## _cr05323

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### Executive Summary — main findings and program goals
- Real GDP growth rose from 2.5 percent to 4 percent during 1998–2003; inflation fell from 21 percent to 10 percent over the same period.
- 2004: growth remained moderate; inflation increased to 15 percent by year-end amid sharp bank credit growth and looser fiscal policy.
- Oil receipts/timing:
  - Oil production expected not earlier than 2012.
  - One license sold so far; oil signature bonus payment totaling US$49.2 million expected in late-June 2005.
- National Assembly approved an Oil Revenue Management law in December 2004; authorities announced participation in the Extractive Industries Transparency Initiative (EITI).
- Proposed 2005–07 program objectives:
  - Correct macroeconomic imbalances and set conditions for sustained strong growth.
  - Real GDP growth envisaged to slow in 2005 with tighter financial policies, then pick up thereafter.
  - Inflation projected to decline to single-digit levels by 2007.
  - Gross international reserves targeted at around 3½ months of imports of goods and services.
  - Major fiscal consolidation over three years and implementation of key structural reforms in the PRSP.
- 2005 program specifics:
  - Revenue measures totaling 2.1 percent of GDP and significant expenditure cuts while safeguarding education and health.
  - Monetary policy aimed at reducing inflation under a market-determined exchange rate.
  - Structural conditionality: tax reform, oil revenue transparency, EMAE finances, AML/CFT regime, business climate.
- PRGF access: SDR 2.96 million (40 percent of quota), disbursed in seven equal tranches.
- Prior actions: parliamentary approval of a 2005 budget consistent with the fiscal program and receipt of the oil signature bonus expected for late-June 2005.

### Macroeconomic background and recent developments
- Economy size and external position:
  - GDP about US$60 million (US$375 GDP per capita).
  - Exports of goods and services ~ one third of GDP; imports > twice that amount.
  - Large current account deficit financed almost entirely by foreign grants and concessional credits.
- 1998–2003: policy supported growth and lower inflation; 2003 fiscal deterioration followed a coup and increased social outlays.
- 2004 macro outcomes and vulnerabilities:
  - Inflation: 10.2 percent at end-2003 → 15.2 percent at end-2004.
  - Domestic primary fiscal balance (percent of GDP): 2004 domestic primary deficit = -20.6.
  - Overall fiscal deficit (commitment basis): rose from 17.0 percent of GDP in 2003 to 26.3 percent in 2004.
  - Gross official reserves: US$23 million at end-2003 → US$18 million at end-2004 (4.5 months → 3.4 months of imports).
  - Real effective appreciation: the dobra appreciated by around 4.3 percent in real terms vis-à-vis the U.S. dollar in 2004, though it depreciated slightly in real effective terms.
  - Financing in 2004 included net credit from BCSTP and net foreign borrowing including interest-free loans from Nigeria and the Central Bank of Angola; domestic payment arrears and reschedulable external arrears increased.

### Fiscal policy, 2005 program and medium-term consolidation
- Medium-term target: reduce domestic primary deficit from 20.6 percent in 2004 to 7.6 percent in 2007.
- 2005 fiscal objectives:
  - Reduce domestic primary deficit from 20.6 percent of GDP in 2004 to 17.5 percent in 2005.
  - Durable revenue measures to raise revenue by 2.1 percent of GDP in 2005.
  - Domestic financing of the deficit limited to 0.7 percent of GDP; eliminate central bank financing after 2005; no new domestic or external non-reschedulable arrears.
- Revenue-raising measures (estimated yields in 2005):
  - Increase (dobra-denominated) reference prices for excise duties on core nonfood imports: yield 1.4 percent of GDP (dobras 9.5 billion).
  - Increase excise tax on services from 2 percent to 5 percent effective July 15, 2005: yield 0.4 percent of GDP (dobras 3.3 billion).
  - Terminate deduction on domestically-produced beer; set ad valorem rate at 25 percent on July 15, 2005: yield 0.2 percent of GDP (dobras 1.5 billion).
  - Boost urban property tax coverage to triple current 4,000 registered dwellings: yield dobras 800 million (0.1 percent of GDP).
- Signature bonus allocation assumption (US$49.2 million receipt):
  - US$26.4 million used in 2005:
    - Repay outstanding short-term obligations to the JDA: US$9.3 million.
    - Finance the budget: US$14.3 million.
    - Settle debt service arrears with bilateral creditors: US$2.8 million.
  - Remaining US$22.8 million deposited in National Oil Account at the New York Federal Reserve Bank.
- Expenditure measures:
  - Wage bill programmed to increase in 2005 reflecting minimum wage rise from US$31 to US$40, then decline gradually.
  - Cuts in goods and services and domestically-financed capital expenditure while protecting pro-poor spending.
  - Pro-poor expenditure budgeted at 29.3 percent of GDP in 2005 (from estimated 22.2 percent in 2004); health and education projected to increase by combined 3.1 percent of GDP.

### Monetary policy and exchange rate management
- Monetary objectives:
  - Reduce inflation to single-digit levels by end-2007.
  - Central bank reserve coverage target: 3.4 months of imports of goods and services.
  - Broad money growth projected at 12.3 percent in 2005.
  - Program implies increase in credit to the private sector of 19 percent during 2005.
- Operational measures:
  - Exchange rate market-determined; small interventions to smooth short-term fluctuations; allow persistent pressures to be reflected.
  - BCSTP to develop indirect instruments including central bank certificates of deposits and continue foreign exchange auctions introduced in late 2004.
  - Quantitative targets for BCSTP (end-2005): limit net domestic assets to dobras -82.9 billion; floor on net international reserves at US$14.9 million.

### Banking sector and financial sector reforms
- Banking developments and vulnerabilities:
  - Number of deposit money banks increased from two to four in 2004.
  - Degree of dollarization: share of foreign currency deposits in broad money ≈ 42 percent.
  - Foreign currency-denominated loans dominate loan portfolios.
  - 2004: sharp rise in bank credit to the private sector; private sector credit growth 116 percent in 2004 (program expects 19 percent in 2005).
- Supervision measures:
  - Staffing, training, and new quarterly examination reports introduced; work with Fund MFD on prudential regulation and on-site guidelines.
  - By September 2005: implement consolidated quarterly “call report”; establish a Credit Risk Bureau during the third quarter of 2005.
- AML/CFT:
  - Legislation criminalizing money laundering and financing of terrorism to be submitted to National Assembly by September 2005.

### External sector, financing, and debt outlook
- 2004 external accounts:
  - External current account deficit (excluding grants) in 2004: 61.5 percent of GDP.
  - Overall external balance registered a deficit equivalent to 14.8 percent of GDP, financed by a loss in reserves and accumulation of external payment arrears.
- External financing requirements (in US$ millions):
  - Gross external financing requirements: 2005: -76.4; 2006: -48.4; 2007: -49.1 (Table 8).
- Financing sources:
  - Expected funding: part of oil bonus, official grants and concessional loans, debt relief at HIPC completion point (first half of 2006).
  - 2005 financing: fully covered after a Paris Club rescheduling on Cologne terms; small residual gaps for 2006+ could be covered by donor support.
- Debt dynamics and vulnerability:
  - NPV of external debt (percent of exports of goods and nonfactor services): 2004: 450 percent (end-2004 figure noted elsewhere as 449.0 or 450 depending on table); projected to decline to 402 percent by end-2010 after rescheduling and HIPC relief.
  - Threshold for comparison: 150 percent.
  - Debt sustainability analysis indicates high vulnerability to external shocks (exchange rate depreciation), declining grants and FDI, and absence of fiscal consolidation.
- Sensitivity analysis highlights:
  - Baseline NPV debt-to-exports ratio (selected): 2004: 326; 2005: 312; 2006: 306.
  - Most extreme shock (exports fall one standard deviation): NPV debt-to-exports ratio = 421 in 2006.
  - Historical scenario (half standard deviation shocks): NPV debt-to-exports ratio = 346 in 2006.
  - Observations: export shocks and reductions in non-debt creating flows produce largest deterioration; monitoring exports and non-debt flows is critical.

### Oil sector governance and Oil Revenue Management Law (ORML)
- ORML objectives and key provisions:
  - Ensure transparency and accountability in management of oil revenue from the JDZ and the EDZ; establish rules for use of oil revenue.
  - Create a single National Oil Account (CNP) with a custodian foreign bank to collect all oil revenue; regular auditing by reputable international accounting firm; dissemination via internet.
  - Prohibit investing CNP resources in São Tomé and Príncipe assets; prohibit borrowing using actual or prospective oil revenue as collateral.
  - Limits on annual transfers from CNP to the budget:
    - Before production: limits to ensure gradual—but complete—use of signature bonuses.
    - Subsequent period: gradual build up of a Permanent Fund.
    - Annual drawings limited to sums based on the “long term real rate of return” multiplied by Permanent Fund and present value of future oil revenue; “long term real rate of return” capped at 5 percent.
    - Transfers to budget to finance programs defined in PRSP; Ministry of Planning and Finance to determine amounts in consultation with central bank, considering absorptive capacity and inflation objectives.
- Institutional steps:
  - National Petroleum Agency (ANP) set up; National Committee on Petroleum (NCP) operational.
  - Authorities to finalize petroleum sector strategy by end-September 2005 with World Bank and UNDP assistance.
  - Participation in EITI and public information campaign underway.

### Structural reforms, conditionality and program monitoring
- Structural conditionality (first-year PRGF, key areas):
  - Strengthen tax revenue base: submit new personal and corporate tax codes, new tax procedural code, urban property tax guidelines, inheritance tax legislation (end-July 2005 submissions).
  - Governance and public expenditure management: timetable for integrated budgetary classification and information system.
  - AML/CFT: submit legislation criminalizing money laundering and financing of terrorism (end-September 2005).
  - State enterprises: strategy and timetable for EMAE arrears reduction; feasibility studies for privatization of ENAPORT and ENASA (end-December 2005).
  - Business climate and agriculture: submit new investment code (end-July 2005); launch study on agricultural sector constraints; adopt action plan for streamlining business establishment (end-September 2005).
- Prior actions and performance criteria:
  - Prior actions: parliamentary approval of 2005 budget consistent with MEFP; receipt and deposit of oil signature bonus US$49.2 million into National Oil Account.
  - Quantitative performance criteria (selected, end-Sept / end-Dec 2005, in billions of dobras unless otherwise noted):
    - Floor on domestic primary balance (cumulative): end-Sept. -84.4; end-Dec. -130.6.
    - Ceiling on changes in net domestic assets of central bank (cumulative): end-Sept. -18.5; end-Dec. 9.9.
    - Floor on changes in net international reserves of central bank (cumulative, US$ millions): end-Sept. 4.8; end-Dec. 0.9.
    - Ceiling on outstanding external payment arrears (stock, US$ millions): end-Sept. 0.0; end-Dec. 0.0.

### Program access, phasing, and Fund decision
- Proposed PRGF access and schedule:
  - SDR 2.96 million (40 percent of quota), to be disbursed in seven equal tranches (Table of disbursements shows 0.423 SDR per tranche with dates Aug-2005 through Mar-2008).
  - This access marginally lower than norm for second PRGF users.
  - By end of arrangement, use of Fund resources would be equivalent to 49 percent of quota; projected obligations to Fund total SDR 0.94 million during 2005–07.
  - Repayment of principal and interest to the Fund will not exceed 2 percent of exports of goods and services in any single year during arrangement.
- IMF Executive Board action (update since staff report):
  - Two prior actions met: passage of 2005 budget and receipt of oil signature bonus on Block 1.
  - Board approved a three-year PRGF arrangement for SDR 2.96 million; disbursements not to exceed SDR 1.269 million until July 31, 2006.
  - PRGF terms: annual interest rate 0.5 percent; repayable over 10 years with 5½-year grace period on principal.

### Risks, implementation capacity, and statistical issues
- Main risks to program:
  - Political cycle and weak institutional capacity.
  - Popular expectations from prospective oil revenue could complicate fiscal discipline, particularly ahead of July 2006 presidential elections.
  - Weak statistical and administrative capacity may impede implementation in budgetary planning and monetary policy.
- Authorities’ commitments:
  - Ratified commitment to fiscal consolidation and price stability; view Fund support as important to resist spending pressures.
  - Agreed to work with World Bank on energy sector reforms, privatization, and governance.
- Statistics and data improvements:
  - Core macro data adequate for monitoring but need improvement (Appendix III referenced).
  - Ongoing assistance from World Bank and STA under GDDS Lusophone Project for fiscal, monetary and national accounts statistics.
  - Data reporting requirements and timing specified in TMU (monthly, quarterly, annual deadlines); BCSTP to provide net domestic assets and net international reserves within four weeks of month-end.

### Key indicators and selected figures (preserved values)
- Real GDP (annual percentage change): 2003: 4.0, 2004: 3.8, 2005: 3.2, 2006: 4.5, 2007: 5.5.
- Consumer Price Index (end-of-period; annual percentage change): 2003: 10.2, 2004: 15.2, 2005: 15.0, 2006: 12.0, 2007: 9.4.
- Domestic primary fiscal balance (percent of GDP): 2003: -11.7, 2004: -20.6, 2005: -17.5, 2006: -11.9, 2007: -7.6.
- External current account balance (percent of GDP) excluding official transfers: 2003: -54.5, 2004: -61.5, 2005: -60.3, 2006: -60.3, 2007: -63.1.
- NPV of external debt (percent of exports of goods and services) 2/: 2003: 499.2, 2004: 449.0, 2005: 459.5, 2006: 347.6, 2007: 361.3.
- Gross international reserves (months of following year's non-oil imports): 2003: 4.5, 2004: 3.4, 2005: 3.4, 2006: 3.5, 2007: 3.5.
- Oil signature bonus (one-off in 2005): US$49.2 million.

