Document of The World Bank FOR OFFICIAL USE ONLY Report No. 58295-TG INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSED FOURTH ECONOMIC RECOVERY AND GOVERNANCE GRANT IN THE AMOUNT OF SDR 18 MILLION (US$28 MILLION EQUIVALENT) TO THE REPUBLIC OF TOGO March 1, 2011 Poverty Reduction and Economic Management 4 Country Department AFCF2 Africa Region 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. Currency Equivalents As of February 24, 2011 Currency Unit = CFA Franc (CFAF) US$1 = CFAF 656 Fiscal Year January 1 ­ December 31 ABBREVIATION AND ACRONYMS AAA Analytical and Advisory Activities AfDB African Development Bank AFRITAC East Africa Regional Technical Assistance Center ANC Alliance Nationale pour le Changement APR Annual Progress Report BCEAO Banque Centrale des États de l'Afrique de l'Ouest (Central Bank of West African States) BIA Banque Internationale pour l'Afrique (International Bank for Africa) BLI Baseline Indicators BOAD Banque Ouest Africaine de Développement (West African Development Bank) BTCI Banque Togolaise pour le Commerce et l'Industrie (Togolese Commerce and Industry Bank) BTD Banque Togolaise de Développement (Togolese Development Bank) CAS Country Assistance Strategy CEA Country Environmental Analysis CEI Independent Electoral Commission CEB Communauté Electrique du Benin (Electric Company of Benin) CEET Compagnie d'Energie Electrique du Togo (Togo Electric Energy Company) CEM Country Economic Memorandum CERPM Comité d'Etude et de Rédaction des Projets de Marchés (Committee to Review and Clear Draft Procurement Contracts) CET Common External Tariff CFAF Franc of the African Financial Community CNCS Comité Nationale de Coordination et de Suivi de la Réforme de Passation des Marchés Publics (National Coordination and Monitoring Committee for Procurement Reforms) CNM Commission Nationale des Marchés (National Tender Board) CPAR Country Procurement Assessment Report CSR Corporate Social Responsibility CTMB Compagnie Togolaise des Mines du Benin (Togolese Mine Company in Benin) DGE Direction Générale de l'Economie (General Directorate of Economy) DNCMP Direction Nationale de Contrôle des Marchés Publics (National Department for the Oversight of Public Procurement) DPO Development Policy Operation DSA Debt Sustainability Analysis DSRP Document de Stratégie de Réduction de la Pauvreté (Poverty Reduction Strategy Document) i EC European Commission ECF Extended Credit Facility ECOWAS Economic Community of West African States EFA/FTI Education for All/ Fast Track Initiative EITI Extractive Industry Transparency Initiative ERGG Economic Recovery and Governance Grant ESW Economic and Sector Work EU European Union FDI Foreign Direct Investment GDP Gross Domestic Product GEF Global Environment Facility HIPC Heavily Indebted Poor Countries HIV/AIDS Human Immunodeficiency Virus/Acquired Immune Deficient Syndrome IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation IFG International Fertilizer Group IFRS International Financial Reporting Standards IGF Inspection Générale des Finances (General Finance Inspectorate) IMF International Monetary Fund IPP Independent Power Producers ISN Interim Strategy Note ISO International Organization for Standardization ESDP Energy Services Delivery Project JSAN Joint-Staff Advisory Note LDP Letter of Development Policy LIC Low Income Countries LICUS Low-Income Country Under Stress LONATO Loterie Nationale Togolaise (Togolese National Lottery) MDG Millennium Development Goal MDRI Multilateral Debt Relief Initiative MEF Ministry of Economy and Finance MTEF Medium-term Expenditure Framework MTFF Medium-term Financial Framework NSCT Nouvelle Société Cotonnière du Togo (New Togo Cotton Company) OECD/DAC Organization for Economic Cooperation and Development/Development Assistance Committee OHADA Organization for the Harmonization of Business Law OPT Office Togolais des Phosphates (Togolese Office of Phosphates) PAL Port Autonome de Lomé (Lomé Autonomous Port Company) PAP Plan of Priority Actions PASA Agriculture Sector Support Project PEFA Public Expenditure and Financial Accountability PEMFAR Public Expenditure Management and Financial Accountability Review PFM Public Financial Management PNIA-SA Programme National d'Investissement Agricole et de la Sécurité Alimentaire PPIAF Public-Private Infrastructure Advisory Facility PRSP Poverty Reduction Strategy Paper PSIA Poverty and Social Impact Analysis SCMP Service de Contrôle des Marchés Publics (Procurement Control Service) SDR Special Drawing Rights ii SIGFIP Système Intégré de Gestion des Finances Publiques (Integrated Public Finance Management System) SIGMAP Information Management System for Public Procurement SNPT Société Nouvelle des Phosphates de Togo (New Phosphate Company of Togo) SOE State-owned Enterprises SOTOCO Société Togolaise de Coton (Togo Cotton Company) TA Technical Assistance TdE Togolaise des Eaux (Togo Water Company) TF Trust Fund TOFE Tableau des Opérations Financières de l'Etat (State Finance Operations Tables Tpa Metric tons per annum Tpd Metric tons per day UEMOA West African Community and Monetaire Union UFC Union des Forces de Changement UN United Nations UNDP United Nations Development Program UNFPA United Nations Population Fund UTB Union Togolaise de Banque (Togolese Bank's Union) VAT Value-Added Tax WAEMU West African Economic and Monetary Union WAMU West African Monetary Union WAPP West African Power Pool Vice President: Obiageli K. Ezekwesili (AFRVP) Country Director: Madani M. Tall (AFCF2) Sector Director: Marcelo Giugale (AFTPM) Sector Manager: Miria Pigato (AFTP4) Task Team Leader: Manuela Francisco (AFTP4) iii THE REPUBLIC OF TOGO FOURTH ECONOMIC RECOVERY AND GOVERNANCE GRANT TABLE OF CONTENTS GRANT AND PROGRAM SUMMARY ............................................................................................... VI 1. INTRODUCTION ............................................................................................................................ 1 2. TOGO'S DEVELOPMENT CHALLENGES AND PROSPECTS ............................................ 2 A. BACKGROUND ...............................................................................................................................2 B. RECENT ECONOMIC DEVELOPMENTS .............................................................................................4 C. MACROECONOMIC O UTLOOK AND DEBT S USTAINABILITY ............................................................7 3. THE GOVERNMENT'S REFORM PROGRAM ........................................................................... 9 A. P UBLIC FINANCIAL MANAGEMENT .............................................................................................. 11 B. COTTON S ECTOR ......................................................................................................................... 14 C. PHOSPHATE S ECTOR .................................................................................................................... 16 D. ENERGY SECTOR .......................................................................................................................... 19 4. BANK GROUP'S SUPPORT TO THE GOVERNMENT'S PROGRAM............................... 22 A. LINK TO THE INTERIM S TRATEGY NOTE ...................................................................................... 22 B. COMPLEMENTARITY WITH O THER BANK GROUP ACTIVITIES ...................................................... 23 C. COMPLEMENTARITY WITH O THER DEVELOPMENT P ARTNER PROGRAMS .................................... 24 D. ANALYTICAL U NDERPINNINGS .................................................................................................... 25 E. LESSONS LEARNED ...................................................................................................................... 26 5. THE PROPOSED FOURTH ECONOMIC RECOVERY AND GOV ERNANCE GRANT . 27 A. DESCRIPTION OF THE OPERATION ................................................................................................ 27 B. PRIOR ACTIONS FOR THE PROPOSED GRANT................................................................................ 28 C. ANTICIPATED RESULTS OF THE PROGRAM ................................................................................... 30 6. OPERATION IMPLEMENTATION ............................................................................................. 32 A. COUNTRY OWNERSHIP ................................................................................................................. 32 B. FIDUCIARY ASPECTS .................................................................................................................... 32 C. GRANT ADMINISTRATION, D ISBURSEMENT AND AUDITING ......................................................... 33 D. ENVIRONMENTAL ASPECTS ......................................................................................................... 33 E. POVERTY AND S OCIAL IMPACT .................................................................................................... 37 F. MONITORING AND EVALUATION ................................................................................................. 39 G. RISKS AND RISK M ITIGATION ...................................................................................................... 40 iv List of Annexes: Annex 1: Letter of Development Policy ................................................................................................... 42 Annex 2: Government Policy Matrix ........................................................................................................ 69 Annex 3: IMF Relations Note................................................................................................................... 72 Annex 4: Status of Anticipated Results of the Third ERGG ..................................................................... 73 Annex 5: Triggers for the Floating HIPC Completion Point ..................................................................... 74 Annex 6: Selected Economic and Financial Indicators, 2008­2013.......................................................... 76 Annex 7: Togo at a Glance ....................................................................................................................... 77 Annex 8: Country Map IBRD 33497 ........................................................................................................ 80 List of Tables: Table 2.1: Key Macroeconomic Indicators (2008-2013) ............................................................................ 6 Table 5.1: ERGG-4 Prior Actions............................................................................................................. 29 Table 5.2: Results Framework .................................................................................................................. 31 List of Boxes: Box 5.1: Good Practice Principles on Conditionality................................................................................ 30 Box 6.1: Poverty and Social Impact of the Increase in the Electricity Tariffs ........................................... 39 List of Figures: Figure 2.1: External Debt Sustainability - PV of Debt to Revenue, 2009­2029 .......................................... 9 The Fourth Economic Recovery and Governance Grant was prepared by a team led by Manuela Francisco (Senior Economist, AFTP4) and consisted of: Yemdaogo Tougma (Economist), Diop Saidou (Senior Financial Management Specialist), Fily Sissoko (Lead Financial Management Specialist), Itchi Ayindo (Senior Procurement Specialist), Mamadou Barry and Brigitte Bocoum (Senior Mining Specialists), Ayi Klouvi (Agriculture Economist), Christian Berger (Senior Agriculture Specialist), Nicolas Gergeley (Consultant), Franklin Gbedey (Energy Specialist), Fanny Missfeldt-Ringius (Senior Energy Specialist), Quentin Wodon (Adviser), Anthony Molle (Counsel) and Salwa Saleh (Junior Counsel), Aissatou Diallo (Senior Finance Officer), and Judite Fernandes (Program Assistant). Peer reviewers were: Vincent Palmade (Lead Economist, AFTFP) and Catherine Laurent (Senior Public Sector Management Specialist, MNSPR). Overall guidance was provided by Miria Pigato (Sector Manager, AFTP4), Philip English (Lead Economist, AFTP4), Madani M. Tall (Country Director), Herve Assah (Country Manager) and Katrina Sharkey (Country Program Coordinator). v THE REPUBLIC OF TOGO FOURTH ECONOMIC RECOVERY AND GOVERNANCE GRANT (ERGG-4) GRANT AND PROGRAM SUMMARY Recipient: Republic of Togo. Implementing The Ministry of Economy and Finance (MEF) coordinates the Agency: implementation in close association with several line ministries. Financing Data: IDA Grant Amount: SDR 18 million (US$28 million equivalent). Operation Type: Stand-alone, IDA grant to be available upon effectiveness. Main Policy Areas: The proposed grant focuses on two main policy areas: (i) public finance management; and (ii) governance, transparency and efficiency in key sectors of the economy (cotton, phosphates and energy). Key Results By December 2011: (i) spending units receive ceilings on expenditure Indicator: commitments two months in advance; (ii) all procurement notices and contract awards reviewed by the General Procurement Department are publicly available; (iii) NSCT's unit cost per ton reduced by 5 percent; (iv) all criteria towards becoming an EITI candidate country are met; and (v) CEET's turnover increased by 7 percent. The proposed grant supports Government-owned reforms to improve Program governance, transparency and efficiency in public financial management as Development well as advance structural reforms aimed at strengthening key sectors of Objective(s) and economy (phosphates, cotton and energy). Contribution to Interim Strategy The operation directly supports two pillars of the ISN and provides Note (ISN): financing for budgeted fiscal needs during 2011. The reforms supported by the operation are critical to the Government's ability to use public resources efficiently and effectively to support the country's economic and social recovery. The grant is closely coordinated with assistance provided to the Government's reform program through the LICUS TF Grant for Economic Recovery and International Reengagement, the Enhanced HIPC Initiative, the AfDB and EU budget support operations, and the IMF ECF program. vi Risks and risk The main risks associated with the ERGG-4 are: Mitigation: Political risk. The peaceful outturn of the 2010 presidential elections has clearly improved the socio-political outlook and hence reduced the political risk presented by Togo. The main opposition party is represented in the Government which is expected to promote the broad acceptance of critical reforms. The PRSP process provided additional support to foster a national consensus across Togolese society and among Government representatives on a medium-term reform agenda. Vested interests risks: Reform efforts aimed at improving governance of the public sector and public enterprises could still face resistance. More transparent and accountable practices in the phosphates, energy and cotton sectors will enhance governance and reduce the scope for vested interests to undermine reform effort in these critical sectors. In addition, the proposed prior actions focus on areas in which the Government has already demonstrated its commitment and ownership in the previous ERGGs. Close coordination with the IMF, AfDB, EU, and bilateral donors and intensified sector dialogue will help ensure that the Government continues with its determination to implement the reforms in these sectors. Macroeconomic risks to the economic recovery could stem from the vulnerability of the Togolese economy to exogenous shocks (mostly climate and commodity price shocks), or from a slower than expected rebound from the global economic recovery. Fiscal sustainability can be jeopardized if authorities do not resist the strong pressures to increase public spending after the HIPC completion point. Pursuing sustainable fiscal policies will require discipline and a targeted public communication effort. There is also the risk that ongoing revenue mobilization reforms will not generate the expected increase in revenues and that investments in infrastructure will be pursued with excessive domestic financing, thus driving up borrowing costs and crowding out private investment. In addition, the extent to which the restructuring of the Togolese banking sector will lead to increased lending to the economy remains uncertain. Togo is also exposed to the impact of the euro appreciation on its major international exports, phosphates and cotton. To mitigate the macroeconomic risks, the IMF, through the ECF program, and IDA will continue to closely monitor Togo's macroeconomic performance, including providing ongoing assistance to the financial sector reform program through the IDA-financed Financial Reform and Governance TA Project. Fiduciary risks. Despite recent reforms, fiduciary risk remains from possible corruption or Government's failure to make effective and efficient use of the public resources. After improvements through measures taken under the previous ERGGs, including the creation of an internal audit unit vii and the Court of Accounts, improvement in fiduciary standards remains a central objective of the proposed operation. The prior actions of the present operation are expected to mitigate the fiduciary risk, and effective implementation will be closely monitored. Implementation capacity. Risks arise from the lack of sufficient professional staff and weak institutional capacity and coordination in the wake of the long recent history of socio-political instability and suspended foreign assistance. IDA projects and TF grants (Financial Sector and Governance TA Project supporting financial sector reform, LICUS grant for Economic Recovery and International Reengagement) have contributed to capacity enhancement. The IMF continues to provide assistance in public financial management and other donors (AfDB, EC and France) are also supporting capacity building efforts in various sectors. Operation ID P122806 viii REPUBLIC OF TOGO FOURTH ECONOMIC RECOVERY AND GOVERNANCE GRANT 1. INTRODUCTION 1.1 This program document proposes a Fourth Economic Recovery and Governance Grant (ERGG-4) to the Republic of Togo in the amount of SDR 18 million (US$28 million equivalent). This stand-alone, one-tranche development policy grant supports the Government's efforts to pursue the implementation of governance reforms initiated under the ERGG, ERGG -2 and ERGG-3 operations approved by the Board in May 2008, April 2009, and May 2010 respectively. Specifically, the ERGG-4 focuses on continuing and deepening policy reforms to improve public financial management (PFM) and governance of key sectors of the economy. 1.2 The reform policies supported by this grant are closely aligned with Togo's Poverty Reduction Strategy Paper (PRSP) covering the period 2009-2011. The PRSP was adopted by the Government in July 6, 2009 and presented to the IMF and IDA Boards in November and December 2009, respectively. A first annual progress report (APR) of the PRSP, prepared by the Government through a participatory progress and covering the July 2009 - June 2010 period, was published in October 2010. A Joint Staff Advisory Note was discussed by the IMF Board on December 10, 2010 and by the IDA Board on December 14, 2010 (jointly with the HIPC Completion Point document). The proposed grant is also in line with the Bank's Interim Strategy Note for Togo for the period FY08-10 presented to the IDA Board on May 29, 2008 and complements the assistance provided through the IMF ECF program, the AfDB and the EU budget support operations, and the Enhanced HIPC Initiative. 1.3 The implementation of the PRSP is expected to consolidate Togo's recovery from a prolonged socio-political crisis which had a very negative impact on the country's economic performance. Following the installation of Faure Gnassingbé in 2005, upon the death of President Gnassingbé Eyadéma, a comprehensive political agreement (Accord Politique Global) was reached among the main parties which eventually led to fair and transparent legislative elections held on October 14, 2007. The relatively inclusive cabinet (but without the major opposition party UFC) resulting from these elections has implemented political and economic reforms to consolidate the reconciliation of the society and launch the recovery of the economy. But just as the country tried to emerge from the one and a half decades long socio-political crisis, its economy has been severely affected by the succession since 2008 of severe external and internal shocks culminating with the negative impact of the 2009 global crisis on the country's economic growth and public finances. On the political front, the organization of the presidential elections which took place on March 4, 2010, was judged to be fair and transparent according to the regional election observers, and the incumbent President Faure Gnassingbé was reelected with 61 percent of the votes. The peaceful elections opened the way for an inclusive Government, including cabinet members of the main opposition party UFC. 1.4 It is in this climate of renewed hope that the proposed grant aims to assist the Togolese Government in continuing the implementation of its reform agenda to support the country's economic and social recovery and lay the foundation for sustained pro-poor 1 growth. The recent shocks have exposed the fragility of Togo's institutions of economic and financial management but also the resolve of policy makers to sustain their reform program. Progress has been achieved during the first year of PRSP implementation in several areas. The grant would continue to support Government-owned reforms to improve governance, transparency and efficiency in public financial management as well as further advance structural reforms aimed at strengthening governance and transparency in key sectors of the economy (phosphates, cotton, and energy) launched under the previous ERGGs. These reforms would achieve strengthened fiscal sustainability, improved economic governance and enhanced transparency of State institutions and processes--critical elements for the country's economic and social recovery. 1.5 The operation would provide financial support to the Government at a crucial juncture, after the country has reached the HIPC completion point in December 2010. Full delivery of HIPC and MDRI debt relief, and additional multilateral and bilateral debt relief, reduced Togo's external debt burden significantly, and created fiscal space to improve progress towards achieving the Millennium Development Goals (MDGs). The proposed amount of this grant is SDR 18 million (US$28 million equivalent). As Togo was at high risk of debt distress at the time of the stipulations of the grant allocation system agreed with IDA donors for the IDA 15 period (FY09-FY11), the ERGG-4 is provided on grant terms. 2. TOGO'S DEVELOPMENT CHALL ENGES AND PROSPECTS A. B ACK GROUND 2.1 Togo is a small country in West Africa with a population of 6.8 million (2009). Its main economic potential has been based on mining, agriculture, and transit trade. Togo's highest export-earning sector is clinker/cement, produced from local limestone. The country's next important exports are phosphates and cotton, processed and marketed by public enterprises.1 As recently as 2000, phosphate and cotton exports together accounted for over 50 percent of total export revenue. However, since then, their share has declined dramatically. The phosphate sector's exports dropped by more than 50 percent in a few years, from FCFA 33 billion in 2001 to FCFA 15 billion in 2007.2 The cotton sector's exports fell from a peak of FCFA 52 billion in 2003 to FCFA 12 billion in 2007. Lost export revenue has been offset through increased exports to the West African sub-region by firms benefiting from free zone status. Togo is a member of the West African Economic and Monetary Union (WAEMU) and of the Economic Community of West African States (ECOWAS). As a small country, another aspect of its successful development lies in its ability to capitalize on greater integration with its neighbors, notably by further developing its deep-water port (the only one in the region) as a shipping hub through private investments. 2.2 Togo's current economic situation has been significantly affected by its recent history. The prolonged period of political instability, the weak economic and public financial 1 The government has 60 percent of the capital of New Cotton Company of Togo (NSCT). 2 They recovered in 2008 and reached 51 billion FCFA due to a short -lived 4-fold increase in world prices. Togo was unable to take full advantage of this windfall due to the deterioration of production capacity. Phosphate export revenues dropped again in 2009 and 2010. 2 management, and the related withdrawal of donor support 3 have negatively affected the country's economic performance and dramatically reduced living standards for large segments of the population. To support the government's financing needs, arrears were accumulated over many years and the large state-owned companies were tapped to provide advances to the Treasury. The situation was aggravated by pervasive mismanagement leading to large losses by these state-owned enterprises (SOEs), in particular, in the cotton and phosphate sectors. As a result of the dire financial situation of the main parastatals, several banks were burdened by an excessive share of nonperforming loans­­in addition to being severely undercapitalized. 2.3 The 2007 parliamentary elections,4 deemed free and transparent by the international community, marked a milestone in Togo's democratization process. They were followed by donors' reengagement and support. After the resumption of EU cooperation in November 2007 and the government's launching of economic reforms, several others donors actively reengaged with the country. In this context, the first Economic Recovery and Governance Grant (ERGG) formed part of a coordinated and interlinked strategy with the IMF, the African Development Bank (AfDB), and other donor agencies to clear Togo's arrears; resume normal relations with the country; and support the government's program of economic reforms. The clearance of arrears and the economic reforms paved the way for Togo to advance toward debt relief under the HIPC Initiative and MDRI, and strengthened the foundation for economic and social recovery. 2.4 The rise in oil and food prices and the severe flooding in 2008 and 2010 and the global recession in 2009 adversely impacted the performance of the Togolese economy. These forces held down growth just as it was poised to improve in response to the economic program and donor reengagement. As a result, although per capita GDP growth had begun to rise, it stayed low (-0.1 percent and 0.7 percent in 2008 and 2009, respectively). Despite the recent economic reforms, Togo continues to be among the poorest countries in Sub-Saharan Africa. Income per capita (US$440 in 2009 according to the Bank's Atlas methodology) is low compared to Sub-Saharan Africa (US$1,1135) and Low-Income Countries (US$512) averages. 5 Progress has been achieved in certain areas toward reaching the Millennium Development Goals, notably, the goals of universal primary education and the combat of HIV/AIDS. However, Togo is unlikely to meet 6 of the 8 goals by the 2015 deadline.6 2.5 Togo's business environment is still constrained by two decades of underinvestment in infrastructure, notably, transport and energy. The underinvestment led to high production costs. The capacity of the administration to create an environment conducive to private sector development clearly declined during the long sociopolitical crisis and donor disengagement. Simultaneously, according to certain indicators, corruption increased, further straining business operations.7 The lack of political and economic stability also had prompted the 3 Donors disengaged in the 1990s. They began reengaging in 2007 following the 2007 Parliamentary elections. 4 After the death in 2005 of President Gnassingbé Eyadéma, who had led Togo for 38 years, Togo undertook a national reconciliation that culminated in multiparty parliamentary elections on October 14, 2007. International observers considered the elections free and transparent. 5 Source: (DDP) 2009. Sub-Saharan Africa refers to Developing Sub-Saharan Africa only. 6 These 5 goals are to (1) eradicate extreme poverty, (2) promote gender equality, (3) reduce child mortality, (4) improve maternal health, and (5) ensure environmental sustainability. 7 Enterprise survey 2009, ICA 2010. 3 private sector to adopt a wait-and-see attitude and postpone new investments. The country's financial sector strategy and planned privatization of ailing state-owned banks is expected to boost investor confidence and to improve the banking sector's capacity to finance the economy. In the meantime, the clearance of government arrears to the private sector will provide some much needed relief. 2.6 Recent reforms in public finance management (PFM) and in key sectors have enhanced governance and paved the way for broader sector reforms. The Togolese authorities have implemented a wide range of PFM reforms in budget preparation, budget execution, budget controls, and public procurement. Measures to improve governance and prepare reforms in the cotton, phosphate and energy sectors8, include: A strategic audit of the cotton sector and two financial audits of the former state-owned cotton company were carried out. The audits were followed by clearance of the cotton company's payment arrears to farmers, as well as the introduction of internal controls and cost savings. In the electricity sector, a Board of Directors for the electricity utility company have been established, new statutes harmonized with WAEMU corporate law have been adopted, and a five-year contract between CEET and the government has been signed. Important milestones were achieved in the phosphate sector, including the finalization of a strategic audit, preparation of a three-year-business plan, and adoption in March 2010 of the phosphate sector strategy. In October 2010, after fulfilling all the required criteria, Togo was granted EITI candidate status. 2.7 Overall, Togo has achieved considerable progress during the past three years. Nevertheless, going forward, significant institutional and economic challenges remain. They include (i) continued strengthening of PFM and of economic governance, especially in parastatals; (ii) creating an environment conducive to private sector investment, including adequate infrastructure; and (iii) pursuing sustainable fiscal policies. The latter will imply resisting pressures to increase government spending after the completion point, as public expectations have risen. After reaching the HIPC decision point in November 2008, Togo arrived at the completion point in December 2010, a milestone which significantly reduced its debt burden and will free up fiscal space over time. To revive the economy and reduce poverty, the Togolese authorities are seeking to consolidate macroeconomic stability and implement structural reforms, while securing stepped-up technical and financial assistance from development partners. B. R ECENT E CONOMIC D EVELOPMENTS 2.8 Real GDP growth showed a modest acceleration in 2009 and 2010 but remains below potential due to the external environment. Economic growth in 2008 was depressed by flood damage and surges in international oil and food prices. As a result of the countercyclical 8 Other important reform includes the preparation of a strategy to strengthen Togo's fragile state-owned banks. The restructuring of the financial sector is advancing: the largest bank has been placed under new management and oversight; preparations are on track for the final call for bids for privatization of four banks; and a new privatization law was passed by the National Assembly in October 2010 4 fiscal policies, real GDP growth started to recover in 2009. It reached 3.2 percent ­­above earlier estimations (2.5 percent)- but lower than projected before the crisis unfolded (4 percent). GDP growth in 2010 is estimated at 3.4 percent, driven mainly by the extractive industries, especially clinker/cement, commerce and public works linked to public investment. The external environment continues to impede and delay the expected recovery following Togo's protracted domestic crisis. 