The IMF’s most recent report on Togo, issued 16 April, 2020, cited the country’s debt reprofiling operation as a key part of a strategy to help reduce the net present value of the country’s total public debt.
Normally, this news might go unnoticed, if not for COVID-19 and the economic ruin it is wreaking around the world. In Africa, the impact of this social and economic crisis could plunge the continent into its first recession in 25 years while shaving off between 3.4% and 4.1% of its GDP. In this context, the IMF’s mention of Togo’s positive move toward sustainable debt management, is noteworthy.
The success of this program has led to a second loan from the international financial markets for Euros 150 million, which Togo recently announced. This second loan will also reprofile short-term debt as part of the country’s debt management initiative that is expected to also support its efforts to lessen the economic impacts of COVID-19. ATI provided a 100% guarantee on the loan to Togo and now, after multiple supports to countries in West Africa, other countries across Africa are taking notice.
Togo, like a few other West African countries, namely, Benin, Côte d’Ivoire and Niger, have all benefited from a little know blended finance tool that uses credit enhancement measures, or guarantees, from multilateral institutions to lower their cost of borrowing and to obtain loans with longer tenures.
The countries have used these proceeds to buy back more expensive and short-term debt, thereby lowering their debt servicing costs to the tune of well over 100% in many cases.
In the current COVID-19 environment these transactions, which largely took place before the pandemic, are now viewed in a different light.
In Africa, like other developing regions, this strategy evolved over time as donor funding shrank and as countries’ infrastructure needs grew at the same time as access to commercial finance was limited or cost-prohibitive. As a result, governments looked to multilateral credit guarantees, typically from the World Bank, to lower borrowing costs.
These guarantees, however, also came with their own challenges – they were in short supply and had restrictive conditionalities.
In 2018, to fill this gap, ATI helped create an innovative credit enhancement tool with African sovereign borrowers that used existing products available in the private insurance and reinsurance market that protected prospective lenders against non-payment and unilateral breach of contract. In one ATI-backed transaction, MUFG underwrote a loan of EUR 260 million to Benin, which was later distributed to institutional investors, paving a path for a wholly new investor class to African debt.
In one of its first reports written on the Benin reprofiling transaction, the IMF noted a net positive gain over the whole period of the loan stating that “the operation replaced costly and short-maturity domestic debt (with an average interest rate of 71/2 percent and a residual maturity of 51/2 years) with external debt at better conditions (interest rate of 31/2 and 12-year maturity).”
A recent press release issued by the Government of Togo states “The successful implementation of this strategy makes it possible to position the country as a benchmark borrower on the international markets, to improve the IMF’s assessment of the risk of over-indebtedness of the country and to achieve substantial savings in debt service as soon as this year and over the next two years.”
The full press release from the Government of Togo is available on this link: