Press Release No. 08/62

Press Release: Statement by an IMF Staff Mission to São Tomé and Príncipe

March 26, 2008

A mission of the International Monetary Fund (IMF), led by Jian-Ye Wang, visited São Tomé and Principe from March 13-26 to conduct the 2008 Article IV consultation discussions and the sixth and final review of the three-year arrangement under the IMF's Poverty Reduction and Growth Facility (PRGF). The IMF mission met with Mr. Trovoada, the Prime Minister, Mr. Cravid, Minister of Planning and Finance, Ms. Soares, Acting Governor of the Central Bank (BCSTP), other senior government and central bank officials, members of the National Assembly, trade unions, and representatives of the private sector and the donor community.

The mission concluded discussions on the sixth review of the PRGF-supported program and issued the following statement:

"Economic growth has been robust in the last two years with real GDP growing at an estimated 6 percent in 2007, driven by foreign investments in tourism-related projects. However, inflation rebounded in the second half of 2007, reflecting higher international prices of food and petroleum products and depreciation of the dobra. Against a difficult external environment, the authorities met all quantitative performance criteria under the PRGF-supported program at end-2007 except the criteria on the domestic primary fiscal deficit and the banking system's credit to the government.

"The authorities made some progress in structural reforms, particularly in public financial management. Nevertheless, the economy's production and export base remains very narrow and highly vulnerable to external shocks.

"The medium-term outlook depends critically on oil revenue prospects, which remain uncertain at this time. Therefore, key challenges facing the authorities are to continue reducing the currently high primary fiscal deficit and to develop the domestic production and export base—critical for achieving lasting macroeconomic stability, private sector-led growth, and poverty reduction.

"The mission agreed with the authorities on measures to support the implementation of the program for 2008. These include adopting the direct taxation reform, strengthening expenditure control, and implementing a tight monetary policy to curb liquidity growth and reduce inflation. Further progress in establishing the legal framework for anti-money laundering, enhancing transparency of managing current and prospective oil resources, and improving the investment climate is also very important.

"The IMF team would like to thank the authorities for their excellent cooperation. The staff report on the discussion of the Article IV consultation and the sixth review under the PRGF arrangement is expected to be discussed by the IMF Executive Board by end-June 2008."