Press Release: IMF Executive Board Completes Fifth Review of São Tomé and Príncipe's PRGF Arrangement and Approves PRGF and HIPC Topping-Up Assistance Disbursements

December 21, 2007

Press Release No. 07/306

The Executive Board of the International Monetary Fund (IMF) today completed the fifth review of São Tomé and Príncipe's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement and the review of assurances for the disbursement of the Fund's share of topping-up under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. The completion of the PRGF review enables the release of an amount equivalent to SDR 422,000 (about US$700,000), which would bring total disbursements under the PRGF arrangement to SDR 2.5 million (about US$4 million).

The three-year arrangement was approved on August 1, 2005 (see Press Release No. 05/187), for a total amount of SDR 2.96 million (about US$4.6 million) to support the government's economic program for 2005-08.

In completing the review, the Executive Board approved a waiver of the nonobservance of an end-June 2007 structural performance criterion related to the issuance of prudential regulations, based on remedial measures taken by the authorities.

In addition, the Executive Board approved the disbursement of topping-up HIPC assistance of SDR 824,000 (equivalent to US$1.2 million). Together with accrued interest, the total disbursement to São Tomé and Príncipe amounts to SDR 868,000 (about US$1.4 million).

In commenting on the Executive Board's discussion on São Tomé and Príncipe, Mr. Murilo Portugal, First Deputy Managing Director and Acting Chair, stated:

"São Tomé and Príncipe's recent economic performance has been encouraging. Real GDP growth has remained robust in 2007, inflation fell significantly, the domestic primary fiscal deficit was reduced, and international reserves have exceeded the targets under the PRGF-supported program.

"The authorities are committed to consolidate the stabilization gains and safeguard fiscal sustainability. They will continue to strengthen policy implementation and improve public financial management. In particular, it will be necessary to contain personnel costs and non-priority expenditure to make room for increased poverty-related spending while reducing the primary fiscal deficit. The central bank is committed to implementing a proactive monetary policy to manage liquidity growth and counter inflationary pressures stemming from the rising oil import costs. Continued fiscal adjustment will further support the reduction of inflation.

"Intensified structural reforms will aim at achieving sustained private sector-led growth and improving the investment climate, in particular by reducing administrative costs and delays in starting a business. The authorities also need to press ahead with plans to reform the financial sector and enhance the institutional framework for transparent management of oil exploration and receipts.

"In view of the uncertain oil prospects, it will be important to continue to pursue prudent fiscal and external financing strategies so as to maintain debt sustainability over the medium term. The authorities are committed to strengthening debt management and refraining from external borrowing on nonconcessional terms," Mr. Portugal said.


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