*Source: _cr05323 - Appendix II. Statistical issues are discussed in Appendix III.*

### Appendix II. Statistical issues are discussed in Appendix III.

### Appendix II. Statistical issues are discussed in Appendix III.

### Executive Summary — main findings and program goals
- Real GDP growth rose from 2.5 percent to 4 percent during 1998–2003; inflation fell from 21 percent to 10 percent over the same period.
- 2004: growth remained moderate; inflation increased to 15 percent by year-end amid sharp bank credit growth and looser fiscal policy.
- Oil revenues: potentially very large but uncertain; oil production expected not earlier than 2012; in the interim, signature bonuses from sale of exploration licenses are expected.
- National Assembly approved an Oil Revenue Management law in December 2004 to ensure transparency and accountability and establish gradual-use rules for oil resources.
- Authorities announced participation in the Extractive Industries Transparency Initiative (EITI).
- Proposed 2005–07 program objectives:
  - Correct macroeconomic imbalances and set conditions for sustained strong growth.
  - Real GDP growth envisaged to slow in 2005 with tighter financial policies, then pick up thereafter.
  - Inflation projected to decline to single-digit levels by 2007.
  - Gross international reserves targeted at around 3½ months of imports of goods and services.
  - Major fiscal consolidation over three years and implementation of key structural reforms in the PRSP.
- 2005 program specifics:
  - Large fiscal adjustment based on revenue measures totaling 2.1 percent of GDP and significant expenditure cuts while safeguarding education and health spending.
  - Assumption that a Fund-supported program would facilitate a new Paris Club debt rescheduling.
  - Monetary policy aimed at reducing inflation under a market-determined exchange rate.
  - Structural conditionality areas: tax reform, transparency in government revenue management, finances of the water and electricity company, development of an effective AML/CFT regime, and business climate.
- Access under a three-year PRGF arrangement: SDR 2.96 million (40 percent of quota), disbursed in seven equal tranches.
- Prior actions before arrangement: parliamentary approval of a 2005 budget consistent with the fiscal program and receipt of the oil signature bonus expected for late-June 2005.

### Introduction — program request and PRSP status
- Government request: three-year PRGF arrangement of SDR 2.96 million, equivalent to 40 percent of quota.
- Program role: help meet macroeconomic stabilization and structural reform challenges; help maintain adequate import coverage of gross international reserves.
- PRSP: full PRSP submitted and promulgated January 2003, with an update; a joint staff advisory note (JSAN) concluded the PRSP is credible but highly ambitious.
  - PRSP strengths: poverty diagnosis; comprehensive private-sector-led development strategy; attention to governance, health, and education; detailed indicators for monitoring.
  - Staff recommendation: further prioritize sectoral strategies and align them with annual fiscal budgets and poverty reduction targets.
- Last Article IV consultation completed March 17, 2004. Executive Directors noted broadly satisfactory macroeconomic performance in 2002–2003 and the challenge of managing impending oil sector expansion and signature bonuses.
- New government established June 7, 2005. Former central bank Governor Maria do Carmo Trovoada named Prime Minister and Minister of Planning and Finance. New Prime Minister signed the Letter of Intent, MEFP, and Technical Memorandum of Understanding.

### Background and recent developments — macro and external position
- Economy size and structure:
  - GDP about US$60 million (US$375 GDP per capita).
  - Exports of goods and services ~ one third of GDP; imports > twice that amount.
  - Large current account deficit financed almost entirely by foreign grants and concessional credits.
- Debt and HIPC status:
  - Reached decision point under enhanced HIPC Initiative in December 2000.
  - Net present value (NPV) of external debt as of end-2004: 450 percent of exports of goods and nonfactor services.
- Oil sector timing and receipts:
  - Oil production expected not earlier than 2012.
  - Only one license sold so far; corresponding oil signature bonus payment totaling US$49.2 million expected in late-June 2005.
- 1998–2003: policy supported growth and lower inflation but fiscal position unsettled; 2003 fiscal deterioration followed a coup d’état and increased social outlays.
- 2004 macro developments:
  - Initial expectations of oil-driven FDI did not materialize; fishing and tourism growth offset by decline in cocoa.
  - Inflation rose from 10.2 percent at end-2003 to 15.2 percent at end-2004.
  - Domestic primary fiscal balance (percent of GDP): 2004 domestic primary deficit = -20.6.
  - Overall fiscal deficit (commitment basis) rose from 17.0 percent of GDP in 2003 to 26.3 percent in 2004.
  - Gross official reserves declined from US$23 million at end-2003 to US$18 million at end-2004 (from 4.5 months to 3.4 months of imports of goods and services).
  - Real effective appreciation: the dobra appreciated by around 4.3 percent in real terms vis-à-vis the U.S. dollar in 2004, though it depreciated slightly in real effective terms.
- Financing and arrears:
  - 2004 fiscal deficit partly financed by net credit from BCSTP and sizeable net foreign borrowing including interest-free loans from Nigeria and the Central Bank of Angola.
  - Domestic payment arrears arose on account of overdue payments of São Tomé and Príncipe’s share in the net operational cost of the JDA.
  - Reschedulable external arrears (interest and principal) largely to the Paris Club increased.
- Monetary and banking developments:
  - Bank credit to the private sector rose sharply in 2004; BCSTP sold foreign exchange to stabilize the nominal exchange rate.
  - Banking system dominated by Banco Internacional de São Tomé e Príncipe (BISTP) with a government controlling stake but private management; BISTP markedly expanded credit to the private sector in 2004 after a large increase in dollar-denominated deposits in 2003.

### Box — São Tomé and Príncipe’s Oil Sector (summary)
- Early 1990s geological analysis identified large offshore oil and natural gas deposits.
- 1997: government submitted maritime boundaries; dispute with Nigeria resolved in 2001, creating a Joint Development Zone (JDZ) administered by the Joint Development Authority (JDA).
- Agreement with Nigeria: São Tomé and Príncipe to receive 40 percent of all JDZ oil revenue.
- An Exclusive Development Zone (EDZ) was marked out where proceeds need not be shared.
- 2003: first bidding round for nine JDZ blocks sold one license.
- Late-2004: bidding round for five additional JDZ blocks launched; results announced May-2005.
- Geological analysis of the EDZ not yet conducted.

### Fiscal developments and vulnerabilities (2004 specifics)
- Anticipation of large oil signature bonuses led to marked expenditure pressures:
  - 2004 budget had anticipated oil signature bonus payments in Q1 2004 of about US$150 million; actual expectation revised to US$49.2 million in late-June 2005.
  - Domestic primary deficit increased from -11.7 percent of GDP in 2003 to -20.6 percent of GDP in 2004.
  - Expenditure increases: government wage bill, goods and services, transfers for overseas technical scholarships, and domestically-financed capital expenditure.
- Resulting vulnerabilities:
  - Fall in international reserves due to sales of foreign exchange by BCSTP to defend the nominal exchange rate.
  - Accumulation of domestic payment arrears and reschedulable external arrears to Paris Club creditors.

### Program access, prior actions, and conditionality
- Request: three-year PRGF arrangement for SDR 2.96 million (40 percent of quota), to be disbursed in seven equal tranches.
- Prior actions for approval: parliamentary approval of a 2005 budget consistent with the fiscal program and receipt of the oil signature bonus expected for late-June 2005.
- Structural conditionality to focus on: tax reform; transparency in government revenue management (including oil revenue); reform of the water and electricity company's finances; development of an effective AML/CFT regime; and improvements in the business climate.

*Source: _cr05323 - Appendix II. Statistical issues are discussed in Appendix III.*

### 12.      The banking sector underwent important institutional changes in 2004, although

### _cr05323 - 12.      The banking sector underwent important institutional changes in 2004, although

### Banking sector developments and challenges
- Number of deposit money banks increased from two to four following prospective oil sector expansion.
- Most shareholders in the new banks are foreign investors from the region.
- Expected effects of new banks:
  - Foster financing deepening.
  - Increase financial intermediation in the agricultural sector.
  - Reduce interest rate spreads, which are currently very wide (Table 1).
- Degree of dollarization and currency composition:
  - Share of foreign currency deposits in broad money remained at around 42 percent.
  - Foreign currency-denominated loans represent the bulk of the banks’ loan portfolio.
- Banking supervision constraints:
  - Limited availability of skilled supervisory staff.
  - Limited availability of reliable information.
- BCSTP actions (in consultation with Fund’s MFD):
  - Training banking supervision staff on prudential regulation accounting procedures.
  - Recruiting new examiners for supervision.
  - Introducing new quarterly examination reports to collect basic data for offsite prudential regulation analysis.

### External sector in 2004
- External current account deficit (excluding grants) in 2004: 61.5 percent of GDP.
- Financing of the current account deficit:
  - Grants and capital inflows, mainly FDI to the tourist sector.
  - Short- and long-term government borrowing from international financial institutions—mainly African Development Bank and the World Bank—and regional neighbors (Nigeria and Angola).
- Overall external balance registered a deficit equivalent to 14.8 percent of GDP, financed by:
  - A loss in reserves.
  - An accumulation of external payment arrears.

### HIPC Initiative progress and Oil Revenue Management Law (ORML)
- Government progress toward floating completion point under the HIPC Initiative (MEFP, paras. 45–49):
  - A full PRSP prepared through a participatory process and being implemented.
  - Substantial progress in strengthening public expenditure management and use of HIPC assistance.
  - Capacity-building program for transparency in oil resource management being adopted in consultation with the World Bank.
  - Establishment of a petroleum revenue oversight and a control committee consistent with the Oil Revenue Management Law approved by the National Assembly in December 2004.
- Box 2 — Oil Revenue Management Law (ORML) key provisions:
  - Objective: Ensure transparency and accountability in management of oil revenue from the JDZ and the EDZ; establish rules for use of oil revenue.
  - Transparency and accountability measures:
    - Establish a single National Oil Account (CNP) with a custodian foreign bank to collect all oil revenue.
    - Regular auditing of oil revenue accounts by a reputable international accounting firm.
    - Dissemination of information through the internet.
    - Establish an investment committee to decide on investment of CNP resources.
    - Prohibit investing in São Tomé and Príncipe assets.
    - Prohibit any borrowing by the Sãotomean state or the JDA using actual or prospective oil revenue as collateral.
  - Use of oil revenue:
    - Limits on annual transfer of resources from the CNP to the budget:
      - Period before production starts: limits to ensure gradual—but complete—use of revenue from signature bonuses.
      - Subsequent period: allow gradual build up of a Permanent Fund.
    - Annual drawings from the CNP limited to the sum of:
      - (i) the “long term real rate of return” multiplied by the level of the Permanent Fund; and
      - (ii) the “long term real rate of return” multiplied by the present value of future oil revenue from fields under production.
    - Transfers from the CNP should not be higher than amounts determined by the Ministry of Planning and Finance, in consultation with the central bank, taking into account the economy’s absorptive capacity and the government’s inflation objectives.
    - Transfers to the budget should be used to finance programs defined in the government’s PRSP.
    - “Long term real rate of return” is defined as the real rate of return expected on a portfolio composed of assets proportionate to the assets held in the Permanent Fund during the same period.
    - The “long term real rate of return” is capped at 5 percent.
    - The inflation adjustment shall use the variation rates of the official price indices in the countries of the currencies in which the Permanent Fund asset portfolio is invested.

### Medium-term macroeconomic issues and policy framework
- PRSP objectives and growth requirements:
  - PRSP target: reduce poverty (current 54 percent) by one half by 2010 and by more than two-thirds by 2015 (Table 7).
  - PRGF program assumes average real GDP growth rate of 4.4 percent per annum for 2005–07.
  - Authorities’ preliminary analysis suggests São Tomé and Príncipe would need to grow at an average rate higher than 8 percent per annum during the next decade to meet MDG-related poverty alleviation targets.
  - Achieving high-growth objective appears to require large increase in private investment, donor support, and concessional lending for infrastructure refurbishing.
- PRSP structural reform agenda priorities:
  - Reform public institutions, including state enterprises.
  - Foster good governance in public resource management.
  - Enact a new investment code providing equal treatment to domestic and foreign investors.
  - Develop a sound banking system.
- Emphasis on macroeconomic stability:
  - Medium-term framework targets fiscal consolidation while allowing appropriate spending in priority sectors.
  - Prudent monetary policy critical for price stability and market confidence.

### Key macroeconomic indicators (Text Table 2 excerpts)
- Real GDP (annual percentage change): 2003: 4.0, 2004: 3.8, 2005: 3.2, 2006: 4.5, 2007: 5.5
- Consumer Price Index (end-of-period; annual percentage change): 2003: 10.2, 2004: 15.2, 2005: 15.0, 2006: 12.0, 2007: 9.4
- Domestic primary fiscal balance (percent of GDP) 1/: 2003: -11.7, 2004: -20.6, 2005: -17.5, 2006: -11.9, 2007: -7.6
- Pro-poor expenditure (percent of GDP): 2003: 26.7, 2004: 22.2, 2005: 29.3
- External current account balance (percent of GDP) including official transfers: 2003: -20.2, 2004: -27.3, 2005: -28.2, 2006: -23.5, 2007: -28.7
- External current account balance (percent of GDP) excluding official transfers: 2003: -54.5, 2004: -61.5, 2005: -60.3, 2006: -60.3, 2007: -63.1
- NPV of external debt (in percent of exports of goods and services) 2/: 2003: 499.2, 2004: 449.0, 2005: 459.5, 2006: 347.6, 2007: 361.3
- Gross international reserves 3/ (in months of following year's non-oil imports of goods and nonfactor services): 2003: 4.5, 2004: 3.4, 2005: 3.4, 2006: 3.5, 2007: 3.5

### Medium-term fiscal consolidation objectives
- Target: reduce domestic primary deficit from 20.6 percent in 2004 to 7.6 percent in 2007.
- Key parameters: domestic revenue effort, government’s spending envelope in goods and services, gradual use of oil signature bonus expected in late-June 2005.
- 2005 budget measures:
  - Durable measures to significantly boost tax receipts.
  - Large cuts in expenditure in goods and services by hardening budget constraints of inefficient units.
  - Calibrated use of signature bonus to ensure gradual and efficient use consistent with ORML.
- No new domestic or external payment arrears will be accumulated during the program period.
- Signature bonus allocation assumption (footnote 8):
  - Out of US$49.2 million receipt, US$26.4 million used in 2005 to:
    - Repay outstanding short-term obligations to the JDA: US$9.3 million.
    - Finance the budget: US$14.3 million.
    - Settle debt service payment arrears with bilateral creditors: US$2.8 million.
  - Remaining US$22.8 million deposited in government's National Oil Account held with the New York Federal Reserve Bank.

### Wage bill and public sector reform
- Government wage bill (share of GDP) programmed to increase in 2005, then decline gradually thereafter.
- 2005 increase reflects raise in monthly minimum wage of civil servants from US$31 to US$40.
- Authorities intend to launch reform of public sector compensation system (MEFP, para. 16) to contain wage bill growth in medium term.

### Monetary and exchange rate policy
- Monetary policy aim: reduce inflation to single-digit levels by end-2007.
- Exchange rate: market determined to safeguard foreign exchange reserves of the central bank.
- Coordination: substantial reduction of fiscal deficit to facilitate tighter monetary and credit targets.
- Liquidity management measures:
  - BCSTP to launch open market operations with central bank certificates of deposits.
  - Allow interest rates to be market determined.
  - Continue policy of auctioning foreign exchange.

### External financing and debt outlook
- Gross external financing requirements projected:
  - Peak at US$76.4 million in 2005.
  - Decline to around US$49.2 million in 2006–07 (Table 8).
- Expected funding sources: part of oil bonus, official grants and concessional loans, debt relief at HIPC completion point (first half of 2006).
- 2005 financing: fully covered after a debt rescheduling on Cologne terms with Paris Club creditors. Balance of payments projections show small residual gaps for 2006 and beyond that could be covered by additional donor support.
- Assumption: no signature bonus payments other than US$49.2 million on first oil license expected in late-June 2005 during the program period.
- Public debt trajectory:
  - NPV of debt-to-export ratio projected to fall from 450 percent at end-2004 to 402 percent by end-2010 (Tables 9–10) even after Paris Club rescheduling and HIPC completion point relief.
  - Threshold for comparison: 150 percent.
  - Debt sustainability analysis indicates high vulnerability to external shocks (especially exchange rate depreciation), declining foreign grants and FDI, and absence of fiscal consolidation.

### The economic and financial program for 2005 — assumptions and policy measures
- Macroeconomic assumptions for 2005:
  - Real GDP growth: 3.2 percent.
  - Reversal in upward trend in inflation registered in 2004.
  - Central bank reserve coverage target: 3.4 months of imports of goods and services.
- Fiscal policy objectives:
  - Increase tax revenue mainly via excise duties in absence of a general consumption tax.
  - Improve tax administration.
  - Control growth of public expenditure while safeguarding pro-poor spending.
  - Reduce domestic primary deficit from 20.6 percent of GDP in 2004 to 17.5 percent in 2005.
- Revenue-raising measures (aimed at increasing revenue by 2.1 percent of GDP in 2005):
  - Increase (dobra-denominated) reference prices used to assess excise duties on a core group of nonfood imports in January 2005 (estimated yield: 1.4 percent of GDP).
  - Increase excise tax levied on services from 2 percent to 5 percent effective July 15, 2005 (estimated yield: 0.4 percent of GDP).
  - Terminate deduction on excise duty on domestically-produced beer; new ad valorem rate set at 25 percent on July 15, 2005 (estimated yield: 0.2 percent of GDP).
  - Boost revenue from urban property taxes by increasing coverage and enforcement; expected coverage could be tripled from current 4,000 registered dwellings, yielding dobras 800 million (0.1 percent of GDP) in additional revenue in 2005.
- Tax system reforms:
  - Substantive reforms of personal and corporate income tax systems to set more progressive income tax regime and harmonize corporate taxation with international practices.
  - Draft new tax codes to be submitted to National Assembly by end-July 2005; new regimes effective January 2006.
- Petroleum pricing policy:
  - Government will continue to keep retail petroleum prices in line with world market prices.
  - For 2005, any decline in world market prices will not be passed through to consumers; the margin would accrue to the treasury.
- Enhanced tax administration measures (MEFP, para. 14):
  - New tax code and new tax procedural code to be introduced by end-July 2005.
  - Establishment of:
    - Tax tribunals at different levels of government.
    - Stiff penalties for tax violations.
    - More adequate resources for tax collection and enforcement.
  - Streamlining and simplification of taxes: urban property tax, inheritance taxes, taxes on grants, and taxes on asset transfers.
  - Continued enforcement of taxpayer identification numbers throughout the territory.
- Strengthening expenditure controls (MEFP, paras. 15–19):
  - Wage bill increase in 2005 of 2 percent of GDP due to minimum wage increase to US$40 per month.
  - Policy to eliminate selective salary increases and special wage regimes.
  - Broaden scope of wage negotiations to cover all government employees simultaneously.
  - Introduce broader concept of remuneration for wage negotiations (salaries, overtime fees, supplementary payments, other subsidies).
  - With measures in place, nominal wage bill increase to be contained below annual inflation rate in 2006 and 2007.
  - Significant cuts in current expenditure in goods and services and in domestically-financed capital expenditure.
    - Core spending cuts to fall on telecommunication spending of budgetary units, water and electricity consumption, and official travel.
    - Ensure minimal disruption to government’s social expenditure program.
    - Some projects originally earmarked for domestic funding to be funded through foreign-financed counterpart funds, reducing overall capital spending.
- Pro-poor spending:
  - Aggregate pro-poor spending budgeted at 29.3 percent of GDP in 2005 (from estimated 22.2 percent of GDP in 2004).
  - Pro-poor spending on health and education projected to increase by a combined 3.1 percent of GDP (includes impact of US$40 minimum wage for teachers, doctors, and other personnel).
  - Bulk of higher pro-poor spending will be in the form of capital outlays.
- Monetary program assumptions:
  - Broad money growth: 12.3 percent.
  - Program implies increase in credit to the private sector of 19 percent during 2005, based on fiscal program and largely constant banking sector net foreign assets.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05323.pdf*

### 33.      The exchange rate will be market determined, with foreign exchange market

### _cr05323 - 33.      The exchange rate will be market determined, with foreign exchange market

### Exchange rate policy and monetary management
- The exchange rate will be market determined, with foreign exchange market interventions aimed at meeting the international reserves target of the program.
- Small interventions may be used to smooth short-term exchange rate fluctuations; persistent one-sided pressures should be allowed to be fully reflected in the exchange rate.
- The BCSTP will remain fully engaged in the development of indirect monetary instruments.
  - Following the introduction of foreign exchange auctions in late 2004, the next step includes developing a market for central bank certificates of deposits to help manage liquidity, particularly after receipt of the oil signature bonus on Block 1.
- Footnote: São Tomé and Príncipe’s exchange rate regime is currently classified by the Fund as managed floating. The spread between the official and the parallel rates of the dobra has been below 1 percent since 1999.

### External sector and trade policies
- The program will seek to address constraints impeding a diversified and expanded trade performance by São Tomé and Príncipe.
  - The government will continue to seek technical advice from the international community in the context of the Integrated Framework for Trade-Related Technical Assistance.
- Participation in EPA negotiations:
  - Authorities prioritize being part of the upcoming Economic Partnership Agreement (EPA) negotiations between the EU and Sub-Saharan countries.
  - As established in the Cotonou Agreement, the EU is negotiating EPAs with trading blocks rather than individual countries. São Tomé and Príncipe would in principle join CEMAC for EPA negotiation purposes, although precise association arrangements are still ongoing.
  - EPAs include reciprocity in preferential tariff reductions with the EU, which could imply significant reductions in duties on goods originating in the EU. Authorities agreed to keep staff fully informed about policy intentions and decisions in this area throughout the Fund-supported program.
- Trade regime reforms:
  - Government will conduct a survey of existing customs exemptions during 2005 with a view to gradual elimination during the coming years, except for exemptions contemplated in international accords.
  - The non-tariff barrier related to the privately-managed (though partially state-owned) telecommunications company (CST) will be eliminated by end-December 2005. Existing regulations protecting CST from competition will expire on that date, opening the sector to new operators.

### Structural reforms and conditionality
- The 2005 economic program includes structural policies to foster private sector investment and increase growth potential; oil-sector policies will be complemented by World Bank expert advice on governance, including participation in the EITI.
- Structural conditionality under the proposed PRGF arrangement (first year) — key areas (as listed in Box 3):
  - Strengthening the tax revenue base (MEFP, paras. 13, 14)
    - Submit to the National Assembly: (i) new tax codes on personal income taxation and corporate taxation; (ii) a new tax procedural code; (iii) new guidelines on urban property taxation; and (iv) new legislation on inheritance taxes.
  - Governance and public expenditure management (MEFP, paras. 20–23)
    - Establish a timetable for implementing an integrated budgetary classification and information system in line with FAD and World Bank recommendations.
  - AML/CFT regime (MEFP, para. 31)
    - Submit to the National Assembly legislation criminalizing money laundering and the financing of terrorism.
  - State enterprise finances (MEFP, paras. 36–38)
    - Develop a strategy to address financial weaknesses of the water and electricity company (EMAE), including a timetable for reduction of arrears.
    - Conduct feasibility studies on privatization of the port authority (ENAPORT) and the airport and air security state company (ENASA).
  - Business climate and agricultural sector development (MEFP, paras. 39–41)
    - Submit to the National Assembly a new investment code that provides equal treatment for domestic and foreign investors and is consistent with the new corporate taxation code.
    - Launch a study to analyze factors obstructing development and diversification of the agricultural sector, including effects from lack of complete property rights for land-holders.
- World Bank involvement:
  - Areas of ongoing World Bank lending include social sector support projects and capacity building, technical advice on good governance practices and petroleum-sector related issues (MEFP, para. 35).
  - A Diagnostic Trade Integration Study is being prepared under the Integrated Framework for Trade-Related Technical Assistance (MEFP, para. 32).

### Statistics, program access, phasing, and capacity to repay
- Statistical issues:
  - Economic and financial statistics need improvement, though core macroeconomic data are adequate for monitoring a Fund-supported program (Appendix III).
  - Ongoing work to improve fiscal, monetary and national accounts statistics with assistance from the World Bank and STA under the Fund’s GDDS Lusophone Project.
- Proposed PRGF access and phasing:
  - Proposed access under the PRGF arrangement is SDR 2.96 million (40 percent of quota), to be disbursed in seven equal tranches (Table 11).
  - This level is marginally lower than the norm for second PRGF users.
  - This access, together with additional external resources that a PRGF arrangement might help catalyze, would help keep import coverage of gross international reserves at around 3.5 months during the program period.
  - By the end of the arrangement, São Tomé and Príncipe’s use of fund resources would be equivalent to 49 percent of quota (Table 12); this estimate takes into account the country’s projected obligations to the Fund totaling SDR 0.94 million during 2005–07.
  - During the arrangement, São Tomé and Príncipe’s repayment of principal and interest to the Fund will not exceed 2 percent of exports of goods and services in any single year.
- Capacity to meet obligations:
  - Given the strong adjustment envisaged under the program, the country can be expected to meet its future obligations to the Fund.

### Risks to the program
- Main risks:
  - Political cycle and weak institutional capacity.
  - Prospect of oil revenue has raised popular expectations; maintaining a sound fiscal stance may be difficult, particularly leading to the July 2006 presidential elections.
  - Weak institutional capacity may complicate implementation, especially in budgetary planning and monetary policy.
- Authorities’ commitments:
  - Authorities have ratified commitment to fiscal consolidation and price stability and consider a Fund-supported program important to resist spending pressures.

