 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. 5. The operation consists of an IDA Grant of SDR 63.5 million (US$87.5 million equivalent) and an IDA Credit of EUR 56.1 million (US$62.5 million equivalent). Building on the accomplishments of the previous DPF series, the Project Development Objectives (PDOs) and pillars of this operation are to: (i) enhance fiscal and debt management; and (ii) strengthen energy sector financial viability and use of renewable energy. These two pillars are critical elements of the Government’s reform program and are priorities of the most recent Systematic Country Diagnostic (SCD) and Country Partnership Framework (CPF) 2017-20. In particular, they directly address three of the eight core CPF objectives: strengthening fiscal policy and debt management; strengthening energy, ICT, and logistics services; and strengthening resilience and adaptation of climate change Page 3 of 6 The World Bank Togo First Fiscal Management and Energy Reform DPF (P169867) Key Results 6. The measures supported under the DPF are expected to strengthen revenue mobilization, improve efficiency and transparency of public investment procedures, and strengthening energy sector financial viability. Tax reforms are expected to lead to an increase of VAT revenues, enhance the transparency and management of VAT exemptions, widening the tax base and increase property tax revenues. The measures supported by this DPF series are also expected to strengthen the efficiency and transparency of the public investment process, reduce procurement delays and improve debt transparency and management outcomes. Likewise, energy reforms supported by the DPF are expected to lower the costs of energy provision, increase the financial sustainability of the sector and promote the use of renewable energy. D. Concept Description 7. The proposed operation is organized around two strategic pillars: (i) enhance fiscal and debt management; and (ii) strengthen energy sector financial viability and use of renewable energy. The choice of these pillars reflects the Government’s priorities associated with the implementation of the National Development Plan. The focus has been on two of the three strategic axes of the Government’s program: Axe 1 – the establishment of a logistics hub of excellence and a world-class business center in the sub-region and Axe 3 – consolidating social development and strengthening the enabling environment for inclusive growth. The DPF measures support the first and third axe of government’s program, by providing an efficient and fair system of taxation, as well as efficient procurement institutions that can fuel a virtual cycle of public and private investments. Energy reforms will further support this axe by improving the reliability and affordability of the electricity supply. 8. The operation will support the Government in implementing its development program with a set of 8 prior actions organized around three key development areas: tax revenue mobilization, public investment efficiency and debt management, and energy reforms. This operation aims to increase tax revenues primarily by simplifying the rate structure and improving the administration of the VAT and enhancing the potential of the property tax. Reforms in public investment efficiency rest on measures related to the improvement of the quality and efficiency of public procurement procedures, while debt management reforms are articulated around the updating of the management strategy and measures to improve debt transparency, including the establishment of a public debt portal on the Government’s web-site that consolidates in one web-site all debt-related information. Reforms in the energy sector entail the clearance of all arrears, the optimization of financial and operational cost of the power utility, the promotion of cost-efficiency in the sector and the establishment of a regulatory environment for the promotion of renewable energy. E. Implementation Institutional and Implementation Arrangements 9. The Ministry of Economy and Finance is responsible for overall monitoring and evaluation of the proposed operation and for coordinating actions among other concerned ministries and agencies. This also includes the regulatory authorities for the energy sector and SOEs. Regular discussions will take place with the Government and the donor community on progress made, results achieved and possible next steps. The monitoring and evaluation process by the Government and the World Bank will be based on a systematic review of implementation and impact of prior actions and will compare results achieved with agreed results indicators in the Policy and Results Matrix. Page 4 of 6 The World Bank Togo First Fiscal Management and Energy Reform DPF (P169867) 10. Grievance Redress. Communities and individuals who believe that they are adversely affected by specific country policies supported as prior actions or tranche release conditions under a World Bank Development Policy Operation may submit complaints to the responsible country authorities, appropriate local/national grievance redress mechanisms, or the WB’s Grievance Redress Service (GRS). For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. F. Poverty and Social Impacts and Environmental Aspects Poverty and Social Impacts 11. The measures supported by the proposed operation are expected to have positive impacts on poverty and social indicators, although some of the poor may experience a negative impact in the short term . First, poor households should benefit from expected improvements in public spending as access to social services and basic infrastructure improves for a broader range of the population. Second, increased fiscal space through tax reform and improved tax collection should enable the Government to increase its contribution to the NDP, which aims at promoting inclusive growth and achieving the Sustainable Development Goals. Third, improvements in the business environment (through energy and tax simplification reforms) should encourage the creation of new enterprises (as well as foreign investment), which in turn would generate additional jobs and help absorb a young and fast-growing population into the labor market. Fourth, increasing the revenue generation of property taxes enhances the progressivity of the tax system and should provide for fairer and more buoyant taxation going forward. Finally, the removal of the temporary 10-percent VAT preferential rate will increase tax revenues, which could be used for pro-poor spending. While the increase in the VAT rate may appear regressive, recent studies have shown that the rich benefit much more from consumption tax exemptions than the poor (including because the poor to a much larger extent rely on informal markets) and that the poor are better served through targeted social protection programs.1 Nevertheless, it could be the case that some of the poorest witness a decline in their purchasing power in the short-term. Hence, a Poverty and Social Impact (PSIA) analysis will be prepared during the second operation of the DPF series. Environmental Aspects 12. The pillars supported by the proposed operation are not likely to have significant negative effects on the country’s environment, forests, or other natural resources. The first pillar aims primarily at strengthening fiscal management by increasing tax revenue mobilization and improving public investment and debt management, while the second seeks to strengthen energy sector financial viability and the use of renewable energy. Based on a preliminary assessment, no significant adverse environmental effects are anticipated. Moreover, with Pillar 2, the Least Cost Power Development Plan (LCPCP) will be based on prefeasibility studies that include environmental and social screening of potential sites to select sites that have low or moderate environmental and social impacts. Regarding Indicative Trigger 6, if electricity tariffs were increased for poor households as part of Indicative Trigger 6 (which is not foreseen as tariffs in Togo are among the highest in West Africa), this could have a negligible to moderate adverse impact on the environment, forests and natural resources from a potential increase in the use of firewood by the poor, leading to deforestation and forest degradation. . 1Bachas, Pierre, Lucie Gadenne, and Anders Jensen. 2019. “Consumption Taxes, Redistribution and Informality.� Cambridge, MA: Harvard University. Page 5 of 6 The World Bank Togo First Fiscal Management and Energy Reform DPF (P169867) CONTACT POINT World Bank Ernest John Sergenti, Thomas Blatt Laursen, Urbain Thierry Yogo Senior Economist Borrower/Client/Recipient Ministère de l’Economie et des Finances Implementing Agencies Ministry of Economy and Finance Mongo Aharh-Kpessou Permanent Secretary in Charge of the monitoring of Reforms a spreformetg@gmail.com FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects APPROVAL Task Team Leader(s): Ernest John Sergenti, Thomas Blatt Laursen, Urbain Thierry Yogo Approved By APPROVALTBL Country Director: Coralie Gevers 25-Oct-2019 Page 6 of 6