IMF Executive Board Concludes 2013 Article IV Consultation with the Democratic Republic of São Tomé and Príncipe

Press Release No. 13/533
December 19, 2013

On December 16, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with the Democratic Republic of São Tomé and Príncipe.

After significant real economic growth volatility and high inflation through 2009, growth has become more stable and inflation has reached record low levels. However, real economic growth slowed to 4 percent in 2012, reflecting a scaling back of project financing and foreign direct investment as many of São Tomé and Príncipe’s key partners were hard hit by the global economic slowdown. Growth is projected to remain unchanged at 4 percent in 2013 in light of lingering uncertainties stemming from the challenging external environment. Despite São Tomé and Príncipe’s vulnerability to supply shocks, inflation has continued to recede following the adoption in January 2010 of the peg of the dobra to the euro: annual inflation reached 6.4 percent in September 2013 (its lowest level in two decades).

The fiscal stance has been prudent in recent years. After an initial slippage in 2009, the domestic primary balance has improved steadily thereafter, reflecting efforts to increase tax revenues and contain non-priority spending. However, the authorities have had difficulty sustaining the tax effort, which dipped to 14 percent of GDP in 2012, reflecting the effect of the weakening economy on customs duties and consumption and profit taxes, as well as a still narrow tax base and the persistence of fuel tax arrears.

Monetary aggregate growth has been consistent with maintaining the credibility of the exchange rate peg. Broad money growth accelerated in 2012, reflecting a larger than projected accumulation of foreign assets. However, it has since abated and year-on-year growth in broad money is now broadly in line with nominal GDP growth.

The financial soundness of the banking system was adversely impacted by rapid credit expansion until 2011 in the context of poor risk management and lending practices. The data reveal low overall profitability, a high and rising share of nonperforming loans, and a rapidly declining trend in banks’ capital-to-risk-weighted-asset ratios. On the positive side, dollarization in the banking system continues to decline, reflecting measures taken by the central bank to foster the use of the local currency, as well as the public’s increased confidence in the dobra as inflation converges to international levels.

The external current account deficit continues to decline and central bank’s international reserves to improve. Weaker economic activity has led to reduced imports of goods and services and an improved external current account balance. After falling below three months of imports in mid-2012, the central bank has since accumulated international reserves considerably. International reserves, which have been boosted by privatization receipts and grants, stood at around 5.5 months of imports at end-September 2013.

The outlook for 2014 continues to be affected by difficult global conditions. Real GDP growth has been revised downward, from 5.5 to 5 percent, reflecting lingering uncertainties in the world economy, weak external financing prospects for investment projects, and the changed oil outlook. Inflation is projected to reach 6 percent by end-2014, as inflation expectations continue to be anchored by a prudent fiscal stance and the exchange rate peg. The external current account deficit is expected to narrow further, with weaker than previously projected economic activity leading to lower import growth.

São Tomé and Príncipe’s medium-term economic outlook will depend on strengthening the economy’s resilience in the wake of more uncertain oil prospects. Fiscal and external debt sustainability indicators are expected to improve more slowly following the French oil company Total’s decision in September 2013 to withdraw from Block 1 of the Joint Development Zone (JDZ) with Nigeria. As a result, the authorities will have to continue relying on grants and highly concessional financing for many years to come; commercial banks that have entered the market lured mainly by the prospects of oil will have to change their market strategy and strengthen their balance sheets, or leave the market; and the authorities will have to promote even more forcefully the development of non-oil priority sectors, such as tourism, agriculture, and fisheries, including by improving the business climate and upgrading the country’s infrastructure with private sector support.

Executive Board Assessment2

Executive Directors noted that economic growth has been sustained while inflation has been reduced notwithstanding a challenging global environment. They also commended the authorities’ fiscal prudence in recent years and the steps they have taken to strengthen the financial sector. For the period ahead, Directors encouraged the authorities to maintain fiscal discipline, including in the run-up to elections, given a more uncertain economic outlook. They also recommended taking further steps to bolster the economy’s resilience, including strengthening the financial sector and improving competitiveness.

Directors welcomed the authorities’ cautious medium-term fiscal plans. They stressed the importance of keeping the domestic primary deficit in line with available non-debt creating financing, and of mobilizing additional domestic revenue to boost priority infrastructure and pro poor spending. Prudent external borrowing will mitigate São Tomé and Príncipe’s high risk of debt distress. In particular, grants and concessional loans should be sought to finance the public investment program. Directors looked forward to a comprehensive solution to eliminate the longstanding issue of cross-arrears.

Directors highlighted the importance of preserving financial stability. Noting the relatively high number of commercial banks, they encouraged the authorities to monitor closely banks’ profitability and capital adequacy. They also recommended reinforcing compliance with prudential requirements and taking steps to bolster the efficiency of the banking system. Directors welcomed the expeditious approval of a law to combat money laundering and the financing of terrorism and encouraged the authorities to address remaining obstacles to its rigorous enforcement.

Directors agreed that the fixed exchange rate regime has provided economic and financial stability to São Tomé and Príncipe in the context of a prudent fiscal stance and an adequate level of international reserves. Nonetheless, the country’s high current account deficit is a source of vulnerability and Directors recommended continued efforts to raise productivity and competitiveness. Further infrastructure investments as well as deeper regulatory and legal reforms will help improve the business climate and promote economic diversification.