### Staff appraisal and policy implications
- Assessment of 1998–2003 and 2004 developments:
  - Favorable disinflation and growth during 1998–2003; financial policy came under pressure in 2004.
  - Relaxation of fiscal policy and rapid credit growth led to an increase in inflation; economic activity slowed moderately.
  - BCSTP relied heavily on foreign exchange market intervention in 2004 to prevent dobra depreciation, stressing official international reserves.
- Program prospects:
  - Upfront actions for 2005–07 are expected to stabilize the economy and support medium-term PRSP goals.
  - Key components: strong revenue measures, control of current and capital expenditure growth, and a more flexible exchange rate policy supported by indirect monetary instruments.
- Tax and expenditure policies:
  - 2005 tax measures aim to boost tax receipts and modernize personal and corporate taxation systems.
  - Enhanced revenue base, plus anticipated external support including enhanced HIPC Initiative debt relief, should allow increased pro-poor spending under the PRSP.
  - Expenditure allocations in the 2005 budget are austere and aligned with PRSP priorities.
  - Authorities must control wage bill growth and treat 2005 wage increases as exceptional; elimination of selective salary increases and special wage regimes is noted.
  - New policy framework will: (i) broaden wage negotiations to cover all government employees; and (ii) redefine remuneration to include basic salary, overtime fees, supplementary salary payments, and other subsidies to better assess budgetary impact.
- Monetary policy coordination:
  - Strengthened fiscal position should facilitate coordination with monetary policy aimed at disinflation and a flexible exchange rate to safeguard NIR targets.
  - Full compliance with program limits on net domestic assets of the central bank is critical to reaching the government’s inflation target.
  - Active open market operations should help manage liquidity and accumulate international reserves.
- State-owned enterprises and private investment:
  - Staff welcomes commitment to strengthen EMAE finances and foster private investment in the sector.
  - Recurrent payment arrears have impaired EMAE finances; government actions to provide a credible lasting solution are encouraging.
  - Engaging large private investors in hydroelectric and thermal production is considered adequate given local market size and need to lower electricity production costs.
- Reform implementation and external support:
  - Determined implementation of PRSP institutional and structural reforms is fundamental for success.
  - Some reforms (public expenditure management, anti-money laundering legislation) will be monitored under the proposed PRGF arrangement; most areas require technical and financial support from development partners.
  - Authorities agreed to work with the World Bank to prepare and start action plans for energy sector reforms, privatization of state enterprises, and governance.
  - Passage of the oil revenue management law and decision to participate in the EITI are important steps to secure transparency and accountability in oil revenue management.

*Source: _cr05323 - 33.      The exchange rate will be market determined, with foreign exchange market (IMF staff report content).*

### 49.      In view of the strength of the proposed program, including the prior actions

### _cr05323 - 49.      In view of the strength of the proposed program, including the prior actions

### Program support and Fund decision
- The staff supports the authorities’ request of a three-year PRGF arrangement in an amount of SDR 2.96 million equivalent to 40 percent of quota.
- The staff views the proposed access as striking an appropriate balance between:
  - the need to support São Tomé and Príncipe’s efforts to achieve sustainable economic growth and poverty reduction, and
  - the risks to the Fund.

### Exchange rate and competitiveness (Figure 1)
- Figure 1. São Tomé and Príncipe: Effective Exchange Rates, 2002–04 (Index, January 2002=100)
  - Real effective exchange rate (left scale): index series plotted from Jan-02 through Nov-04 (January 2002 base = 100).
  - Nominal effective exchange rate (right scale): index series plotted from Jan-02 through Nov-04 (January 2002 base = 100).
  - Source: Information Notice System.

### Selected economic indicators, 2001–10 (Table 1) — key series and projections
- National income and prices
  - GDP at constant prices: 4.0, 4.1, 4.0, 3.8, 3.2, 4.5, 5.5, 6.5, 7.0, 7.5 (annual percentage changes)
  - Consumer prices (end of period): 9.4, 8.9, 10.2, 15.2, 15.0, 12.0, 9.4, 8.0, 7.0, 6.0 (percentage change)
  - Consumer prices (average): 9.5, 9.2, 9.6, 12.8, 15.1, 13.4, 10.6, 8.7, 7.5, 6.5 (percentage change)
- External trade
  - Exports, f.o.b.: 1/ 5.4, 37.6, 19.4, 13.8, 6.0, 0.2, 0.0, -17.4, 1.7, 4.8 (annual percentage changes)
    - Of which: cocoa: 11.3, 41.7, 19.6, -4.5, 7.9, 0.0, -0.2, -0.2, -0.2, -0.5
  - Imports, c.i.f.: 6.8, 16.6, 17.2, 9.0, 4.6, 6.7, 11.3, 10.9, 9.4, 10.1
    - Of which: non-oil sector imports: 6.8, 16.6, 17.2, 9.0, 1.0, 4.5, 7.6, 8.2, 7.4, 11.5
  - Exchange rate (in dobras per U.S. dollar; end of period): 9,020; 9,192; 9,456; 10,104; ..................
  - Real effective exchange rate (depreciation -): -0.6; -5.2; -8.7; -2.7; ..................
  - Terms of trade: 24.5; 52.7; -11.6; -20.3; 0.2; 0.4; -0.2; -0.8; -0.5; -0.9
- Money and credit (end of period)
  - Net domestic assets 2/: -40.7; -0.2; 11.0; 17.1; 3.6; 9.0; 14.0; 16.3; 19.4; 18.6
    - Of which: credit to government (net) 2/: 15.4; -0.2; 15.3; 6.0; 1.8; -11.4; -15.9; -11.7; -14.7; -10.3
    - credit to the economy 2/: -2.7; 12.1; 20.6; 34.4; 11.3; 15.1; 14.1; 13.1; 13.0; 13.0
  - Broad money: 36.7; 26.9; 41.8; 7.4; 12.3; 21.9; 21.9; 16.7; 16.4; 15.4
  - Velocity (ratio of non-oil GDP to average broad money): 3.2; 2.8; 2.3; 2.2; 2.4; 2.4; 2.3; 2.3; 2.3; 2.3
  - Central bank reference interest rate (end of period): 15.5; 15.5; 14.5; 14.5; ..................
  - Commercial bank lending rate (end of period): 38.0; 38.0; 30.0; 30.0; ..................
  - Commercial bank deposit rate (end of period): 15.0; 15.0; 10.3; 10.3; ..................
- National accounts (in percent of GDP, unless otherwise specified)
  - Consumption: 123.0; 117.5; 116.7; 122.0; 122.0; 121.4; 118.1; 116.1; 112.9; 111.6
  - Gross investment: 35.8; 32.5; 36.1; 34.5; 37.3; 40.2; 47.7; 50.9; 52.4; 49.4
    - Public investment: 21.6; 14.5; 20.1; 19.4; 16.4; 16.0; 15.5; 14.8; 13.8; 13.0
    - Private investment: 14.2; 18.0; 16.0; 15.1; 21.0; 24.3; 32.2; 36.1; 38.6; 36.4
      - Of which: non-oil sector (in percent of non-oil GDP): 14.2; 18.0; 16.1; 15.1; 15.1; 15.1; 17.5; 17.5; 17.6; 17.6
  - Gross domestic savings: 14.8; -17.5; 17.6; 12.2; 10.6; 16.0; 16.8; 15.8; 16.1; 13.6
    - Public savings 3/: 9.4; 12.5; 13.8; 6.6; 84.4; 23.2; 23.8; 22.5; 21.7; 20.0
  - Gross national savings: 10.5; 8.0; 15.9; 7.1; 9.2; 16.7; 18.9; 17.6; 17.7; 15.6
- Government finance (in percent of GDP)
  - Total revenue, grants and oil signature bonus: 59.0; 50.5; 58.1; 59.3; 127.9; 63.9; 61.9; 59.0; 56.1; 52.6
    - Of which: tax revenue: 18.3; 19.5; 20.7; 23.4; 24.1; 24.2; 24.6; 25.0; 25.1; 25.3
    - grants: 37.8; 27.2; 32.5; 30.9; 28.2; 33.2; 31.2; 30.0; 27.2; 23.7
    - oil signature bonus: ............; 71.0; ............ (note: footnote indicates US$49.2 million in 2005)
    - unidentified revenue measures: ...............; 2.0; 1.9; 1.8; 1.7; 1.6
  - Total expenditure and net lending: 79.5; 66.9; 75.1; 85.6; 76.5; 71.2; 66.1; 63.1; 59.2; 55.8
    - Of which: noninterest current expenditure: 23.0; 26.9; 28.4; 41.7; 37.8; 33.6; 30.2; 28.6; 27.0; 25.3
    - capital expenditure: 46.0; 28.8; 35.8; 35.8; 29.3; 28.9; 28.1; 27.2; 25.4; 24.2
  - Domestic primary balance (commitment basis; incl. HIPC Initiative spending) 4/: -12.9; -4.3; -11.7; -20.6; -17.5; -11.9; -7.6; -5.5; -4.5; -3.9
  - Overall balance (commitment basis; including grants): -20.5; -16.4; -17.0; -26.3; 51.4; -7.3; -4.1; -4.1; -3.1; -3.2
  - Overall balance (cash basis; including grants): -19.6; -6.4; -11.9; -19.8; 27.7; -7.3; -4.1; -4.1; -3.1; -3.2
- External sector
  - Current account balance (including official transfers): -25.3; -24.6; -20.2; -27.3; -28.2; -23.5; -28.7; -33.3; -34.6; -33.9 (percent of GDP)
  - Current account balance (excluding official transfers): -63.2; -54.0; -54.5; -61.5; -60.3; -60.3; -63.1; -64.7; -63.1; -58.7
  - Non-oil current account balance (excl. official transfers) 5/: -63.2; -54.0; -54.7; -63.7; -56.6; -53.2; -50.4; -46.6; -42.6; -40.4
  - Net present value of total external debt 6/ 7/ 8/: 489.2; 512.7; 499.2; 449.0; 465.3; 358.1; 375.6; 390.8; 398.5; 401.9
  - Net present value of total external debt 6/ 7/ 9/: 755.9; 693.2; 634.2; 550.6; 619.7; 427.3; 440.6; 468.5; 458.0; 442.8
  - Scheduled external debt service before debt relief 8/: 41.3; 60.8; 58.0; 50.6; 56.7; 51.9; 49.6; 48.9; 46.1; 42.6 (percent of exports of goods and nonfactor services, three-year backward-looking average)
  - External debt service paid: 23.9; 20.0; 25.4; .....................
  - Export earnings (in millions of U.S. dollars): 3.7; 5.1; 6.0; 6.9; 7.3; 7.3; 7.3; 6.0; 6.1; 6.4
  - Overall balance (in millions of U.S. dollars): 0.5; -2.4; 1.8; -9.5; 19.2; -12.6; -11.8; -9.6; -7.6; -8.2
  - Gross foreign reserves (in months of following year's non-oil imports of goods and nonfactor services) 10/: 4.0; 3.9; 4.5; 3.4; 3.4; 3.5; 3.5; 3.5; 3.5; 3.5
  - Permanent oil fund (in millions of U.S. dollars) 11/: ............; 23.1; 19.2; 15.1; 11.0; 6.7; 2.3

Notes and sources included in Table 1:
- Source: São Tomé and Príncipe authorities; and staff estimates and projections.
- 1/ During 2004-07, includes US$1.4 million per year in re-exports of oil arising from aid in kind received from Nigeria.
- 2/ In percent of broad money at beginning of period.
- 3/ Government revenue includes HIPC debt relief. In 2005, reflects receipt of US$49.2 million from oil signature bonus on Block 1.
- 4/ Excluding oil revenue, grants, interest earned and scheduled interest payments, foreign-financed scholarships, and foreign-financed capital outlays. For 2002-04, it also excludes transfers to the JDA, which are to be repaid with proceeds from the oil signature bonus from Block 1.
- 5/ Excluding oil exports, c.i.f. imports of oil sector-related goods and services, and oil sector profit remittances.
- 6/ Including arrears to Italy on a loan that remains in dispute.
- 7/ Assumes that the completion point under the enhanced HIPC Initiative is reached in 2006.
- 8/ In percent of exports of goods and nonfactor services, calculated as a three-year backward-looking average (e.g., average over 2001-03 for exports in 2003).
- 9/ In percent of government revenue.
- 10/ Excluding guarantee deposits placed at the central bank by prospective financial institutions pending operating licenses.
- 11/ Includes interest income earned on oil fund.