2.9 Despite the steep increase in public investment, the government maintained a prudent fiscal stance anchored by targets on the domestic primary balance, which was slightly negative in 2009 and 2010 (-0.4 and -0.1 percent, respectively). The overall fiscal deficit (on payment order basis) as a share of GDP reached 2.8 percent in 2009 and is estimated to be at the same level in 2010. Public investment rose sharply in 2009 and 2010 to reach 5.5 percent and 6.7 percent of GDP, respectively, compared to 2.8 percent on average for 2005­08. This increase was possible due to the implementation of measures to improve project planning and executi on, particularly by speeding up steps in the expenditure chain, which greatly contributed to increase the investment execution rate. This increase in public investment will contribute to reduce the enormous infrastructure deficit while supporting economic activity during a period of recession. This countercyclical fiscal policy has not compromised debt sustainability due to Togo's fiscal discipline and access to external financing on grant or concessional terms. Current expenditures increased in 2009 due to spending for emergency needs, largely as a response to the global economic slowdown, but declined in 2010 (as a percentage of GDP) and are expected to continue to decline. 2.10 The 2011 budget continues to have a pro-growth fiscal stance by emphasizing public investment without compromising fiscal and debt sustainability. Public investment is expected to reach 9.9 percent of GDP. Improved revenue collection­­thanks to the ongoing reforms in the tax administration9 and disciplined current spending­­are expected to create space for additional public investment.10 Nonetheless, in the event that revenues fall short, the government is committed to ensure that expenditure execution is consistent with available resources and prepared to cut spending if adequate financing is not forthcoming. While the pro- growth fiscal policy is well rooted, there are risks that warrant close monitoring of fiscal development. Other fiscal risks include the (i) public expectations for increased public spending after the completion point; (ii) delicate financial situation of CEET (Togo's Electric Energy Company), which has been exacerbated by the fixed charges required for the new Contour Global thermal plant but somewhat mitigated by the recent adjustment in electricity tariffs; and (iii) mismanagement of public companies and public banks in general, including the phosphate company (SNPT). The latter's high operating costs are close to international prices, threatening the financial situation of the company. 2.11 The current account deficit is estimated to increase in 2010 to 7.7 percent of GDP (from 7.1 percent in 2009 and 6.4 percent in 2008) as imports continue to rise faster than exports due to large public investment. Export performance continues to be subdued due to 9 These reforms include reduction in corporate and income tax rates (with the objective of reducing informality), and placement of collectors in the tax administration. 10 The sale of a third mobile telephone license, conservatively estimated at 1.2 percent of GDP is expected to be an important one-off contributing factor. 5 problems in the management of the cotton and phosphate sectors. 11 Exports in 2009 and 2010 (estimated) represented approximately 34 percent of GDP. On the other hand, imports increased from 49.1 percent of GDP in 2009 to 51.4 percent in 2010 (estimated). Remittances are rebounding strongly after the global economic slowdown, increasing by 14 percent in the first semester of 2010, compared to the first semester of 2009 (after falling 1.3 percent in 2009). FDI also is estimated to have recovered, although it is not expected to reach its pre-crisis level until 2012. FDI is estimated to have increased by 3.3 percent in 2010, compared to 15 percent in 2009. Gross international reserves (months of imports) are estimated to have decreased to 4.4 months of prospective imports by end-December 2010, compared to 5.2 months in 2009 and 4.9 months in 2008. 2.12 Monetary developments have been favorable in 2009 and 2010. After a sharp increase in prices linked to global surges in food and oil prices in 2008, inflation decelerated sharply to around 2 percent in 2009 and is projected to remain stable around that level. Following the rehabilitation of the banking sector, undertaken in end-2008, both deposits and credit to the private sector have grown, reflecting increased confidence in the financial system and a resumption of financial intermediation. The increases in money supply have not led to inflationary pressures. Table 2.1: Key Macroeconomic Indicators (2008-2013) Indicator 2008 2009 20101 20112 20122 20132 Real GDP growth (annual percentage change) 2.4 3.2 3.4 3.7 4.0 4.1 Real GDP per capita growth (annual percentage change) -0.1 0.7 0.8 1.2 1.4 1.6 Overall fiscal balance, payment order basis, incl. grants (percent of GDP) -0.9 -2.8 -2.8 -2.7 -2.4 -2.1 Domestic primary balance 0.4 -0.4 -0.1 -0.4 -0.3 -0.2 Current expenditures (percent of GDP) 14.7 15.8 15.6 15.5 15.1 15.2 Of which wages and salaries 4.9 6.3 5.9 5.9 6.1 6.1 Capital expenditures (percent of GDP) 3.2 5.5 6.7 9.9 10 9.6 Total revenues (percentage of GDP) 15.6 16.9 17.1 19.3 18.4 18.5 Tax revenues (percentage of GDP) 14.9 15.4 15.0 16.3 16.5 16.6 Current account balance, including official transfers (percentage of GDP) -6.4 -7.1 -7.7 -7.4 -6.9 -6.8 Exports (percentage of GDP) 30.1 34.4 34.1 33.2 33.3 33.0 Imports (percentage of GDP) 44.5 49.1 51.4 51.4 51.5 51.0 Reserve coverage (months of prospective imports of goods and services) 4.9 5.2 4.4 4.5 4.6 4.8 CPI annual average (annual percentage change) 8.7 2.0 2.2 2.0 1.8 1.7 Total public sector debt (percentage of GDP) 89.3 72.8 34.3 30.9 27.6 26.2 External public debt (percentage of GDP) 60.9 51.8 14.6 15.1 15.6 16.2 External public debt service as percentage of exports 6.5 5.3 6.0 3.2 2.6 3.2 1/ Estimated; 2/ Projections. Source: IMF, Ministry of Finance and Bank staff estimates. 11 Phosphates exports declined from CFAF 40 billion in 2009 to CFAF 28 billion in 2010. Cotton exports increased from CFAF 7.9 billion in 2009 to 11.4 billion in 2010 but are still low compared to 2003 (CFAF 50 billion). 6 2.13 The Government continues to successfully implement the three-year IMF-supported ECF arrangement and the IMF Board completed the fifth review on December 10, 2010. All the quantitative targets through June 2010 were achieved, and good progress was made with the structural reforms launched under the ECF-supported program which will end in August 2010. The ECF-supported program aims to revive economic growth and improve living conditions within a stable macroeconomic environment by (i) bringing public debt to a sustainable level through gradual fiscal adjustment and HIPC/MDRI debt relief; (ii) facilitating the resumption of external assistance; (iii) increasing resources for infrastructure, health, and education; (iv) strengthening fiscal governance; (v) restructuring fragile banks; and (vi) reforming the business environment and state-owned enterprises. C. M ACROECONOMIC O UTLOOK AND D EB T S USTAINABILITY 2.14 A modest rebound is expected in 2011-13 (see Table 2.1 and Annex 6) driven largely by the lagged effects of the countercyclical fiscal policies and continued implementation of the large public investment program. Growth is expected to be around 4 percent in 2011-13. A further economic revival will require improved business confidence, growing regional trade, and a rebound in cotton and phosphate production after the collapse of recent years. Over the medium-term, growth would be sustained by higher foreign direct investment (e.g. in banking, telecoms and phosphate sectors, and the port), improved financial intermediation and upgrades to public infrastructure. 2.15 Inflation is expected to be contained over the medium term, anchored in the WAEMU currency union and fiscal prudence consistent with the regional monetary policy stance. The regional monetary-exchange rate arrangement is expected to ensure monetary and price stability with inflation at about 1.5 to 2.0 percent in the medium-term. Nonetheless, inflation could be erratic in the event of unfavorable weather conditions (droughts or heavy floods) or further volatility in world food and oil prices. 2.16 External conditions are likely to remain challenging in the medium-term. Togo's current account deficit is projected at about 7 percent of GDP over the period 2011-13, with imports projected to remain high at approximately 51 percent of GDP driven by public investment. The balance of payments will stay vulnerable to terms of trade shocks (in particular from oil prices) and further exchange rate volatility of the Euro (to which Togo's currency value is fixed) vis-à-vis the US dollar. Exports are expected to remain at approximately 33 percent of GDP in the medium term due to the weaker global growth and demand despite the expected recovery of Togo's phosphate and cotton sectors. FDI and private medium- and long-term capital inflows are expected to begin to recover, as economic confidence benefits from a continuing commitment to economic and political reform. 2.17 Despite an increase in domestically-financed investment Togo's fiscal balances are expected to remain consistent with fiscal and debt sustainability. While capital expenditures are expected to increase from 6.7 percent in 2010 to around 10 percent during 2011 -13, current expenditures are expected to remain at approximately 15 percent. The envisaged primary fiscal deficit in the order of 0.3 percent of GDP would be possible thanks to the ongoing measures to improve revenue mobilization. Revenues are expected to increase from 17 percent of GDP in 2010 to approximately 19 during 2011-13. Pursuing a sustainable medium-term fiscal position 7 will require managing the pressures to increase Government spending after the HIPC completion point, as public expectations may surpass resource availability. 2.18 The macroeconomic policy framework provides an adequate basis for the proposed operation. The Government has generally demonstrated a satisfactory track record in maintaining prudent macroeconomic policies that are sustainable over the medium term. The framework is supported by an IMF ECF program which has been on-track since the ECF arrangement was approved in April 2008. Debt Sustainability 2.19 Togolese authorities successfully implemented all the triggers for reaching the completion point under the Enhanced HIPC Initiative (see Annex 5). The first Poverty Reduction Strategy Paper (PRSP) was approved by the Council of Ministers on July 6, 2009 and its implementation has been satisfactory. The fifth review under the Extended Credit Facility (ECF) arrangement was completed on December 10, 2010, with all quantitative criteria met. All other triggers, including those in the areas of public financial management, governance, debt management and social sectors were fully implemented. The Completion Point Document and the JSAN were approved by the World Bank Board on December 14, 2010. The HIPC assistance in PV terms was estimated at the completion point at US$282 million, of which US$155 million was delivered by multilateral creditors and US$127 million by bilateral and commercial creditors. Togo did not qualify for topping-up under the enhanced HIPC Initiative based on end- 2009 debt data. This relief represented an overall reduction of 19 percent in the PV of all public and publicly guaranteed external debt as of end-December 2007, after application of traditional debt relief mechanisms. 2.20 Upon reaching the completion point under the Enhanced HIPC Initiative, Togo also qualified for additional debt relief under the Multilateral Debt Relief Initiative (MDRI). Debt relief under the MDRI covered almost all remaining debt service obligations to IDA and the African Development Fund (AfDF). MDRI relief reduced nominal debt service by US$749 million over a period of 39 years. 12 Full delivery of HIPC, additional multilateral and bilateral assistance beyond HIPC, and MDRI debt relief at the completion point reduced Togo's external debt burden significantly. The PV of debt-to-revenue ratio fell from 272.0 percent at end-2009 to 77.2 percent at end-2010. Subsequently, the PV of debt-to-revenue ratio is expected to increase gradually to 114.6 percent at end-2029 due to new borrowing. Togo's debt service ratios are projected to improve as well. The debt service-to-revenue ratio would decrease from 11.9 percent in 2010 to 5.1 percent in 2012. Thereafter it would rise to 7.9 percent in 2015­17 due to debt service associated with the IMF's ECF and expected repayment of commercial loans. From 2020 onwards it will rise gradually due to debt service associated with projected new borrowing. The debt service-to-exports ratio is projected to fall from 6.0 percent to an average of 3.9 percent in 2010­19 and 3.0 percent in 2020­29. However, the future evolution of these indicators will be sensitive to the macroeconomic assumptions, particularly exports and the terms of new external financing. 12 Debt relief assistance provided by the World Bank totaled to US$665.7 million of which US$129.1 million were arrears clearance and US$536.6 corresponded to MDRI. 8 Figure 2.1: External Debt Sustainability - PV of Debt to Revenue, 2009­2029 PV of Debt to Revenue (in percent of revenue) 400 Before traditional debt relief and multilateral arrears clearance 1/ After conditional HIPC Assistance After unconditional HIPC assistance 300 After HIPC and MDRI assistance After HIPC, MDRI and beyond HIPC assistance 200 100 0 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2.21 The LIC DSA indicates that Togo is at moderate risk of debt distress post-HIPC completion point and debt vulnerability will depend on strong and continued efforts to mitigate the risk of adverse shocks and prudent debt management. While Togo's debt burden was substantially reduced following the HIPC completion point, it remains vulnerable to a number of shocks. Togo's debt dynamics are particularly sensitive to lower growth and lower concessionality of new financing. These results highlight that positive debt dynamics after the completion point depend on pursuing sound fiscal policies, especially a prudent debt strategy and sustainable fiscal balances, and on promoting economic growth, especially exports, through reforms of the business climate and key sectors. 3. THE GOVERNMENT'S REFORM PROGRAM 3.1 In July 2009, Togo adopted the Poverty Reduction Strategy Paper (PRSP), which builds on the strategy laid out in the Interim Strategy for Poverty Reduction (I-PRSP). The PRSP was presented to the Boards of the International Monetary Fund (IMF) and International Development Association (IDA) in November and December, 2009, respectively. Drawing on lessons learnt from the implementation of the I-PRSP, the full PRSP lays out the strategy for growth and poverty reduction for the period 2009-2011. The PRSP is coupled with a Plan of Priority Actions (PAP) which details the pluri-annual planning of actions, programs and measures. The ultimate objective of the PRSP is to achieve effective and sustainable improvement of people's living conditions by addressing the principal causes of poverty. 9 3.2 The PRSP is a comprehensive strategy covering most of the challenges and areas of action to foster growth and reduce poverty. It is based on four strategic pillars, with the first three common to the I-PRSP, which are supported by the ISN:13 (i) the strengthening of governance, with a focus on political, institutional and economic governance; (ii) consolidation of the bases for strong and sustained growth with measures to reform state-owned enterprises and financial institutions, improve the business environment, strengthen regional integration and trade, revive agricultural production, rehabilitate infrastructure, and improve management of natural resources and the environment; (iii) development of human capital with a focus on improving access to and the quality of basic education and health services; and (iv) reduction of regional imbalances and promotion of community development. For these pillars, the PRSP integrates cross-cutting themes related to the environment, HIV/AIDS, gender and human rights. 3.3 The process of preparation of the PRSP encompassed the participation of all development actors and regions, thus ensuring that the PRSP articulates the identified country's priorities to reduce poverty and promote sustainable growth. It involved the private sector, religious groups, the non-Government organizations, the Parliament and the technical and financial partners. There were three main levels of expanded consultation: (i) drafting and adoption of the road map of the process; (ii) diagnostic phase; and (iii) final drafting of the PRSP. The development partners, including the World Bank and IMF, were consulted at these various stages in order to facilitate implementation of the principle of alignment advocated in the Paris Declaration. 3.4 The ERGG-4 will continue to support the implementation of the Government reform agenda. The proposed operation would continue to engage the Bank in policy and technical dialogue in the same two pillars as previous operations: (i) the strengthening of governance with the aim of improving budget formulation, execution and controls, and public procurement; and (ii) consolidation of the bases for strong and sustained growth including through reforms in key sectors of the economy (phosphate, cotton and energy sectors). ERGG and ERGG-2 also supported reforms in the financial sector. Based on the principle of avoiding cross-conditionality, this sector is not covered by the ERGG-4 (as it was not by the ERGG-3) as it is currently supported by the IMF ECF program. It is also being supported through the IDA- financed Financial Sector and Governance TA project approved by the Board in March 2009. The financial support provided through the ERGG-4 will further narrow the gap between the cost of implementing key elements of the PRSP and resources available from the Government's own domestic revenues and other donor support. The next sections highlight the salient features of the current situation in these areas of reform as well as the Government's main areas of policy efforts and specific measures supported by the proposed grant. The Government's policy matrix is presented in Annex 2. 13 The ISN is based on three interrelated pillars: (i) improving economic governance and transp arency; (ii) promoting economic recovery and sustainable development; and (iii) addressing urgent social needs. 10 A. P UBLIC F INANCIAL M ANAGEMENT Current issues 3.5 Since mid-2006 the government has taken critical steps to strengthen public expenditure management. Nonetheless, important challenges remain, as identified by key analytical work. Togo has established a track record on fiscal management and accounting reforms under IDA-financed ERGGs and the IMF Staff Monitored Program. Recent analytical work­­the 2009 Public Expenditure Management and Financial Accountability Review (PEMFAR)­­notes that the budget performance has improved since the 2006 PEMFAR, driven primarily by reforms of tax and customs administration and better expenditure management. Nevertheless, the analytical work also pointed to outstanding public expenditure management challenges that should be addressed. Key recommendations of the report include (i) enhance the quality of the budget and its preparation; (ii) improve the prioritization of expenditures by gradually instituting sectoral MTEFs that are coherent with the central MTFF and the PRSP; (ii) disseminate information on financial operations of the state (iii) ensure a better monitoring of the public entities other than the state; (iv) enhance treasury management planning; (v) improve the operationalization of the Integrated Financial Management Information System (SIGFIP); (vi) improve the dissemination of information on the budget and its execution; (vii) strengthen the capacity of the Court of Accounts; and (viii) strengthen the internal audit and inspection unit. 3.6 Since the completion of the 2009 PEMFAR several important measures have been taken to improve the institutional framework for budget preparation and for budget execution and external controls. These measures include (i) setting up a committee to follow up the implementation of the new set of WAEMU Directives adopted in 2009 by the regional council of ministers of finance; (ii) gradually introducing MTEFs for Health, Education and Agriculture; (iii) operationalizing SIGFIP on a pilot basis at the central level and five regional Treasury offices; (iv) initiating the rationalization and simplification of the expenditure chain by reducing redundant controls and the use of exceptional expenditure execution procedures; and (v) operationalizing the Court of Accounts, which initiated functions in the last quarter of 2009. 14 The Treasury accounts and drafts of the Budget Execution Laws (Lois de Règlement) for 2007 and 2008 have been transmitted to the Court of Accounts for review. However, delay in training the judges is hampering their ability to competently audit the documents. 3.7 Progress was also achieved in reporting, cash management, and accounting. Monthly tables of fiscal operations (Tableaux de Bord) have been regularly elaborated since January 2009. The Government Financial Statistics (TOFE) and budget execution reports are published on the website of the Permanent Secretariat for the M onitoring of Reforms (SP-PRPF). With regard to cash management, significant progress has been achieved. Toward creating a single treasury account, the number of bank accounts held by public administration entities has been considerably reduced. Based on the results of the April 2010 survey of treasury accounts, 1,117 accounts, or over 88 percent of the 1,259 accounts, have been closed. Domestic arrears clearance also has advanced, although less than initially planned, because many eligible creditors have no t come forward to make claims. As of end-August, 2010, the Treasury had paid approximately 65 percent of the value of the arrears and 37 percent of the claimants. 14 The judges were nominated in July 2009 and took office in September 2009. 11 3.8 In public procurement, the major weaknesses identified by the 2009 PEMFAR were: Access by public to information on procurement outcomes is insufficient. The legal and regulatory framework in force did not permit strict observance of the fundamental principles of transparency, equitable treatment, and economy applicable to public procurement. More specifically, the framework encouraged the use of noncompetitive and sole-source methods. The institutional framework was ineffective and the national tender board (CNM) had too broad a role, combining both the regulatory and the control functions, and inadequate capacity. The audits, internal and external controls, and anticorruption measures were nonexistent or ineffective, and none of the procurement-related information was disseminated. 3.9 Acknowledging the need to improve the procurement system, the government has taken steps to address the most urgent issues. As a first step, the government adopted a procurement reform action plan, based on the assessment provided in the 2009 PEMFAR. Key reforms implemented since then include the (a) adoption of a new procurement law and a new procurement code, which are now in line with WAEMU Procurement Guidelines, in June and November 2009, respectively; and (b) establishment in December 2009 of the Procurement Regulatory Authority and the National Directorate for the Audit of Public Procurement; (c) monthly publication of summaries of procurement contracts, including sole-source contracts, since June 2009, on the Chamber of Commerce newsletter and on the SP-PRPF website (www.togoreforme.com); and (d) creation of a procurement newspaper and website in December 2010, where all procurement notices and contract awards are published. The latter was an important step to further increase transparency in the purchase of goods and services with public resources. Medium Term Government's reform program 3.10 Despite the several reforms initiated, many weaknesses remain in the public finance management system. To address them, a three-year Action Plan covering 2010­12 was adopted by the council of ministers on September 29, 2010. Building on the 2009 PEMFAR and with the objective of aligning the Togolese PFM system with the international standards the Action Plan includes the following priorities: (i) adoption and transposition of the WAEMU new PFM directives into the national legislation; (ii) improvement of domestic revenue collection and external resources mobilization; (iii) preparation by all line ministries of sectoral MTEFs on the basis of the ceilings determined by the MTFF; (iv) further simplification and shortening of the expenditure chain, while strengthening the capacity of entities for internal and external control; (v) the full roll-out of the SIGFIP in all its functionalities, including its accounting module, to all ministries, institutions, and regions, to improve coordination between line ministries and the Treasury and to better track priority spending; and (vi) improvement of quality and timeliness of the within-year budget reports and the annual financial statements. 3.11 Moreover, the government plans to implement additional actions to further strengthen the public procurement system. During the preparation of the PEMFAR report, the 12 government agreed to base the procurement reform on a medium - and long-term vision to improve transparency and efficiency of the system in line with the WAEMU Procurement Guidelines and international good practices. Specific actions planned by the government are: Publish the outcomes of all public tenders including the state enterprises and concessions in the procurement journal and on the website; Development of a Roadmap to implement the information management system for public procurement (SIGMAP) and connection to the SIGFIP system; Elaboration of procurement standards document; and Development of a legal framework for Public and Private Partnership. Prior actions under the proposed ERGG-4 3.12 The proposed ERGG-4 would support policy actions critical to deepening PFM reforms, including reforms to improve public procurement, as identified in the Government's medium term action plan. The prior actions are the following: (i) Preparation of draft decrees and laws to implement the 6 UEMOA Directives pertaining to public finances; (ii) Publication of the 2010 quarterly budget execution reports and submission to Parliament of the draft 2011 budget law with a medium-term expenditure framework (MTEF) for each of the education, health and agriculture sectors; (iii) Adoption of a treasury management planning order; (iv) Submission by the SOTOCO's liquidator, CEET, SNPT, and Togo télécom of their respective 2007 and 2008 financial statements to the Court of Accounts; and (v) Development and operation of the procurement website, and publication and circulation of the Procurement Newspaper. 3.13 The prior actions supported by the ERGG-4 will contribute to (i) the harmonization of the public finance management framework within the WAEMU directives; (ii) the consolidation of the practice of preparing and disseminating quarterly budget execution reports as well as building technical expertise on budget execution reporting; (iii) adequate treasury planning, with spending units being timely informed on the ceiling for expenditure commitments; (iv) external auditing of public enterprises; and (v) the enhancement of procurement controls. 3.14 Other critical PFM actions were identified as HIPC completion triggers, aimed at further enhancing transparency in budget formulation and budget controls, including on poverty-reducing expenditures. Specifically, these were: (i) adoption of a mechanism to track public expenditures for poverty reduction on the basis of a functional expenditure classification and publication of at least two quarterly reports on these expenditures covering a period of at least two consecutive quarters preceding the completion point; (ii) appointment of judges for the Court of Accounts, provided with work space, equipment and materials, and submission of the draft Budget Execution law and draft General Treasury Balance to the Court of Accounts and 13 Parliament for at least one fiscal year preceding the completion point; (iii) adoption of a decree creating the Procurement Regulatory Authority in conformity with the WAEMU Procurement Directives, nomination of its managerial staff, and providing them with an adequate budget; and monthly publication in a public procurement gazette or on a government website of a summary of all signed contracts, including sole source contracts and concessions, for at least six months immediately preceding the completion point; (iv) consolidation of external and domestic debt data under a single unit charged with all public debt; and (v) publication of an annual report providing accurate and complete data on external and domestic public debt, within six months after the end of the year for at least one year immediately preceding the completion point. The triggers were met (see Annex 5). B. C OTTON S ECTOR Current issues 3.15 After the significant fall in cotton's production in recent past years, with potential important impact on rural poverty, production in 2010­11 is expected to rebound significantly, thanks to the higher international prices and adequate and timely supply of inputs by the Cotton Company (NSCT). Cotton is the country's main cash crop. Its share in exports accounted for 19.3 percent of total exports in 2003, but declined to 4.4 percent in 2009 and 2.8 percent in 2010 (estimated). The decline in cotton production was the result of weak management and governance in the sector, in addition to lower international cotton prices and reduced producer prices. The latter also were affected by the appreciation of the Euro (to which the CFAF is pegged) versus the US dollar, the unit in which cotton prices are quoted. Nevertheless, cotton is potentially an important source of income. In the early 2000s, 300,000 farmers (50 percent of the rural labor force) used to cultivate cotton. Many of them are expected to return to the cotton as the sector organization improves, especially in northern Togo, which has few alternatives. As most of these cotton farmers are in the poorer northern and central parts of the country, the impact on poverty could be substantial. Cotton also can have a strong impact on the development of food crops cultivated in association or in rotation with cotton and benefitting from residual fertilizer used for cotton. As a result of higher international prices (and parallel rise in producer price) and adequate and timely supply of inputs by NSCT, the 2010­11 campaign is promising, and production is expected to reach 50,000 tons. 3.16 To restore the confidence of farmers and creditors in the cotton sector important reforms are ongoing since 2008, most notably the dissolution of SOTOCO (effective in 2009) and the creation, in 2009, of a new cotton company, the New Cotton Society of Togo (NSCT). Weak governance and poor management in the SOTOCO (Société Togolaise de Coton) company led to the accumulation of arrears to producers, discouraging production. 15 The weak management of SOTOCO and poor procurement procedures and governance contributed to major losses and resulted in accumulation of arrears to producers. Moreover, the cotton parastatal's financial losses were a drain on the public Treasury, and its nonperforming loans with local banks undermined the banking sector's overall capacity to finance the economy . As a result the government decided to liquidate SOTOCO and created the NSCT , with a capital of 2 15 SOTOCO had a monopoly on ginning and marketing, and was in charge of distributing agricultural inputs to farmer groups on a credit scheme repaid with the sale of seed cotton. 14 billion FCFA. Of this, 60 percent is held by the government and 40 percent by the producers association, Fédération Nationale des Groupements de Producteurs de Coton (FNGPC). The new company inherited the assets of the former SOTOCO and has taken over its activities. NSCT's first year of operation (2009­10) was rather disappointing, as production fell to 28,000 tons, mainly due to the difficult transition from SOTOCO to NSCT. The second campaign (2010­11) is promising, with production expected to reach 40,000 tons. 3.17 Despite this rebound, the situation of NSCT is fragile. The entry of a private operator in the capital of NSCT, as planned in the government's reform program for the sector, is seen as critical to bring to the new company the technical and managerial expertise required and to recapitalize it. The company is oversized, entailing fixed costs considerably higher than in most West African cotton companies. Despite the rise in world prices, NSCT is not able to generate sufficient cash flow to upgrade its equipment and finance the sector's development. Finally, its technical expertise needs to be strengthened. Medium Term Government's reform program 3.18 Following the financial audits of SOTOCO and the strategic audit undertaken in 2007-8 the government adopted a medium-term cotton sector reform program. The findings of the financial audits highlighted pervasive commercial and financial mismanagement across all layers of the company, notably in procurement, which led to large financial losses and mounting debts, including arrears to cotton farmers. On the basis of these audits, the authorities adopted a medium-term cotton sector reform program, which included the dissolution of SOTOCO and creation of NSCT, with the government and FNGPC as the shareholders in the first stage. The entry in the capital of a strategic industrial private partner is planned for the second stage, resulting in the privatization of NSCT. The upcoming IDA-funded PASA (Agriculture Sector Support Project) will finance the NSCT privatization study. To improve the financial management of the company the audit report also recommended the implementation of an analytical accounting system. 