Togo: Country outlook
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- Economist Intelligence Unit
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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 forecast period and beyond. However, discontent with the Gnassingbé dynasty (which has ruled Togo since the 1960s) will remain high throughout 2021-22. As at March 23rd Togo had recorded just under 9,000 cases of the coronavirus (Covid-19) since the first case was officially recorded in March 2020, with 104 deaths. The number of new cases has ticked up since early 2021, but with no severe second wave, and overall infections per head have remained low, even factoring in weak testing capacity. Despite this, the country's National Assembly voted in mid-March to extend a state of emergency for a fourth time--this time for a six-month period, until September--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.
ELECTION WATCH: Regional elections are likely later in 2021, although the government has not yet specified a date. A June 2019 law created a new layer of administration between local and national, for which representatives will be elected for the first time. The government has been holding talks with the opposition about the organisation of these polls, but a number of major opposition parties have either pulled out of the talks or have stated that they will boycott the elections (reflecting the perception that the polls will be neither free nor fair and will serve to expand the government's already-tight grip on power).
INTERNATIONAL RELATIONS: Foreign policy will be closely aligned with the need to secure external finance in the light of the pandemic. We expect both multilateral and bilateral lenders to expand their financial support for Togo in 2021, but this will decline in 2022 as pandemic-related socioeconomic pressure starts to ease. Concerns about policy slippages, widespread corruption and a lack of respect for democratic freedoms could endanger Togo's relations with Western donors in the longer term. 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: Near-term policy efforts will be focused on starting a coronavirus vaccination campaign. However, as the forecast period continues the main policy focus will start to shift away from measures to limit the pandemic's fallout, towards efforts to support Togo's economy as it gradually recovers from the impact of the outbreak. The sheer cost of the 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. However, this need should decline in 2022 as economic growth accelerates. In September 2020 the World Bank announced a financial package of CFAfr39bn (about US$70m), split equally between a grant and a loan, to help Togo to combat the social and economic impact of the pandemic. 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: Real GDP stagnated in 2020, but we expect it to expand by a weak 1.4% in 2021, helped by a recovering global economy that will drive renewed external demand for Togo's main agricultural products (coffee, cocoa and cotton) and phosphates. 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. 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. The construction sector will meanwhile be boosted by government pledges to start building or rehabilitating 4,000 km of rural roads (as part of the Rural Roads Support Programme, which was launched in December and runs until 2025).
INFLATION: We expect inflation to rise to 2.8% in 2021, from 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 sustain inflationary pressure, with inflation forecast to rise to 3% (the upper limit of the Union économique et monétaire ouest-africaine 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 on average in 2021; the flight to safe-haven assets that strengthened the US dollar in 2020 will partially reverse in that year as confidence in emerging markets gradually returns, weighing on the US dollar in the first half of the year. In 2022 the euro will depreciate because of an expected monetary tightening stance in the US. In line with these dynamics, we expect the CFA franc to appreciate, from CFAf575.6:US$1 in 2020 to CFAf542.1:US$1 in 2021, before depreciating to CFAfr552.4:US$1 in 2022.
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 2022. However, we expect the merchandise trade deficit to widen slightly as a share of GDP during the forecast period as recovering export growth is outstripped by a rising import bill (partly reflecting higher global commodity prices). 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 broadly unchanged as a share of GDP in 2021. The primary income surplus is forecast to increase as a share of GDP. The secondary income balance will remain in surplus in 2021-22, but this will shrink 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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