### Financial operations of the central government, 2001-10 (Table 2) — highlights (in billions of dobras unless otherwise indicated)
- Total revenue and grants (selected years/columns)
  - 2001: 248.8
  - 2002: 245.6
  - 2003: 321.0
  - 2004: 372.9
  - 2005 (Jan.-Mar. Prel./Proj. entries): 62.6; 712.5; 830.7; 952.8 (columns include projections and program figures across 2005–10)
- Oil revenue 1/: 0.0; 0.0; 1.1; 13.7; 3.5; 7.1; 10.9; 15.1; 16.6; 17.8
- Non-oil revenue (breakdown)
  - Non-oil revenue: 89.2; 113.4; 140.4; 165.0; 32.7; 84.8; 139.5; 198.7; 239.3; 285.8; 334.0; 389.1; 450.5
    - Tax revenue: 77.2; 95.0; 114.2; 147.3; 29.6; 72.3; 121.2; 179.4; 216.0; 259.8; 307.2; 359.0; 416.9
    - Nontax revenue: 12.0; 18.4; 26.2; 17.6; 3.1; 12.6; 18.3; 19.4; 23.3; 26.0; 26.8; 30.1; 33.6
- Grants (total and components)
  - Grants: 159.5; 132.2; 179.4; 194.3; 26.4; 91.6; 151.4; 210.1; 296.7; 329.0; 369.3; 389.5; 392.0
    - Project grants: 120.9; 110.0; 142.1; 137.7; 26.4; 74.4; 111.7; 148.9; 181.6; 214.0; 245.6; 255.8; 264.0
    - Nonproject grants: 17.3; 0.5; 2.4; 20.4; 0.0; 0.0; 0.0; 0.0; 9.3; 10.0; 13.9; 17.4; 9.0
    - HIPC Initiative-related grants: 21.4; 21.8; 35.0; 36.1; 0.0; 17.2; 39.7; 61.3; 105.8; 105.0; 109.8; 116.3; 119.1
      - Multilateral: 21.4; 21.8; 35.0; 36.1; 0.0; 17.2; 25.9; 33.7; 37.1; 39.8; 41.9; 43.7; 45.0
      - Bilateral (before HIPC completion point): 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 13.8; 27.6; 56.0; 26.8; 31.0; 35.5; 36.9
      - Completion point debt relief 2/: ...; ...; ...; ...; ...; ...; ...; ...; ...; 12.7; 38.4; 36.9; 37.2; 37.1
- Total expenditure and net lending (selected years)
  - 2001: 335.3
  - 2002: 325.6
  - 2003: 415.1
  - 2004: 538.6
  - 2005 (Jan.-Mar.): 112.9; 250.0; 403.5; 570.2; 647.5; 706.9; 786.6; 858.2; 936.4
- Current and capital expenditure (selected details)
  - Current expenditure: 121.9; 156.8; 183.3; 292.5; 68.1; 136.9; 224.7; 318.3; 341.3; 359.8; 400.3; 439.2; 476.2
    - Personnel costs: 40.5; 43.6; 55.0; 75.7; 19.7; 41.5; 73.5; 103.3; 113.6; 125.0; 135.7; 145.6; 154.7
    - Goods and services 3/: 18.8; 26.7; 43.9; 95.8; 14.6; 28.4; 43.1; 58.3; 61.2; 64.0; 74.7; 86.9; 100.2
    - Interest on external debt due: 23.6; 25.9; 26.1; 30.1; 8.2; 17.0; 25.2; 34.0; 38.7; 39.2; 46.1; 51.0; 55.4
    - Transfers: 13.1; 40.7; 35.9; 65.9; 20.9; 38.9; 62.9; 92.6; 95.7; 97.7; 106.9; 115.8; 124.2
      - Regular transfers: 13.1; 9.4; 13.4; 39.9; 12.3; 25.7; 39.2; 56.0; 57.5; 58.7; 63.8; 68.6; 73.0
      - Foreign-funded scholarship program: ...; ...; 1.1; 13.7; 3.5; 7.0; 10.5; 15.1; 16.6; 17.8; 18.3; 18.9; 19.4
      - Domestically-funded scholarship program: ...; ...; ...; 12.0; 5.4; 10.8; 16.2; 21.6; 21.6; 21.6; 21.6; 21.6; 21.6
      - Joint Development Agency 4/: ...; 31.3; 22.6; 26.0; 8.6; 13.3; 23.7; 36.6; 38.3; 39.0; 43.2; 47.2; 51.1
  - Capital expenditure: 194.3; 140.0; 197.9; 225.0; 36.5; 104.4; 159.0; 218.2; 257.9; 296.7; 333.8; 363.8; 400.2
    - Financed by the treasury: 29.4; 12.3; 38.0; 50.5; 0.0; 9.8; 17.0; 28.9; 31.8; 34.9; 38.0; 55.5; 82.1
    - Financed by external sources: 164.9; 127.7; 160.0; 174.5; 36.5; 94.7; 142.0; 189.3; 226.1; 261.7; 295.9; 308.2; 318.0
- HIPC Initiative-related social expenditure: 17.2; 22.5; 33.6; 30.1; 3.6; 8.6; 19.8; 33.7; 48.3; 50.4; 52.5; 55.2; 60.0
  - Multilateral: 17.2; 22.5; 33.6; 30.1; 3.6; 8.6; 19.8; 33.7; 37.1; 39.8; 41.9; 43.7; 45.0
  - Bilateral debt relief before completion point: 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 11.2; 10.6; 10.6; 11.6; 15.0
- Public service restructuring 5/: 1.9; 6.3; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0
- Net lending and overall fiscal balance
  - Net lending: 0.0; 0.0; 0.3; -9.0; 4.7; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0
  - Overall fiscal balance (commitment basis): -86.5; -80.0; -94.1; -165.7; -50.3; 462.5; 427.2; 382.7; -76.8; -54.3; -61.4; -55.6; -68.2
  - Change in arrears (net; reduction -): 3.8; 48.8; 28.3; 41.0; 25.7; -174.8; -174.8; -176.0; 0.0; 0.0; 0.0; 0.0; 0.0
    - External arrears 6/: 3.8; 14.9; 9.4; 13.8; 8.2; -78.3; -78.3; -78.3; 0.0; 0.0; 0.0; 0.0; 0.0
    - Domestic arrears: 0.0; 34.0; 18.8; 27.2; 17.5; -96.5; -96.5; -97.7; 0.0; 0.0; 0.0; 0.0; 0.0
      - Of which: Joint Development Agency 4/: ...; 31.3; 22.6; 26.0; 8.6; -96.5; -96.5; -96.5; 0.0; 0.0; 0.0; 0.0; 0.0
  - Overall fiscal balance (cash basis): -82.7; -31.1; -65.8; -124.7; -24.6; 287.7; 252.5; 206.7; -76.8; -54.3; -61.4; -55.6; -68.2

### Financing and debt management (Table 2 continued)
- Financing (selected lines, in billions of dobras)
  - Financing totals: 82.7; 31.1; 65.8; 124.7; 24.6; -287.7; -252.5; -206.7; 76.8; 54.3; 61.4; 55.6; 68.2
  - External (net): 31.9; 3.6; 24.7; 72.5; -21.2; -28.5; -43.2; -43.8; -8.8; -15.2; -21.5; -8.5; -15.7
    - Disbursements (projects): 42.9; 17.7; 17.9; 36.8; 10.1; 20.2; 30.3; 40.4; 44.5; 47.8; 50.3; 52.4; 54.1
    - Program financing (loans): 25.8; 0.0; 30.8; 50.3; 0.0; 10.4; 10.4; 21.6; 60.9; 65.4; 66.9; 83.6; 77.3
    - Short-term loans (Nigeria and Angola) (net) 7/: 0.0; 45.0; 46.7; 58.7; 0.0; -10.4; -10.4; -10.4; 0.0; 0.0; 0.0; 0.0; 0.0
    - Scheduled amortization (medium and long-term): -36.7; -59.1; -70.8; -73.2; -31.3; -48.7; -73.5; -95.4; -114.2; -128.3; -138.7; -144.6; -147.1
  - Domestic (net): 35.6; -1.8; 16.0; 17.2; 14.5; -63.6; -27.3; 5.2; -37.9; -64.7; -57.9; -84.7; -69.2
    - Bank credit (net): 17.3; -0.3; 29.7; 16.6; 27.5; -63.6; -27.3; 5.2; -37.9; -64.7; -57.9; -84.7; -69.2
      - Of which: HIPC Initiative account: -4.3; 0.7; -4.1; -6.0; 3.6; -8.5; -6.2; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0
    - Nonbank financing: 18.3; -1.5; -13.7; 0.7; -13.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0
  - Oil reserve fund flows (net) 8/: 0.0; 0.0; 0.0; 0.0; -245.0; -245.0; -245.0; 53.9; 57.9; 61.0; 63.5; 65.6
  - Change in arrears (principal): 15.2; 29.3; 25.1; 34.9; 31.3; -145.6; -145.6; -145.6; 0.0; 0.0; 0.0; 0.0; 0.0
  - Paris Club rescheduling: 0.0; 0.0; 0.0; 0.0; 0.0; 194.9; 208.6; 222.4; 68.7; 65.3; 67.9; 72.6; 74.0
  - Reschedulable arrears 9/: 0.0; 0.0; 0.0; 0.0; 0.0; 194.9; 194.9; 194.9; 0.0; 0.0; 0.0; 0.0; 0.0
  - Debt relief (bilateral-without completion point): 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 13.8; 27.6; 56.0; 26.8; 31.0; 35.5; 36.9
  - Completion point debt relief: ...; ...; ...; ...; ...; ...; ...; ...; 12.7; 38.4; 36.9; 37.2; 37.1
  - Financing gap: 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.8; 11.0; 11.9; 12.7; 13.5

Memorandum items (selected)
- Domestic primary balance (commitment basis) 10/: -54.5; -21.1; -64.9; -129.3; -31.4; -45.2; -84.4; -130.6; -106.2; -79.8; -67.9; -64.5; -64.9
- Overall balance (commitment basis, excluding Oil Signature Bonuses): -86.5; -80.0; -94.1; -165.7; -50.3; -66.4; -101.7; -146.2; -76.8; -54.3; -61.4; -55.6; -68.2

Notes and sources for Table 2:
- Sources: São Tomé and Príncipe authorities; and staff estimates and projections.
- 1/ During 2004-07, includes US$1.4 million in re-exports of oil arising from aid in kind received from Nigeria.
- 2/ The projections assume that São Tomé and Príncipe reaches HIPC Completion point in the first half of 2006.
- 3/ In 2004, includes Db20.8 billion (i.e. 3.3 percent of GDP) for hosting the 2004 conference of the Community of Portuguese Language countries (CPLP).
- 4/ Under the arrangement with Nigeria, São Tomé and Príncipe could defer payments on its 2002-04 contributions to the Joint Development Agency until receipt of the first oil signature bonus.
- 5/ Severance packages totaling Db 8,000 million were financed by a Structural Adjustment Facility grant from the European Union in 2001-02.
- 6/ Interest arrears on Paris Club and non-Paris Club bilateral debt.
- 7/ For 2002-04, includes three US$5 million loans from Nigeria borrowed during 2002-04 and a US$1 million loan from Angola borrowed in [text truncated in source].
- 8/ Oil reserve fund flows (net) and other entries as reported in table.

*Source: São Tomé and Príncipe authorities; and IMF staff estimates and projections (from the provided content).*

### 2004. Repayment of the Nigeria loans has been rescheduled until receipt of oil

### _cr05323 - 2004. Repayment of the Nigeria loans has been rescheduled until receipt of oil

### Fiscal operations: central government (selected indicators, in percent of GDP)
- Total revenue and grants:
  - 2001: 59.0
  - 2002: 50.5
  - 2003: 58.1
  - 2004: 59.3
  - 2005 (Proj. Jan.-Mar.): 8.4
  - 2006 (Prog. Jan.-Jun.): 95.6
  - 2007 (Prog. Jan.-Sep.): 111.5
  - 2008 (Proj. Jan.-Dec): 127.9
  - 2009 (Jan.-Mar.): 63.9
  - 2010 (Jan.-Jun.): 61.9
  - 2010 (Jan.-Sep.): 59.0
  - 2010 (Jan.-Dec): 56.1
- Oil revenue 1/:
  - 2001–2003: 0.0, 0.0, 0.2
  - 2004: 2.2
  - 2005 (Proj. Jan.-Mar.): 0.5
  - 2006 (Prog. Jan.-Jun.): 1.0
  - 2007 (Prog. Jan.-Sep.): 1.5
  - 2008 (Proj. Jan.-Dec): 2.0
  - 2009–2010 (selected): 1.9, 1.7
- Non-oil revenue:
  - 2001: 21.1
  - 2002: 23.3
  - 2003: 25.4
  - 2004: 26.2
  - 2009–2010: 27.2, 27.3 (Jan.-Sep and Jan.-Dec series)
- Grants (total and components):
  - Grants (total): 2001: 37.8; 2002: 27.2; 2003: 32.5; 2004: 30.9
  - Project grants (2004): 21.9; Project grants (2009 Jan.-Mar.): 20.3
  - HIPC Initiative-related grants: 2001: 5.1; 2002: 4.5; 2003: 6.3; 2004: 5.7; 2009 (Jan.-Mar.): 11.8
- Total expenditure and net lending:
  - 2001: 79.5
  - 2002: 66.9
  - 2003: 75.1
  - 2004: 85.6
  - 2005 (Proj. Jan.-Mar.): 15.2
  - 2006 (Prog. Jan.-Jun.): 33.5
  - 2007 (Prog. Jan.-Sep.): 54.2
  - 2008 (Proj. Jan.-Dec): 76.5
  - 2009–2010 (selected): 72.5, 67.1, 64.0, 60.0, 56.7 (various subperiods)
- Current expenditure (selected):
  - 2004: 46.5
  - Personnel costs (2004): 12.0
  - Goods and services (2004): 15.2
  - Interest on external debt due (2004): 4.8
- Capital expenditure (total):
  - 2001: 46.0
  - 2002: 28.8
  - 2003: 35.8
  - 2004: 35.8
  - 2009–2010 (selected, Jan.-Dec): 27.2, 25.4, 24.2 (series over projections)
- Overall fiscal balance (commitment basis):
  - 2001: -20.5
  - 2002: -16.4
  - 2003: -17.0
  - 2004: -26.3
  - 2005 (Proj. Jan.-Mar.): -6.8
  - 2006 (Prog. Jan.-Jun.): 62.1
  - 2007 (Prog. Jan.-Sep.): 57.3
  - 2008 (Proj. Jan.-Dec): 51.4
  - 2009–2010 (selected): -8.6, -5.1, -5.0, -3.9, -4.1
- Change in arrears (net; reduction -):
  - 2001: 0.9
  - 2002: 10.0
  - 2003: 5.1
  - 2004: 6.5
  - 2005 (Proj. Jan.-Mar.): 3.5
  - 2006 (Prog. Jan.-Jun.): -23.5
  - 2007 (Prog. Jan.-Sep.): -23.5
  - 2008 (Proj. Jan.-Dec): -23.6
  - 2009–2010: 0.0 (series)
- Overall fiscal balance (cash basis):
  - 2001: -19.6
  - 2002: -6.4
  - 2003: -11.9
  - 2004: -19.8
  - 2005 (Proj. Jan.-Mar.): -3.3
  - 2006 (Prog. Jan.-Jun.): 38.6
  - 2007 (Prog. Jan.-Sep.): 33.9
  - 2008 (Proj. Jan.-Dec): 27.7
  - 2009–2010 (selected): -8.6, -5.1, -5.0, -3.9, -4.1

Notes and specific fiscal arrangements:
- Under the arrangement with Nigeria, São Tomé and Príncipe could defer payments on its 2002-04 contributions to the Joint Development Agency until receipt of the first oil signature bonus.
- For 2002-04, short-term loans include three US$5 million loans from Nigeria borrowed during 2002-04 and a US$1 million loan from Angola borrowed in 2004. Repayment of the Nigeria loans has been rescheduled until receipt of oil signature bonuses other than on Block 1. The US$1 million from Angola is due to be repaid in 2005.
- For 2006-10, drawings from the oil fund are equivalent to 20 percent of the oil permanent fund at end-2004 (in line with the Oil Revenue Management Law).
- Projections assume that São Tomé and Príncipe reaches HIPC Completion point in the first half of 2006.