3.19 Actions recently taken or ongoing include: Adoption in January 2009 of a new cotton purchase price mechanism linked to world cotton fiber prices to ensure that farmers receive a fair proportion (61 ­63 percent, depending on the volume of production) of the FOB value of the cotton fiber. Development of a regulatory framework for the cotton sector that specifies the roles, responsibilities, and obligations of sector stakeholders. Introduction of a cost accounting system to reinforce the financial management. Strengthening the producers association (FNGPC), weakened by the past years' cotton crisis. This should contribute to the (i) improvement in the distribution of agricultural inputs among its members and; (ii) recover of the corresponding price without generating internal debts within farmer groups. In the recent past, such debts discouraged farmers from cultivating cotton. 15 The following planned steps in the reform process are the entry of a private operator and the creation of an interprofession (grouping NSCT and FNGPC) in charge of the sector coordination. Prior actions under the proposed ERGG-4 3.20 The proposed ERGG-4 would support two policy actions judged to be critical to advance reforms in the cotton sector: (i) Implementation of an analytical accounting system for NSCT which is consistent with the recommendations of the Assessment Report. (ii) Provision of training to farmer leaders toward a better participation within the NSCT board. 3.21 The prior actions supported by the ERGG-4 will contribute to: (i) the improvement of the financial management of NSCT by having in place an accounting system that delivers information on the cost structure thus contributing to the rationalization of NSCT's costs; and (ii) strengthening farmers' representational abilities on the Board of NSCT to ensure their participation in the decision-making process, with the objective of preventing the accumulation of arrears to farmers or the taking of decisions that may discourage farmers from cultivating cotton. Strengthening FNGPC, including by providing training, 16 started through an EU-funded project in 2009 and 2010 and will be continued by the PASA. C. P HOSPHATE S ECTOR Current issues 3.22 The recently achieved EITI candidate status was an important step to improve governance in the sector. Nonetheless, poor sector governance still hampers performance and raises production costs. The company faces productivity problems due to outdated equipment, electricity shortages, and major governance problems in its equipment and spare parts procurement practices. As a result, despite the significant investments during the first phase of the rehabilitation process investments yielded only modest production gains. The state-owned Société Nouvelle des Phosphates du Togo (SNPT) has made substantial investments in the acquisition of new equipment and spare parts aiming to restore production to approximately 1 million metric tons (mt) of phosphate. 17 However, the year-to-year increase from August 2009 to August 2010 was 8.5 percent, from an already low base. In the 1990s, Togo was among the 5 largest phosphate producers in Africa, exporting more than 3 million tons. Current producti on is only 25 percent of capacity, at approximately 800,000 tons. 16 The content of the training consisted of (i) what is a board of directors; (ii) what are the rights and duties of the members of the board of directors; (iii) what are the rights and duties of the others shareholders; and (iv) why a council of management. 17 SNTP was created in May 2007 following the demise of the International Fertilizer Group Togo (IFG-TG). SNTP operates two phosphate mines. The mine ore is transported by train on a 46km railway system owned by SNPT to the ore treatment plant located in Kpémé. 16 3.23 The sector's weaknesses and the fall in international prices have led to a significant drop in the value of phosphate exports. Phosphate prices fell from the boom-period average of US$125.90 to approximately US$79.30 per mt in 2010. As a result, phosphate exports fell from CFAF 40.3 billion in 2009 to CFAF 28.1 billion in 2010, corresponding to 6.5 percent of the total exports in 2010, compared to 10 percent in 2009. As a result of the inefficiencies of the sector, Togo's phosphates are ranked in the high quartile of the global cost curve for the current level of production, with total costs ranging from US$70 to US$80, just slightly below the international price. It is critical to rapidly address these inefficiencies to ensure the economic and financial viability of SNPT as well as to cushion the national budget against potential contingent liabilities. 3.24 Significant capital investments are needed to further develop the phosphate sector and to renew its potential as a growth pole for Togo. While current reserves are nearing exhaustion, new untapped carbonated reserves could last for 100 years. However, a shift to exploit carbonated reserves would require new technological skills and significant improvements in managerial capability, as well as funding. The shift also would require that the government place greater emphasis on strengthening social and human resources as well as environmental management skills to compete effectively in an international market. The government has commissioned a strategic and financial audit of the phosphate sector to examine various options for further development. 3.25 Based on the audit results, an estimated US$430­US$480 million of new investment is needed to revive the sector and develop its potential. The strategic options considered included partial-to-full privatization, restructuring, and spinning off non-core operations. The recovery of production would be achieved in three phases. The first phase, which has started, is focusing on rehabilitating the production system to restore the nominal capacity of 3 million tons of phosphate rock. The second phase would shift production from the declining reserves of siliceous rock toward the extensive resources of carbonated phosphate ore to double output. The third phase would establish the basis for an integrated system with a target of 10 million mt of treated phosphate rock, some of which would be transformed into 1 million tons of phosphoric acid. Key to the implementation of this strategy is the government's ability to attract a strategic partner in the medium term that could facilitate the modernization and expansion of the phosphate sector. 3.26 Despite the recognition of the valued added that a strategic private partner could bring to the sector, unsuccessful past private participation is holding back the opening of the SNPT's capital to the private sector. Togo's relatively high quality phosphates, the upside potential provided by the significant resources of carbonate phosphates and the easy access continue to attract private sector interest. Private-public partnerships in phosphate mining date back to 1957 when Compagnie Togolaise des Mines du Benin (CTMB) was established with majority private ownership. In 1974, responding to a wave of nationalism, the State increased its shareholding and eventually took full ownership, creating the state-owned Office Togolais des Phosphates (OTP) which fully controlled production and marketing of phosphates until poor governance and mismanagement drove the company to near bankruptcy in the late 1990s. In 2001, the government attempted a rehabilitation program of OTP emphasizing private participation and management for a quick turn-around of the sector performance. Through a noncompetitive and nontransparent process, the International Fertiliser Group-Togo (IFG-Togo) 17 was formed as a 50­50 joint venture between the Togolese state and Brifco.18 Once again, the targets of the restoration program remained elusive. In 2003, following a dispute with Brifco , the government broke off the partnership and eventually liquidated IFG -Togo and created the Société Nouvelle des Phosphates du Togo (SNPT) as a fully state-owned entity. 3.27 While reluctant to immediately launch a second attempt, there is the recognition that a private partner would be needed to step up production to the 6­10 million mt range and move to the industrial phase of phosphoric acid production. Past negative experiences have made the government wary of private participation and as a result, the government is trying to implement the new phosphate sector reform strategy by using internal resources and a loan from the local bank, BTCI. However, reserving privatization for downstream processing activities will prove challenging as it will be difficult for a private partner to be interested in the downstream processing if they do not control the upstream source. As yet, no concrete and specific plans have been made. However, the government is in informal discussions with three industrial operators about an eventual partnership. The World Bank has offered to accompany the authorities with technical advice, if requested. Medium Term Government's reform program 3.28 During the past years, the government has initiated some reforms to address legal institutional issues affecting investors' risk perceptions about the phosphate sector. To strengthen the sector's management and development prospects, the government has launched some initiatives to address the legal gaps and institutional challenges of the mining sector. The government completed a strategic audit of the phosphate sector and prepared a three -year business plan that served as input in the formulation of a phosphate sector strategy. The strategy was formally adopted by the Cabinet in March 2010 and the first phase has started. A new mining regulation has been drafted and is being reviewed before submission to the Cabinet. The old OPT-era operational manual is being updated to provide better guidance on human resources and procurement issues. Concurrently, a Staff Manual has been drafted and is under review. Financial controls are being put in place and the role of the Comptroller is being reinforced. A consultant has drafted a computerization program of procurement, inventory control, and maintenance-scheduling activities. To strengthen corporate social responsibility, the Ministry of Mines has drafted mine-driven community development guidelines, which were approved by Cabinet and are being examined by a parliamentary commission. 3.29 Important milestones were reached to increase the transparency and governance in the sector. The government prepared a detailed action plan and a budget for the activities that are to be implemented under the Extractive Industries Transparency Initiative (EITI), thus meeting the last criteria to become an EITI candidate. Togo's application was formally accepted. On October 19, 2010, Togo was granted Candidate Status by the International EITI Board and has two years to achieve EITI Validation Status. This is expected to significantly promote and support improved governance in the sector through the full publication and verification of company payments and government revenues. The audit exercise has already commenced with 18 IFG-Togo signed a 40-month management agreement with a mission to restore production to 3 million tons, reduce production costs, service OTP's debt, and prepare the sector for an injection of additional private capital into a phosphoric acid plant project. 18 the publication of the reconciliation results of the 2008 and 2009 revenues generated from phosphate sales with payments received by the public Treasury as an introduction to the EITI program. 3.30 To address the challenges of the sector, it is important to properly carry out and deepen the initiated reforms. Proper execution and completion of the reforms initiated could address many of the concerns of potential strategic partners. Therefore, the immediate areas of sector reform would involve firm- and sector-level measures including (i) updating the regulatory framework (in particular, modernizing the existing Mining Code, harmonizing it with the guiding principles of ECOWAS and WAEMU, and preparing the attendant regulations); (ii) improving internal controls and corporate governance by clarifying and implementing operational policies and regulations with respect to financial management, i nventory control, and procurement of spare parts; (iii) streamlining the organizational structure and optimizing the utilization of human resources; (iv) introducing CSR standards to address the social and environmental concerns of affected populations; and (v) concurrently conducting a competitive search for a strategic partner for investment in the second and third phase of SNPT rehabilitation. Prior actions under the proposed ERGG-4 3.31 The proposed ERGG-4 would support a policy action judged to be critical to advance reforms in the phosphate sector that is the adoption of a detailed action plan and budget for the activities that are to be implemented under EITI-Togo. This prior action is expected to strengthen governance by improving transparency and accountability thus contributing to greater private sector and donor confidence. 3.32 In addition, the HIPC completion point triggers included an action in the phosphate sector to ensure the transparency of the financial flows in the sector. The implementation of regular public reporting of payments to, and revenues received by, the government for the phosphate sector in line with this aspect of the EITI criteria, with a recent annual report during at least the year immediately preceding the year in which the completion point is reached. This was implemented. D. E NERGY S ECTOR Current issues 3.33 Progress has been made in ensuring energy security with the purchasing power agreement for 100 MW from Contour Global with support from IFC. The distribution of electricity is handled by the state-owned power utility, Compagnie d'Energie Electrique de Togo (CEET).19 Until recently, imported electricity was provided only by the Communauté Electrique du Benin (CEB), a joint venture between Benin and Togo.20 Under this arrangement, Togo's power supply depended up to 80 percent on power imports through Ghana, Côte d'Ivoire, and, 19 CEET has been a state-owned company since its foundation. Between 2000 and 2006, it was operated under a private concession by the consortium, Elyo/Hydro Quebec. This concession ended in 2006 as a result of lack of financing for investments and institutional inconsistencies in the sector, in which day-to-day politics superseded long-term planning considerations. 20 CEB is an import, generation, and transmission company jointly owned by Togo and Benin. 19 most recently, Nigeria. When power imports had to be curtailed, energy crises would emerge. This often happened when the generation of electricity from Ghana's hydropower dam, Akosombo, fell short due to years of low hydrology. To resolve such shortfalls, the Togolese government adopted two strategies: (i) purchasing emergency diesel generators to be operated at the level of CEET or purchasing kerosene-fired gas turbines at the level of CEB; and (ii) pursuing the setting up of independent power producers (IPPs) to supply this shortfall. The purchasing power agreement for a 100 MW heavy fuel oil fired gas turbine IPP, owned and operated by Contour Global, was a key step to secure energy supply. 3.34 However, in the near future, the negative financial impact on CEET will be significant, and the already fragile financial viability of the company will need to be addressed. The strategy to address supply shortfalls uses power options that exhibit high operating costs. In the case of Contour Global, this independent producer can utilize heavy fuel or gas. As gas supply has not been secured, even though the arrival of natural gas in Lomé was expected in 2010 under contract with the West African Gas Pipeline Company, 21 the producer is operating with heavy fuel with a production cost of CFAF 100/Kwh (including fixed costs). 22 CEET's take-or-pay contract with Contour Global with fixed charges of US$32 million year plus variable costs (the fuel) is putting additional pressure on the delicate financial situation of CEET. It is critical to assess adequately CEET's financial position and implement a plan to ensure its long-term viability. Such a plan should include efficiency gains and the export of electricity. The World Bank is financing a Public-Private Infrastructure Advisory Facility (PPIAF) study, which will finance the development of a financial model for CEET and an organizational audit. Both are expected to contribute to the identification of measures to improve the financial situation of CEET. 3.35 The recent adjustment in the electricity tariff is expected to enhance the financial situation of the company. Nonetheless, its financial situation will continue to be delicate. In June 2009 CEB increased its electricity tariffs by 10 percent 23 through a bi-statal decision of both Benin and Togo and thus stabilized its financial situation. CEET, however, was not permitted to pass through this increase, except to industrial customers. As a result, as of October 2010, CEET estimated a loss of CFAF 6 billion for the year, which assumed a tariff adjustment in October. This loss occurred despite the subsidy of CFAF 3 billion (to cover July 2009­June 2010). In early December 2010 the government announced a tariff adjustment of 10 percent for low voltage, on average (to reflect the CEB tariff adjustment of June 2009) and a 20 percent increase in the tariff for medium voltage, on average. The tariff increase for the low-income bracket (tranche sociale) is 5 percent. The tariff adjustment was effective as of January 1st 2011, thus the CEET's loss is expected to be greater. 3.36 Other issues that affect the sector's financial sustainability also must be addressed . These issues include the inadequate bill recovery ratio (which fell from 93.9 percent in 2009 to 88.1 percent in 2010); the low recovery of para-public entities' payments to the utility for 21 The company is a consortium comprising the Nigerian National Petroleum Company (25 percent), Chevron Nigeria Ltd (37 percent), Shell Nigeria (18 percent), Société beninoise de gas (2 percent), Société togolaise de gas (2 percent), and the Volta River Authority of Ghana (16 percent). 22 CEB has contracted with the West African Gas Pipeline Company, for CEB's two 25-MW gas-fired plants in Benin and Togo. 23 From 50 to 55 CFAF/kwh. 20 delivery of electricity services;24 and the very old age of some of the equipment (dating to the 1950s and 1960s), which renders the electricity system inefficient and unreliable. A comprehensive approach is required to adequately pursue the supply, managerial efficiency and financial sustainability objectives. 3.37 Access to electricity in Togo is low, even when compared to the rest of the Sub- Saharan Africa region. As in most countries in Sub-Saharan Africa, the energy sector in Togo is dominated by the use of biomass-based energy sources, especially for cooking. The use of electricity is limited to only 13 percent of Togo's population. This coverage is significantly lower than the Sub-Saharan African average of 25 percent and reflects the fact that the extension of electricity access in the past 10 years has lagged behind demand. Togo's electricity coverage is lagging far behind the access rate in Ghana (approximately 60 percent), as well as that in Benin (25 percent). Electricity demand in large cities is not met, especially in peri-urban areas, and the minority who have access to electricity complain of poor quality of supply. Access to electricity in urban areas is 15­20 percent. However, in rural areas, only 2-4 percent of the population has access to electricity. Although some power generation sites are located in rural areas, the transmission lines generally bypass nearby communities in favor of transmitting power directly to urban centers. During consultations held with rural and peri -urban communities in July 2010 in the context of the World Bank's new energy strategy, it became clear that gaining access to electricity ranks among the top priorities for Togo's population. 3.38 CEET's management problems contributed to the existing power outages, with negative effects on the production capacity of the economy. CEET has been in charge of retail distribution and sale of electricity in Togo since the early 1970s. With the exception of the period in which CEET was under private management (2000­06), the company has been under public management. A management committee was set up for a transitional period of 6 months, which was extended several times. In March 2008, permanent structures were established, comprising appointment of a Board of Directors, appointment of a General Manager, and adoption of regulations for CEET consistent with those of the Organization for the Harmonization of Business Law in Africa (OHADA). However, since February 2009, following a negative assessment by the Supervisory Board of the progress made in implementing the Action Plan and reducing energy losses, the position of General Manager again has been vacant. The Deputy General Manager fills the position. A five-year performance contract has also been signed between CEET and the government. Medium Term Government's reform program 3.39 In the short term, the government aims to increase supply while strengthening efficiency in the sector. Recent actions taken or ongoing include: 24 All central administration arrears to CEET were settled through a securitization operation in February 2010 . The government issued securities in the amount of CFAF 16.57 billion, of which 5.2 billion corresponded to central administration arrears. As a result of a compensation operation with CEB, the amount of arrears from para -public entities that remains to be settled with CEET is CFAF 837 million. 21 As a member of the West African Power Pool (WAPP), 25 co-sponsoring the ongoing development of a 330kv transmission backbone to enhance power trade across countries in the sub-region. Developing domestic power resources to enhance energy sector resilience. It includes the construction of a 100-MW thermal power plant (Contour Global) and a hydropower plant at Adjarala. Commissioning a sector strategic review financed by the Low-Income Countries Under Stress (LICUS) Trust Fund (TF) grant for Economic Recovery and International Reengagement. The review will lay the foundation for the preparation of the electricity sector strategy. Developing a financial model for CEET financed by the PPIAF. Commissioning an organizational audit of CEET to enhance efficiency. 3.40 Over the medium term, the government plans to implement actions to (i) strengthen private participation in the development of energy generation capacity; (ii) intensify regional cooperation in the production, purchase, sale, and transport of energy; (iii) create a rural electrification fund; (iv) establish a financing mechanism for the sector, including participation of external donors and the domestic financial system; and (v) undertake an awareness-raising campaign for the efficient use of all forms of energy. Prior actions under the proposed ERGG-4 3.41 The proposed ERGG-4 would support one policy action judged to be critical to advance reforms in the energy sector, namely, the adoption of the Utility Tariffs Adjustment Order. This prior action will contribute to the improvement of the financial situation of CEET as it passes-through to the consumers the tariff adjustment that CEB made in June 2009. 4. BANK GROUP'S SUPPORT TO THE GOVERNMENT'S PROGRAM A. L INK TO THE I NTERIM S TRATEGY N OTE 4.1 The Interim Strategy Note (ISN), discussed by the Board on May 29, 2008, sets out the Bank Group's support to the Government's reform program for the period FY08- FY10.26 The ISN is closely aligned with the I-PRSP (on which the PRSP builds) and has the following three main pillars: (i) improve governance and transparency, through a focus on public finance management and key sectors of the economy (phosphates, energy, cotton and financial sectors); (ii) promote economic recovery and sustainable development by helping the Government rehabilitate critical infrastructure and restore productive capacity in the phosphate and cotton sectors. The Bank will also support the Government in addressing the challenges 25 The WAPP falls within the framework of the ECOWAS Energy Protocol, which establishes third-party access; and the WAPP Master Plan, which defines regional priority projects. 26 The World Bank Group plans to complete a new ISN (FY11-13) by the end of this fiscal year. This will bridge the gap until a new Country Partnership Strategy is prepared in FY12, in response to the Government's new PRSP. 22 and obstacles to, and potential entry points for, private sector investment as a catalyst for growth in Togo; and (iii) address urgent social needs, through expanding the community-driven development approach implemented through LICUS TF grants including a second series of three LICUS TF Grants to provide quality public services and income-generating opportunities to the residents of poorest communities in Togo, especially in rural areas. 4.2 The proposed ERGG-4 is closely aligned with the ISN's strategic objectives and its expected outcome indicators. The operation directly supports the first two ISN pillars of the ISN, which also corresponds to the first two pillars of the I-PRSP and PRSP, by focusing specifically on continuing and deepening the reform of public financial management as well as further advancing structural reforms aimed at strengthening governance, transparency and efficiency in the key sectors of the economy (phosphates, cotton, and energy sectors). The proposed reforms are essential to the Government's ability to use the public resources freed up by debt reduction efficiently and effectively to support the country's economic and social recovery. It provides financial support to the Government's efforts to bolster economic recovery in the aftermath of the protracted domestic crisis and the 2009 global economic slowdown. B. C OMPLEMENTARITY WITH O THER B ANK G ROUP A CTIVITIES 4.3 The proposed ERGG-4 is closely coordinated with and complements several of the Bank's ongoing or planned operations and advisory services in the areas of its focus. The Government's program of reforms in the procurement, phosphate, cotton and energy sectors is supported by IDA under a LICUS grant (US$1.6 million approved in FY08) which lays the groundwork for economic recovery. The Financial Sector and Governance Project (US$12 million, approved in March 2009) supports the restructuring of the banking sector, the strengthening of the microfinance sector, the reform of the pension sector, and other financial and private sector reforms. A Private Sector Development Support Project (US$13 million) is under preparation in FY11 and will build upon the Private Sector Revitalization Trust Fund (US$1.1 million) approved in May 2010. The Emergency Infrastructure Rehabilitation and Energy project approved in June 2009 (US$25 million) and complemented by the GEF Efficient Lighting Program (US$1.82 million), supports access to improved infrastructure services in Lomé, focusing on urban roads rehabilitation, drainage, urban water supply, energy equipment rehabilitation and provision of energy-efficient light bulbs, as well as institutional strengthening. In FY11, an additional financing (US$15 million) will be prepared to provide for expansion of drainage works in the flood-affected areas of Lomé. A regional Abidjan-Lagos Transport and Trade Facilitation Project approved in March 2010 will facilitate movement of goods and people along the coastal corridor through road infrastructure and transit facilitation components. An Agriculture Sector Support Project (FY11, US$37 million) is also under preparation which would focus, in partnership with other donors, on supporting the first three years of the Government's national agriculture investment program with the aim of improving agricultural productivity and diversification, including the cotton sector. 4.4 Other projects support rural development and education. A Community Development Project (US$17.2 million) approved in June 2008 enabled the scale up of the LICUS TF-funded Emergency Program for Poverty Reduction (closed in June 2010) to address urgent social needs, particularly in the rural areas. In October 2008, IDA approved an additional 23 US$7 million grant under the Global Food Crisis Response Program to complement the Community Development Project (CDP), and in order to respond to the negative impact of the global economic slowdown, an additional financing to the CDP of US$8.7 million was approved in June 2010.27 A grant under the Education for All/ Fast Track Initiative (EFA/FTI) Catalytic Fund approved in September 2010 focuses explicitly on increasing coverage and improving the quality of primary education. The grant will contribute to the attainment of the education Millennium Development Goal as well as to the achievement of the PRSP pillar on developing human capital. 4.5 Complementary support is provided by IDA through various non lending instruments. A Country Economic Memorandum/ Diagnostic Trade Integration Study completed in FY10 provides in-depth analysis of the sources of economic growth, including transport, mining, agriculture, and the export processing zone, and produced an action plan that was validated at a workshop in July 2010. An Investment Climate Assessment completed in FY10 provides a crucial diagnostic of the business environment to the Togolese Government and provided inputs to the Country Economic Memorandum (CEM) and the Private Sector Development Support Project under preparation in FY11. A PEMFAR completed in mid 2009 has provided input to developing the Government's public finance management reform program. In the energy sector, the ERGG-4 complements the ongoing dialogue and advisory assistance provided by the Bank to the authorities in the context of support to the West Africa Regional Power Pool. A study to help reform the electricity sector is under preparation (FY12). C. C OMPLEMENTARITY WITH O THER D EVELOPMENT P ARTNER P ROGRAMS 4.6 The proposed ERGG-4 complements or leverages the support of other development partners. The specific areas of IDA support have been identified in collaboration with the IMF and in consultation with other development partners, aiming for synergy with their respective interventions and building on IDA's value added and comparative advantage in these areas. It is expected that these institutions will continue to collaborate closely duri ng implementation of the program supported by the proposed ERGG-4, especially through joint dialogue with the authorities, and joint missions and analytical work. Ongoing donor assistance includes a n IMF ECF (adopted in April 2008, to end in mid-2011), and AfDB and EU budget support operations. 4.7 IMF and IDA staffs have coordinated closely their advice on governance and other economic issues and reforms, and worked on the HIPC process, including in a joint HIPC decision point document and a joint HIPC completion point document (approved by the IMF and IDA boards on December 10 and December 14, 2010, respectively). Responsibility for public financial management is shared between the two institutions, with sharing of analytical work and coordinated provision of technical assistance to the country. The two institutions work closely together on the restructuring of the banking sector, with the Bank taking the lead on the technical discussions. The two institutions endeavor to avoid duplication of policy measures where feasible. Both institutions have also supported the preparation of the full PRSP which was 27 The objective will be to further develop the nascent safety nets system in Togo, and in particular: (i) expand the scope and impact of the CDP by creating temporary employment opportunities to 25,000 poor, and young people in particular; and (ii) expand the current School Feeding Emergency Operation from the current 92 schools to 200 schools and run the program for two additional school years (2010-2011 and 2011-2012) benefitting some 80,000 children. 