4.2.2.2.2 CAUSES OF DOMESTIC DEBT
The causes are both structural and cyclical.
4.2.2.2.2.1 Structural causes
The main cause of domestic debt is the financing of budget
deficit. For many years, State spending was not covered by tax and non-tax
revenues. The budget deficit has widened in the early 90s because of the
deterioration of terms of trade. Togo has failed to reduce its budget deficit
despite the rescheduling agreements on its external debt.
The State relied on domestic debt to finance its fiscal
imbalance.
The budget deficit is explained among other things by:
- the rising of global interest rates;
- the government's efforts to accelerate development and
industrialization through economic activities at the expense of the private
sector;
- the embezzlement of public funds by some officials;
- false certification of service rendered:
- the substantial subsidies to State enterprises;
- individuals who received loans under the policy of food self
- sufficiency became insolvent;
- mismanagement in some State - owned companies has led to the
increase of public expenditure according to the need of these companies;
- the energy crisis;
- exceeding the ceiling of BCEAO Statutory advances (20% of
tax revenues in the previous year). Statutory advances increased from three
billion CFA francs at the end of 1993 to six billion CFA francs in July, and
- military spending in the logic of preserving the integrity
of the territory and ensure peace for citizens.
4.2.2.2.2.2 Cyclical causes
Regarding cyclical causes it is the socio-political unrest of
1993 which contributed to widening the budget deficit.
Indeed, the long general strike launched on 16 November 1992
paralyzed economic activity in the country. This strike deprived the government
and private sector of resources. Secondly the socio-political events of 1994
led to the failure of financial relations with the EU, depriving the country of
foreign aid for about fifteen years.
The devaluation of the CFA franc has also worsened the
situation in the country. External debt was simply multiplied by two. This has
reduced the State's capacity to borrow abroad. These causes have led to an
explosion of domestic debt. Thus, to finance the needs of the country, the
authorities turned to domestic financing by borrowing.
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