### Financing and debt-related items (selected, in percent of GDP)
- External (net) financing (selected):
  - 2001: 7.6
  - 2002: 0.7
  - 2003: 4.5
  - 2004: 11.5
  - 2005 (Proj. Jan.-Mar.): -2.9
  - 2006 (Prog. Jan.-Jun.): -3.8
  - 2007 (Prog. Jan.-Sep.): -5.8
  - 2008 (Proj. Jan.-Dec): -5.9
- Domestic (net) financing (selected):
  - 2001: 8.4
  - 2002: -0.4
  - 2003: 2.9
  - 2004: 2.7
  - 2005 (Proj. Jan.-Mar.): 1.9
  - 2006 (Prog. Jan.-Jun.): -8.5
  - 2007 (Prog. Jan.-Sep.): -3.7
  - 2008 (Proj. Jan.-Dec): 0.7
- Oil reserve fund flows (net):
  - 2006–2008 (Prog.): -32.9 (each year, 2006-08)
  - 2009–2010 (selected): 6.0, 5.5, 5.0, 4.4, 4.0 (various subperiods)
- Paris Club rescheduling:
  - 2006 (Prog. Jan.-Jun.): 26.2
  - 2007 (Prog. Jan.-Sep.): 28.0
  - 2008 (Proj. Jan.-Dec): 29.9
  - 2009–2010 (selected): 7.7, 6.2, 5.5, 5.1, 4.5
- Debt relief (bilateral-without completion point):
  - 2007 (Prog. Jan.-Sep.): 1.9
  - 2008 (Proj. Jan.-Dec): 3.7
  - 2009 (Jan.-Mar.): 6.3
  - 2010 (Jan.-Jun through Jan.-Dec series): 2.5, 2.5, 2.5, 2.2
- Completion point debt relief (selected series):
  - 2009 (Jan.-Mar.): 1.4
  - 2010 (Jan.-Jun): 3.6
  - 2010 (Jan.-Sep): 3.0
  - 2010 (Jan.-Dec): 2.6, 2.2 (series)

### Social and pro-poor spending (memorandum items)
- Pro-poor expenditure (in millions of U.S. dollars):
  - 2001: 11.9
  - 2002: 10.4
  - 2003: 15.8
  - 2004: 14.3
  - 2009 (Proj. Jan.-Mar.): 20.3
- Pro-poor expenditure (in percent of GDP):
  - 2001: 25.0
  - 2002: 19.4
  - 2003: 26.7
  - 2004: 22.2
  - 2009 (Proj. Jan.-Mar.): 29.3
- Composition (pro-poor percent of GDP, selected):
  - Education (2001): 8.6; (2004): 6.1; (2009 proj.): 7.9
  - Health (2001): 11.4; (2004): 7.8; (2009 proj.): 9.1
  - Others (2001): 5.0; (2004): 8.2; (2009 proj.): 12.2

### Monetary and banking (selected from Monetary Survey and Central Bank accounts)
- Monetary survey (changes from beginning of year; in billions of dobras unless indicated):
  - Broad money (M3), end-of-period series (selected): 2002: 194.8; 2003: 276.2; 2004 Sep.: 249.9; 2004 Dec.: 269.1; 2005 Mar.–Dec. series include: 280.3, 296.5, 294.4, 326.0, 329.7, 333.0
  - Net foreign assets (changes from beginning of year): 2002: 44.6; 2003: 60.0; 2004 Mar.–Dec. series include: -46.2, -35.1, -15.2, -27.0, -48.2, 78.0, 51.0, 25.7
  - Net domestic assets (changes): 2002: -0.3; 2003: 21.4; 2004 Mar.–Dec. series include: 19.9, 28.0, 19.3, 47.4, 46.1, -48.5, -17.7, 10.8
  - Net domestic credit (changes): 2002: 19.0; 2003: 69.9; 2004 Mar.–Dec. series include: 23.7, 61.4, 63.4, 111.5, 36.5, -44.6, -2.3, 38.9
- Central Bank summary accounts (end of period, in billions of dobras):
  - Net foreign assets (selected): 2002 Dec.: 194.3; 2003 Dec.: 207.0; 2004 Dec. Est.: 214.2; 2005 Dec. Proj.: 226.8
  - Gross reserves (1/; in billions of dobras):
    - 2002 Dec.: 159.5
    - 2003 Dec.: 206.7
    - 2004 Dec. Est.: 221.0
    - 2005 Dec. Proj.: 252.0
  - Net domestic assets (selected): 2002 Dec.: -82.4; 2003 Dec.: -72.3; 2004 Dec. Est.: -88.7; 2005 Dec. Proj.: -82.9
  - Base money (end of period):
    - 2002 Dec.: 111.9
    - 2003 Dec.: 134.7
    - 2004 Dec. Est.: 125.5
    - 2005 Dec. Proj.: 143.9
  - Gross reserves (in US$ millions, memorandum):
    - 2002 Dec.: 17.3
    - 2003 Dec.: 21.0
    - 2004 Dec. Est.: 22.0
    - 2005 Dec. Proj.: 22.1
  - Permanent Oil Fund (in US$ millions, memorandum):
    - 2004 Sep.–Dec.: 22.8, 23.0, 23.1 (2004 Dec. Est. and 2005 Proj.)
- Central bank deposits and HIPC Initiative resources (selected):
  - HIPC Initiative resources appearing in budgetary deposits series: e.g., -3.6, -10.3, -8.2, -9.8, -10.3 (series across 2001–2004)

Notes:
- Monetary survey and central bank accounts include drawings from the oil signature bonuses to finance the budget and disbursements under expected PRGF arrangement (see footnotes).

### External sector and balance of payments (selected, in millions of U.S. dollars and percent of GDP)
- Current account balance, excluding official transfers (in US$ millions):
  - 2001: -30.1
  - 2002: -28.9
  - 2003: -32.2
  - 2004: -39.6
  - 2005–2010 (proj./prog.): -41.8, -45.5, -52.3, -59.4, -64.7, -67.4
- Trade balance (in US$ millions):
  - 2001: -20.7
  - 2002: -23.4
  - 2003: -27.3
  - 2004: -29.5
  - 2005–2010 (proj./prog.): -30.7, -33.3, -37.9, -44.0, -48.7, -53.9
- Exports, f.o.b. (in US$ millions):
  - 2001: 3.7
  - 2002: 5.1
  - 2003: 6.0
  - 2004: 6.9
  - 2005–2010 (proj./prog.): 7.3, 7.3, 7.3, 6.0, 6.1, 6.4
  - Non-oil exports follow similar series; cocoa is a key non-oil export (cocoa values in memos below).
- Imports, f.o.b. (in US$ millions):
  - 2001: -24.4
  - 2002: -28.5
  - 2003: -33.4
  - 2004: -36.4
  - 2005–2010 (proj./prog.): -38.0, -40.6, -45.2, -50.1, -54.8, -60.3
- Services and income (net):
  - 2001: -10.0
  - 2002: -6.2
  - 2003: -6.7
  - 2004: -9.9
  - 2005–2010 (proj./prog.): -12.6, -15.2, -18.4, -19.5, -20.8, -19.0
- Private transfers (net) and official transfers (net):
  - Private transfers (net): 2001: 0.6; 2002: 0.8; 2003: 1.8; 2004: -0.2; 2005–2010 series up to 5.5
  - Official transfers (net): 2001: 18.0; 2002: 15.7; 2003: 20.3; 2004: 22.0; 2005–2010: 22.2, 27.8, 28.5, 28.8, 29.2, 28.5
- Current account balance, including official transfers (in US$ millions and percent of GDP):
  - Levels (US$ millions): 2001: -12.1; 2002: -13.2; 2003: -12.0; 2004: -17.6; 2005–2010 (proj./prog.): -19.5, -17.8, -23.8, -30.6, -35.6, -38.9
  - As percent of GDP (memorandum): 2001: -25.3; 2002: -24.6; 2003: -20.2; 2004: -27.3; 2005–2010: -28.2, -23.5, -28.7, -33.3, -34.6, -33.9
- Capital account and capital inflows (selected):
  - Capital account balance (US$ millions): 2001: 7.9; 2002: 2.0; 2003: 4.0; 2004: 9.1; 2005–2010 series include 38.7, 5.1, 12.1, 21.0, 28.0, 30.7
  - Direct foreign investment (US$ millions): 2001: 3.3; 2002: 3.6; 2003: 3.4; 2004: 3.5; 2005–2010 projections rise to: 8.5, 11.9, 19.4, 25.4, 31.7, 32.7
  - Petroleum-related direct investment appears as: 2005–2010 series: 4.5, 6.8, 12.0, 16.8, 21.2, 21.2
  - Oil signature bonuses in capital account: 2005 (Proj.): 49.2 (one-off in 2005)
- Overall balance and financing (US$ millions):
  - Overall balance (2001–2010 series, US$ millions): 2001: 0.5; 2002: -2.4; 2003: 1.8; 2004: -9.5; 2005–2010 (proj./prog.): 19.2, -12.6, -11.8, -9.6, -7.6, -8.2
  - Financing components include change in net international reserves, use of Fund resources (PRGF), permanent oil fund flows, medium- and long-term arrears net changes, debt relief (HIPC bilateral), and reschedulable arrears.
  - Financing gap (US$ millions) shows 0.0 for 2001–2004 and small residuals thereafter; projected residual financing gap series include 0.0, 0.1, 0.9, 0.9, 0.9, 0.9 (2005–2010 breakdown).

### Debt dynamics and debt-service indicators (memorandum items)
- Debt-service ratio (before debt relief; percent of exports of goods and nonfactor services; three-year backward-looking average):
  - 2001: 41.3
  - 2002: 60.8
  - 2003: 58.0
  - 2004: 50.6
  - 2005–2010 (proj./prog.): 56.7, 51.9, 49.6, 48.9, 46.1, 42.6
- Debt-service ratio (after debt relief, and assuming HIPC Completion point in 2006):
  - 2001: 41.3
  - 2002: 60.8
  - 2003: 58.0
  - 2004: 50.6
  - 2005–2010 (post-relief): 32.6, 27.6, 11.5, 12.3, 11.9, 11.0
- Scheduled repayment of Nigeria and Angola advances:
  - Scheduled repayment line shows 2005: -16.0 (in capital short-term capital memorandum), and rescheduling of Nigeria advances noted elsewhere (rescheduling entry of 15.0 in an earlier period).

### External sector memorandum and real sector indicators
- Cocoa export volume (thousands of metric tons): 2001: 3.0; 2002: 3.1; 2003: 3.5; 2004: 3.7; 2005–2010: 3.7 (stable series)
- Cocoa export unit value (US$ per kilogram): 2001: 0.93; 2002: 1.46; 2003: 1.57; 2004: 1.42; 2005–2010: 1.54, 1.54, 1.53, 1.53, 1.52, 1.52
- Non-oil nominal GDP (in billions of dobras; memorandum):
  - 2001: 422.0
  - 2002: 486.8
  - 2003: 552.6
  - 2004: 629.2
  - 2009–2010 (proj.): 1,229.6, 1,431.0, 1,650.9 (series through 2010)
- Exchange rate (dobras per US$; average): 2001: 8,842; 2002: 9,088; 2003: 9,348; 2004: 9,780

### Key policy-relevant points highlighted in the tables and footnotes
- Repayment of three US$5 million loans from Nigeria (2002-04) has been rescheduled until receipt of oil signature bonuses other than on Block 1.
- The US$1 million loan from Angola borrowed in 2004 is due to be repaid in 2005.
- Projections assume HIPC Completion point is reached in the first half of 2006, with associated completion point debt relief reflected in the projections.
- For 2006-10, drawings from the oil fund are modeled at 20 percent of the oil permanent fund at end-2004 (consistent with the Oil Revenue Management Law).
- Paris Club rescheduling in the third quarter of 2005 affects 2005 and subsequent rescheduling and arrears treatment in projections.