24 discussed by the respective Boards in November and December 2009 on the basis of a Joint Staff Advisory Note (JSAN). The first PRSP Annual Progress Report covering the July 2009-June 2010 period was also reviewed in a JSAN in November 2010. In addition, the IMF provided technical assistance in helping the authorities set up a mechanism for monitoring budget execution, and implementing a functional budget classification. 4.8 The AfDB, EU and IDA staffs are coordinating closely on supporting the Government's public financial management reform program, including procurement. Specifically, the three institutions have jointly prepared the recently completed PEMFAR, w hich also draws on the ratings of an EC-financed Public Expenditure and Financial Accountability (PEFA) review. The AfDB is providing assistance for strengthening Government capacity in the area of governance and public management reforms. Furthermore, the IDA and EU staffs have collaborated closely in their dialogue with the Government on public finance management reforms. 4.9 Donors are supporting various elements of the authorities' efforts towards economic recovery. The EU is supporting the cotton sector reform program by financing the capital share (40 percent) of the National Federation of Cotton Producer Groups (NFCPG) in the new cotton company created on January 23, 2009. Other EU support includes the COM-STABEX that financed the reinforcement of capacities of the NFCPG producers, the rehabilitation of the cotton-coffee-cocoa roads and the diversification of agriculture. The AfDB is supporting the rehabilitation of rural infrastructure. France is supporting several reforms in the area of governance as well as the Fast Track Program in Education. D. A NALYTICAL U NDERPINNINGS 4.10 The design of the ERGG-4, as of the previous budget support operations, has benefited from recent or ongoing analytical work, as well as close policy dialogue on the key sectors covered by the operation. These include a Country Procurement Assessment Report (CPAR) prepared at end-2003, a PEFA (2008), and a PEMFAR (2009) conducted in close cooperation with the Government and other development partners including the EU and AfDB, French Cooperation and the UNDP. The PEMFAR provides (i) a diagnostic analysis of the current strengths and weaknesses in the country's public financial management system and practices; (ii) input for the design and preparation of the PFM reform strategy, includi ng a time- bound sequenced action plan of priority reforms; and (iii) benchmarks enabling the assessment of future progress of PFM reforms. It also provides specific input into the identification of further key reforms to be supported by the proposed grant, beyond those already implemented under the previous ERGGs. 4.11 In addition, the Bank's recent analysis, and dialogue with the authorities on the phosphates, cotton, and energy sectors as part of recent missions, have further advanced the structural policy dialogue in these sectors and laid the basis for the proposed grant, as well as restarted regular reporting of key sector data to the Bank. In May 2009, a Bank mission reviewed the findings of the strategic audit of the phosphate sector (financed under the L ICUS Trust Fund) and made recommendations; the Bank then participated in a workshop to discuss the audit and next steps in November 2009. The Bank has also reviewed the cotton and financial sector strategies and contributed to updates. A full environmental analysis was carried out in 2010, 25 including the mining (phosphate), agricultural (cotton) and electricity sectors. The country's macroeconomic performance and planned policies have been assessed in the context of joint IMF-Bank missions, the most recent being in October 2010 for the preparation of the HIPC completion point. On this basis, a joint HIPC completion point document and a JSAN were prepared in November and discussed by both Boards in December 2010. 4.12 The Country Economic Memorandum/Diagnostic Trade Integration Study provides in-depth analysis of several economic sectors, as well as cross-cutting issues such as transport, trade policy, re-exports, the export processing zone, and vocational training. It includes a sources of growth analysis to identify the potential drivers of growth of the Togolese economy and an assessment of the investment climate, based on an enterprise survey conducted in 2009. Building on this analysis, the Bank has provided advice in several areas, including on the reform of the investment code and the free zone law. E. L ESSONS L EARNED 4.13 The following lessons are drawn from the experience of the three previous operations and have been taken into account in preparing the proposed operation: In the first and second ERGGs, the policy reforms in the prior actions were embedded in the Government's own reform agenda articulated in the Interim Poverty Reduction Strategy, leading to strong ownership of the reforms. The ERGG -3 as well as the proposed operation have the added benefit of being closely aligned with two major pillars of the full PRSP which lays out the Government's reform agenda for the period 2009- 2011. The PRSP is coupled with a Plan of Priority Actions (PAP) which details the pluri - annual planning of programs, reform measures and activities. It is complemented by a reform strategy presented in 2010 by the Ministry of Economy and Finance which goes into even greater detail regarding the public finance management measures. Considering the Government's good track record of reforms to date, this combination of clear commitment and detailed planning will help to ensure the implementation of the reforms supported by this operation. Given the generally limited capacity within the public sector in fragile countries such as Togo, it is important to be selective in the choice of policy and institutional reforms. Operations that are simple in design and have fewer actions that have significant positive leverage effect are likely to be more effective than operations that attempt overly broad coverage. As with the previous operations, the design of the ERGG-4 reflects this lesson; it continues and deepens the reforms in public financial management and in the country's critical sectors (phosphates, cotton, energy sectors) that are deemed critical for the overall governance reform program and will lay the foundation for medium term growth and poverty reduction. It is important to carefully choose prior actions that are likely to open the door for other important policy and institutional reforms. For example, the adoption of a sound legislative framework, like the procurement law and associated code under the ERGG-3, was the basis for stepping up the effective implementation of the procurement reform under the present operation. Creation of the General Procurement Department will enable 26 the subsequent review of contracts processed by key parastatals like the phosphate, cotton and electricity companies and thereby contribute to improved economic governance. An important lesson for this operation drawn from the implementation of other development policy operations is the need to assess the key risks faced by specific policy and institutional reform measures and to be proactive in the application of mitigating measures. This operation has not only benefited from an upfront assessment of the key risks but has also identified mitigating measures that are being, or need to be, applied to address these risks. The political risk identified in previous operations has diminished for the present operation. The effectiveness of Bank-supported development policy operations can be enhanced by its complementarities with other Bank-financed operation and the efforts of other active donors in the reform areas. The design of this proposed operation reflects this lesson in the choice of prior actions, which are closely coordinated with policy reforms supported by other donors (IMF, AfDB, and EU) and through the Bank's lending and non-lending portfolio. 5. THE PROPOSED FOURTH ECONOMIC RECOVERY AND GOVERNANCE GR ANT A. D ESCRIPTION OF THE O PERATION 5.1 The Government's broad economic recovery program is outlined above in Section 3. This program constitutes the reference framework behind the Government's policy matrix (Annex 2). The Government has requested that IDA continue supporting, through the proposed ERGG-4, critical reforms outlined in its strategy, primarily in the economic governance and transparency area. 5.2 The main objective of the ERGG-4 is to support Government-owned reforms to improve public financial management and restore performance in key sectors of the economy. Specifically, the ERGG-4 focuses on continuing and deepening policy reforms initiated by the Government under the ERGG, ERGG-2 and ERGG-3 to strengthen budget preparation, execution, controls and public procurement. It would also contribute to creating the conditions for increased private sector confidence through measures to improve governance, transparency and efficiency in the phosphate, cotton, and energy sectors. The inclusion of actions to improve management in selected public enterprises is highly relevant to the operation, as this is likely to provide additional fiscal space and increase investments in those sectors. This would lead over time to strengthened fiscal sustainability, improved economic governance and growth, and enhanced transparency of State institutions and processes. The resources made available by this grant will provide financial support to the Government to implement activities that would otherwise be beyond its fiscal capabilities, including financing the provision of basic public services. 27 B. P RIOR A CTIONS FOR THE P ROPOSED G RANT 5.3 The proposed grant would support selected reforms in the Government's program described in Section 3 that are deemed essential for its successful implementation. Table 5.1 below details these prior actions and their implementation status. The rationale for their selection has been discussed in Section 3, namely their centrality to the program and expressed Government commitment and feasibility. The prior actions for ERGG-4 are derived from indicative policy measures that were identified during preparation of the ERGG-3. Annex 3 also includes the expected results and result indicators. 28 Table 5.1: ERGG-4 Prior Actions ERGG-4 Prior Actions Implementation Status 1. Preparation of draft decrees and laws to Implemented. The decrees for the 6 UEMOA implement the 6 UEMOA Directives pertaining to directives have been drafted and will soon be public finances. discussed by the Council of Ministers. 2. (i) Publication of the 2010 quarterly budget Implemented. The budget execution reports for execution reports and (ii) submission to Parliament 2010 have been publicized. The 2011 budget of the draft 2011 budget law with a medium-term was approved by Parliament on December 22, expenditure framework (MTEF) for each of the 2010 along with three sectoral MTEFs (health, education, health and agriculture sectors. education, and agriculture). 3. Adoption of a treasury management planning Implemented. The decree creating the new order. institutional framework for treasury management planning was adopted. 4. Submission by the SOTOCO's liquidator, CEET, Implemented. The SOTOCO's liquidator, SNPT, and Togo télécom of their respective 2007 CEET, SNPT, and Togo télécom submitted their and 2008 financial statements to the Court of 2007 and 2008 financial statements to the Court Accounts. of Accounts. 5. Development and operation of the procurement Implemented. The website has been created website, and publication and circulation of the www.marchespublics-togo.com and the Procurement Newspaper. newspaper issued the first number in December 2010. 6. Implementation of an analytical accounting Implemented. An analytical accounting system system for NSCT which is consistent with the has been implemented in NSCT. recommendations of the Assessment Report. 7. Provision of training to farmer leaders toward a Implemented. Farmers leaders have received better participation within the NSCT board. training toward a better participation within the NSCT board. 8. Adoption of a detailed action plan and budget for Implemented. A detailed action plan and the activities that are to be implemented under EITI- budget for the activities that are to be Togo. implemented under EITI-Togo was adopted, thus completing the last requirement to become eligible to be an EITI candidate country. Togo became a Candidate country on October 20, 2010. 9. Adoption of the Utility Tariffs Adjustment Order. Implemented. The government adopted legislation adjusting utility tariffs on December 2, 2010. The adjustment became effective on January 1, 2011. 29 Box 5.1: Good Practice Principles on Conditionality Principle 1: Reinforce ownership The ERGG-4 is fully aligned with the Government's reform program focusing on improving public expenditure management and strengthening governance and transparency in the phosphates, cotton and energy sectors. This broad program of reforms is reflected in the 2009 PRSP whose process of preparation involved the participation of all development actors (private sector, religious groups, non -Governmental organizations, Parliament and the technical and financial partners) and regions, thus ensuring that the PRSP fully articulates the country's own priorities to reduce poverty and promote sustainable growth. The PRSC framework underlies the policy dialogue with the Bank, the IMF, and the AfDB, which closely coordinate their programs of support to Togo. The unit responsible for the ERGG-4 program within the Government is the Ministry of Economy and Finance, which has championed these reforms over the past years during the three previous ERGGs. In order to reinforce ownership at the sectoral level, the Ministry of Economy and Finance has coordinated the dialogue with working groups and task teams including other Government agencies and relevant organizations (e.g., Ministry of Agriculture, Ministry of Mines and Energy, BCEAO). Principle 2: Agree up front with the Government and other financial partners on a coordinated accountability framework The Government's reform program supported by the ERGG-4 is summarized in the policy matrix in Annex 2. The core of the program builds on the findings of the PEFA, PEMFAR, CPAR, LICUS grants and the IMF ECF, on previous ERGG operations, and on the analysis of p reliminary results and weaknesses of ongoing reform efforts. It was further strengthened during intensive policy dialogue with the authorities in 2010. The program has been closely coordinated with and supported by other development partners such as the IM F, AfDB, and the EU (especially in the areas on which these organizations have focused, notably public financial management) and bilateral donors. The expected results of the program supported by the proposed grant are detailed in Table 5.2. Principle 3: Customize the accountability framework and modalities of Bank support to country circumstances The program's focus remains on governance in the public and private sectors, through a series of actions aimed at improving public financial management, and transparency and efficiency in critical sectors for the economy (namely, phosphates, cotton and energy) which are crucial to promote sustainable growth and thus reduce poverty. However, the policy matrix was customized to the country circumstances, taking into account the difficult task of sustaining economic recovery in an exceptionally unfavorable international environment. Principle 4: Choose only actions critical for achieving results as conditions for disbursement The policy matrix uses a limited set of nine prior actions for Board presentation and disbursement of the proposed ERGG-4. The chosen policy measures were identified jointly with the Government and in close consultation with other development partners. Conditionality is focused only on key action s which are critical to the strengthening of public financial management and reform in key economic sectors. The conditionality of the ERGG -4 is also coordinated with and is complementary to the Government reform program supported by the IMF ECF. Principle 5: Conduct transparent progress reviews conducive to predictable and performance -based financial support In preparing and monitoring the previous three ERGGs, the Bank has worked in close coordination with the IMF, AfDB, EC and bilateral donors in supporting the Government's reform program. Under this operation, the Bank will continue to coordinate closely with these institutions to support and monitor program implementation to contribute to predictable and performance based financial support in the futur e. C. A NTICIPATED R ESULTS OF THE PROGRAM 5.4 The program supported by the ERGG-4 targets the underlying structure for long- term reforms. Within this structure, there are specific results that are expected by the grant closing date of December 31, 2011, as outlined in Table 5.2. These outcome indicators will be monitored by the Ministry of Economy and Finance whose staff will prepare quarterly reports on progress in implementation. 30 Table 5.2: Results Framework ERGG-4 Prior Actions Results Results Indicators Baseline Target 2010 unless 2011 unless otherwise indicated otherwise indicated I. Improving Public Financial Management Legal Framework Harmonized the PFM 1. Preparation of draft decrees and laws to implement the 6 framework within the UEMOA Directives pertaining to public finances. WAEMU countries Budget Formulation and Monitoring Consolidate improvements in 2. Publication of the 2010 quarterly budget execution reports the transparency in the and (ii) submission to Parliament of the draft 2011 budget public accounts law with a medium-term expenditure framework (MTEF) for each of the education, health and agriculture sectors. Improve budget planning Budget Execution 3. Adoption of a treasury management planning order. Timely information to Number of months in 0 2 spending units on ceilings advance the spending units for expenditure receive ceilings on commitments expenditure commitments Budget Controls 4. Submission by the SOTOCO's liquidator, CEET, SNPT, and Improve external controls Togo télécom of their respective 2007 and 2008 financial statements to the Court of Accounts. Public Procurement Percentage of procurement All procurement notices and 5. Development and operation of the procurement website, and Enhance procurement notices and contract awards 0 contract awards reviewed by publication and circulation of the Procurement Newspaper. controls reviewed by the General the General Procurement Procurement Department Department are publicly publicly available available II. Strengthening Governance and Efficiency in Key Sectors ­ Cotton, Phosphate and Energy Cotton Sector Enhance the management of Reduction in NSCT's costs (season 2011-12) 6. Implementation of an analytical accounting system for NSCT NSCT 5 percent reduction in the which is consistent with the recommendations of the Assessment unit cost per ton compared to Report. the 2010-11 season 7. Provision of training to farmer leaders toward a better participation within the NSCT board. Phosphate Sector Strengthen governance by Number of criteria met 4 (2009) 5 (2010) and Togo is accepted 8. Adopt a detailed action plan and budget for the activities that are improving transparency and towards becoming a as a candidate country to be implemented under EITI-Togo. accountability candidate country Energy Sector Increase in the turnover of 7 percent increase 9. Adoption of the Utility Tariffs Adjustment Order. Enhance the financial CEET (excluding Contour situation of CEET Global) 31 6. OPERATION IMPLEMENTA TION A. C OUNTRY O WNERSHIP 6.1 The proposed operation is supported and owned by the authorities. The specific reforms are critical elements of the Government's strategy to consolidate growth and further enhance governance and transparency in public resource management. These reforms were designed with the full contribution of the Government's relevant ministries and agencies under the championship of the Minister of Economy and Finance. They are embedded in the country's PRSP (pillars I and II) whose preparation process involved participation of all development actors and regions and has provided an opportunity to foster national consensus across the Togolese society and among Government representatives on this reform agenda. B. F IDUCIARY A SPECTS 6.2 Although the Government has made encouraging progress under previous ERGGs in implementing measures to strengthen public financial management and transparency, the improvement in fiduciary standards remains a central objective of the proposed operation. Among reform measures already implemented are: (i) the full reinstatement and application of normal budget preparation and execution procedures (timely budget preparation and submission to the Parliament, quarterly publication of budget execution reports); (ii) organization of the Treasury in line with WAEMU Directive; (iii) closing over one thousand existing separate treasury accounts with a view to creating a single treasury account; (iv) creation of internal audit and inspection units at the Ministry of Finance; (v) adoption of a procurement law and code; establishment of a General Procurement Department and a Procurement Regulatory Authority; establishment of ex ante procurement control commissions in five ministries; and (vi) establishment of the Court of Accounts. The proposed operation will build on these earlier measures to deepen reforms and improve the country's fiduciary management system. 6.3 Concerning the safeguards of the BCEAO, the latest assessment was completed on March 2010 and found that the BCEAO continues to have controls in place at th e operational level. The overall governance framework should nonetheless be strengthened by the addition of an audit committee to ensure that the Board of Directors exercises appropriate oversight over the control structure, including the audit mechanisms and financial statements. The implementation of the Institutional Reform of the WAEMU and the BCEAO should help correct that situation. 6.4 Durable gains in transparency, effectiveness of the financial management systems, and accountability will require sustained and coordinated engagement of Togo's international partners in support of the Government's reform process. The IMF, through the West Africa AFRITAC, is providing technical assistance in public financial management and tax administration to the Ministry of Economy and Finance. The recent PEMFAR (2009) has identified areas in particular need of remedial action, and a comprehensive Action Plan to address those has been prepared by the Government. A baseline of current procurement practices using the OECD/DAC guidelines, established as part of the PEMFAR, is also enabling evidence- 32 based monitoring of improvements in the near future. As a result of the PEMFAR, priority technical assistance to strengthen public financial management is being identified for additional coordinated donor support. IDA is providing strong support to this process through a LICUS Trust Fund grant and the Financial Sector and Governance TA Project approved in March 2009. Continued donor assistance will help the Government to ensure that appropriate fiduciary standards are applied to provide reasonable assurance that resources are used for the in tended purposes. An important objective is to achieve compliance with international standards of financial management, such as those agreed in the context of the OECD/DAC guidance on quality and performance of national procurement systems. C. G RANT A DMINISTRATION , D ISBURSEMENT AND A UDITING 6.5 Grant amount and tranching. The recipient is the Republic of Togo, represented by the Ministry of Economy and Finance. The grant will be released in one tranche of SDR 18 million (US$28 million equivalent) following its approval and notification by the Association of effectiveness of the Financing Agreement. 6.6 Disbursement and accounting. The proposed operation will follow IDA's disbursement procedures for development policy grants. Upon approval of the grant and effectiveness of the Financing Agreement, and provided the Association is satisfied with the program being carried out by the Recipient and with the appropriateness of the Recipient's macroeconomic policy framework, the proceeds of the grant would be disbursed by IDA into a dedicated account at the central bank of Togo and forming part of the official foreign exchange reserves of Togo. The proceeds of the grant would not be used to finance expenditures excluded under the Agree ment. The recipient shall ensure that upon the deposit of the Grant into that account an equivalent amount is credited in the recipient's budget management system, in a manner acceptable to IDA. The Recipient will report to IDA on the amounts deposited in the dedicated foreign currency account and credited in local currency to the budget management system. Assuming that the withdrawal request is in Euro, the equivalent amount in CFAF reported in the budgetary system will be based on the market rate at the date of the transfer. The Recipient will promptly notify the Bank by fax or email that such transfer has taken place, and that proceeds have been credited in a manner satisfactory to IDA. 6.7 Auditing. IDA reserves the right to request an audit of the dedicated foreign currency account, on terms of reference acceptable to IDA. If, after being deposited in this account, the proceeds of the Grant are used for ineligible purposes as defined in the Financing Agreement, IDA will require the recipient to promptly refund the amount directly to IDA. 6.8 Closing date: The expected closing date of the Grant is December 31, 2011. D. E NVIRONMENTAL A SPECTS 6.9 The reforms supported by the proposed development policy grant are part of a broader program of actions to promote governance, including strengthening of public financial management systems, and the recovery of key sectors of the economy, notably cotton, phosphates and energy. The governance reforms, dealing mainly with economic and 33 institutional issues, are not likely to have significant negative impacts on the country's environment and natural resources; no direct effects on the environment are expected: (i) first, as regards the cotton sector, the analytical accounting system and the strengthening of the farmers' representation at the board of NSCT merely enhances transparency in the accounting system and promotes the representation of the producers at the Board of the new company; (ii) second, the phosphate sector measure to prepare a detailed action plan and budget of the activities that are to be implemented under the EITI have the objective of enhancing governance by improving transparency and accountability; and (iii) third, as regards the energy sector, the adjustment of electricity tariffs aims at improving the financial situation of CEET. 6.10 In order to facilitate the integration of environmental considerations into the implementation of development policies, the Bank helped the Government to prepare a Country Environmental Analysis (CEA). The CEA identifies the main environmental challenges that will need to be addressed in order to maximize the welfare impact of the poverty reduction strategy. In particular, the CEA addresses the potential adverse environmental and social impacts that could be associated with increased investment and production in the cotton, mining and energy sectors, and recommends measures that will help to eliminate or mitigate these effects. Summary of environmental and social impacts and mitigation measures Impacts 6.11 Cotton production faces two main environmental problems. The first one is land degradation due to soil fertility depletion and soil erosion. Although this problem is common to the whole agricultural sector, cotton production areas are inherently prone to land degradation. There is evidence that the depletion of soil fertility and the associated decline in cotton yields have led some farmers to encroach on protected areas and national forest reserves. The second source of environmental concern is the uncontrolled imports and misuse of pesticides. Occupational health hazards for farmers and for the broader communities, as well as environmental degradation due to the pollution of land and (surface and ground) water resources are among the main problems uncovered in the production areas. 6.12 Phosphate mining is associated with three main social and environmental problems. First and foremost is the involuntary resettlement of the affected populations without proper compensation in many cases, or the fact of depriving these populations of their livelihood through claiming their farm land. Second, mining operations cause noticeable land degradation and permanent soil loss in many areas due to uncontrolled soil movement on-site and offsite, and inadequate land reclamation and restoration operations after the mines ceased operations. Finally, phosphate mining operations contribute to the degradation of water resources through soil erosion and the sedimentation of water bodies caused by uncontrolled earth-moving operations, and the disposal of effluents into the coastal waters. 34 6.13 Energy production and distribution entails both positive and negative environmental and social effects: The most remarkable positive effect is the improvement of the living conditions of the populations with new access to electricity: lighting in homes (reducing the emission of petroleum lamps), improved operation of local health clinics, and security (street lighting in urban and semi-urban areas). The main negative effects associated with the increased production and distribution of electricity are related to the acquisition of land and the resettlement of populations for the construction of infrastructure, especially the planned hydropower dam, and for the right-of-way for transmission lines. Mitigation opportunities 6.14 The CEA proposes management tools and capacity development measures in these productive sectors that will help the Government minimize negative effects and optimize positive ones. 6.15 The newly created cotton company would provide crucial advisory services in the following areas: (i) a more efficient and safer use of inputs, mainly fertilizers and pesticides, by cotton farmers; using inputs in recommended doses and according to established norms would reduce soil contamination and pesticide-induced health hazards, and save water resources; (ii) stepping up cultivation and productivity in areas with a proven strong potential for cotton, thereby reducing the need to expand production into marginal lands and existing forest areas; (iii) a more integrated approach to soil fertility management that emphasizes sustainable land management while increasing yields. In parallel, reinforcing research capacity in order to develop cultivars with high fiber yield and improved parasite resistance will help increase profitability for farmers and make a further decrease in pesticide use possible. 6.16 Much of the current effects of phosphate extraction and processing activities on land, water, and air, as well as their effects on the livelihood of local communities are due to the obsolete technology, limited capital, and lack of awareness of the potential public health and environmental hazards associated with these effects. The new phosphate company SNPT would aim to modernize the mining equipment to adopt technological innovation that will not only increase the technical efficiency of operations, but also reduce the adverse environmental and social costs. Other measures to mitigate the negative environmental effect have been identified in the strategic audit and the CEA and include (i) extending the scope of the existing Land Issues and Environment Unit within the SNPT's organizational chart (at present mostly focused on the ­ albeit important ­ land use compensation problems) to encompass all Environment ­ Health ­ Security issues which need to be addressed in a pro-active manner; (ii) making internal and external environmental audits mandatory; (iii) encouraging the company to seek ISO 14001 certification. The combination of the above measures with a switch to modern equipment and production techniques will curtail permanent soil loss and subsequent degradation of water resources through soil erosion. As part of its social responsibilities towards the population, the SNPT will continue working on identifying satisfactory solutions for the land issues stemming from compensation for resettlement and use of farm land, in a participatory approach with local communities and under the authority of the State. It will also step up land reclamation and restoration efforts after the mines have ceased operations in a geographical area, to make the land ready again for future farming use. 35 6.17 In the energy sector, to mitigate any potential negative environmental effects of the planned Adjarala dam, a key element of the country's modern energy production plan, the Government would draw from the lessons learned from the construction of the Nangbeto hydropower dam to ensure better planning in the design phase and improved management of the construction phase. Capacity assessment for effective environmental mainstreaming 6.18 The Government took aggressive measures aimed to strengthen its environmental management system and institutions in recent years, including the adoption of a new environmental law in 2008. Although some further changes in the institutional arrangements may be justified in order to provide a better fit with the new environmental law, the overall regulatory and institutional framework for environmental management can now be considered as broadly adequate. However, the implementation of environmental policies and regulati ons faces enormous challenges. These challenges include (i) the lack of appropriate mechanisms to support the effective integration of environmental considerations into sector policy formulation and implementation; (ii) the weak enforcement and compliance with key environmental regulations (e.g., environmental impact assessment, involuntary resettlement of populations, etc.); and (iii) the lack of adequate technical capacity in the public and private sectors to ensure effective environment and natural resource management. 