São Tomé and Príncipe: Selected Economic Indicators, 2010–17
(Annual change in percent, unless otherwise indicated) 
  2010 2011 2012 2013 2014 2015 2016 2017


  Prel. Projections

National income and prices


GDP at constant prices

4.5 4.9 4.0 4.0 5.0 5.5 5.5 6.0

Consumer prices


End of period

12.9 11.9 10.4 8.0 6.0 4.0 3.0 3.0

Period average

13.3 14.3 10.6 8.3 7.1 5.0 3.5 3.0



External trade


Exports of goods and nonfactor services

24.0 20.7 16.1 0.3 7.0 10.2 6.7 8.6

Imports of goods and nonfactor services

17.3 22.0 -5.4 5.4 9.1 7.5 5.6 6.4

Exchange rate (dobras per US$; end of period) 1

18,651 19,008 18,585 ... ... ... ... ...

Real effective exchange rate (depreciation = -)

-2.8 11.7 5.0 ... ... ... ... ...



Money and credit


Base money

-7.9 -0.7 28.6 42.9 10.0 9.0 5.5 7.0

Broad money (M3)

25.1 10.4 20.3 11.5 13.1 9.5 9.2 9.6

Credit to the economy

41.1 14.5 9.6 9.4 9.9 10.2 11.1 11.1

Velocity (GDP to broad money; end of period)

2.6 2.8 2.7 2.7 2.8 2.7 2.7 2.6

Central bank reference interest rate (percent)

15.0 15.0 14.0 ... ... ... ... ...

Bank lending rate (percent)

28.9 27.0 26.2 ... ... ... ... ...

Bank deposit rate (percent)

11.0 12.4 12.9 ... ... ... ... ...



Government finance (figures in percent of GDP)


Total revenue, grants, and oil signature bonuses 2

38.1 37.1 33.6 31.7 31.9 32.7 33.4 34.2

Of which: tax revenue

16.6 16.6 14.0 15.2 15.3 15.6 15.8 16.1

Nontax revenue

1.6 1.4 1.3 1.7 1.3 1.3 1.3 1.3


19.9 18.3 17.5 13.2 15.3 15.8 16.3 16.8

Oil signature bonuses

0.0 0.8 0.8 1.6 0.0 0.0 0.0 0.0

Total expenditure and net lending

49.1 49.0 44.3 39.0 38.9 38.6 38.5 38.4

Personnel costs

8.3 8.4 8.4 8.5 8.2 8.1 8.1 8.1

Interest due

0.4 0.5 0.6 0.4 0.6 0.6 0.5 0.5

Nonwage noninterest current expenditure

11.1 10.5 8.5 9.4 9.2 9.2 9.0 9.0

Treasury funded capital expenditures

2.3 1.5 1.5 1.7 1.7 1.7 1.7 1.7

Donor funded capital expenditures

26.3 27.5 25.1 18.6 18.6 18.6 18.6 18.6

HIPC Initiative-related social expenditure

0.6 0.7 0.3 0.5 0.5 0.5 0.5 0.5

Domestic primary balance 3

-4.1 -3.0 -3.3 -3.1 -3.0 -2.6 -2.3 -2.0

Overall balance (commitment basis)

-11.0 -12.0 -10.8 -7.3 -7.0 -6.0 -5.1 -4.2



External sector


Current account balance (percent of GDP)


Including official transfers

-23.0 -26.6 -20.5 -20.2 -15.9 -14.5 -13.0 -11.6

Excluding official transfers

-46.5 -46.5 -38.9 -34.1 -32.0 -31.0 -30.1 -29.3

PV of external debt (percent of GDP)

33.7 33.6 35.7 32.7 30.4 28.0 26.0 23.8

External debt service (percent of exports) 4

6.6 8.0 7.1 15.5 15.0 13.6 12.2 10.7

Export of goods and non-factor services (US$ millions)

24.3 29.3 34.1 34.2 36.6 40.3 43.0 46.7

Gross international reserves 5, 6, 7


Millions of U.S. dollars

39.3 39.7 43.8 53.4 59.0 65.2 70.3 75.8

Months of imports of goods and nonfactor services 8

4.5 4.6 4.8 5.5 5.7 6.0 6.1 6.2

National Oil Account (US$ millions)

7.8 8.3 9.0 12.2 9.9 8.0 6.5 5.3



Memorandum Item




Billions of dobras

3,719 4,376 5,021 5,732 6,524 7,064 7,589 8,180

Millions of U.S. dollars

201.0 248.3 263.3 310.2 359.1 393.9 428.0 465.9











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

1 Central Bank (BCSTP) mid-point rate.

2 Includes HIPC and MDRI debt relief.

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

4 In percent of exports of goods and nonfactor services. Includes HIPC and MDRI debt relief.

5 Gross international reserves exclude the National Oil Account and commercial banks' foreign currency deposits at the BCSTP in order to meet reserve requirements and foreign currency deposits of commercial banks used application deposits for new licensing or for meeting capital requirements.

6 For 2008 and 2009, includes the proceeds from the privatization of the government's share in the National Fuel Company (ENCO) of $32 million. Of this, $10 million were used to pay back some of ENCO's debt to Sonangol, $0.96 million were used to audit the transaction and $21.4 million were put in the BCSTP to boost reserves.

7 For 2009, includes new allocation of SDR 6.5 million.

8 Imports of goods and nonfactor services excluding imports of investment goods and technical assistance.

1 Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summing up can be found here:


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