*Source: São Tomé and Príncipe authorities; IMF staff estimates and projections (tables and notes extracted from the attached content).*

### 1. Population below US$ 1 a day (percent)..                 ..                 ..                 ..

### 1. Population below US$ 1 a day (percent)

### Poverty and hunger
- 1. Population below US$ 1 a day (percent): (value not provided)
- 2. Poverty gap ratio at US$ 1 a day (percent): (value not provided)
- 3. Share of income or consumption held by poorest 20 percent (percent): (value not provided)
- Target 2: Halve, between 1990 and 2015, the proportion of people suffering hunger
  - 4. Prevalence of child malnutrition (percent of children under 5): 12.9
  - 5. Population below minimum level of dietary energy consumption (percent): (value not provided)

### Education (Goal 2: Achieve universal primary education)
- Target 3: Ensure that, by 2015, children will be able to complete a full course of primary schooling
  - 6. Net primary enrollment ratio (percent of relevant age group): 97.1
  - 7. Percentage of cohort reaching grade 5: 61.5
  - 8. Youth literacy rate (percent age 15-24): (value not provided)

### Gender equality and empowerment (Goal 3)
- Target 4: Eliminate gender disparity in primary and secondary education preferably by 2005 and to all levels of education by 2015
  - 9. Ratio of girls to boys in primary and secondary education (percent): 92.1
  - 10. Ratio of young literate females to males (percent ages 15-24): (value not provided)
  - 11. Share of women employed in the nonagricultural sector (percent): (value not provided)
  - 12. Proportion of seats held by women in the national parliament (percent): 7.0

### Child mortality (Goal 4)
- Target 5: Reduce by two-thirds between 1990 and 2015, the under-five mortality rate
  - 13. Under-five mortality rate (per 1,000): 118.0
  - 14. Infant mortality rate (per 1,000 live births): 75.0
  - 15. Immunization against measles (percent of children under 12-months): 71.0 74.0 75.0 85.0

### Maternal health (Goal 5)
- Target 6: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio
  - 16. Maternal mortality ratio (modeled estimate, per 100,000 live births): (value not provided)
  - 17. Proportion of births attended by skilled health personnel: 78.6

### Combat HIV/AIDS, malaria and other diseases (Goal 6)
- Target 7: Halt by 2015, and begin to reverse, the spread of HIV/AIDS
  - 18. HIV prevalence among females (percent ages 15-24): (value not provided)
  - 19. Contraceptive prevalence rate (percent of women ages 15-49): (value not provided)
  - 20. Number of children orphaned by HIV/AIDS: (value not provided)
- Target 8: Halt by 2015, and begin to reverse, the incidence of malaria and other major diseases
  - 21. Prevalence of death associated with malaria: (value not provided)
  - 22. Share of population in malaria risk areas using effective prevention and treatment: (value not provided)
  - 23. Incidence of tuberculosis (per 100,000 people): 132.0 130.0
  - 24. Tuberculosis cases detected under DOTS (percent): (value not provided)

### Environmental sustainability (Goal 7)
- Target 9: Integrate the principles of sustainable development into policies and programs. Reverse the loss of environmental resources
  - 25. Forest area (percent of total land area): 28.1 28.1
  - 26. Nationally protected areas (percent of total land area): 0.0 0.0
  - 27. GDP per unit of energy use (PPP $ per kg oil equivalent): (value not provided)
  - 28. CO2 emissions (metric tons per capita): 0.6 0.6 0.6
  - 29. Proportion of population using solid fuels: (value not provided)
- Target 10: Halve by 2015 proportion of people without access to safe drinking water
  - 30. Access to improved water source (percent of population): (value not provided)
- Target 11: Achieve by 2020 significant improvement for at least 100 million slum dwellers
  - 31. Access to improved sanitation (percent of population): 44.0 56.0
  - 32. Access to secure tenure (percent of population): (value not provided)

### Develop a Global Partnership for Development (Goal 8)
- Target 16: Develop and implement strategies for productive work for youth
  - 45. Unemployment rate of population ages 15-24 (total)
    - Female: (value not provided)
    - Male: (value not provided)
- Target 17: Provide access to affordable essential drugs
  - 46. Proportion of population access with access to affordable essential drugs: (value not provided)
- Target 18: Make available new technologies, especially information and communications
  - 47. Fixed line and mobile telephones (per 1,000 people): 19.2 19.7 36.3 54.4
  - 48. Personal computers (per 1,000 people): (value not provided)

### Data sources and notes
- Sources: World Bank; and Fund staff estimates.
- Note 1/: Targets 33-44 are excluded because they can not be measured on a country specific basis. These are related to official development assistance, market access, and the HIPC initiative.

*Table 7. São Tomé and Príncipe: Millennium Development Goals (selected indicators) — values as presented in source PDF*

### External Financing Requirements and Sources, 2005-07

### Summary table (In millions of U.S. dollars, unless otherwise specified)
- Period columns: 2005 2006 2007
- 1. Gross financing requirements: -76.4 -48.4 -49.1
- Current account, excluding current official: -41.8 -45.5 -52.3
  - Exports, f.o.b. 1/: 7.3 7.3 7.3
  - Imports, f.o.b.: -38.0 -40.6 -45.2
  - Services and income (net): -12.6 -15.2 -18.4
  - Private transfers: 1.5 2.9 3.9
- Capital account: -16.4 -4.4 2.7
- Scheduled amortization: -8.9 -9.6 -10.1
- IMF repayments: -0.2 -0.6 -0.6
- Other capital (net): -7.4 5.9 13.4
- Change in arrears (net): -15.3 0.0 0.0

*Table 8. São Tomé and Príncipe: External Financing Requirements and Sources, 2005-07 — values as presented in source PDF*

### 2. Available Funding76.448.449.1

### 2. Available Funding76.448.449.1

### Available funding breakdown
- Oil Fund (net): 26.4.4.6.4.6
- Oil signature bonuses: 49.2.0.0.0
- Saving (accumulation of oil reserve fund -): -)-22.84.64.6
- Expected disbursements: 30.642.542.5
- HIPC Initiative-related grants 2/: 5.78.98.2
- Grants 1/: 19.124.625.4
- Concessional loans: 5.88.98.9
- Project loans: 3.83.83.8
- Program loans: 2.05.25.2
- IMF 3/: 1.31.31.3
- Financing gap: 18.10.10.9
- Reschedulable arrears 4/: 18.10.00.0
- Residual financing gap (actual debt service): 0.00.10.9

Notes attached to funding table:
- Sources: São Tomé and Príncipe authorities; and staff estimates and projections.
- 1/ Includes US$1.4 million in re-exports of oil arising from aid in kind received from Nigeria.
- 2/ Savings from assistance under the HIPC Initiative. Assumes that São Tomé and Principé reaches HIPC completion point in the first half of 2006.
- 3/ Includes projected disbursements under new PRGF.
- 4/ For 2005, assumes Paris Club rescheduling agreement on Cologne terms in the third quarter of 2005, and comparable treatment by non-Paris Club creditors.

---

### Net Present Value (NPV) of External Debt and Debt Service Due, 1999–2010 (Assuming Paris Club rescheduling on Cologne terms in 2005 and HIPC Completion Point by mid-2006)

(All figures in millions of U.S. dollars unless otherwise indicated)

### NPV of total debt and components (1999–2010, Est./Projections)
- NPV of total debt 2/: 30.975.277.486.596.0100.6116.297.3110.4122.6133.4144.2
- NPV of outstanding debt: 30.975.277.486.596.0100.6103.872.573.073.673.974.0
  - Multilateral 3/: 109.632.833.537.742.241.342.242.442.542.542.341.7
  - Official bilateral 4/: 121.342.444.048.853.959.361.630.030.531.131.632.3
    - Paris Club 5/: 82.931.532.734.035.336.537.814.614.414.113.913.7
    - Other official bilateral 6/: 38.410.911.314.818.622.823.815.416.116.917.718.6
- NPV of new borrowing 7/: 0.00.00.00.00.00.012.424.837.448.959.570.2

### Total debt service due (1999–2010)
- Total debt service due 8/: ...4.62.42.42.02.02.92.43.53.64.04.4
  - Multilateral 3/ 8/: ...4.11.91.91.41.51.21.82.12.12.42.7
  - Official bilateral 4/: ...0.50.50.50.50.61.60.31.01.01.01.0
    - Paris Club 5/: ...0.20.30.40.40.40.50.31.00.90.90.9
    - Other official bilateral 6/: ...0.30.10.10.10.11.10.00.00.00.00.0
  - New borrowing: 0.00.00.00.00.00.00.10.30.40.50.70.8

### Memorandum items and ratios (selected)
- Exports of goods and nonfactor services: 16.515.515.519.622.625.127.329.231.733.235.638.9
- Three-year export average 9/: 13.614.615.816.919.222.425.027.229.431.433.535.9
- Government revenues (excl. grants): 9.110.010.212.515.118.318.722.825.126.229.132.6
- GDP: 46.946.347.753.659.164.368.274.381.690.4100.9112.9

- NPV of debt-to-exports ratio (in percent) 9/:
  - For total debt: ...513.2489.2512.7499.2449.0465.3358.1375.6390.8398.5401.9
  - For outstanding debt only: ...513.2489.2512.7499.2449.0415.6266.7248.4234.7220.8206.3

- NPV of debt-to-revenue ratio (in percent) 10/:
  - For total debt: ...750.6755.9693.2634.2550.6619.7427.3440.6468.5458.0442.8
  - For outstanding debt only: ...750.6755.9693.2634.2550.6553.6318.3291.4281.4253.7227.3

- Debt-service ratio (current year): ...31.042.152.449.545.329.925.610.611.711.210.2
- Debt-service ratio (three-year average) 9/: ...32.841.360.858.050.632.627.611.512.311.911.0
- Debt-service-to-revenue ratio: ...48.063.882.273.762.143.532.913.514.813.712.2

Notes for the table:
- Sources: São Tomé and Príncipe authorities; and staff estimates and projections.
- 1/ Existing debt is as of end-December 2004. Refers to public and publicly guaranteed debt only, and includes short-term debt ineligible for treatment under the HIPC Initiative. The end-1999 debt stock has been updated to include loans totalling US$27 million from the IDA, AfDB/AfDF, the EU, Italy, and France for which full information were not available at the time of the HIPC decision point debt sustainability analysis (DSA).
- 2/ Discounted on the basis of the average commercial interest reference rate for the respective currency for the second half of 2004. Conversion of currency-specific NPVs into U.S. dollars is made at end-December 2004 exchange rate. 1999 NPV based on assumption of no further debt relief beyond 2000 rescheduling.
- 3/ Projected and not fully reconciled. IDA and European Investment Bank (EIB) have provided HIPC Initiative interim assistance on 100 percent of debt service 2001, while AfDB/AfDF has been providing HIPC Initiative interim assistance on 83 percent of debt service since 2001. IDA, EIB and AfDB/AfDB are assumed to continue providing assistance through end-2005; the International Fund for Agricultural Development (IFAD) and the Arab Bank for Economic Development in Africa (BADEA) do not provide any HIPC Initiative interim assistance. OPEC has been providing HIPC Initiative interim assistance since March 2003.
- 4/ Projected and not fully reconciled. Assumes the conclusion, in the second haf of 2005, of a new rescheduling of Paris Club and non-Paris Club debt with São Tomé and Príncipe on Cologne terms, retroactive since HIPC decision point (December 2000).
- 5/ Debt to Italy has been under discussion since the 2000 HIPC Initiative decision point, and it is assumed that this debt will benefit from treatment similar to that provided by the other Paris Club creditors, including HIPC treatment, once the Italian authorities have resolved an internal dispute with the Italian export agency, and an agreement on this debt is reached with São Tomé and Príncipe.
- 6/ Includes three interest-free US$5 million advances from Nigeria in 2002, 2003, and 2004, and a US$ 1 million loan from Angola in 2005. It is assumed that the advances from Nigeria would be repaid in 2012. The US$1 million loan from Angola will be repaid in 2005.
- 7/ Projected from 2005. Also includes known estimated and projected disbursements by IDA and AfDB/AfDF; additional projected external disbursements are assumed to be provided on IDA and OPEC terms with no implied assumption regarding their source.
- 8/ Including interim assistance provided under the HIPC Initiative, and assuming Paris Club and non-Paris Club rescheduling on Cologne terms, retrospective since HIPC decision point (December 2000).
- 9/ Exports of goods and nonfactor services are calculated as a three-year backward-looking average (e.g., average over 2001-03 for exports in 2003).
- 10/ NPV of total debt in percent of government revenue.