6.19 The lack of technical and operational capacity is particularly acute within the ministry of environment and forest resources where 80 percent of the staff consists of forestry engineers and technicians with little or no training in environmental management, especially environmental assessment. The technical unit dedicated to environmental impact assessment and environmental audit has 6 staff (only one has a graduate degree). The ministry has very limited resources (the average yearly investment budget over the 2001 - 2009 period is under US$200,000). To mitigate these constraints, the CEB has benefitted from capacity building on environmental and social safeguards under the ongoing Benin Energy Services Delivery Project (ESDP) as its highly qualified environmental and social safeguards staff are well versed in the World Bank safeguard requirements. In addition, the Togo Emergency Infrastructure Rehabilitation and Energy Project includes the Environmental and Social Monitoring Framework (ESMF). With regard to the mining sector, as part of the effort to update its legal and regulatory framework, the Government will review the environmental and social provisions of the Mining Code and address any regulatory gaps with the aim of bringing Togo closer to international best practices with respect to social, community, and environmental standards. Recommended capacity building activities 6.20 Remedying the current and future adverse environmental and social effects associated with the activities of the targeted sectors, and effectively integrating environmental considerations into the implementation of the reforms will require active collaboration between the Government, the private sector and civil society groups. This collaboration should focus on filling the technical capacity and information/awareness gaps that prevent effective collective action to control the adverse effects of sectoral investments on the environment, natural resources, and the livelihood of affected communities. The capacity building activities should consist both of short term measures aimed to restore environmental 36 stewardship in the on-going activities of the three sectors, and of medium term measures focusing on building durable capabilities in Government for mainstreaming environment into development policies and programs. The findings and recommendations of the CEA will underpin further possible capacity building support in the environmental sector that would be identified in the context of the new CAS. E. P OVERTY AND SOCIAL I MPACT 6.21 Togo remains one of the world's poorest countries, ranking 139 out of 169 in the 2010 UNDP Human Development Report, although this ranking constitutes a marked improvement over the 2009 ranking (159 out of 182 countries). Based on the QUIBB28 survey, in 2006, an estimated 62 percent of Togo's population lived below the poverty line, with the rural areas showing the highest share of poor people (74 percent versus 37 percent in urban areas ). These 2006 findings do not reflect the shocks that affected the country in 2008 and 2009, in particular the rise in food and oil prices, as well as the flooding and the financial crisis and global economic slowdown. Furthermore, economic growth has not been strong relative to population growth and, as a result, GDP per capita only grew by 0.7 percent in 2009 (and it is estimated to grow by 0.8 percent in 2010).29 Partial poverty estimates in the city of Lomé, based on the 2008 Household Expenditure Survey, indicate that there was a small increase in poverty in Lomé from 24.5 percent in 2006 to 25.1 percent in 2008. 6.22 It is expected that the upcoming Poverty Assessment would provide more accurate information on recent poverty developments, especially regarding regional poverty and inequality. Meanwhile, the 2010 UNDP indicators for multi-dimensional poverty (not strictly comparable with the above methodology) show the following poverty situation for Togo: Population Population at Multi- in multi- risk of multi- % of population with at least % Population below dimensional dimensional dimensional one severe deprivation in income poverty line poverty index poverty (%) poverty (%) Living PPP $ 1.25 / day Health Education standards 0.284 54.3 21.6 39.9 38 75.5 38.7 6.23 The improvements in budget planning and execution, and especially the introduction of the functional classification of budget expenditures, will also contribute to improve information about poverty developments, by successfully monitoring the linkages between the policy actions identified in the PRSP and poverty outcomes. 6.24 The measures supported by the proposed ERGG-4 are expected to have significant positive employment and distributional effects with a positive impact on poverty reduction. Specifically, expected benefits include: 28 QUIBB Survey, Standardized Questionnaire on the Basic Indicators of Wellbeing. 29 GDP per capita actually fell by 1.4 and 0.1 percent in 2007 and 2008, respectively. 37 (i) contributing to overall economic growth and hence employment creation; (ii) strengthening of public expenditure management, which would enhance efficiency, transparency and accountability in public resource use, including for social sectors; (iii) strengthening governance in the cotton sector through measures to improve the accounting system and increase the representation of producers in the Board of the company. This should help producers earn a larger share of revenues; (iv) enhancing governance in the phosphate sector by improving transparency and accountability of the sector, thereby improving its financial contribution to the economy and public finances; and (v) contributing to improve the financial situation of CEET and thus reduce the drain on the Government budget, thereby freeing up resources that can be directed to poverty reduction expenditures. According to the results of the Poverty and Social Impact Analysis (PSIA) the increase in tariffs that took effect in January will have a very limited impact on the poor (see Box 6.1) due to the low access rate to electricity among the poor. 6.25 While the ERGG-4 does not have a special focus on rural poverty, it supports measures that will be particularly beneficial to the rural poor. In the cotton sector, improving governance is expected to further increase confidence of farmers and thereby facilitate a rebound in cotton production and improve the livelihood of a large sector of the population. Indeed, about 300,000 people rely on this cash crop as a dominant source of earnings. Enhancing the financial situation of CEET will allow for the stepping up of electricity distribution with positive impacts on the poor population's health and security (replaces use of kerosene lamps for lighting, facilitates operations of health clinics including storage of medicines, and provides public lighting in urban and semi-urban areas). Furthermore, as a budget support operation, the ERGG- 4 would also help fund the provision of basic public services with a beneficial impact on the poor, in complement to the ongoing implementation of the Togo Community Development Project (approved in FY08), and the additional financing approved in FY09 under the Global Food Crisis Response Program and in FY10 through Pilot Crisis Response Window resources. 6.26 Given the overall thrust of the ERGG-4, no negative impacts on vulnerable groups are envisaged. On the contrary, all the measures considered should result in improved overall well-being because of better governance and more efficient and equitable Government services. As with previous ERGG operations, the Government has made considerable efforts to ensure that planned actions involve specific stakeholders and citizens at large through a participatory process. 38 Box 6.1: Poverty and Social Impact of the Increase in the Electricity Tariffs Simulations based on the data from the QUIBB survey suggest that the impact of the increase in tariff that took effect in January 2011 will have a very limited impact on the poor. The increase in unit cost is limited, and it is significantly higher for households located in the upper brackets of electricity consumption than for the lower brackets. This implicitly protects some of the poorest households who are connected to the grid. The increase in the unit cost per kilowatt hour in the lowest bracket of the tariff structure is at five percent, versus more than thirty percent for the highest bracket of consumption where richer households tend to be located. Also, according to the data from the 2006 QUIBB survey, the share of households who are connected to the electricity grid is much lower f or the poor (rising from 4.6 percent in the bottom decile to 38.4 percent in the seventh decile). This means that on average, at most one in seven poor households could potentially be affected by the increase in electricity tariff, while the likelihood of being affected is much higher for better off households. It also means that subsidies for increasing access to the network would be better targeted in all likelihood than existing subsidies embedded in the existing tariff structure. Furthermore, the share of total consumption of households allocated to electricity is important, at 6 percent of total consumption on average for households with a connection, but given the limited increase in the tariffs, the impact on poverty is likely to be small in comparison to the overall level of consumption of many households. F. M ONITORING AND E VALUATION 6.27 The Ministry of Economy and Finance will be responsible for overall implementation of the proposed ERGG-4. Day-to-day monitoring of the program will be the responsibility of the Permanent Secretariat for Policy Reform (Comité de Suivi des Programmes et Réformes), an existing high-level team within the Ministry, headed by the Secretary General. This arrangement is justified by the strength and continuity of this team during the previous operations and their close involvement in the ongoing policy reform dialogue, including with the IMF and other development partners. The main technical responsibility for implementation of the public financial management reforms will stay with the Budget and Treasury Departments, whose representatives are part of the Public Finance Steering Committee (Comité de pilotage des finances publiques) created in 2005. The sector reforms will be implemented by the respective technical departments in the sector ministries, under the oversight of the Ministry of Agriculture and Fisheries (cotton sector), and the Ministry of Mines and Energy (phosphates and energy) and the overall coordination of the Ministry of Economy and Finance. 6.28 The MEF economic team will also be responsible for monitoring and evaluating the results of the program. The Government will provide quarterly reports to IDA on implementation progress measured against the established timetables and the agreed performance indicators. The overall reform effort will be reviewed by the Government in close coordination with regular Bank supervision to ensure continued implementation of the program within an adequate macroeconomic policy framework. 39 G. R ISKS AND R ISK M ITIGATION 6.29 The following risks and risk mitigation strategies have been identified. (i) Political risk. The March 2010 presidential elections were organized by an independent electoral Commission (CEI) and were perceived by the international community as fair and inclusive. Incumbent president Faure Gnassingbé was reelected with 61 percent of the votes. The peaceful outturn of the 2010 presidential elections has clearly improved the socio-political outlook and hence reduced the political risk presented by Togo. The main opposition party is represented in the Government which is expected to promote the broad acceptance of critical reforms. The PRSP process which was officially launched in May 2008 and culminated in a national validation workshop in April 2009 presented an additional opportunity to foster national consensus across the Togolese society (including the private sector and CSOs) and among Government representatives on a medium-term reform agenda. (ii) Vested Interests risk. There are reasonable expectations that more transparent and accountable practices in the phosphates, energy and cotton sectors will enhance governance and reduce the scope for vested interests to undermine reform effort in these critical sectors. In addition, the proposed prior actions focus on areas in which the Government has already demonstrated its commitment and ownership in the previous ERGG operations. Close coordination with the IMF, AfDB, EU, and bilateral donors and intensified sector dialogue will help ensure that the Government continues to give top priority to the reform of these sectors. (iii) Macroeconomic risks to the economic recovery could stem from the vulnerability of the Togolese economy to exogenous shocks and/or from a slower than expected rebound from the global economic recovery. Pursuing sustainable fiscal policies will require discipline and a targeted public communication effort. There is also the risk that ongoing revenue mobilization reforms will not generate the expected increase in revenues and that investments in infrastructure will be pursued with excessive domestic financing, thus driving up borrowing costs and crowding out private investment. In addition, the extent to which the restructuring of the Togolese banking sector will lead to increased lending to the economy remains uncertain. Togo is also exposed to the impact of the Euro appreciation on its major international exports, phosphates and cotton. Some of these shocks or a combination of them could result in a risk of falling back into arrears or exacerbating the precarious financial situation of several banks. Furthermore, given Togo's role as a hub for regional trade, shocks in neighboring countries could hurt Togo's economic prospects. To mitigate the macroeconomic risks, the IMF and IDA will continue to closely monitor Togo's macroeconomic performance, including providing ongoing assistance to the financial sector reform program through the IDA-financed Financial Reform and Governance TA Project. (iv) Fiduciary risk. Despite recent reforms, fiduciary risk remains from possible corruption or Government's failure to make effective and efficient use of the fiscal space made available by budget support and debt relief. After improvements through measures taken under the previous ERGGs, the improvement in fiduciary standards remains a central objective of the proposed operation. The prior actions of the present operation 40 are expected to mitigate the fiduciary risk, and effective implementation will be closely monitored. (v) Implementation capacity risk arises from the lack of sufficient professional staff and weak institutional capacity and coordination in the wake of the long recent history of socio-political instability and suspended foreign assistance. Capacity required for taking budget planning and execution to the next level is still scarce and needs to be reinforced. In the domain of governance, strengthening the capacity of staff in charge of internal controls and of the entities entrusted with external controls will requi re additional training and financial resources for equipment and day-to-day operations. The capacity risk have been mitigated through the provision of technical assistance under IDA projects and TF grants (Financial Sector and Governance TA Project supporting financial sector reform, LICUS grant for Economic Recovery and International Reengagement providing support to reforms in public procurement, cotton, coffee, cocoa, energy sectors and port). The IMF continues to provide assistance in public financial management and to key financial administrations like the Customs and Tax Departments through its West AFRITAC based in Bamako. Other donors (AfDB, EC and France) are supporting, or plan to support, capacity building efforts in various sectors. But ultimately it will be up to the Government to fully recognize the existing capacity constraints (some but not all of which can be solved through increased financial resources) and address them vigorously, including through establishing performance indicators for Government departments and holding senior staff accountable. 6.30 In IDA's assessment, the potential benefits of the proposed operation outweigh the residual risks and warrant IDA's assistance for implementing critical reforms and policy actions in a coordinated fashion with other donors, while supporting risk mitigation actions to maximize the sustainability of the reform agenda. 41 Annex 1: Letter of Development Policy MINISTER OF ECONOMY REPUBLIC OF TOGO AND FINANCES N°544/MEF/CAB Lomé, February 8, 2011 The Minister of Economy and Finance Mr. Robert B. Zoellick President of the World Bank 1818 H Street, N.W. Washington, DC 20433 United States of America Mr. President, 1. This Letter of Development Policy (LDP) presents the progress made and outlines the current socioeconomic situation and trends for the 2011-2013 period. It describes the development policies and objectives identified by the authorities with the aim of cont inuing their budget support program started in 2008, which seeks to strengthen economic growth and reduce poverty. To achieve these objectives, the authorities are continuing to seek assistance from the international community and in particular the World Bank, through the Fourth Economic Recovery and Governance Grant (ERGG-4). I. Political and Socioeconomic Context 2. The tranquil political climate facilitated the convening of peaceful legislative elections in October 2007 and presidential elections in March 2010, the results of which were accepted by the international community. To strengthen political cohesion, a political agreement was concluded between the two main political parties. The conclusion of this agreement led to the formation of a national unity Government shortly after the March 4, 2010 elections, a move that helped solidify the peaceful political situation in Togo. 3. Following the full restoration of cooperation with the technical and financial partners and the establishment of major democratic and economic institutions, the Government turned its attention to achieving economic recovery through economic development and poverty reduction programs, while continuing to foster a peaceful political climate. 4. The Truth, Justice, and Reconciliation Commission, established to investigate the political violence that has plagued the country since independence, conducted outstanding on -site work. It took more than 18,000 depositions, which will be reviewed by national and international experts. It plans to continue social dialogue with the aim of strengthening the progress achieved through the Comprehensive Political Agreement (CPA) concluded in August 2006. 42 5. The economic recovery and poverty reduction program seeks to restore macroeconomic stability, establish sound public finances, improve the public procurement system, and strengthen public enterprise governance with a view to promoting economic growth and raising the standard of living of the population. This program is set forth in the Poverty Reduction Strategy Paper (PRSP), which the Government approved on June 20, 2009, after a lengthy national consultation process, implementation of which started through the Priority Action Program (PAP). 6. The three-year program (2008-2010), supported by the Poverty Reduction and Growth Facility concluded with the International Monetary Fund (IMF) and the Extended Credit Facility, has been satisfactorily executed thus far, despite the difficult economic situation created by the global financial crisis. Moreover, the financial situation has improved, owing to sustained efforts to make public finance management rigorous and transparent. Based on the macroeconomic framework, which was updated following the IMF mission in September 2010, estimates of 2010 total revenue stood at CFAF 267.6 billion compared to revenue of CFAF 252.39 billion in 2009. The State has adopted a plan to settle domestic arrears, implementation of which has been under way since 2009. Sector reform, particularly in the banking, cotton, energy, and phosphate sectors is continuing. All measures related to triggers have thus far been met, as a result of which Togo was able to reach the completion point under the Heavily Indebted Poor Countries (HIPC) Initiative on December 14, 2010. 7. The growth registered following the Government's efforts to jump start the economy was positive but remains inadequate relative to poverty reduction needs. In 2010, based on preliminary information, growth is projected at 3.4 percent, a rate higher than 2009 (3.2 percent). It should be noted that growth in 2009 was led by the agricultural sector. Signs of slippage in the sector's performance in 2010 are attributable to unpredictable rainfall patterns during the second quarter of the year. In addition, inflation was brought under control in 2010, with average indexes for the first half of 2010 being 1.2 percent higher than the second quarter of 2009. 8. The recent economic outlook has been changed by the end of the recession in most industrialized countries and an acceleration of growth in emerging countries, among them Asia and, in particular, China. Prospects for global economic recovery are fueling optimism which, though cautious, is sufficient to raise hopes in Togo for the robust economic growth anticipated by the Togolese people, particularly after reaching the completion point under the HIPC Initiative. 9. Signs of economic recovery are becoming clearer in Togo and the projected growth rate for 2011 stands at 3.7 percent. This modest growth is attributable to the long wait periods for the tangible effects of the various economic reforms implemented by the Government in all sectors of the economy. II. The 2011­2012 Program General Objectives 10. During the 2011­2012 period, the Government expects to step up its economic recovery program by continuing and strengthening the economic reforms that have already been started. These reforms target maintaining a stable macroeconomic framework conducive to sustainable 43 economic growth capable of improving the population's living conditions. The goals for 2011 are to (i) continue the economic reform program, which focuses on achieving greater transparency by combating fraud and corruption; (ii) improve public finance management; (iii) adhere closely to the financial orthodoxy in budget execution; (iv) honor the commitments made to international financial institutions (IMF, World Bank, and African Development Bank, in particular) and bilateral donors with a view to strengthening relations; (v) further strengthen the audit system (the Court of Accounts [Cour des Comptes], the General State Inspectorate [Inspection Générale d'Etat IGE], and the General Finance Inspectorate [Inspection Générale des Finances IGF]); and (vi) make all the new public procurement entities operational, in accordance with WAEMU Directives. The measures planned to boost agricultural productivity, settle domestic debt, and increase absorptive capacity as well as the level of public investment expenditure will pave the way for achieving a real GDP growth rate of over 3.7 percent in 2011 and for increasing the growth rate in the years ahead. Special emphasis will be placed on the promising economic growth sectors, among them the agricultural and mining sectors, in particular the phosphate sector. To this end, the National Agricultural Investment and Food Security Program [Programme National d'Investissement Agricole et la Sécurité Alimentaire PNIA-SA] adopted by the Government is being executed, and some projects linked to this program are being finalized with technical and financial partners (among them, the World Bank, the West African Development Bank, the Economic Community of West African States Bank for Investment, and the International Fund for Agricultural Development), who are assisting the Government with this program. All these activities are aimed at lending renewed impetus to the agricultural sector. Togo became an Extractive Industries Transparency Initiative (EITI) Candidate and intends to implement its action plan for the next two years in order to become an EITI member country. 11. Togo's full Poverty Reduction Strategy Paper (PRSP) for the 2009-2011 period, which sets forth the medium-term plans of the Government, will probably be revised to provide the country with a medium-term vision prior to drafting a new generation document corresponding to Togo's outlook spanning the same timeframe. A reform program is included in the current document. These reforms essentially target (i) strengthening public finance management; (ii) improving the investment climate so as to foster private sector growth; (iii) expanding access to health and education; (iv) building and rehabilitating road and energy sector infrastructure; and (v) continuing the financial sector restructuring process. The Government will continue its work with the aim of achieving its objectives set forth in the PRSP. Governance and Structural Reforms 12. The Government is firm in its resolve to continue to improve public finance management in the context of economic and financial governance. To this end, a Reform Strategy was adopted by the Government in September 2010 by Presidential Decree. It places special emphasis on public finance management reforms and undertakes to continue work to combat corruption and fraud and to create an economic and regulatory clim ate conducive to economic activity. 13. The Government has proceeded with the establishment and operationalization of audit institutions, namely the General Finance Inspectorate and the Court of Accounts, among others. It plans to strengthen these entities in 2011. The 2010 budget was executed in a rigorous, transparent, and efficient manner, with no accumulation of domestic or foreign arrears or 44 recourse to special public expenditure execution procedures. Revenue and expenditure procedures reflect implementation of the reforms started by the Government. The 2010 budget was executed using the Integrated System for Public Finance Management [Système Intégré de Gestion de Finances Publiques SIGFiP]. The 2011 draft budget was adopted by the Council of Ministers and approved by the National Assembly on December 22, 2010. This budget, like the previous one, accords priority to expenditures on education, health, infrastructure rehabilitation, agriculture and energy, water and sanitation, and the settlement of domestic debt. 14. In 2011, the Government will continue implementation of the reforms that facilitated achievement of the completion point, in particular (i) continuing implementation of the full PRSP; (ii) maintaining macroeconomic stability; (iii) tracking public expenditure on poverty reduction; (iv) submitting draft budget review laws to the Court of Accounts; (v) strengthening public finance management transparency; (vi) continuing implementation of t he domestic debt settlement strategy and the securitization of arrears owed to its suppliers; (vii) continuing publication of data on foreign and domestic debt; (viii) preserving the viability of public debt by giving priority to grants or loans on highly concessional terms; (ix) strengthening implementation of the National Education Sector Plan; (x) adopting a plan of action to strengthen, in the short term, capacity for rapid and efficient project execution; (xi) continuing reform of the public procurement system; and (xii) finalizing public enterprise reform. 15. In addition to these measures, the Government undertakes to (i) incorporate the six WAEMU public finance Directives into domestic legislation; (ii) draft the implementing documents for the WAEMU public finance management Directives; (iii) continue publication of quarterly budget execution reports; (iv) continue to submit the draft budget to the National Assembly along with the Medium-Term Expenditure Framework for the sectoral departments by the statutory deadlines; (v) institute the updated provisional cash flow management process by preparing new monthly revenue and expenditure forecasting charts; (vi) establish an effective mechanism for following up on the recommendations of audit missions; (vii) provide risk-based approach and performance audit training (IGF and IGE); and (viii) study the feasibility of the Integrated System for Public Procurement Management [Système Intégré de Gestion des Marchés Publics (SIGMAP)]. The Government has adopted these measures in the areas of public finance, the financial sector, the phosphate sector, the cotton sector, the energy sector, the transport sector, and the social sectors. This LDP goes on to describe the key actions that we have taken in each of the foregoing sectors as well as the actions planned for 2010-2011. Reestablishment of the Financial Orthodoxy 16. Public expenditure management has improved considerably owing to the (i) sound execution of the 2010 budget; (ii) effective implementation of a cash flow plan based on a monthly budget execution performance chart; and (iii) strengthening of internal budget execution audits. The Government will continue to improve cash flow management and procurement procedures and will publish budget execution reports periodically. The activities listed below illustrate the Government's reform efforts in the area of public finance: Eighty percent of budget allocations for current and investment expenditures for all the priority ministries were authorized since the beginning of the year, and 100 percent by July 2010. 45 The draft budget for 2011, accompanied by the MTEF of the Ministries of Education, Health, and Agriculture, was submitted to the National Assembly on November 12, 2010, which approved it on December 22, 2010. 