News Brief: IMF Completes First Review of São Tomé and Príncipe Program and Approves US$1.2 Million Credit
December 19, 2000
The Executive Board of the International Monetary Fund (IMF) today completed the first review of São Tomé and Príncipe's performance under a program supported by a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF),1 and approved the release of a second disbursement under the arrangement in an amount of SDR 0.95 million (about US$1.2 million), bringing total disbursements under the program to SDR 1.92 million (about US$2.5 million).
The three-year arrangement under the PRGF was approved on April 28, 2000 (see Press Release No. 00/33), in an amount equivalent to SDR 6.657 million (about US$9 million), of which SDR 0.95 million (about US$1.2 million) was disbursed on May 4, 2000.
At the conclusion of the Executive Board's discussion on São Tomé and Príncipe, Eduardo Aninat, Deputy Managing Director and Acting Chairman, made the following statement:
"The authorities' implementation of a macroeconomic stabilization and structural reform program has helped reduce inflation and boost real GDP growth, despite the deterioration in the country's terms of trade. Significant progress was also achieved in carrying out structural reforms, including the effective implementation of the customs tariff reform, the elimination of export taxes, and the preparation of draft sectoral strategies for agriculture, health, and education.
"The first review under the three-year PRGF arrangement was completed. Most performance criteria and benchmarks were observed through end-September 2000. In view of the authorities' strong commitment to reform and their recent implementation of corrective measures, waivers were granted for the nonobservance of two performance criteria.
"Looking ahead, the authorities' main challenges will be to adhere to the fiscal policy stance agreed for 2001; to centralize all government accounts at the treasury; to establish control over the public investment program; to contain low priority primary expenditure, including the wage bill; and, more generally, to ensure that fiscal policies are geared toward allowing the government's expenditures for education, health, and poverty reduction to rise, but in a context of financial stability. The authorities are encouraged to maintain momentum in preparing their Poverty Reduction Strategy Paper. Regarding structural reforms, the authorities need to move ahead with civil service reform, public enterprise restructuring and privatization, and with measures to improve the investment climate.
"A final decision on São Tomé and Príncipe's debt relief under the Enhanced HIPC Initiative is pending action later this week by the World Bank's Executive Board. A press release will be issued jointly with the World Bank following this action. The full participation of all São Tomé and Príncipe's creditors, including non-Paris Club bilateral creditors, in debt relief will be important for the success of the Initiative," Mr. Aninat said.
1 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and donors, and articulated in a poverty reduction strategy paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. For São Tomé and Príncipe, an interim PRSP dated April 6, 2000 was considered by the Executive Boards of the IMF and World Bank as an adequate basis for concessional assistance. The authorities aim at producing their full-fledged PRSP by end-2001 through a participatory process involving civil society, to supplement and update the interim PRSP. It is understood that all policy undertakings in the interim PRSP beyond 2001 are subject to reexamination and modification in line with the PRSP. Once completed and broadly endorsed by the Executive Boards of the IMF and World Bank, the PRSP will provide the policy framework for subsequent reviews under this PRGF arrangement. PRGF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years with a 5½-year grace period on principal payments.