Togo: Country outlook
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Togo: Country outlook
FROM THE ECONOMIST INTELLIGENCE UNIT
POLITICAL STABILITY: The Economist Intelligence Unit expects the president, Faure Gnassingbé, who has been in power since 2005, to remain in office throughout the 2021-22 forecast period and beyond. However, discontent with the Gnassingbé dynasty (which has ruled Togo since the 1960s) will remain high throughout these years. As at January 5th Togo had recorded 3,722 cases of the coronavirus (Covid-19), including 69 deaths, since the first case was officially recorded in March 2020. There has been a slight uptick in the number of new cases in recent weeks, but no perceptible second wave of the virus, and overall infections per head have remained low, even factoring in weak testing capacity. Despite this, the country's National Assembly voted in September 2020 to extend a state of emergency for six months, until March 2021, allowing the government to continue to rule by decree. The perception will remain that the state of emergency is being used by the regime as another justification (alongside terrorism) to continue to repress the country's political opposition. Given regional backing and support from the powerful Togolese military, we assume that Mr Gnassingbé's position is safe in the short term. However, as 2021 progresses, there is a risk of social unrest, particularly given that economic growth is likely to remain weak after a GDP contraction in 2020. Ultimately, however, we continue to expect the president to be able to count on the loyal support of the army and the security forces, which will suppress any protests forcefully, reducing the risk of unrest toppling the government following the ending of the state of emergency (or later on in the forecast period).
ELECTION WATCH: The next legislative election is scheduled for 2023, beyond our current forecast period. Until then a weakened opposition will focus on surviving a wave of repression by the regime in the wake of the February 2020 presidential election. The second-placed presidential candidate, Agbéyomé Kodjo, is now in exile after an arrest warrant was issued against him for continuing to contest the outcome of the presidential poll. Ongoing political repression during 2021-22 will hamper the fragmented opposition's ability to begin preparations for the 2023 legislative election campaign.
INTERNATIONAL RELATIONS: Foreign policy will be closely aligned with the need to secure external finance in the light of the ongoing pandemic. We expect both multilateral and bilateral lenders to expand their financial support for Togo in 2021, although this will decline in 2022. However, concerns about policy slippages, a lack of respect for democratic freedoms and widespread corruption could endanger Togo's relations with Western donors in the longer term. The country will also deepen its relations with fellow members of the Union économique et monétaire ouest-africaine (UEMOA). China's ties with Togo will remain strong as the Togolese government maintains its efforts to attract Chinese investment, albeit in more challenging circumstances.
POLICY TRENDS: In 2021-22 the main policy focus will start to shift from measures aimed at limiting the fallout from the pandemic to greater efforts to support Togo's economy as it gradually recovers from the contraction caused by the outbreak in 2020. The sheer cost of welfare, business support and stimulus measures that are needed to restart the economy in 2021 means the government will need to rely heavily on increased external assistance and debt suspension in the first half of the forecast period (although this should decline in 2022 as economic growth accelerates). In September 2020 the World Bank announced a financial package of CFAfr39bn (about US$70m), to be split equally between a grant and a loan, to help Togo to combat the social and economic impact of the coronavirus. With US$25.8m in external debt repayments suspended in 2020 under the G20's Debt-Service Suspension Initiative, we expect a further suspension of repayments falling due in 2021. In October 2020 the IMF's grant-based debt-service relief scheme, the Catastrophe Containment and Relief Trust, was extended until April 2021, and we expect it to be extended further until at least the end of 2021.
ECONOMIC GROWTH: We expect real GDP to expand by 2.4% in 2021 (following an estimated contraction of 3.6% in 2020), helped by a recovering global economy that will drive renewed international purchases of Togo's main agricultural products (coffee, cocoa and cotton) and phosphate. The end of public health measures that limit farmers' ability to market their produce (locally or to neighbouring countries) will also boost agricultural growth in 2021, especially given that Togo's economy is based principally on subsistence agriculture and, to a lesser extent, given its status as a regional transport hub for maritime cargo and air passengers. A revival in container traffic passing through the port of Lomé (helped by the resumption of firm growth in China) will help to support the logistics sector in that year, while the construction sector will be helped by government pledges to start building or rehabilitating 4,000 km of rural roads.
INFLATION: We expect inflation to rise to 2.2% in 2021, from an estimated average of 1.8% in 2020 (when the rate was weakened by lower global food and oil prices and weaker domestic demand). The rise will be driven by an increase in global food and oil prices in that year. In 2022 further rises in oil and food costs, alongside accelerating growth (in line with a strengthening recovery across sub-Saharan Africa in that year) will push inflation higher, to 2.6%. However, inflation will remain comfortably below the 3% UEMOA convergence criterion.
EXCHANGE RATES: The CFA franc is pegged to the euro at CFAfr655.96:EUR1 and therefore fluctuates in line with euro-US dollar movements. We forecast that the euro will strengthen against the dollar in 2021 as the euro zone starts to recover, before depreciating slightly in 2022 because of a later round of tightening of monetary policy than in the US, given the slower recovery of euro zone economies. In line with these developments, we expect the CFA franc to appreciate, from an estimated CFAf575.1:US$1 in 2020 to CFAfr558.3:US$1 in 2021, then depreciate to CFAfr572.9:US$1 in 2022. Once the eco comes into force, UEMOA member countries will not be required to keep 50% of their reserves with France. However, France will continue to guarantee the currency's conversion, albeit with the added risk that it will withdraw support should there be sustained pressure on the peg.
EXTERNAL SECTOR: In 2021-22 we expect both nominal exports and imports to increase in line with a global return to growth in 2021 followed by an increasingly strong recovery in Sub-Saharan Africa in the following year. We expect the merchandise trade deficit to narrow during the forecast period as recovering export growth outstrips rising demand for imports. We expect the remaining current-account components (services, primary and secondary income) to fluctuate over the forecast period, but they will remain dwarfed by Togo's large shortfall on merchandise trade. The services surplus will stage a slow and partial recovery only in 2022, after dropping sharply in 2020 (when service exports plunged as a result of the pandemic) and remaining unchanged in 2021. The secondary income balance will remain in surplus in 2021-22, but this will decline as a share of GDP in 2022 as the surge in aid to fight the pandemic winds down, although strengthening workers' remittances will cushion the fall.
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