2010 budget execution reports are produced quarterly and submitted to Togolese news agents, the World Bank, and the IMF within two months of the review period. This information is also available on the website of the Permanent Secretariat for Policy Reform and Financial Program Monitoring (www.togoreforme.com). The performance chart for the monthly tracking of budget execution was introduced and continues to be prepared and transmitted each month to the development partners and published on the website www.togoreforme.com. This performance chart serves as a true decision-making tool of the Treasury Planning Committee and the Government as a whole. The Government has continued with implementation of the strategy to settle domestic debt arrears with a view to restoring the confidence of suppliers. The strategy applies to all domestic debt arrears included in the 2007 audit conducted by the firm KPMG and updated in subsequent years, which was validated by the Government. The Government has adopted a public procurement reform action plan, based on the 2003 CPAR, by establishing the General Procurement Department [Direction Nationale du Contrôle des Marchés Publics DNCMP], the Public Procurement Regulatory Authority [Autorité de Régulation des Marchés Publics ARMP], and the Public Procurement Oversight Offices [Services de Contrôle des Marchés Publics SCMP] in the five priority ministries and the municipality of Lomé. The authorities for the first two entities were established by appointing a Director General for Public Procurement Oversight and a Director General of the Public Procurement Regulatory Authority. These entities will be fully staffed in 2011. The public procurement website has been created (www.marchespublics-togo.com) and the first issue of the Public Procurement Journal [Journal des marchés publics] was published in December 2010. The Integrated System for Public Finance Management (SIGFiP) has been operational since 2009 and was used for execution of the 2010 budget in order to enhance efficiency and transparency. The preliminary draft Decree-Laws and draft Decrees related to the adoption of the six WAEMU Directives were prepared and transmitted to the Secrétariat Général du Gouvernement on December 15, 2010. The November 2010 cash balance was generated by SIGFiP. An Interministerial Committee and Technical Secretariat for Forecasting tasked with assisting the Treasury Committee have been established by means of Decree. The draft budget review laws for FY 2007 and 2008 have been prepared and submitted to the Court of Accounts. Preparation of the draft 2009 budget review law is under way as FY 2010 draws to a close. The 2007 and 2008 financial statements for the cotton and phosphate public enterprises as well as the Togo télécom company and the Togo Electricity Company [Compagnie 46 d'énergie électrique du Togo CEET] have been submitted to the Court of Accounts. In addition, plans have been made to begin drafting of the Court of Accounts's Manual of Procedures, with work covering a six-month period. The cost accounting system is being set up at the New Cotton Company of Togo [Nouvelle Société Cotonnière du Togo NSCT], pursuant to the recommendations contained in the assessment report of an international firm. Cotton producer federations and groups have been trained with assistance from the European Union, under the guidance of COM-STABEX, in several areas that have the potential to strengthen their capacity for representation on the Administrative Council of the NSCT. This entails training members in cooperative principles. Small farmers in leadership roles have also been introduced to the changes in the entities, joint leadership and cooperative principles, the roles and responsibilities of decision-making entities, and administrative procedures. Several other training sessions, which were wrapped up on October 31, 2010, were also provided to this group. Specific documentation was provided to the National Federation of Cotton Producer Groups [Fédération Nationale des Groupements des Producteurs de Coton FNGPC] on OHADA legislation. Training will be continued in the context of the National Agricultural Investment and Food Security Program [Programme National d'Investissement Agricoles et de Sécurité Alimentaire PNIASA]. The EITI detailed action plan for Togo was adopted by the Steering Committee and transmitted to the EITI International Secretariat, which made it possible for Togo to join the EITI following the EITI International Board Meeting in Tanzania on October 20, 2010. The results of the reconciliation of the sales revenue of the phosphate sector with its royalties and fees paid to the public treasury in 2009 were prepared and published on October 8, 2010 and then implemented. An Interministerial Decree revising low-tension electricity tariffs was adopted on November 26, 2010. 17. During the 2011­2012 period, the Togolese authorities intend to take further action to strengthen public finance management. 18. The Government will continue to improve PEFA scores through the implementation of the reform strategy for public finance management. It will also continue to address the challenges pertaining to public expenditure management, which was highlighted in the recent Public Expenditure Management and Financial Accountability Review (PEMFAR) report. This includes (i) improving budget programming; (ii) observing the budget schedule; (iii) aligning, in a more effective manner, expenditures on the line items initially approved while maintaining the priorities identified in Togo's poverty reduction strategy; (iv) increasing the share of expenditures on the priority sectors; (v) applying and expanding use of all SIGFiP modules; (vi) continuing publication of budget-related information; (vii) continuing efforts to train Court of Accounts judges and boost the staff complement, as well as provide them with the tools and materials needed for their work; and (viii) strengthening the internal audit and inspection unit, the General Finance Inspectorate (IGF), and the General State Inspectorate (IGE). 47 To that end, the Government intends to: Incorporate the six WAEMU public finance Directives into domestic legislation (2011) and draft the implementing documents for the WAEMU public finance management Directives (2012). Publish quarterly budget execution reports for 2011 (the first three quarters); Submit the 2012 draft budget along with the Medium-Term Expenditure Framework for the education, health, agriculture, water and sanitation, and infrastructure sectors to the National Assembly by the statutory deadlines. Close the annual accounts for the 2010 financial year by using the SIGFiP system . Institute the updated provisional cash flow management process by preparing revenue and expenditure forecasting charts on a monthly basis. Establish an effective mechanism for following up on the recommendations of audit missions, provide risk-based approach and performance audit training (IGF and IGE), boost IGF personnel, increase the Court of Accounts's personnel (assistant auditors, clerks of the court, accountants, and other positions), and provide training for Court of Accounts judges in examining draft budget review laws. Develop standard procurement documents (supplies, works, and the consultant), conduct contract audits for 2010 in five key ministries, seven major companies (Togo télécom, NSCT, LONATO, CEET, TdE, SALT, and PAL), and the municipality of Lomé, as well as a feasibility study on the Integrated System for Public Procurement Management (SIGMAP), introduce the implementing regulation defining the limits of the authority of the Public Procurement Oversight Commissions (CCMP) and procurement thresholds. Adopt terms of reference, hire the consultant, and launch the study for the private sector participation in the capital of the New Cotton Company of Togo (NSCT). Prepare a strategic plan for the implementation of phases 2 and 3 of the recovery strategy for the phosphate sector, including the search for a strategic partner, update the mining sector's political, legal, and regulatory framework, improve corporate governance of the New Phosphate Company of Togo (SNPT), computerize the spare parts storage and inventory system, adopt social responsibility norms. Formulate and implement a plan to safeguard the financial equilibrium of the electricity subsector, and implement the recommendations of the CEET's organizational audit. Financial Sector Reforms 19. Significant progress has been made with the restructuring of the banking system so that it can perform its role with respect to financial intermediation and financing the economy, with a view to contributing to sustainable growth. 20. The Government remains committed to privatizing the public banks (BTCI, UTB, BTD, 48 and BIA-TOGO). The law on the privatization of public enterprises was adopted by the Council of Ministers and approved by the National Assembly on October 4, 2010. This law is a top legislative priority of the Government. A committee for privatizations has already been established, and will review the various strategic choices related to the privatization of banks and submit recommendations for adoption by the Council of Ministers, thus authorizing the Minister of Economy and Finance to continue the bank privatization process. 21. The process to establish a recovery mechanism for non-performing loans acquired by the State during the bank restructuring exercise is proceeding smoothly. Technical assistance is being provided by BMet and the IMF. The technical advisors submitted their report on alternatives to the mechanism, and the Government opted for the establishment of a new debt collection company. The advisors are preparing a business plan for the company. The Government's bank restructuring process is intended to avoid a recurrence of the problems that led to the difficulties encountered. 22. The institutional restructuring process includes the development of internal procedures, strengthening of internal controls and loan procedures, and the preparation of procedures manuals. In addition, an oversight committee that has been instituted will supervise the management-related activities of the banks, along with the Central Bank, until the bank privatization process has been completed. These measures, which are supplemented by monitoring and evaluation conducted by World Bank and IMF staff, the Financial Sector and Governance Project (PSFG), and the FEC, will improve governance. 23. The Government is committed to actively seeking reference partners with a solid capital base and renowned expertise in order to proceed with the privatization process. 24. The medium-term objective of these reforms is to restructure the banks that will contribute once again to financing the economy. 25. The microfinance sector plays a key role in efforts to reduce poverty, create jobs, and finance the economy in Togo. As a result, the Government intends to continue its work in this sector with a view to its development. 26. The problems experienced with Togo's pension systems are a source of concern for the Government. Consequently, a financial and organizational audit of Togo's Pension Fund [Caisse de Retraite du Togo CRT] was conducted and the actuarial study was launched in September 2010. A number of actuarial studies on the Social Security Administration [Caisse Nationale de Sécurité Sociale] have also been planned in the context of the Financial Sector and Governance Project. 27. The Government intends to consolidate gains made in the financial system for the 2010 ­ 2011 period by using a specific strategy for each component, namely the banking sector, the pension system, and the microfinance sector. 49 Phosphate Sector Reforms 28. The Government has made significant strides in meeting the eligibility criteria for becoming a candidate to join the Extractive Industries Transparency Initiative (EITI). Togo became a Candidate country on October 20, 2010 and is expecting to implement the detailed action plan over the next two years in order to become a member country. 29. The Government will continue to ensure transparency in the sector, publish the financial flows from the sector, in particular the reconciliation of data on revenues from phosphate sales and from royalties and fees paid to the State, in accordance with EITI criteria. This operation will be extended to cover other mining resources for the implementation of the EITI action plan. 30. The Government is also implementing the development strategy for the phosphate sector, adopted in April 2010 for the recovery of this sector. A boost in phosphate production is expected in 2011. 31. The restoration of good governance, supported by a sound strategic vision for the development of the mining sector as a whole, is the Government's primary objective and the challenge that still lies ahead. Cotton Sector Reforms 32. In the cotton sector, pursuant to the recommendations made in the strategic audit, SOTOCO was liquidated, and a new cotton company was established and reorganized to ensure its financial viability. Major reforms were implemented and the Government intends to put mechanisms in place in order to exploit the potential of the upturn in global prices. Cotton production is projected to increase in 2011. However, problems pertaining to the financing of inputs persist. The Government also intends to launch feasibility studies to facilitate the gradual deregulation of the cotton industry. 33. Other reforms are under way. They relate to (i) the introduction of a cost accounting system in accordance with the recommendations set forth in the evaluation report; and (ii) the strengthening of the representational capacities of small farmer leaders serving on the Administrative Council of the NSCT. 34. The other programs being executed in the cotton sector pertain to: Decision making aimed at reducing production costs at all levels; Financing of research and rehabilitation of roads in cotton growing areas, cotton warehouses, and ginning mills; and The conduct of an external audit of each financial year. 35. The ultimate goal is to establish, as quickly as possible, a sector comprising a private cotton company in which the State and producers hold a minority stake. 50 Energy Sector Reforms 36. Continuing to strengthen the financial position of the Togo Electricity Company (CEET) is a priority for the Government. We have adjusted electricity rates in order to take cost prices for the CEET into account and help maintain its viability. Other major reforms have been instituted, in particular the settlement of debt owed to the CEET by the State, local governments, government offices, and public entities with independent budgets. 37. With World Bank support, the Government launched an organizational audit of the CEET, and the implementation of the ensuing recommendations will help enhance the company's performance. 38. The performance contract concluded between the Government and the CEET is being executed, and the State intends to provide support to the CEET to ensure its successful outcome. 39. With a view to boosting energy capacity, a contract was concluded with the Contour Global company for the production of 100 MW of thermal energy. This company commenced production in October 2010, which has eased energy supply constraints, and helped enhance the reliability of the energy supply, thus boosting the competitiveness of enterprises. In addition, a plan to construct a hydroelectric power plant in Adjarala is currently under consideration. The Government also equipped the CEET with another 20 MGW thermal power plant in 2009. Along with Benin and Ghana, Togo is also a member of the West African Power Pool (WAPP), which is working to construct the 330 KV line aimed at significantly increasing the electricity supply in the countries in the subregion. The Sodigaz company was also established in 2010 to provide domestic gas to households. 40. The Government will proceed with the following actions already under way: (i) strengthening private sector participation in the development of energy production; (ii) increasing subregional cooperation in the production, purchase, sale, and transport of energy; (iii) promoting the general use of domestic gas (LPG); (iv) establishing a fund for rural electrification; (v) introducing a financing mechanism for the sector with the participation of external donors and the domestic financial system; (vi) building awareness among households of the efficient use of all forms of energy; (vii) ensuring the sector's financial sustainability by improving collection rates, replacing certain equipment, and systematically paying public consumption costs; and (viii) developing, in the longer term, a sector plan designed to provide low-cost electricity to consumers. Transport Sector Reforms 41. In the area of land transport, the Government intends to improve the road infrastructure by rehabilitating highways and roads, and building new highways and roads. There are plans to construct bypasses for two geological obstacles--the Faille d'Aledjo and the Faille de Défalé. Several other segments in Lomé and in the country's inland areas are being rehabilitated or even rebuilt. We have secured funding for several works in the port area and the construction of a bypass for the city of Lomé. In the 2011 budget, considerable resources have been allocated for the construction and rehabilitation of roads in Lomé. In view of this sector's tremendous needs, the Government will make a bond issue, and the funds will be channeled to this sector as a priority. Furthermore, the Government is counting on support from donors in this road sector over the next five years. 51 42. Since 2005, the Government has undertaken to revitalize road maintenance programs, notably through the Road Maintenance Fund [Fonds d'Entretien Routier FER]. As the FER failed to meet expectations, the Government opted to dissolve it in 2008 and replace it with the Road Fund [Fonds Routier FR], the Autonomous Toll and Road Maintenance Company [Compagnie Autonome de Péage et pour l'Entretien des Routes CAPER], and the National Road Council [Conseil National des Routes CNR]. The Government intends to continue (i) the construction, rehabilitation, and maintenance of rural and agricultural roads, urban roads, bridges, and national and inter-State highways; (ii) the expansion or division of sections of the major access roads to the capital; (iii) the improvement of the layout of the road network; (iv) support of the private organization of mass transport; and (v) the resumption of the implementation of common policies and regional projects within ECOWAS and WAEMU in order to improve the circulation of goods and persons. 43. With respect to maritime transport, major reforms aimed at improving the quality of services offered at the Autonomous Port Authority of Lomé [Port Autonome de Lomé PAL] have been under way for several years. To that end, handling services were contracted to three private enterprises (Manuport, SE2M, and SE3M). In addition, the installation of the ASYCUDA ++ software in the Port Authority's customs offices helped enhance the efficiency and speed of port operations. A preliminary assessment to ascertain the progress of concessions and adopt measures to enhance efficiency will be conducted in the short term. In that regard, the Port Authority, which seeks to provide quality services to its customers, designed a port development program that includes, inter alia, the construction of a third dock, which should begin very shortly, and a harbor basin to transform the Lomé port into a hub for the subregion through increased port capacity, the development of several parking areas, the construction of an inland dry port, and the introduction, in the near future, of a one-stop shop, whose primary objective is to facilitate and expedite the various formalities and the implementation of a transit monitoring program. With a view to improving the security, speed, and the efficiency of port operations, the port community formed an association known as the Alliance for the Promotion of the Lomé Port [Alliance pour la Promotion du Port de Lomé A2PL], whose primary objective is to provide a discussion forum for all actors in Togo's maritime transport chain. 44. The Government also intends to define a long-term vision for the development and positioning of PAL. Plans are therefore afoot to conduct a strategic study. Social Sector Reforms 45. With respect to the health sector, the Government intends to step up implementation of the national health development plan in the medium term (2008-2012), including a medium-term human resource development component for the health sector adopted in July 2009. The health code was adopted by the Government and approved by the National Assembly in May 2009. The Government also intends to conduct an institutional audit of the Ministry of Healt h. In addition to these measures, the Government will carry out other actions, including (i) the continued strengthening of infrastructure and equipment, and of human resources, and the preparation of a health map to accord greater priority to areas poorly covered by the health system; (ii) the promotion of child and maternal health through access to preventive and curative services, the implementation of an Expanded Program on Immunization (EPI), the prevention of sexually transmitted diseases and the implementation of primary health care for newborns, infants, 52 and children; (iii) the continued prevention and treatment of malaria through the provision and distribution of insecticide-treated bed nets (ITNs), the reduction of the price of anti-malaria medication and the implementation of a malaria treatment policy; (iv) the ongoing strengthening of tuberculosis screening and treatment through increased capacity to detect new cases of pulmonary tuberculosis (PTB+) and improvements in the quality of therapeutic care; (v) continued prevention and treatment of HIV/AIDS through awareness building among young people and sex workers, condom distribution, STI prevention, blood safety, counseling for voluntary and anonymous testing, and capacity building for patient care; and (vi) the formulation and implementation of a national health insurance strategy. The Government therefore adopted a decree on health insurance for government employees. The Government is stepping up measures in this area in order to reduce the neonatal mortality rate and achieve one of the MDGs (and launch CARMA). 46. In the education sector, as part of the implementation of the National Education Sector Plan, the Government provided initial training to at least 500 newly recruited teachers and continuing training to at least 4,000 current teachers. It intends to continue efforts to incorporate volunteer and assistant teachers as well into the public service and (i) construct and rehabilitate educational infrastructure; (ii) train trainers and educators; (iii) incorporate, in the short term, all of these actions into a sector program related to the Education for All-Fast Track Initiative for which a financing agreement was concluded between the Government and the World Bank; (iv) continue improving teaching conditions in technical training and professional training; (iv) continue promoting the education of girls by reducing school expenses; (v) further improve the quality of higher education and promote gender equality in this sphere; and (vi) strengthen facilities to accommodate the increasingly large number of students enrolled in the country's universities. 47. The water and sanitation sector remains a priority for the Government, which intends to continue its efforts to improve access to potable water and sanitation infrastructure. To that end, the Government designed and adopted the national water policy and prepared the draft policy letter for potable water supply in urban areas. A draft action plan for the Integrated Management of Water Resources (GIRE) and the water code were developed. Several potable water supply projects are being executed, significantly increasing the rate of access by the population to water with the construction and rehabilitation of boreholes. The lagoon in Lomé is current ly being cleaned and standing water is being drained. We will continue to carry out emergency rainwater purification works for Lomé and the development of sanitation master plans for all other towns. The Government will continue to build awareness among households in the area of water and sanitation. 48. Support for community development. With a view to improving the living conditions of the poorest populations, the Government, with World Bank support through the emergency project for community development, undertook to provide these poor population segments with better access to quality public services and economic opportunities. 53 III. Other Activities The PRSP Process and HIPC 49. The Government adopted its poverty reduction strategy (PRSP) in June 2009. It intends to implement the measures set forth in the full PRSP with a view to achieving the completion point in 2010. Against this backdrop, the Priority Action Program (PAP) was validated in November 2009, thus reflecting PRSP implementation. It bears noting that provision was made for the PAP in the 2011 budget. On September 29, 2010, the Government also adopted a reform strategy that accords priority to public finance management, along with a policy matrix. Monitoring and Evaluation 50. The Ministry of Economy and Finance is responsible for the overall implementation of the program supported by the Fourth Economic Recovery and Governance Grant (ERGG -4). The Permanent Secretariat for Policy Reform and Financial Program Monitoring (PS-PRPF) is tasked with the day-to-day monitoring and evaluation of the program. This entity coordinates the implementation of the Government's program and is assisted by a Program and Reform Monitoring Committee. The Government will provide quarterly reports to the World Bank on the program's implementation progress, which is measured against the timetables and agreed performance indicators. 51. It is the Government's hope that these political, economic, and social reforms will help strengthen its relations with the World Bank and all other bilateral and multilateral partners in order to mobilize the resources needed to reduce poverty and achieve the Millennium Development Goals by 2015. Request for Financing 52. The Government is determined to strengthen gains in political stability, continue the structural reforms initiated in 2006, and benefit from the impact of the reduction of the country's debt. To that end, the Togolese authorities are committed to implementing the program presented above and detailed in the matrix in the attached annex. The Government is therefore requesting technical and financial assistance from the World Bank to execute its ambitious program through the Fourth Economic Recovery and Governance Grant (ERGG-4), and that consideration be given to the possibility of providing IDA-funded loans for the reconstruction of damaged road infrastructure following more than 15 years of social and political turmoil. Very truly yours, Adji Otèth AYASSOR 54 Lettre de Politique de Développement Monsieur le Président, 1. La présente Lettre de Politique de Développement (LPD) présente les avancées enregistrées et retrace la situation socio-économique actuelle ainsi que les tendances pour 2011- 2013. Elle décrit les objectifs et les politiques de développement définis par les autorités pour la poursuite de leur programme d'appui budgétaire démarré en 2008 et qui vise à consolider la croissance économique et à réduire la pauvreté. Pour atteindre ces objectifs, les autorités continuent de rechercher l'appui de la communauté internationale et notamment celui de la Banque Mondiale à travers le quatrième Don pour la Relance Economique et la Gouvernance (DREG-4). I. Contexte politique et socio-économique 2. Le climat politique apaisé a permis des élections législative en octobre 2007 et présidentielles en mars 2010 pacifiques et acceptés par la communauté internationale. Pour consolider la détente de la situation politique, un accord politique entre les deux (2) principaux partis politiques a été signé. La signature de cet accord à conduit à la formation d'un Gouvernement d'union nationale au lendemain de cette élection du 04 mars 2010 qui a contribué a consolider l'apaisement du climat politique au Togo. 3. Après la pleine reprise de la coopération avec les Partenaires Techniques et Financiers et l'installation des institutions démocratiques et économiques majeures, le Gouvernement s'est 55 appesanti à la relance économique avec des programmes de développement économique et de réduction de la pauvreté tout en continuant l'apaisement politique. 4. La mise en place par de la Commission Vérité Justice et Réconciliation chargée de faire la lumière sur les violences d'ordre politique que le pays a connues depuis son in dépendance a fait un travail remarquable sur le terrain avec plus de dix huit milles dépositions qui seront analysées par les experts nationaux et internationaux. Il compte poursuivre le dialogue social en vue de consolider les acquis de l'Accord Politique Global (APG) signé en août 2006. 5. Le programme de relance économique et de la réduction de la pauvreté vise à rétablir la stabilité macroéconomique, assainir les finances publiques, améliorer le système de passation des marchés publics et à renforcer la gouvernance dans les entreprises publiques en vue promouvoir la croissance économique et améliorer le niveau de vie de la population. Ce programme est contenu dans le Document de Stratégie de Réduction de la Pauvreté (DSRP) que le Gouvernement a approuvé le 20 juin 2009 après une longue consultation nationale et dont la mise en oeuvre a démarré à travers le Programme d'Actions Prioritaires (PAP). 6. Le programme triennal (2008-2010) appuyé par la Facilité pour la Réduction de la Pauvreté et la Croissance conclu avec le Fonds Monétaire International (FMI) et la Facilité Elargie de Crédit a connu une exécution satisfaisante jusqu'alors malgré la conjoncture économique difficile liée à la crise financière mondiale. Par ailleurs, grâce aux efforts soutenus de rigueur et de transparence dans la gestion des finances publiques, la situation financière s'est améliorée. Sur la base du cadre macroéconomique mis à jour après la mission du FMI du septembre 2010, les estimations des recettes totales sont de 267,6milliards de F CFA en 2010 contre une réalisation de 252,39 milliards de F CFA en 2009. L'Etat a adopté un plan d'apurement des arriérés intérieurs qui est en cours de mise en oeuvre depuis 2009. Les réformes des secteurs notamment bancaire, cotonnier, énergétique et des phosphates se sont poursuivies. Toutes les mesures portant sur les déclencheurs sont à présent réalisées, ce qui a permis au pays d'atteindre le point d'achèvement de l'initiative PPTE les 10 et 14 décembre 2010. 7. La croissance enregistrée suite aux efforts du Gouvernement pour relancer l'économie a été positive mais reste insuffisante face aux besoins de réduction de la pauvreté. En 2010, sur la base des informations préliminaires, la croissance atteindrait 3,4 pour cent, soit un taux plus élevé qu'en 2009 (3,2 pour cent). Il est à noter que la croissance de 2009 a été tirée par le secteur agricole. La moins bonne performance apparente de 2010 dans le secteur s'explique par une pluviométrie capricieuse au cours du deuxième trimestre 2010. Par ailleurs, l'inflation a été maitrisée au cours de l'année 2010, la moyenne des indices sur les six premiers mois de l'année 2010 est en hausse de 1,2% par rapport au deuxième trimestre 2009. 8. La situation économique récente est caractérisée par la fin de la récession dans la plupart des pays industrialisés et une accélération de la croissance dans les pays émergeants notamment en Asie et surtout en Chine. Les perspectives d'un redressement de la situation économique mondiale invite à un optimisme mesuré mais suffisant pour permettre d'espérer une croissance forte attendue par la population togolaise surtout après l'atteinte du point d'achèvement de l'Initiative PPTE. 56 9. La relance économique commence à se confirmer au Togo et les perspectives de croissance en 2011 donnent un taux estimé à 3,7 pour cent. Cette croissance modeste est attribuable au long délais d'effet des différentes réformes que le Gouvernement a mises en oeuvre dans tous les secteurs de l'économie. II. Le programme 2011-2012 Objectifs généraux 10. Le Gouvernement attend renforcer au cours de la période 2011-2012 son programme de relance économique à travers la poursuite et la consolidation des réformes économiques déjà entamées. Ces réformes visent le maintien d'un cadre macroéconomique stable favorable à une croissance économique durable susceptible d'améliorer les conditions de vie des populations. L'objectif de 2011 est: (i) de poursuivre le programme de réformes économiques axé sur l'amélioration de la transparence à travers la lutte contre la fraude et la corruption; (ii) d'améliorer de la gestion des finances publiques; (iii) d'exécuter le budget dans le respect strict de l'orthodoxie financière; et (iv) de respecter les engagements pris vis-à-vis des institutions financières internationales (FMI, Banque Mondiale et Banque Africaine de Développement notamment) et les donateurs bilatéraux dans le but de renforcer les relations; (v) de consolider le renforcement du système de contrôle (la Cour des Comptes, l'Inspection Générale d'Etat et l'Inspection Générale des Finances); (vi) de rendre opérationnelles, toutes les nouvelles structures de passation des marchés publics conformément aux directives de l'UEMOA. Les mesures prévues pour augmenter la productivité agricole, apurer la dette i ntérieure et améliorer la capacité d'absorption ainsi que le niveau des dépenses d'investissements publics permettront d'atteindre une croissance réelle du PIB de plus de 3,7 pour cent en 2011 et d'améliorer le taux de croissance pour les années à venir. Nous mettrons un accent particulier sur les secteurs porteurs de croissance économique notamment les secteurs de l'agriculture et minier notamment les phosphates. A cet effet, le Programme National d'Investissement Agricole et la Sécurité Alimentaire (PNIA-SA) adopté par le Gouvernement en phase d'exécution, certains projets liés à ce programme sont en phase de finalisation avec des partenaires techniques et financiers (notamment la Banque Mondiale, la Banque Ouest Africaine de Développement, la Banque d'Investissement de la Communauté Economique des Etats de l'Afrique de l'Ouest, le Fonds International du Développement Agricole) qui accompagnent le Gouvernement dans ce programme. Tout ceci pour donner un nouveau dynamisme au secteur agricole. Le Togo a été admis comme pays candidat à l'Initiative de Transparence dans les Industries Extractives (ITIE) dont il attend mettre en oeuvre son plan d'actions pour les deux (02) années à venir en vue d'atteindre le statut de pays membre de l'Initiative. 