IMF Executive Board Discusses the Ex Post Assessment of Longer-Term Program Engagement with São Tomé and Príncipe

Public Information Notice (PIN) No. 12/68
July 2, 2012

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On June 20, 2012, the Executive Board of the International Monetary Fund (IMF) discussed the Ex Post Assessment (EPA) of Longer-Term Engagement with São Tomé and Príncipe.1

Background

The report reviews the experience of the Fund’s longer-term engagement with São Tomé and Príncipe since 2000. It covers three Poverty Reduction and Growth Facility (now Extended Credit Facility) arrangements and one staff-monitored program.

Fund-supported programs played a useful role in helping São Tomé and Príncipe ensure macroeconomic stability and advance key structural reforms, especially in the fiscal area, after a period of important imbalances in the 1990s. Annual real GDP growth has averaged 5 percent a year since 2000 and substantial progress has been made toward meeting the Millennium Development Goals. Satisfactory performance under the programs secured considerable debt relief under the Heavily Indebted Poor Country (HIPC) and Multilateral Debt Relief Initiatives (MDRI), and created space for an increase in pro-poor spending. However, overall program performance was mixed given a modest track record of completion of program reviews and limited success in containing inflationary pressures.

Executive Board Assessment

Executive Directors noted the Ex Post Assessment’s conclusion that, while performance under successive Fund-supported programs in São Tomé and Príncipe since 2000 has been mixed, Fund involvement has helped improve macroeconomic policies and advance key structural reforms. Directors highlighted several lessons for future program design and implementation, including the paramount importance of strong program ownership by the authorities. Directors considered that a successor Fund-supported program will be useful, but it should take into account the specific challenges of São Tomé and Príncipe’s small-island economy with limited resources and capacity. In particular, any future program should have more streamlined and macro-critical conditionality, focus the reform effort on the most critical areas, and be flexible enough to accommodate implementation constraints and uncertainty about the timing and magnitude of future oil production. Furthermore, program implementation would need to be supported by well-targeted and coordinated training and technical assistance. Directors underscored that future policy priorities should include strengthening shock buffers, containing inflation and public debt, increasing public sector efficiency and capacity, and improving the business environment. Given the fixed exchange rate regime and fragile debt situation, prudent fiscal and debt management will be crucial for macroeconomic stability and debt sustainability.


São Tomé and Príncipe: Selected Economic Indicators, 2000–2011  
 
  Actual                     Est.
  2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
 

National income and prices

(Annual change in percent, unless indicated)

GDP at constant prices

4.0 3.1 2.0 6.7 4.5 1.6 12.6 2.0 9.1 4.0 4.5 4.9

Consumer prices

                       

End of period

9.6 9.4 9.0 10.0 15.2 17.2 24.6 27.6 24.8 16.1 12.9 11.9

Period average

12.2 9.2 10.1 9.8 13.3 17.2 23.1 18.6 32.0 17.0 13.3 14.3  

Money and credit

                       

Broad money (M3)

25.1 38.8 27.3 53.8 1.0 45.1 27.9 38.1 36.8 8.2 25.1 8.0

Credit to the economy

4.9 9.6 50.2 117.9 83.9 81.9 48.8 33.9 22.8 39.1 40.0 15.1

Government finance

(Percent of GDP, unless otherwise indicated)

Total revenue, grants, and oil signature bonuses1

29.9 36.8 31.9 34.0 34.8 71.6 33.9 165.5 45.4 31.2 38.1 36.7

Total expenditure and net lending

40.0 49.7 42.6 44.1 50.9 40.6 46.5 40.1 31.2 49.6 49.1 47.4

Domestic primary balance 2

1.3 -8.5 -7.9 -9.3 -14.2 -10.1 -9.9 -8.5 -7.0 -8.0 -4.1 -3.4

Overall balance (commitment basis)

-10.1 -12.9 -10.7 -10.1 -16.1 30.9 -12.7 125.4 14.2 -18.4 -11.0 -10.7

External sector

                       

Current account balance

                       

Including official transfers

-18.5 -21.3 -18.7 -14.7 -16.0 -11.0 -25.8 -29.8 -22.0 -25.5 -34.1 -33.1

Excluding official transfers

-38.8 -45.9 -37.7 -35.2 -36.9 -36.8 -50.0 -46.4 -52.5 -42.9 -56.1 -52.2

Usable net international reserves 3

                       

Millions of U.S. dollars

11.6 13.0 14.3 16.0 10.9 10.6 20.6 22.5 40.9 43.7 38.5 32.7

Months of imports of goods and nonfactor services

5.3 5.3 5.1 5.1 3.1 2.2 4.5 3.5 6.9 5.7 4.4 3.3
 

Sources: São Tomé and Príncipe authorities and IMF staff estimates and projections.

1 For 2007, includes IDA and AfDB MDRI debt relief as a stock of debt reduction.

2 Excludes oil related revenues, grants, interest earned, scheduled interest payments, and foreign-financed capital outlay.

3 Gross reserves excluding (i) the National Oil Account and (ii) commercial banks' foreign currency deposits at the central bank that are needed to meet the reserve requirement for their foreign currency deposits or as application deposits for new licensing.


1 An EPA is required for all members having longer-term program engagement with the Fund. It is intended to provide an opportunity for the Fund to step back from continuing program relations with a member country to consider an analysis of the economic problems facing the country, a review of progress under Fund-supported programs and forward-looking assessment that takes into account the lessons learned, and presents a strategy for future Fund engagement.



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