Press Release No. 09/333

Press Release: Statement at the Conclusion of an IMF Staff Mission in The Democratic Republic of São Tomé and Príncipe

September 25, 2009

A team from the International Monetary Fund (IMF), led by Mr. Tsidi Tsikata, visited São Tomé and Príncipe (STP) during September 11-24, 2009 to conduct the first review under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 09/54). The team met with Honorable Prime Minister Rafael Branco, and held discussions with Minister of Planning and Finance Angela Santiago, Central Bank of São Tomé and Príncipe (BCSTP) Governor Luis de Sousa, other senior officials of the government and the BCSTP, members of the Economic and Finance Committee of the National Assembly, and representatives of commercial banks, the business community, and São Tomé and Príncipe’s development partners.

At the conclusion of the visit, Mr. Tsidi Tsikata, Mission Chief for São Tomé and Príncipe, issued the following statement:

“Economic growth slowed from about 6 percent in 2008 to about 4 percent this year, due to a significant drop in foreign investment and related construction and trade activities. The decline in foreign investment partly reflects the impact of the global financial and economic crisis. Growth in tourism remained strong; a testament to the significant improvements in the sector’s infrastructure in recent years. The country should return to a high growth path from next year on account of substantial new foreign investments, including for a deep-water port project that is about to commence. A tightening of fiscal and monetary policies, together with falling world food and oil prices lowered inflation from a year-on-year rate of 37 percent in July 2008 to under 15 percent in August 2009.

“The IMF team discussed preparations underway to fix the exchange rate of the Dobra to the Euro with effect from 2010. The government has signed an agreement with Portugal to underpin the new arrangement. The BCSTP has accumulated substantial international reserves in preparation for the change, and the IMF’s recent allocation of Special Drawing Rights to São Tomé and Príncipe has given a further boost to the reserves. All stakeholders consulted during the visit welcomed the change, which they expect to lower inflation and interest rates in the country and thus boost economic activity.

“Most of the targets for the first half of 2009 under the IMF-supported program were met. However, the budget deficit was larger than targeted because of a shortfall in import tax revenues. Without additional external grants, the government may have to postpone some planned expenditures. The IMF team welcomed the wide-ranging reforms underway to strengthen the management of the government budget. It suggested that in order to boost government revenues, the authorities pay particular attention to expanding the register of tax payers and to the enforcement of tax laws. Looking forward, the team emphasized the importance of fiscal discipline for the success of the exchange rate peg, and urged the government to formulate an appropriately restrained budget for 2010.

“The team expresses its gratitude to the authorities for their hospitality and the constructive spirit in which discussions were held. The Executive Board of the IMF is expected to discuss the report of the mission by mid-December 2009.”