ATI and global lenders help propel Togo’s economy - African Trade Insurance Agency

ATI and global lenders help propel Togo’s economy

NAIROBI, 15 July, 2020 – in 2019, the Togolese Government set out to secure non-concessional external financing at more favorable terms to repay outstanding domestic and regional debt. Together with the IMF, the Government set the amount to be repurchased at about 8% of the country’s GDP with the operation targeting short-term expensive debt.

The reprofiling initiative was part of a clear and ambitious debt management strategy, devised with the support of the IMF, the Togolese Government planned to reduce its debt service burden and strengthen its debt management institutional framework.

The debt management strategy has two main objectives:

  1. Reduction of the country’s debt service burden, including:
    • Compliance with IMF on the Low-Income Countries Debt Service Analysis ( LIC & DSA) thresholds for debt levels;
    • Maintaining a total public debt level below 70% GDP;
    • Maintaining the Net Present Value (NPV) of public debt below 35% GDP by 2027;
    • Lowering the overall cost of debt (with a focus on domestic debt) and realigning the refinancing schedule; and
  2. Strengthening the institutional framework and debt management capacity of the Ministry of Finance.

Togo, a new member country of the African Trade Insurance Agency (ATI), has profited from ATI’s innovative support in the last 12 months, showing the benefits that can be delivered to a country’s economy by leveraging their ATI membership.

In 2019, Togo, with the support of ATI, devised a plan to implement its debt management strategy by reprofiling domestic debt with cheaper financing from international financiers. Given that Togo had never borrowed from the international market, ATI’s risk mitigation support became critical to achieving competitive pricing and increased tenors for this financing.

In December 2019, ATI, with its ‘A’ rated guarantee, enabled MUFG, Japan’s largest bank and one of the world’s top banks, to structure financing that attracted institutional investors from Asia and Europe raising   €103.6 million at an interest rate of 4.6% p.a. and a 12-year tenor. Critically, this financing also includes a two year grace period.

In May 2020, ATI backed Togo’s second debt reprofiling initiative of €150 million, this time partnering with another international bank, Société Générale S.A., France. With a duration of 10 years and an overall cost of around 4.5%, this new achievement was particularly notable as it was completed at a time of significant market volatility as a result of the COVID-19 pandemic.

Combined, the two transactions have enabled the Government to raise €250 million euros, on the international markets, with final maturities of at least 10 years, and rates between 4.5% p.a. and 4.75% p.a., making it possible to prepay domestic short-term commercial debts bearing interest at rates between 6.75% p.a. and 7.6% p.a.

The ratings agencies have looked upon this strategy favourably. Moody’s estimates that the government will save approximately €130 million or 1.6% of its GDP over the next three years.

The IMF has also taken notice, issuing this statement in their March 2020 country report as the COVID-19 pandemic began weighing down global economic forecasts: “The authorities have carried out the first tranche of a debt reprofiling operation, reducing slightly the net present value (NPV) of total public debt while preserving the external debt risk rating, in line with the Fund-supported program”.

ATI views this as a further testament to its role in attracting sustainable private capital to the continent providing bespoke solutions to address Africa’s unique circumstances.

Benjamin Mugisha, ATI’s Ag. Chief Underwriting Officer notes, “ATI’s main objective is to provide useful solutions to our African member governments. These reprofiling transactions are relevant because they support governments’ efforts on debt sustainability. As the world continues to be affected by the COVID-19 pandemic, we predict that ATI’s tools will become even more relevant on the continent and critical to managing and recovering from the effects of the crisis”

 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

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