11. Le Document Complet de Stratégie de Réduction de la Pauvreté au Togo 2009-2011 (DSRP), document qui donne les ambitions du Gouvernement à moyen terme va probablement être révisé pour permettre au pays de disposer d'une vision à moyen terme avant l'élaboration d'une nouvelle génération de document de perspective à moyen terme du Togo. Le document actuel est assorti d'un programme de réformes. Ces reformes visent essentiellement à poursuivre: (i) le renforcement de la gestion des finances publiques; (ii) l'amélioration du climat des investissements pour favoriser la croissance du secteur privé; (iii) l'amélioration de l'accès à la santé et à l'éducation; (iv). La construction et la réhabilitation des infrastructures routières et 57 du secteur énergétique; (v) la poursuite du redressement du secteur financier. Le Gouvernement poursuivra ses efforts dans l'atteinte de ses objectifs contenu de le DSRP. Gouvernance et réformes structurelles 12. Le Gouvernement est déterminé à poursuivre l'amélioration de la gestion des finances publiques dans le cadre de la gouvernance économique et financière. A cet effet, une Stratégie des Réformes a été adoptée par le Gouvernement en septembre 2010 par décret du Président de la République et qui met un accent particulier sur les réformes de la gestion des finances publiques. Il s'engage à poursuivre la lutte contre la corruption, et la fraude ainsi que l'établissement d'un environnement économique et réglementaire propice à l'activité économique. 13. Le Gouvernement a procédé à la mise place et à l'opérationnalisation des institutions de contrôle à savoir l'Inspection Générale des Finances (IGF) et la Cour des Comptes (CC) entre autres. Il compte renforcer ces structures au cours de l'année 2011. Le budget 2010 a été exécuté avec rigueur, transparence et efficacité sans accumulation d'arriérés intérieurs et extérieurs ni recours aux procédures exceptionnelles d'exécution des dépenses publiques. La réalisation des recettes et l'exécution des dépenses reflètent la mise en oeuvre des réformes engagées p ar le Gouvernement. Le budget 2010 a été exécuté à partir du Système Intégré de Gestion de Finances Publiques (SIGFIP). Le projet de budget 2011 a été adopté en Conseil des Ministres et voté par l'Assemblée Nationale le 22 décembre 2010. Ce budget comme le précédent donne la priorité aux dépenses d'éducation, de santé, de réhabilitation des infrastructures, de l'agriculture de l'énergie, de l'eau et assainissement, d'apurement de la dette intérieure. 14. Au cours de l'année 2011, le Gouvernement va poursuivre la mise en oeuvre des réformes qui ont permis d'atteindre le point d'achèvement, notamment (i) poursuivre la mise en oeuvre du DSRP Complet, (ii) le maintien d'une stabilité macroéconomique, (iii) le suivi des dépenses publiques pour la réduction de la pauvreté, (iv) la soumission au à la Cour des Comptes des projets de loi de règlement, (v) le renforcement de la transparence dans la gestion des finances publiques, (vi) la poursuivre de la mise en oeuvre de la stratégie d'apurement des arriérés intérieurs et la titrisation les arriérés vis-à-vis de ses fournisseurs, (vii) poursuivre la publication des données sur la dette extérieure et intérieure, (viii) la préservation de la viabilité de la dette publique, en favorisant des dons ou des prêts à des conditions hautement concessionnelles, (ix) la consolidation de la mise en oeuvre du Plan National du Secteur de l'Education, (x) l'adoption d'un plan d'action pour renforcer à court terme la capacité d'exécution rapide et efficace des projets, (xi) la poursuite de la réforme du système de passation des marchés publics, et (xii) la finalisation de les réformes au niveau des entreprises publiques. 15. En plus de ces mesures, le Gouvernement s'engage à: (i) transposer les six (06) directives de l'UEMOA relatives aux finances publiques dans la législation nationale, (ii) élaborer des textes d'application des directives de l'UEMOA relatives à la gestion des finances publiques (iii) poursuivre la Publication des rapports trimestriels d'exécution du budget (iv) poursuivre la soumission dans les délais légaux du projet de budget à l'Assemblée Nationale assorti du Cadre de Dépenses à Moyen Terme des départements sectoriels, et (v) opérationnaliser la gestion prévisionnelle de trésorerie rénovée avec l'élaboration de tableaux des prévisions des 58 recouvrements et de dépenses sur une base mensuelle, (vi) mettre en place un dispositif efficace de suivi des recommandations des missions de contrôle, (vii) former sur l'approche par le risque et les audits de performance (IGF, IGE), et (viii) étudier la faisabilité d'un Système Intégré de Gestion des Marchés Publics (SIGMAP). Le Gouvernement a pris des mesures dans les domaines des finances publiques, du secteur financier, du secteur des phosphates, du secteur du coton, du secteur de l'énergie, du secteur des transports et des secteurs sociaux. La suite de cette lettre décrit les actions clés que nous avons prises au niveau de chaque secteur cité plus haut ainsi que les actions prévues pour 2010-2011. Rétablissement de l'orthodoxie financière 16. La gestion des dépenses publiques s'est considérablement améliorée avec: (i) la bonne exécution du budget 2010; (ii) la mise en oeuvre effective d'un plan de trésorerie prenant en compte le tableau de bord mensuel de l'exécution du budget; et (iii) le renforcement de contrôles internes au niveau de l'exécution du budget. Le Gouvernement va poursuivre le renforcement de la gestion de la trésorerie et des procédures de passation des marchés et publier régulièrement les rapports sur l'exécution du budget. Les efforts de réformes entrepris par le Gouvernement dans le domaine des finances publiques sont illustrés à travers la réalisation des actions ci après: Les allocations budgétaires pour les dépenses de fonctionnement et d'investissement pour tous les ministères prioritaires ont été ouvertes à 80% dès le début de l'année et à 100% en juillet 2010; le projet de budget 2011 assorti des CDMT des ministères de l'éducation, de la santé et de l'agriculture a été déposé à l'Assemblée Nationale le 12 novembre 2010 qui l'a adopté le 22 décembre 2010; les rapports d'exécution du budget 2010 produits chaque trimestre et transmis à la Maison de la presse du Togo, à la Banque mondiale et au FMI dans un délai de deux mois au maximum suivant la période sous revue. Ces informations sont également disponibles sur le site web du Secrétariat Permanent pour le suivi des Politiques de Réformes et des Programmes Financiers (www.togoreforme.com); le tableau de bord de suivi mensuel de l'exécution budgétaire a été institué et continue d'être élaboré et transmis chaque mois aux partenaires au développement et publié sur le site www.togoreforme.com. Ce tableau de bord constitue un véritable outil de décision au service du Comité du Plan de Trésorerie et partout du Gouvernement; le Gouvernement a poursuivi la mise en oeuvre de la stratégie de l'apurement de la dette intérieure en vue de restaurer la confiance des fournisseurs. La stratégie concerne l'apurement de tous les arriérés de la dette domestique qui ont fait l'objet d'audit effectué par le cabinet KPMG en 2007 et de mise à jour pour les années suivantes, audit validé par l'Etat; le Gouvernement a adopté un plan d'actions pour les réformes relatives aux marchés publics et fondé sur le CPAR de 2003 en créant la Direction Nationale du Contrôle des Marchés Publics (DNCMP), l'Autorité de Régulation des Marchés Publics (ARMP), et les Services de Contrôle des Marchés Publics (SCMP) dans les cinq (5) Ministères prioritaires et à la Municipalité de Lomé Les instances de ces deux structures ont été 59 mises en place par la nomination d'un Directeur Général du Contrôle des Marchés Publics et d'un Directeur Général de l'Autorité de Régulation des Marchés Publ ics. Elles seront étoffées de personnel en 2011; Le site des marchés publics a été créé ( www.marchespublics-togo.com) et le premier numéro du Journal des marchés publics a paru en décembre 2010; le système intégré de gestion des Finances publiques (SIGFIP) a été opérationnel depuis 2009 et utilisé pour l'exécution du budget 2010 afin d'améliorer l'efficacité et la transparence; les avants projets de décrets de loi et projets de décrets portant transposition des six (06) directives de l'UEMOA ont été élaborés et transmis au Secrétariat Général du Gouvernement le 15 décembre 2010; la balance du trésor pour le mois de novembre 2010 a été généré par le SIGFiP; un comité interministériel et un secrétariat technique de prévisions chargé d'assister le comité de trésorerie a été mis en place par arrêté; les projets de lois de règlement relatif aux budgets exercices 2007 et 2008 ont été élaborés et transmis à la Cour des Comptes. Celui de 2009 est en cour de préparation pendant que l'exercice 2010 est à l'étape de clôture; les états financiers de 2007 et 2008 des entreprises publiques du coton, des phosphates, de la société des Togo télécom et de la CEET ont été transmis à la Cour des Comptes; Par ailleurs, Il est prévu l'élaboration d'un manuel de procédures de la Cour des Comptes qui va démarrée pour une durée de six (06) mois; le système de comptabilité analytique en conformité avec les recommandations du rapport d'évaluation par un cabinet international est en cours de mise en place à la Nouvelle Société Cotonnière du Togo; les fédérations et groupements de producteurs de coton ont été formés dans le cadre d'un appui de l'Union Européenne pilotée par le COM-STABEX sur plusieurs thèmes pouvant renforcer leurs capacités de représentation au sein du conseil d'administration de la NSCT. Il s'agit des formations des membres sur les principes coopératifs. Les leaders paysans ont été également initiés au renouvellement des organes, au leadership associatif et aux principes coopératifs, aux rôles et responsabilités des instances décisionnelles et aux procédures administratives. Plusieurs autres formations ont été faites également à leur attention et ont pris fin le 31 octobre 2010. Une documentation spécifique sur relative aux textes de l'OHADA a été fournie à la FNGPC. La formation se poursuivra avec le PNIASA; le plan d'actions détaillé de l'ITIE-Togo a été adopté par le Comité de Pilotage et transmis au Secrétariat International de l'ITIE, ce qui a permis au Togo d'être admis à l'ITIE à la suite de l'Assemblée Nationale de l'ITIE International tenue en Tanzanie le 20 octobre 2010; les résultats de la réconciliation portant sur les recettes des ventes du secteur des phosphates avec les redevances et taxes de ce secteur versées au trésor public pour l'année 2009 ont été produits et publiés le 08 octobre 2010 et mis en oeuvre; 60 un arrêté interministériel portant modification des tarifs d'électricité basse tension a été pris le 26 novembre 2010. 17. Au cours de la période 2011-2012, les autorités togolaises entendent mettre en oeuvre des actions additionnelles pour renforcer la gestion des finances publiques. Le Gouvernement continuera à améliorer les notes obtenues dans le cadre du PEFA à travers la mise en oeuvre de la stratégie de réforme de la gestion des finances publiques. Il continuera aussi à relever les défis de la gestion des dépenses publiques soulignée dans le rapport récent de la Revue de la Gestion des Dépenses Publiques et de la Responsabilité Financière (PEMFA R): ceci inclut (i) l'amélioration de la programmation budgétaire; (ii) le respect du calendrier budgétaire; (iii) un meilleur alignement de la composition des dépenses sur les lignes budgétaires initialement approuvées tout en respectant les priorités retenues dans la stratégie de lutte contre la pauvreté du pays; (iv) l'augmentation de la part des dépenses des secteurs prioritaires; (v) l'opérationnalisation effective de tous les modules du SIGFIP et son extension; (vi) la poursuite de la publication des informations relatives au budget); (vii) la poursuite de la formation des juges de la Cour des Comptes ainsi que le renforcement de son personnel, leur équipement et la mise à disposition du matériel requis pour leur travail; (iv) le renforcement de l'unité d'audit interne et d'inspection, l'Inspection Générale des Finances (IGF) et l'Inspection Générale d'Etat. 18. A cet effet, le Gouvernement compte: transposer des six (06) directives de l'UEMOA relatives aux finances publiques dans la législation nationale (2011) et l'élaboration des textes d'application des directives de l'UEMOA relatives à la gestion des finances publiques (2012); publier des rapports trimestriels d'exécution du budget 2011 (trois premiers trimestres); soumettre dans les délais légaux du projet de budget 2012 à l'Assemblée Nationale assorti du Cadre de Dépenses à Moyen Terme des secteurs de l'éducation, de la santé, de l'agriculture, de l'eau et assainissement et des infrastructures; clôturer des comptes annuels de l'exercice budgétaire 2010 en utilisant les fonctions du SIGFIP; opérationnalisation de la gestion prévisionnelle de trésorerie rénovée avec l'élaboration de tableaux des prévisions des recouvrements et de dépenses sur une base mensuelle; mettre en place d'un dispositif efficace de suivi des recommandations des missions de contrôle, formation sur l'approche par le risque et les audits de performance (IGF et IGE), renforcement en personnel de l'IGF, renforcement de la Cour des Comptes en personnel d'appui (assistants de vérification, greffiers, comptables et autres) et formation des magistrats de la Cour des Comptes à l'examen de projet de loi de règlement; élaborer des dossiers types de passation de marchés (fournitures, travaux et consultant), réalisation des audits des marchés de 2010 dans cinq ministères clés, sept importantes sociétés: Togo télécom, NSCT, LONATO, CEET, TdE, SALT, PAL et à la Municipalité de Lomé, étude de faisabilité d'un Système Intégré de Gestion des Marchés Publics (SIGMAP), mise en place du texte d'application définissant les seuils de compétence des 61 Commissions de Contrôle des Marchés Publics (CCMP) et les seuils de passation de marchés; adopter des termes de référence, recruter le consultant, et commencer l'étude du processus d'entrée d'un actionnaire privé dans le capital social de la NSCT; préparer d'un plan stratégique de mise en oeuvre des phases 2 et 3 de la stratégie de relance su secteur des phosphates, y compris la recherche de partenaire stratégique, mise à jour du cadre politique, juridique et réglementaire du secteur minier, Amélioration de la gouvernance d'entreprise au niveau de la SNPT, informatisation du système de stockage et d'inventaire des pièces de rechange, adoption de normes de responsabilité sociale; ·élaborer et mettre en oeuvre d'un plan pour la préservation de l'équilibre financier du sous secteur de l'électricité, mise en oeuvre des recommandations de l'audit organisationnel de la CEET. Réformes du secteur financier 19. Des progrès notables ont été enregistrés dans la restructuration du système bancaire afin qu'il puisse jouer son rôle dans l'intermédiation financière et financement de l'économie en vue de contribuer à une croissance durable. 20. Le Gouvernement reste déterminer à privatiser les banques publiques (BTCI, UTB, BTD et BIA-TOGO). La loi sur la privatisation des entreprises publiques a été adoptée en Conseil des Ministres et voté par l'Assemblée Nationale le 4 octobre 2010. Cette loi constitue une priorité législative de premier plan pour le gouvernement. Une commission des privatisations a été mise en place. Elle examinera les différents choix stratégiques liés à la privatisation des banques et transmettra des recommandations qui feront l'objet d'une adoption en conseil des ministres donnant mandat au Ministre de l'Economie et des Finances de poursuivre le processus devant aboutir à la privatisation effective des banques. 21. Le processus devant mener à la mise sur pied d'une structure de recouvrement des prêts improductifs acquis par l'Etat dans le cadre de l'assainissement des banques est en bonne voie. Le processus est appuyé par une assistance technique de la BMet du FMI. Les conseillers techniques ont présenté leur rapport sur les alternatives pour la structure et le gouvernement a retenu l'adoption proposée de mettre en place une nouvelle société de recouvrement des créances. Les conseilleurs préparent un business plan de la société. 17. Le processus de restructuration des banques entamées par le Gouvernement a pour objectif de s'assurer que les problèmes ayant conduit aux difficultés ne se répéteront plus. 22. La restructuration institutionnelle comprend le développement de procédures internes, le renforcement des contrôles internes et des procédures de prêts et l'élaboration de manuels de procédures. En outre, un comité de supervision mis en place procédera au contrôle des actions du management des banques avec l'appui de la Banque Centrale jusqu'à la privatisation totale de ces banques. Ces mesures, complétées par l'action de suivi et évaluation du staff de la Banque et du Fonds Monétaire International, le Projet Secteur Financier et Gouvernance (PSFG) et la FEC vont améliorer la gouvernance. 62 23. Le Gouvernement est déterminé à rechercher activement des partenaires de référence disposant d'une assise financière solide et d'un savoir-faire reconnu en vue de procéder à la privatisation. 24. L'objectif de ces réformes sur le moyen terme est de restructurer les banques qui contribueront de nouveau au financement de l'économie. 25. Le secteur de la micro finance joue un rôle important dans la réduction de la pauvreté, la création de l'emploi et le financement de l'économie au Togo. C'est pourquoi le gouvernement entend poursuivre ses efforts dans ce secteur en vue de son développement. 26. Les difficultés qu'a connu le système des pensions au Togo préoccupent le gouvernement. A cet effet, un audit financier et organisationnel de la Caisse de Retraites du Togo (CRT) a été réalisé et l'étude actuarielle a démarré en septembre 2010. Il est prévu également dans le cadre du Projet Secteur Financier et Gouvernance, des études actuarielles de la Caisse Nationale de Sécurité Sociale. 27. Le gouvernement compte consolider les acquis du système financier pour la période 2010-2011 par une stratégie spécifique à chaque composante à savoir le secteur bancaire, le système des pensions de retraites et le secteur de la micro finance. Réformes dans le secteur des phosphates 28. Le Gouvernement a réalisé des progrès considérables pour satisfaire les critères d'éligibilité à la candidature à l'Initiative pour la Transparence dans les Industries Extractives (ITIE). Le Togo est devenu pays candidat depuis le 20 octobre 2010 et attend mettre en oeuvre le plan d'actions détaillé dans les deux années à venir afin de devenir pays membre. 29. Le gouvernement continuera dans le cadre de la mise en oeuvre de la transparence dans le secteur, la publication des flux financiers issus du secteur notamment la réconciliation des données sur les recettes des ventes des phosphates ainsi que celles des redevances et taxes versées à l'Etat selon les critères de l'ITIE. Cette opération sera étendue à d'autres ressources minières dans la mise en oeuvre du plan d'action de l'ITIE. 30. Le Gouvernement est également en train de mettre en oeuvre la stratégie du développement de la filière des phosphates qu'elle a adopté en avril 2010 pour la relance du secteur des phosphates. Une accélération de la production de phosphates est attendue en 2011. 31. La restauration de la bonne gouvernance soutenue par une vision stratégique forte pour le développement du secteur minier dans sa globalité est l'objectif clé du gouvernement et le défi qui reste à relever. Réformes dans le secteur du coton 32. Dans la filière coton, conformément aux recommandations de l'audit stratégique, la SOTOCO a été liquidée et une nouvelle société de coton a été créée et redimensionnée pour 63 assurer sa viabilité financière. Des réformes majeures ont été m ises en place et le gouvernement entend mettre en place des mécanismes afin de profiter du potentiel de l'embellie des cours mondiaux. Une croissance de la production du coton est attendue en 2011. Néanmoins, des difficultés pour le financement des intrants sont toujours d'actualité. Le gouvernement envisage entamer des études de faisabilité pour la libéralisation progressive de la filière cotonnière. 33. D'autres réformes sont en cours. Elles portent sur: (i) la mise en place d'un système de comptabilité analytique en conformité avec les recommandations du rapport d'évaluation; et (ii) le renforcement des capacités de représentation des leaders paysans au sein du Conseil d'Administration de la Nouvelle Société Cotonnière du Togo. 34. Les autres programmes en cours d'exécution au niveau de la filière cotonnière portent sur: la prise de décisions visant la réduction des coûts de production à tous les niveaux; le financement de la recherche et la réhabilitation des pistes cotonnières, des magasins de stockage du coton et des usines d'égrenage; la mise en place d'un audit externe pour chaque exercice. 35. L'objectif final est de parvenir, le plus rapidement possible, à une filière constituée d'une société cotonnière privée avec une participation minoritaire de l'Etat et des producteurs. Réformes du secteur énergétique 36. La poursuite de l'assainissement de la situation financière de la Compagnie Energie Electrique du Togo (CEET) est une priorité pour le gouvernement. Nous avons procédé à l'ajustement des tarifs de l'électricité pour tenir compte des coûts de revient pour la CEET et contribuer à préserver sa viabilité. D'autres importantes réformes ont été mises en place notamment l'apurement des arriérés de l'Etat, les Collectivités Locales, les Hôtels étatiques et les entités publiques à budget autonome envers la CEET. 37. Le gouvernement a lancé, avec l'appui de la Banque, un audit organisationnel de la CEET, la mise en oeuvre des recommandations qui seront issue de cet audit permettra d'augmenter la performance de la compagnie. 38. Le contrat de performance signé par le Gouvernement et la Compagnie est en cours d'exécution et l'Etat attend accompagné la compagnie pour un heureux aboutissement de ce contrat. 39. En vue du renforcement de la capacité énergétique, un contrat a été signé avec la société CONTOUR GLOBAL pour la production de 100 MW d'énergie thermique. Cette production de CONTOUR GLOBAL a démarré en octobre 2010, réduisant ainsi les contraintes d'offre d'énergie et permettant ainsi de renforcer la fiabilité de la fourniture améliorant la compétitivité des entreprises. Par ailleurs, un plan de construction d'une centrale hydraulique a Adjarala est en étude. Le Gouvernement a, en outre, doté la CEET d'une centrale thermique supplémentaire de 20 MGW de puissance en 2009. Avec le Benin et le Ghana, le Togo est également membre du 64 « West African Power Pool (WAPP)» pour le développement de 330 KV en vue de l'augmentation substantielle de l'électricité dans les pays de la sous région. La Société SODIGAZ a été inauguré également en 2010 pour la fourniture du gaz domestique aux ménages. 40. Le Gouvernement va poursuivre les actions déjà entamées en: (i) renforçant la participation du secteur privé au développement de la production d'énergie; (ii) intensifiant la coopération sous-régionale dans le domaine de la production, de l'achat, de la vente et du transport de l'énergie; (iii) promouvant la vulgarisation de l'utilisation du gaz domestique (GPL); (iv) créant un Fonds destiné à l'électrification des localités rurales; (v) mettant en place un mécanisme de financement du secteur avec la participation des bailleurs extérieurs et du système financier national; (vi) sensibilisant les ménages pour l'utilisation rationnelle de toutes les formes d'énergie; (vii) recherchant la soutenabilité financière du secteur par l'amélioration du taux de recouvrement, le renouvellement de certains équipements et le règlement systématique des coûts de la consommation publique; et (viii) en développant à plus long terme, un plan du secteur visant a assurer aux clients, la fourniture à moindre coût de l'électricité. Réformes du secteur des transports 41. Dans le domaine du transport terrestre, le Gouvernement entend développer les infrastructures routières par la réhabilitation des routes et pistes, la construction de nouvelles routes et pistes. Il est prévu le contournement de deux obstacles montagneux voix notamment la faille d'Alédjo et celle de Défalé. Plusieurs autres tronçons tant à Lomé qu'à l'intérieur du pays sont entrain d'être réhabilités voire reconstruites. Nous avons obtenu des ressources pour le financement de plusieurs travaux dans la zone portuaire et la construction d'une route de contournement de la ville de Lomé. Dans le budget 2011, d'importantes ressources sont prévues pour la construction et la réhabilitation des routes à Lomé. Compte tenu des besoins énormes que nécessite ce secteur, le Gouvernement va lancer un emprunt obligataire dont les ressources iront en priorité vers ce secteur. En outre, le Gouvernement attend le soutien des bail leurs de fonds dans ce secteur des routes pour les cinq prochaines années. 42. Depuis 2005, le Gouvernement a entrepris une redynamisation des programmes d'entretien routier notamment à travers le Fonds d'Entretien Routier (FER). Cette structure n'ayant pas pu répondre aux attentes, le Gouvernement a décidé de dissoudre le FER en 2008 et le remplacé par le Fonds Routier (FR), la Compagnie Autonome de Péage et pour l'Entretien des Routes (CAPER) et le Conseil National des Routes (CNR). Le Gouvernement entend poursuivre: (i) la construction, la réhabilitation et l'entretien des pistes rurales et agricoles, des voies urbaines, des ponts, des routes nationales et nationales inter-Etats; (ii) l'élargissement ou le dédoublement des tronçons sur les grands axes d'accès à la capitale; (iii) l'amélioration de l'ossature du réseau routier; (iv) le soutien de l'organisation privée du transport de masse; et (v) la redynamisation de la mise en oeuvre des politiques communes et de projets régionaux au sein de la CEDEAO et de l'UEMOA en vue d'améliorer la circulation des biens et des personnes. 43. Dans le cadre du transport maritime, des réformes importantes ont été engagées depuis plusieurs années pour améliorer la qualité des services au Port Autonome de Lomé (PAL). A cet égard, les services de manutention ont été concédés à trois entreprises privées à savoir Manuport, SE2M et SE3M. En outre, l'introduction du logiciel Sydonia++ au poste de douanes du Port, a 65 permis de contribuer à l'amélioration de l'efficacité et de la célérité des opérations portuaires. A court terme, il sera procédé à une évaluation préliminaire pour apprécier l'état d'avancement des concessions et prendre des mesures pour plus d'efficacité. A moyen terme, des efforts supplémentaires seront faits dans le cadre de l'amélioration de la compétitivité du PAL. Dans cette perspective, le Port, en quête de service de qualité pour ses clients, a élaboré un programme de développement portuaire qui comprend entre autres, la construction d'un troisième quai dont les travaux vont démarré incessamment et d'une darse pour faire du port de Lomé un hub pour la sous-région en augmentant la capacité du port, l'aménagement de plusieurs aires de stationnement, la construction d'un port sec à l'intérieur du pays, la mise en place prochaine d'un guichet unique dont l'objectif principal est de faciliter et d'accélérer les différentes formalités et la mise en place d'un programme de suivi du transit. Afin de renforcer la sécurité, la rapidité et l'efficacité des opérations portuaires, la communauté portuaire s'est regroupée en une association dénommée «Alliance pour la Promotion du Port de Lomé» (A2PL) dont le but principal est d'offrir un cadre de concertation pour tous les acteurs de la chaîne de transport maritime au Togo. 44. Par ailleurs, le Gouvernement entend définir une vision à long terme pour le développement et le positionnement du PAL. A cet effet, il est prévu une étude stratégique à cet effet. Réformes des secteurs sociaux 45. Pour le secteur de la santé, le Gouvernement va consolider la mise en oeuvre du plan national de développement sanitaire à moyen terme (2008-2012) incluant un plan à moyen terme de développement des ressources humaines pour le secteur de la santé adopté en juillet 2009. Le code de la santé a été adopté par le gouvernement et voté par l'Assemblée Nationale en mai 2009. Par ailleurs, le Gouvernement entend mener un audit institutionnel du Ministère de la santé. Outre ces mesures, le Gouvernement veillera à d'autres actions telles que: (i) la poursuite du renforcement des infrastructures et équipements, du renforcement des ressources humaines, d'élaboration d'une carte sanitaire en vue de favoriser davantage les zones mal couvertes par le système sanitaire; (ii) la promotion de la santé maternelle et infantile à travers l'accès aux services préventifs et curatifs, la mise en oeuvre d'un Programme Elargi de Vaccination (PEV), la prévention des infections sexuellement transmissibles et la mise en oeuvre des soins de santé primaire infantiles et néonataux; (iii) la poursuite de la prévention et du traitement du paludisme à travers l'approvisionnement et la distribution de la Moustiquaire Imprégnée d'Insecticide (MII), la réduction des prix des médicaments antipaludéens et la mise en oeuvre d'une politique de traitement du paludisme; (iv) la poursuite du renforcement du dépistage et du traitement de la tuberculose à travers l'accroissement des capacités de détection de nouveaux cas de Tuberculose Pulmonaire (TPM+) et l'amélioration de la qualité de la prise en charge thérapeutique; et (v) la poursuite de la prévention et le traitement du VIH/SIDA à travers la sensibilisation des jeunes et des travailleuses de sexe, la distribution des préservatifs, la prévention des IST, la sécurité du sang, le conseil pour le dépistage volontaire et anonyme et le renforcement des capacités de prise en charge des malades; et (vi) l'élaboration et la mise en oeuvre d'une stratégie nationale d'assurance maladie. De ce fait, le gouvernement a adopté un décret portant assurance maladie aux agents publics. En vue de réduire la mortalité néonatale et d'atteindre l'un des objectifs des OMD (et lancé la CARMA) le Gouvernement a entrepris d'accélérer les mesures dans ce domaine. 66 46. Dans le secteur de l'éducation, le Gouvernement a, dans le cadre de la mise en oeuvre du Plan National du Secteur de l'Education, assuré la formation initiale d'au moins 500 enseignants nouvellement recrutés et la formation continue d'au moins 4 000 anciens enseignants. Il entend poursuivre l'intégration dans la fonction publique des enseignants volontaires et auxiliaires aussi et assurer: (i) la construction et la réhabilitation des infrastructures éducatives; (ii) la formation des formateurs et éducateurs; (iii) l'intégration à court terme, de toutes ces actions dans un programme sectoriel relatif à l'Initiative de Mise en Accélération de l'Education Pour Tous (Fast Track) pour lequel une convention de financement a été signée entre le Gouvernement et la Banque Mondiale; (iv) poursuite de l'amélioration des conditions d'encadrement dans l'enseignement technique et la formation professionnelle; (vi) continuité de la promotion de l'éducation de la jeune fille à travers la réduction des frais de scolarité; (v) la consolidation de l'amélioration de la qualité et de la promotion de l'équité genre dans l'enseignement supérieur; (vi) la poursuite du renforcement des structures d'accueil pour faire face à l'augmentation de plus en plus importante des inscrits dans les Universités du pays. 47. Secteurs de l'eau et de l'assainissement: ce secteur demeure une priorité pour le gouvernement qui entend poursuivre l'amélioration de l'accès à l'eau potable et aux infrastructures d'assainissement. Pour ce faire, le gouvernement a élaboré et adopté la politique nationale de l'eau et élaboré le projet de lettre de politique d'alimentation en eau potable en milieu urbain. Un projet de plan d'actions de la Gestion Intégrée des Ressources en Eau (GIRE) a été élaboré ainsi que le code de l'eau. Concernant l'approvisionnement en eau potable, plusieurs projets sont en cours d'exécution. Ceci a augmenté considérablement le taux de desserte de la population en eau avec la réalisation et la réhabilitation des forages. La lagune de la ville de Lomé est en train d'être curée et les eaux stagnantes sont pompées. Nous allons continuer l'exécution des travaux d'urgence en matière d'assainissement pluvial de la ville de Lomé et l'élaboration des schémas directeurs d'assainissement des villes autres que Lomé. Le Gouvernement poursuivra la sensibilisation des ménages en matière de l'eau et de l'assainissement. 48. Soutien au développement communautaire: en vue d'améliorer les conditions de vie des populations les plus démunies, le gouvernement s'est engagé avec l'appui de la Banque Mondiale à travers le projet d'urgence de développement communautaire à assurer à ces couches pauvres du pays, un meilleur accès aux services publics de qualité et aux opportunités économiques. III. Autres activités Le processus DSRP et PPTE 49. Le gouvernement a adopté sa stratégie de réduction de la pauvreté (DSRP) en juin 2009. Il est déterminé à mettre en oeuvre les mesures contenues dans le DSRP complet en vue d'atteindre le point d'achèvement en 2010. Dans ce cadre, le Programme d'Actions Prioritaires (PAP) a été validé en novembre 2009 traduisant ainsi la mise en oeuvre du DSRP. Il est à noter que le PAP a été pris en compte par le budget 2011. Le Gouvernement a également adopté une stratégie de réformes accordant une priorité à la gestion des finances publiques le 29 septembre 2010 assortie d'une matrice de mesures. 67 Suivi et évaluation 50. Le Ministère de l'Economie et des Finances est chargé de la mise en oeuvre générale du programme soutenu par le quatrième Don pour la Relance Economique et la Gouvernance (DREG-4). Le suivi quotidien et l'évaluation du programme sont de la responsabilité du Secrétariat Permanent pour le suivi des Politiques de Réformes et des Programmes Financiers (SP-PRPF). Cette structure coordonne la mise en oeuvre du programme du Gouvernement et est assisté par un comité de suivi des programmes et des réformes. Le Gouvernement fournira des rapports trimestriels à la Banque Mondiale sur les progrès dans la réalisation du programme, mesurés par rapport aux calendriers et aux indicateurs de performance convenus. 51. Le Gouvernement souhaite que ces réformes politique, économique et sociale permettent de consolider les relations qu'il existe entre lui et la Banque Mondiale et l'ensemble des autres partenaires bilatéraux et multilatéraux afin de mobiliser les ressources nécessaires à la réduction de la pauvreté et à l'atteinte des Objectifs du Millénaire pour le Développement d'ici 2015. Requête de financement 52. Le Gouvernement est déterminé à consolider les acquis de la stabilité politique, et à poursuivre les réformes structurelles engagées depuis 2006 et à profiter des retombées de l'allègement de sa dette. Pour y parvenir, les autorités togolaises s'engagent à mettre en oeuvre le programme présenté ci-dessus et détaillé dans la matrice ci-jointe en annexe. Le Gouvernement sollicite donc l'assistance technique et financière de la Banque Mondiale dans la réalisation de son ambitieux programme à travers le quatrième Don pour la Relance Economique et la Gouvernance (DREG-4) et une possibilité d'emprunts au guichet IDA pour financer la reconstruction des infrastructures routières dégradées après plus de 15 ans de troubles socio - politiques. Veuillez agréer, Monsieur le Président, l'assurance de ma considération distinguée. 68 Annex 2: Government Policy Matrix Reform ERGG-4 Results Further actions during 2011-12 Related HIPC completion Entities ERGG-4 Prior Actions Objectives and Results Indicators for success of the program point triggers Responsible I. MACROECONOMIC STABILITY Maintain macroeconomic Maintain macroeconomic stability Maintain macroeconomic MEF stability stability as evidenced by satisfactory performance under an ECF-supported program. I. IMPROVING PUBLIC FINANCIAL MANAGEMENT Legal 1. Preparation of draft Harmonized PFM (i) Adopt and transpose the six Ministry of Finance framework decrees and laws to framework within the directives into the national law implement the 6 UEMOA WAEMU countries Directives pertaining to (ii) Draft and adopt the public finances. implementation acts and decrees of the six directives Budget 2. Publication of the 2010 Consolidate improvements Submit a draft 2012 budget to Adopt a mechanism to Ministry of Finance Formulatio quarterly budget execution in the transparency in the the Parliament within the legal track public expenditures n and reports and (ii) submission to public accounts timeframe with a medium term for poverty reduction on Monitoring Parliament of the draft 2011 expenditure framework (MTEF) the basis of a functional budget law with a medium- for education, health, expenditure classification term expenditure framework Improve budget planning agriculture, water and sanitation, and publish at least two (MTEF) for each of the and infrastructure. quarterly reports on these education, health and expenditures covering a agriculture sectors. period of at least two consecutive quarters preceding the completion point. Budget 3. Adoption of a treasury Timely information to (i) 2011 state accounts are closed Ministry of Finance Execution management planning order. spending units on ceilings using the SIGFIP functions for expenditure commitments (ii) Operationalize the cash Number of months in management planning system advance the spending through the preparation of 69 Reform ERGG-4 Results Further actions during 2011-12 Related HIPC completion Entities ERGG-4 Prior Actions Objectives and Results Indicators for success of the program point triggers Responsible units receive ceilings on monthly tables with estimation expenditure commitments of revenues and expenditures Baseline (2010): 0 Target (2011): 2 Budget 4. Submission by the Improve external controls (i) Implement a mechanism Appoint the judges for the Ministry of Finance Controls SOTOCO's liquidator, CEET, system to follow-up on the Court of Accounts and SNPT, and Togo télécom of auditors' recommendations; provide them with work their respective 2007 and 2008 space, equipment, and financial statements to the (ii) Train IGF and IGE staff on materials and submit the Court of Accounts. risk and performance audit draft of the Budget approaches, conditional to the Execution Law and draft availability of resources General Treasury Balance to the Court of Accounts (iii) Court of Accounts submits and Parliament for at least one fiscal year preceding the report on the execution of the the completion point. 2007 accounts to the Parliament Public 5. Development and operation Enhance procurement (i) Prepare the bidding Adopt a decree creating the Ministry of Finance Procureme of the procurement website, controls documents (supply, work and Procurement Regulatory nt and publication and circulation consultants) Authority in conformity of the Procurement Percentage of with the WAEMU Newspaper. procurement notices and (ii) Audit30 the 2010 Procurement Directives, contract awards reviewed procurement contracts nominate its managerial by the General staff, and provide them with Procurement Department (iii) Adopt the implementation an adequate budget. and publicly available decrees that define the mandate publish monthly in a public Baseline (2010): 0 of the General Procurement procurement gazette or on a Department and determines the Government website a Target (2011): 100 summary of all signed thresholds for procurement contracts, including sole source contracts and public concessions, for at least six months immediately preceding the completion point. 30 The main five ministries (health, agriculture, education, public works, and water and sanitation) and the seven key public companies (Togo Telecom, NSCT, LONATO, CEET, TdE, SALT, and PAL) and the municipality of Lomé. 70 Reform ERGG-4 Results Further actions during 2011-12 Related HIPC completion Entities ERGG-4 Prior Actions Objectives and Results Indicators for success of the program point triggers Responsible II. STRENGTHENING GOVERNANCE AND EFFICIENCY IN KEY SECTORS ­ COTTON, PHOSPHATES AND ENERGY Cotton 6. Implementation of an Enhance the management Adopt the terms of reference of Ministry of Finance Sector analytical accounting system of NSCT the consultant and initiate the and for NSCT which is consistent study on private sector NSCT with the recommendations of Reduction in NSCT's participation in the NSCT the Assessment Report. costs Target: (2011-12 season) 7. Provision of training to 5 percent reduction in the farmer leaders toward a better unit cost per ton compared participation within the NSCT to the 2010-11 season board. Phosphates 8. Adopt an action plan and Strengthen governance by (i) Prepare and update the existing Implement regular public Ministry of Finance Sector budget for the activities that improving transparency Mining Code and submit it to reporting of payments to, in coordination with are to be implemented under and accountability in the Parliament and revenues received by, the Ministry of EITI-Togo. phosphate sector the Government for the Mines. (ii) Create an IT system for the phosphates sector in line management of the stocks and with this aspect of the EITI Phosphate sector Number of criteria met spare parts of SNPT criteria, with a recent Surveillance towards becoming a annual report during at least Council candidate country the year immediately (iii) Prepare the strategic plan for preceding the year in which Phase 2 and 3, which includes the the completion point is Baseline (2009): 4 search for a strategic private Target (2010): 5 (all) and reached. partner Togo is accepted as a candidate country Energy 9. Adoption of the Utility Enhance the financial Implement the recommendations CEET Surveillance Sector Tariffs Adjustment Order. situation of CEET of the organizational audit of Council and CEET Increase in the turnover CEET Board of Directors of CEET (excluding Contour Global charges) Target (2011): 7 percent increase 71 Annex 3: IMF Relations Note IMF Executive Board Completes Fifth Review Under the Extended Credit Facility for Togo and Approves US$22 Million Disbursement Press Release No. 10/485 December 10, 2010 The Executive Board of the International Monetary Fund (IMF) today completed the fif th review of Togo's economic performance under a program supported by the three-year arrangement under the Extended Credit Facility (ECF). The Executive Board approved a request for a modification of a performance criterion related to net domestic financing and an extension of the program to end-August 2011. Completion of the review enables the immediate disbursement of an amount equivalent to SDR 14.3 million (about US$22 million), bringing total disbursements under the arrangement to SDR 86.61 million (about US$133.24 million). The Executive Board approved a three-year SDR ECF arrangement with an access amount equivalent to SDR 66.06 million (about US$101.62 million) for Togo on April 21, 2008 to support the government's economic program (see Press Release No. 08/90). The Board later approved two augmentations on September 22, 2008 and June 25, 2010 totaling SDR 29.35 million (about US$45.15 million) The Executive Board also agreed that Togo has taken the steps necessary to reach its completion point under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. This decision on the HIPC completion point is contingent upon the Executive Board of the World Bank reaching a similar decis ion, after which a joint press release will be issued. Following the Executive Board's discussion of Togo, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, said: The Togolese authorities are to be commended for continued strong implementation of their economic reform program under the ECF arrangement, which has contributed to strengthened public finances and macroeconomic stability. Countercyclical fiscal policy in 2010 has helped support a modest economic recovery. The 2011 budget appropriately emphasizes increasing public investment to support medium-term growth and poverty reduction, to be financed largely by raising domestic revenue. The authorities are committed to limiting growth in current spending and to curtailing lower priority spending in case of shortfalls in revenue or available concessional financing. Continued strong budget execution, including in priority social spending, will be key. Enhancing growth prospects will also depend on sustaining the momentum of reforms, particula rly in public finance, debt management, and the investment climate. The clearance of domestic arrears is expected to be completed. Implementation of the recently adopted automatic pricing mechanism for petroleum products will minimize distortions, cushion the social impact of price shocks, and safeguard public finances. It will be important to proceed with the privatization process for state-owned banks. Togo has taken the steps necessary to reach completion point under the enhanced HIPC Initiative. To reap lasting benefits from the considerable debt relief, judicious use of opportunities is important. The authorities will need to increase investment in physical and human capital and pursue growth-enhancing structural reforms while maintaining prudent fiscal and debt policies. Continued support from donors will be crucial, Mr. Portugal added. 72 Annex 4: Status of Anticipated Results of the Third ERGG Anticipated Result Actual Outcome (baseline 2008, unless otherwise indicated) Budget Formulation and Monitoring The budget execution reports for the Number of quarterly budget reports published: first three quarters of 2010 were Baseline: 3 (2009) published on the Permanent Secretariat Target: 3 (2010) for Monitoring of Reforms (SP-PRPF) website Number of sectors with MTEF: Baseline: 0 (2008) The 2011 draft budget was submitted to Target: 3 (2010 budget Law) Parliament in November 2010, with MTEFs for three priority ministries (Education, Health and Agriculture). The budget was approved by Parliament on December 22, 2010. Budget Execution Execution rate of priority spending (health, education, agriculture and Information pending infrastructure) Baseline: 71 percent (2006-2007 average) Target: 85 percent (2010) Budget Controls Number of internal control audits conducted 32 internal audits conducted by IGF Baseline: 8 (2009) (25) and IGE (7) Target: 10 (25 percent increase) (2010) Public Procurement Percentage of procurement contracts reviewed by the General Procurement Department Baseline: 0 (2009) Target: At least 80 percents of contracts in five (5) key ministries, seven (7) Contracts are being reviewed by the major public companies (TOGO-TELECOM, NSCT, LONATO, CEET, National Procurement Commission TdE, SALT and PAL) and the Lomé Municipal Office processed during the (CNM) due to delays in recruitment last quarter of 2010 have been subject to prior review by the General some technical staff for the General Procurement Department Procurement department Cotton Sector Percent reduction in the processing costs, including the overhead costs Cost reduction will be calculated once Baseline: CFAF 299/kg (2008-2009) all cost elements are available Target: CFAF 270/kg (10 percent reduction) (2010-11) Phosphate Sector Number of criteria met towards becoming an EITI candidate country Baseline: 02 (2009) The two criteria have been fulfilled Target: 04 (2010) Energy Sector All arrears by the Central The stock of State arrears and obligations to CEET Administration to CEET have been Baseline: CFAF 4.2 billion (2009) cleared through securitization. Target: 0 (end- 2010) 73 Annex 5: Triggers for the Floating HIPC Completion Point Measures Status A. PRSP and Poverty Monitoring Prepare a full PRSP through a participatory process and Completed. The Full PRSP was approved by the implement satisfactorily its recommended actions for at Council of Ministers on July 6 2009. A workshop least one year, as shown by an Annual Progress Report to determine the monitoring indicators for the (APR) submitted to the International Development APR was held in Lomé on April 2010. Authorities Association (IDA) and the IMF. have submitted the APR to IDA and IMF staffs in October 2010. B. Macroeconomic Stability Maintain macroeconomic stability as shown by In compliance. The Government is committed to satisfactory performance under an ECF-supported maintaining macroeconomic stability and fully program implementing ECF-related macro-critical reforms. C. Public Financial Management Adopt a mechanism to track public expenditures for Completed. A mechanism to track public poverty reduction on the basis of a functional expenditure expenditures for poverty reduction on the basis of classification and publish at least two quarterly reports on a functional expenditure classification has been these expenditures covering a period of at least two adopted. Monthly tables of fiscal operations have consecutive quarters preceding the completion point. been regularly elaborated since January 2009. Staffs of the budget office and sectoral ministries have been trained to track expenditures linked to poverty reduction based on functional classification. Quarterly expenditure reports for 2009 and 2010 were published on the Permanent Secretariat for Monitoring of Reforms (SP-PRPF) website. Appoint the judges for the Court of Accounts and give Completed. Judges were nominated in July 2009 them work space, equipment, and materials; and submit and took office on September 24 2009. The Court the draft of the Budget Execution Law and draft General of Accounts has received space, equipment, and Treasury Balance to the Court of Accounts and materials. The 2010 budget as well as the 2011 Parliament for at least one fiscal year preceding the draft budget allocated resources to the Court of completion point. Accounts. Treasury Balances and the Budget Execution Laws for 2007 and 2008 have been transmitted to the Court of Accounts for review and to the Parliament for information. Adopt a decree creating the Procurement Regulatory Completed. The public procurement code was Authority in conformity with the WAEMU 2 Procurement adopted by the National Assembly on Directives; nominate its managerial staff, and give them November 11, 2009 and the decree creating the an adequate budget and monthly publication in a public public procurement authority in conformity with procurement gazette or on a Government website of a the WAEMU directives was adopted by the summary of all signed contracts, including sole source Council of Ministers on December 30 2009. The contracts and public concessions, for at least six months managerial staff was nominated in March 2010 immediately preceding the completion point. and the 2010 budget and 2011 draft budget allocate resources to the Procurement Regulatory Authority. A summary of the contracts, including sole source contracts, are published on a monthly basis since June 2009 on the SP-PRPF website and in the Chamber of Commerce newsletter. 74 Measures Status D. Governance Implement regular public reporting of payments to, and Completed. Regular public reporting has been revenues received by, the Government for the phosphates implemented. The reports auditing the payments sector in line with this aspect of the EITI 3 criteria, with a to, and revenues received by the Government for recent annual report during at least the year immediately the phosphates sector for 2008 and 2009 have preceding the year in which the completion point is been prepared and are published on the SP-PRPF reached. website. E. Debt management Consolidate external and domestic debt data under a Completed. The Public Debt Directorate is single unit charged with all public debt management responsible for these tasks. tasks. Publish an annual report on a Government website giving Completed. The report for 2008 has been accurate and complete data on external and domestic published on the SP-PRPF website public debt, including information on debt stocks, actual (www.togoreforme.com). The report for 2009 was debt service, and new loans within six months after the completed in March 2010 and published on the end of the year, for at least one year immediately website. preceding the completion point. F. Social sectors Adopt the medium-term National Health Development Completed. The National Heath Development Plan and the medium-term Health Sector Human Plan and the medium-term Health Sector Human Resources Development and Management Plan after Resources Development and Management Plan costing of the plans has been completed. were adopted by the Council of Ministers in July 2009. Both plans include a detailed costing plan. Start implementation of the national education sector plan Completed. Initial training of 511 new teachers by training at least 500 new teachers and conducting was remedial training of at least 4,000 existing teachers. Completed between July 2009 and March 2010, and remedial training of 4,909 teachers was completed between December 2009 and August 2010. 75 Annex 6: Selected Economic and Financial Indicators, 2008­2013 2008 2009 2010 2011 2012 2013 Percentage growth, unless otherwise indicated) National income, prices, and exchange rates Real GDP 2.4 3.2 3.4 3.7 4.0 4.1 Real GDP per capita -0.1 0.7 0.8 1.2 1.4 1.6 GDP deflator 14.4 1.9 1.4 2.2 1.8 1.7 Consumer price index (annual average) 8.7 2.0 2.2 2.0 1.8 1.7 GDP (CFAF billions) 1416.6 1490.5 1561.8 1655.8 1753.7 1857.4 Exchange rate CFAF/US$ (annual average 445.8 470.7 ... ... ... ... Real effective exchange rate (annual average) 7.3 1.2 ... ... ... ... Terms of trade (deterioration = -) 25.0 -2.3 3.3 -4.0 -3.0 0.9 Monetary survey Net foreign assets 8.4 0.7 3.0 3.6 3.9 4.2 Credit to government 15.5 6.4 4.0 -1.0 0.2 -0.5 Credit to the nongovernment sector -2.6 9.7 7.1 8.2 6.5 5.1 Broad money (M2) 15.6 16.2 14.6 12.0 10.5 9.5 Velocity (GDP/ end of period M2 2.7 2.4 2.2 2.1 2.0 1.9 Percent of GDP, unless otherwise indicated Investment and savings Gross domestic investment 17.3 18.0 16.7 20.2 20.5 20.2 Government 3.2 5.5 6.7 9.9 10.0 9.6 Nongovernment 14.2 12.5 10.0 10.3 10.5 10.6 Gross national savings 10.9 10.9 9.0 12.8 13.6 13.4 Government 2.3 2.7 3.9 7.2 7.6 7.5 Nongovernment 8.6 8.2 5.1 5.6 6.0 5.9 Government budget Total revenue and grants 17.0 18.5 19.6 22.6 22.7 22.7 Revenue 15.6 16.9 17.1 19.3 18.4 18.5 Total expenditure and net lending 17.9 21.3 22.4 25.3 25.1 24.8 Domestic primary expenditure 15.2 17.4 17.2 19.7 18.7 18.7 Overall balance (payment order basis) -0.9 -2.8 -2.8 -2.7 -2.4 -2.1 Primary balance 0.4 -0.4 -0.1 -0.4 -0.3 -0.2 Change in domestic arrears 0.0 -1.1 -3.0 -0.8 -0.3 -0.3 External sector Current account balance -6.4 -7.1 -7.7 -7.4 -6.9 -6.8 Exports (goods and services) 30.1 34.4 34.1 33.2 33.3 33.0 Imports (goods and services) 44.5 49.0 51.4 51.4 51.5 51.1 PPG External debt 60.9 51.8 12.9 13.9 14.4 14.9 Of which:Arrears 0 0 0 0 0 0 External public debt service (percent of exports) 6.5 5.3 6.0 3.2 2.6 3.2 Gross international reserves (months of imports) 4.9 5.2 4.4 4.5 4.6 4.8 Sources: Togolese authorities; and IMF staff estimates and projections. 76 Annex 7: Togo at a Glance Sub- Ke y D e v e lo pm e nt Indic a t o rs Saharan Lo w To go A frica inco me Age distribution, 2008 (2009) Male Female P o pulatio n, mid-year (millio ns) 6.8 81 9 828 75-79 Surface area (tho usand sq. km) 57 24,242 17,838 60-64 P o pulatio n gro wth (%) 2.5 2.5 2.2 Urban po pulatio n (% o f to tal po pulatio n) 36 36 28 45-49 30-34 GNI (A tlas metho d, US$ billio ns) 2.9 954 432 15-19 GNI per capita (A tlas metho d, US$ ) 440 ,1 1 35 512 GNI per capita (P P P , internatio nal $ ) 850 2,027 1 34 ,1 0-4 10 5 0 5 10 GDP gro wth (%) 3.2 5.2 6.2 percent of total population GDP per capita gro wth (%) 0.7 2.7 3.9 ( m o s t re c e nt e s t im a t e , 2 0 0 3 ­ 2 0 0 9 ) # .25 P o verty headco unt ratio at $ 1 a day (P P P , %) 39 51 .. # Under-5 mortality rate (per 1,000) P o verty headco unt ratio at $ 2.00 a day (P P P , %) 69 73 .. Life expectancy at birth (years) 55 52 57 200 Infant mo rtality (per 1,000 live births) 78 83 77 180 Child malnutritio n (% o f children under 5) .. 25 28 160 140 A dult literacy, male (% o f ages 1 and o lder) 5 77 72 73 120 100 5 A dult literacy, female (% o f ages 1 and o lder) 54 54 59 80 Gro ss primary enro llment, male (% o f age gro up) 1 10 105 107 60 Gro ss primary enro llment, female (% o f age gro up) 92 95 100 40 20 0 A ccess to an impro ved water so urce (% o f po pulatio n) .. 60 64 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) .. 31 35 1990 1995 2000 2007 Togo Sub-Saharan Africa a N e t A id F lo ws 19 8 0 19 9 0 2000 2009 (US$ millio ns) Net ODA and o fficial aid 90 258 70 330 To p 3 do no rs (in 2008): France 22 91 29 128 Euro pean Co mmissio n 8 40 3 39 Netherlands 0 1 0 13 A id (% o f GNI) 8.2 16.2 5.4 1 1 .4 A id per capita (US$ ) 32 65 13 50 Lo ng- T e rm E c o no m ic T re nds Co nsumer prices (annual % change) .. 0.3 -2.5 2.0 GDP implicit deflato r (annual % change) 10.5 3.0 -1.1 0.4 Exchange rate (annual average, lo cal per US$ ) 1 21 .3 272.3 710.0 470.7 Terms o f trade index (2000 = 100) .. 126 100 67 19 8 0 ­ 9 0 19 9 0 ­ 2 0 0 0 2 0 0 0 ­ 0 9 (average annual gro wth %) P o pulatio n, mid-year (millio ns) 2.8 4.0 5.4 6.8 3.5 3.0 2.6 GDP (US$ millio ns) ,1 1 36 1,628 1,298 3,167 1.7 3.5 2.7 (% o f GDP ) A griculture 27.5 30.3 35.1 42.7 5.6 4.0 2.9 Industry 24.8 17.1 18.3 16.0 1.1 1.8 8.1 M anufacturing 7.8 7.2 8.6 7.9 1.7 1.8 7.5 Services 47.7 43.4 39.9 31.2 -0.3 3.9 -0.1 Ho useho ld final co nsumptio n expenditure 54.5 89.4 87.0 85.5 4.7 5.2 0.5 General go v't final co nsumptio n expenditure 22.4 12.9 1 1 .0 1 .2 1 -1.2 0.0 1.3 Gro ss capital fo rmatio n 28.4 15.7 15.2 18.0 2.7 -0.1 6.1 Expo rts o f go o ds and services 51.1 28.6 34.4 34.4 0.1 1.2 5.7 Impo rts o f go o ds and services 56.4 46.6 47.6 49.1 2.8 1 .1 3.1 Gro ss savings 15.6 0.9 6.2 10.9 No te: Figures in italics are fo r years o ther than tho se specified. 2009 data are preliminary. .. indicates data are no t available. a. A id data are fo r 2008. Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 77 Togo at a Glance (Cont'd) B a la nc e o f P a ym e nt s a nd T ra de 2000 2009 Governance indicators, 2000 and 2009 (US$ millio ns) To tal merchandise expo rts (fo b) 323 674 To tal merchandise impo rts (cif) 500 1,055 Voice and accountability Net trade in go o ds and services -122 -466 Political stability Current acco unt balance -83 -225 Regulatory quality as a % o f GDP -6.0 -7.1 Rule of law Wo rkers' remittances and co mpensatio n o f emplo yees (receipts) 37 260 Control of corruption Reserves, including go ld 140 676 0 25 50 75 100 2009 Country's percentile rank (0-100) C e nt ra l G o v e rnm e nt F ina nc e higher values imply better ratings 2000 (% o f GDP ) Source: Kaufmann-Kraay-Mastruzzi, World Bank Current revenue (including grants) 13.1 16.9 Tax revenue 1 1 .3 15.4 Current expenditure 13.2 15.8 T e c hno lo gy a nd Inf ra s t ruc t ure 2000 2008 Overall surplus/deficit -0.1 -2.8 P aved ro ads (% o f to tal) 31.6 .. Highest marginal tax rate (%) Fixed line and mo bile pho ne Individual .. .. 00 subscribers (per 1 peo ple) 2 26 Co rpo rate .. .. High techno lo gy expo rts (% o f manufactured expo rts) 0.6 0.1 E xt e rna l D e bt a nd R e s o urc e F lo ws E nv iro nm e nt (US$ millio ns) To tal debt o utstanding and disbursed 1,433 1,748 A gricultural land (% o f land area) 67 67 To tal debt service 30 54 Fo rest area (% o f land area) .. .. Debt relief (HIP C, M DRI) .. .. Terrestrial pro tected areas (% o f surface area) .. 1 1 .1 To tal debt (% o f GDP ) 107.8 72.8 Freshwater reso urces per capita (cu. meters) 2,071 1,781 To tal debt service (% o f expo rts) 6.1 5.3 Freshwater withdrawal (billio n cubic meters) 0.2 .. Fo reign direct investment (net inflo ws) 40 32 CO2 emissio ns per capita (mt) 0.26 0.21 P o rtfo lio equity (net inflo ws) 8 12 GDP per unit o f energy use P riv a t e S e c t o r D e v e lo pm e nt 2000 2009 (2005 P P P $ per kg o f o il equivalent) 2.0 2.0 Time required to start a business (days) ­ 75 Energy use per capita (kg o f o il equivalent) 402 390 Co st to start a business (% o f GNI per capita) ­ 205.0 Time required to register pro perty (days) ­ 295 Wo rld B a nk G ro up po rt f o lio 2000 2009 Ranked as a majo r co nstraint to business 2000 2009 (% o f managers surveyed who agreed) (US$ millio ns) n.a. .. .. n.a. .. .. IB RD .. .. To tal debt o utstanding and disbursed 0 0 Sto ck market capitalizatio n (% o f GDP ) .. .. Disbursements 0 0 B ank capital to asset ratio (%) .. .. P rincipal repayments 0 0 Interest payments 0 0 IDA To tal debt o utstanding and disbursed 604 665 Disbursements 15 0 To tal debt service 8 23 IFC (fiscal year) To tal disbursed and o utstanding po rtfo lio 0 6 o f which IFC o wn acco unt 0 6 Disbursements fo r IFC o wn acco unt 0 1 P o rtfo lio sales, prepayments and repayments fo r IFC o wn acco unt 0 0 M IGA Gro ss expo sure 0 0 New guarantees 0 0 No te: Figures in italics are fo r years o ther than tho se specified. 2009 data are preliminary. /1 3/1 1 .. indicates data are no t available. ­ indicates o bservatio n is no t applicable. Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 78 Togo at a Glance (Cont'd) Millennium Development Goals Togo With selected targets to achieve b etween 1990 and 2015 (estimate clo sest to date sho wn, +/- 2 years) T o go G o a l 1: ha lv e t he ra t e s f o r e xt re m e po v e rt y a nd m a lnut rit io n 19 9 0 19 9 5 2000 2008 .25 P o verty headco unt ratio at $ 1 a day (P P P , % o f po pulatio n) .. .. .. 38.7 P o verty headco unt ratio at natio nal po verty line (% o f po pulatio n) 32.3 .. .. .. Share o f inco me o r co nsumptio n to the po o rest qunitile (%) .. .. .. 7.6 P revalence o f malnutritio n (% o f children under 5) 21.2 .. 23.2 .. G o a l 2 : e ns ure t ha t c hildre n a re a ble t o c o m ple t e prim a ry s c ho o ling P rimary scho o l enro llment (net, %) 64 .. 77 77 P rimary co mpletio n rate (% o f relevant age gro up) 35 39 61 57 Seco ndary scho o l enro llment (gro ss, %) 21 21 30 39 Yo uth literacy rate (% o f peo ple ages 1 5-24) .. .. 74 .. G o a l 3 : e lim ina t e ge nde r dis pa rit y in e duc a t io n a nd e m po we r wo m e n Ratio o f girls to bo ys in primary and seco ndary educatio n (%) 59 .. 69 75 Wo men emplo yed in the no nagricultural secto r (% o f no nagricultural emplo yment) 41 .. .. .. P ro po rtio n o f seats held by wo men in natio nal parliament (%) 5 1 5 11 G o a l 4 : re duc e unde r- 5 m o rt a lit y by t wo - t hirds Under-5 mo rtality rate (per 1 ,000) 150 140 122 100 Infant mo rtality rate (per 1,000 live births) 89 86 76 65 M easles immunizatio n (pro po rtio n o f o ne-year o lds immunized, %) 73 53 58 80 G o a l 5 : re duc e m a t e rna l m o rt a lit y by t hre e - f o urt hs M aternal mo rtality ratio (mo deled estimate, per 1 00,000 live births) .. .. .. 510 B irths attended by skilled health staff (% o f to tal) 31 .. 49 62 Co ntraceptive prevalence (% o f wo men ages 1 5-49) 34 .. 26 17 G o a l 6 : ha lt a nd be gin t o re v e rs e t he s pre a d o f H IV / A ID S a nd o t he r m a jo r dis e a s e s P revalence o f HIV (% o f po pulatio n ages 1 5-49) 0.7 3.0 3.6 3.3 Incidence o f tuberculo sis (per 100,000 peo ple) 308 339 374 429 Tuberculo sis cases detected under DOTS (%) .. 13 12 15 G o a l 7 : ha lv e t he pro po rt io n o f pe o ple wit ho ut s us t a ina ble a c c e s s t o ba s ic ne e ds A ccess to an impro ved water so urce (% o f po pulatio n) 49 52 55 59 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) 13 12 12 12 Fo rest area (% o f to tal land area) 12.6 10.8 8.9 7.1 Natio nally pro tected areas (% o f to tal land area) .. .. .. 1 1 .1 CO2 emissio ns (metric to ns per capita) 0.2 0.2 0.2 0.2 GDP per unit o f energy use (co nstant 2005 P P P $ per kg o f o il equivalent) 2.6 2.1 2.0 2.0 G o a l 8 : de v e lo p a glo ba l pa rt ne rs hip f o r de v e lo pm e nt 00 Telepho ne mainlines (per 1 peo ple) 0.3 0.5 0.8 2.2 00 M o bile pho ne subscribers (per 1 peo ple) 0.0 0.0 1.0 24.0 00 Internet users (per 1 peo ple) 0.0 0.0 1.9 5.4 00 P erso nal co mputers (per 1 peo ple) .. 0.3 1.9 3.1 Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 100 100 30 75 75 20 50 50 25 10 25 0 2000 2002 2004 2006 2008 0 0 1990 1995 2000 2007 2000 2002 2004 2006 2008 Primary net enrollment ratio Fixed + mobile subscribers Ratio of girls to boys in primary & secondary Togo Sub-Saharan Africa education Internet users 79 IBRD 33497 o To Ouagadougou 1°E BURKINA FASO Diapaga TO GO o To SELECTED CITIES AND TOWNS 11°N 11°N To o PREFECTURE CAPITALS Navrongo Mandouri Dapaong TÔNE REGION CAPITALS Too Natitingou NATIONAL CAPITAL Oti RIVERS AV S AVA N N A MAIN ROADS OTI Mango RAILROADS Ko PREFECTURE BOUNDARIES u m ongou REGION BOUNDARIES KEREN INTERNATIONAL BOUNDARIES 10°N Kanté Kanté DOUFELGOU Kpagouda o To Niamtougou BINAH This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information Yendi endi Gué Guérin Guérin KARA To o Kokoro shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any Ka Kouka ra Kara KOZAH endorsement or acceptance of such boundaries. To o BASSAR amale Tamale ASSOLI Bafilo o To Parakou GHANA Bassar TCHAOUDJO Tchamba Tchamba To o 9°N Parakou 9°N Sokondé Sokondé . Fazao Mts o n BENIN Mo CENTRAL Sotouboua YA N YA L A SOTOUBOUA Blitta To o NIGERIA Bimbila A ni e OGOU 8°N Elavagnon 8°N o To Savé Sav Anjé Anjé WAWA AMOU WAWA Badou Atakpamé Atakpamé Amlamé Amlamé Lake Amou PLATEAU Volta To o Yendi endi Apéyémé Apé Apéyémé To o Kétou tou KLOTO HAHO 7°N 7°N Mont Agou Notsé Notsé Kpalime (986 m) Agou Si o To o YOTO Accra ZIO Tabligbo Tabligbo MARITIME L C L C LAC TOGO Kéve Kéve VO To Lagos o vié Tsévié Tsévié Vogan Vogan S Aného 0 20 40 60 Kilometers LOMÉ 6°N GOLFE 0 10 20 30 40 50 Miles To o Accra Bight of Benin 0° 1°E 2°E 3°E NOVEMBER 2004