---

### Net Present Value (NPV) of External Debt and Debt Service Due, 1999–2010 (Assuming no further debt relief beyond 2000 Paris Club debt rescheduling)

(All figures in millions of U.S. dollars unless otherwise indicated)

### NPV of total debt and components (1999–2010, Est./Projections)
- NPV of total debt 2/: 30.9184.0190.1192.7197.1201.6208.9215.3221.4225.7228.9232.2
- NPV of outstanding debt: 30.9184.0190.1192.7197.1201.6197.9193.3188.2182.1175.9169.5
  - Multilateral 3/: 109.6110.9112.6113.3115.9116.5115.2113.2110.6107.2103.6100.0
  - Official bilateral 4/: 121.368.169.370.872.274.071.468.766.063.360.557.7
    - Paris Club 5/: 82.948.148.746.844.842.840.838.836.734.732.730.5
    - Other official bilateral 6/: 38.420.020.624.027.431.130.529.929.328.627.827.2
- NPV of new borrowing 7/: 0.00.00.00.00.00.011.022.033.243.653.162.7

### Total debt service due (1999–2010)
- Total debt service due 8/: ...4.86.510.311.211.312.113.313.614.214.714.7
  - Multilateral 3/ 8/: ...3.94.45.46.06.26.27.17.68.58.58.5
  - Official bilateral 4/: ...0.92.14.95.25.15.86.05.65.15.55.4
    - Paris Club 5/: ...0.41.74.34.24.13.33.93.63.23.43.4
    - Other official bilateral 6/: ...0.50.50.61.01.02.62.12.01.92.01.9
  - New borrowing: 0.00.00.00.00.00.00.10.30.40.50.70.8

### Memorandum items and ratios (selected)
- Exports of goods and nonfactor services: 16.515.515.519.622.625.127.329.231.733.235.638.9
- Three-year export average 9/: 13.614.615.816.919.222.425.027.229.431.433.535.9
- Government revenues (excl. grants): 9.110.010.212.515.118.318.722.825.126.229.132.6
- GDP: 46.946.347.753.659.164.368.274.381.690.4100.9112.9

- NPV of debt-to-exports ratio (in percent) 9/:
  - For total debt: ...1,256.41,200.91,142.51,024.5899.7836.8792.5753.0719.6683.7647.5
  - For outstanding debt only: ...1,256.41,200.91,142.51,024.5899.7792.9711.5640.0580.7525.2472.7

- NPV of debt-to-revenue ratio (in percent) 10/:
  - For total debt: ...1,837.51,855.61,544.71,301.61,103.41,114.4945.7883.3862.7785.7713.4
  - For outstanding debt only: ...1,837.51,855.61,544.71,301.61,103.41,056.0849.1750.8696.2603.6520.8

- Debt-service-to-export ratio (current year): ...31.042.152.449.545.351.547.645.145.142.037.9
- Debt-service-to-export ratio (three-year average) 9/: ...32.841.360.858.050.656.351.248.747.744.641.0
- Debt-service-to-revenue ratio: ...48.063.882.273.762.175.061.157.157.251.345.2

Notes for the table:
- Sources: São Tomé and Príncipe authorities; and staff estimates and projections.
- 1/ Existing debt is as of end-December 2004. Refers to public and publicly guaranteed debt only, and includes short-term debt ineligible for treatment under the HIPC Initiative. The end-1999 debt stock has been updated to include loans totalling US$27 million from the IDA, AfDB/AfDF, the EU, Italy, and France for which full information were not available at the time of the HIPC decision point debt sustainability analysis (DSA).
- 2/ Discounted on the basis of the average commercial interest reference rate for the respective currency for the second half of 2004. Conversion of currency-specific NPVs into U.S. dollars is made at the end-December 2004 exchange rate.
- 3/ Projected and not fully reconciled. IDA and European Investment Bank (EIB) have provided HIPC Initiative interim assistance on 100 percent of debt service since 2001, while AfDB/AfDF has been providing HIPC Initiative interim assistance on 83 percent of debt service since 2001. IDA, EIB and AfDB/AfDB are assumed to continue providing assistance through end-2005; the International Fund for Agricultural Development (IFAD) and Arab Bank for Economic Development in Africa (BADEA) do not provide any HIPC Initiative interim assistance. OPEC has been providing HIPC Initiative interim assistance since March 2003.
- 4/ Projected and not fully reconciled. All arrears on eligible outstanding debt to Paris Club creditors at end-March 2000 and on current maturities from April 2000-April 2003 were rescheduled on Naples terms on May 16, 2000; the first phase of the rescheduling was for April 1, 2000-April 30, 2001, while the second and third phases were inoperative. Consequently, the assistance planned under the second and third phases is assumed to have accrued as arrears for May 2001-March 2003. Non-Paris Club creditors are assumed to provide similar treatment.
- 5/ Debt to Italy has been under discussion since the 2000 HIPC Initiative decision point, and it is assumed that this debt will benefit from treatment similar to that provided by the other Paris Club creditors, including HIPC treatement, once the Italian authorities have resolved an internal dispute with the Italian export agency, and an agreement on this debt is reached with São Tomé and Príncipe.
- 6/ Includes three interest-free US$5 million advances from Nigeria in 2002, 2003, and 2004, and a US$1 million loan from Angola in 2005. It is assumed that the advances from Nigeria would be repaid in 2012. The US$1 million loan from Angola will be repaid in 2005.
- 7/ Projected from 2005. Also includes known estimated and projected disbursements by IDA and AfDB/AfDF; additional projected external disbursements are assumed to be provided on IDA and OPEC terms with no implied assumption regarding their source.
- 8/ Excluding interim assistance provided under the HIPC Initiative.
- 9/ Exports of goods and nonfactor services are calculated as a three-year backward-looking average (e.g., average over 2001–03 for exports in 2003).
- 10/ NPV of total debt in percent of government revenue.

---

### Schedule of Disbursements Under the Proposed PRGF Arrangement, 2005–2008

(SDR Millions; Percent of Quota; Date available; Disbursement conditions)
- 0.423 SDR; 5.7 percent of Quota; Aug-2005: Board approval of arrangement
- 0.423 SDR; 5.7 percent of Quota; Dec-2005: Observance of PCs for end-September 2005 and completion of review
- 0.423 SDR; 5.7 percent of Quota; Apr-2006: Observance of PCs for end-December 2005 and completion of review
- 0.423 SDR; 5.7 percent of Quota; Nov-2006: Observance of PCs for end-June 2006 and completion of review
- 0.423 SDR; 5.7 percent of Quota; Apr-2007: Observance of PCs for end-December 2006 and completion of review
- 0.423 SDR; 5.7 percent of Quota; Nov-2007: Observance of PCs for end-June 2007 and completion of review
- 0.422 SDR; 5.7 percent of Quota; Mar-2008: Observance of PCs for end-December 2007 and completion of review

---

### Indicators of Fund Credit, 2004–09

(In millions of SDRs, unless otherwise indicated; Projections)
- Fund credit outstanding:
  - In millions of SDRs: 1.902.653.123.583.633.25
  - In millions of U.S. dollars: 2.874.094.815.535.595.00
  - In percent of quota: 25.7035.8542.1448.4349.0043.86
- Fund obligations:
  - Fund total charges and interest: 0.000.030.030.030.030.03
  - Existing drawings: 0.000.030.020.020.020.02
  - Prospective drawings: -0.000.010.010.010.01
  - Fund total repayment/repurchases: -0.100.380.380.380.38
    - Existing drawings: -0.100.380.380.380.38
    - Prospective drawings: ------
- Fund credit in percent of:
  - Export of goods and nonfactor services: 11.4615.0016.4817.4316.8614.06
  - Gross official reserves: 16.1921.4022.5524.5223.6719.58
  - 0.000.000.000.00
- Memorandum items:
  - Export of goods and nonfactor services (In millions of US dollars): 25.0527.2729.1931.7333.1735.55
  - Gross official reserves (In millions of US dollars): 17.7319.1221.3322.5523.6225.53

Sources and note:
- Sources: Fund staff estimates; and projections
- 1/ Includes the prospective disbursements under the Poverty Reduction and Growth Facility arrangement for a total of SDR2.96 million (40 percent of quota).

---

### SÃO TOMÉ AND PRÍNCIPE: Relations with the Fund (As of March 31, 2005)

### Membership and quota
- Membership Status: Joined 09/30/1977; Article XIV
- Quota: 7.40 SDR million (100.00 percent)
- Fund holdings of currency: 7.40 (100.05 percent)

### SDR Department
- Net cumulative allocation: 0.62 (100.00 percent)
- Holdings: 0.00 (1.63 percent)

### Outstanding purchases and loans
- Poverty Reduction and Growth Facility (PRGF) arrangements: 1.90 SDR million (25.70 percent of quota)

### Financial arrangements (selected)
- PRGF: Approval date 04/28/2000; Expiration date 04/27/2003; Amount approved (SDR million) 6.66; Amount drawn (SDR million) 1.90
- Structural Adjustment Facility (SAF): Approval date 06/02/1989; Expiration date 06/01/1992; Amount approved 2.80; Amount drawn 0.80

### Projected obligations to Fund (SDR million; based on existing use of resources and present holdings of SDRs)
- Forthcoming totals by year:
  - 2005: Principal 0.10; Charges/interest 0.02; Total 0.12
  - 2006: Principal 0.38; Charges/interest 0.02; Total 0.40
  - 2007: Principal 0.38; Charges/interest 0.02; Total 0.40
  - 2008: Principal 0.38; Charges/interest 0.02; Total 0.40
  - 2009: Principal 0.38; Charges/interest 0.02; Total 0.40

### Implementation of HIPC Initiative (selected)
- Decision point date: 12/20/00
- Assistance committed (NPV terms):
  - Total assistance (US$ million): 97.00
  - Of which: Fund assistance (SDR million): 0.00
- Disbursement of IMF assistance (SDR million):
  - Assistance disbursed to the member: 0.00
  - Interim assistance: 0.00
  - Completion point: 0.00
  - Amount applied against member’s obligations (cumulative): 0.00

### Safeguards Assessments
- Full safeguards assessment completed on August 2, 2004.
- Findings: vulnerabilities in financial reporting, internal audit and internal control.
- Actions: Measures to strengthen the control framework and help safeguard Fund resources were proposed; recommendations are in the process of implementation.

### Exchange Arrangements
- Since December 2, 1994, the official exchange rate has been market determined.
- Official exchange rate determined daily as a simple average of the previous day’s selling rates in commercial banks, foreign exchange bureaus, and parallel market.
- Intervention currency for the dobra: U.S. dollar.
- Exchange rate regime classification: managed floating.
- Central bank introduced foreign exchange auctions in December 2004.
- Exchange rate: Db.10,104 per US dollar on December 31, 2004.
- Spread between official and parallel market exchange rates: less than 1 percent since 1999.

### Article IV Consultation
- Last Article IV consultation concluded by the Executive Board on March 17, 2004.

### FSAP/ROSCs/OFC Assessments
- None.

### Technical Assistance (selected missions and dates)
- February 2005: STA technical assistance mission on national accounts statistics.
- December 2004: STA mission to advise on compilation and reporting of monetary statistics.
- October 2004: STA technical assistance mission on government finance statistics.
- September 2004: MFD multi-sector mission to develop foreign exchange and interbank money markets.
- July–September 2004: MFD expert mission on Banking Supervision.
- June 2004: STA technical assistance mission on balance of payments statistics.
- July 2004: MFD expert mission on Monetary Operations.
- June 2003: STA technical assistance mission on balance of payments statistics.
- March and June 2003: STA technical assistance missions on national accounts statistics.
- March 2003 and April 2004: Visits by MFD advisors on the conduct of monetary policy and bank supervision.
- March 2003: STA technical assistance mission on national accounts statistics.
- January 1998–December 2001: MFD advisor on the conduct of monetary policy, banking supervision, and foreign exchange management.
- June 2001: MFD mission on handling of banking crisis and foreign exchange market organization.

### Resident Representative
- A Fund Resident Representative office has been maintained since November 1999.
- Current Resident Representative: Mr. Randriamaholy, took up his post in October 2003.

*Source: _cr05323 - 2. Available Funding76.448.449.1 (São Tomé and Príncipe staff estimates, tables and appendices as provided in the source PDF).*

### 1.      São Tomé and Príncipe joined the World Bank and IDA in 1977.  New lending was

### _cr05323 - 1.      São Tomé and Príncipe joined the World Bank and IDA in 1977.  New lending was

### World Bank and IDA engagement (2000–05)
- New lending was suspended between 1992 and 2000 owing to the lack of an appropriate macroeconomic framework.
- World Bank strategy for 2000–05: support government objectives in the full poverty reduction strategy paper (PRSP):
  - (i) to sustain strong economic growth that will raise income and reduce poverty; and
  - (ii) to broaden access to services and improve their quality.
- IDA aims to strengthen public resource management through technical assistance and reform projects.
- World Bank advisory support provided in the petroleum sector and telecommunications.
- Completed/ongoing knowledge work: country economic memorandum, gender study completed; poverty diagnostic being finalized to inform the new CAS to be developed in the first half of 2005.
- Grants/assistance approved:
  - IDF (Institutional Development Grant) approved in early 2005 to assist Judicial reform program.
  - GEF (Global Environmental Fund) approved in late 2004 to support development of a national action plan to adapt to environmental and global warming impacts.

### Statement of IDA Credits as of February 2, 2005 (In millions of U.S. dollars)
- Credit 1590, Year 1985, Purpose: Economic rehabilitation, Commitment 5.0, Undisbursed 0.0
- Credit A029, Year 1987, Purpose: Special African Facility, Commitment 3.0, Undisbursed 0.0
- Credit 1825, Year 1987, Purpose: Structural adjustment credit, Commitment 4.0, Undisbursed 0.0
- Credit 1830, Year 1987, Purpose: Cocoa rehabilitation credit, Commitment 7.9, Undisbursed 0.0
- Credit 2038, Year 1989, Purpose: Multisector credit, Commitment 5.0, Undisbursed 0.0
- Credit 2165, Year 1990, Purpose: Second structural adjustment credit, Commitment 9.8, Undisbursed 0.0
- Credit 2280, Year 1991, Purpose: Multisector II credit, Commitment 6.0, Undisbursed 0.0
- Credit 2325, Year 1991, Purpose: Agricultural sector, Commitment 9.8, Undisbursed 0.3
- Credit 2343, Year 1992, Purpose: Health and education, Commitment 11.4, Undisbursed 0.5
- Credit 3428, Year 2000, Purpose: Public resource management project, Commitment 7.5, Undisbursed 2.5
- Credit 3429, Year 2000, Purpose: Public resource management technical assistance, Commitment 2.5, Undisbursed 0.2
- Credit 3902, Year 2004, Purpose: Social sector support project, Commitment 6.5, Undisbursed 6.1
- Credit 3993, Year 2005, Purpose: Governance Capacity Building technical assistance, Commitment 5.0, Undisbursed 4.7
- Total: Commitment 78.4, Undisbursed 14.3
- Of which: repaid 4.6
- Note: 1 Less cancellation.

### Recent IDA operations and timing
- IDA approved a US$6.5 million social sector credit in May 2004 (social sector support project, US$5 million IDA, US$1.5 million grant).
- Governance Capacity Building Technical Assistance credit (US$5 million) became effective on February 3rd, 2005.
- Public Resource Management Credit approved in November 2000 closed in June 2004; its companion TA closed end 2004.

### IFC and FIAS
- São Tomé and Príncipe is not a member of the IFC.
- FIAS has reviewed the country’s tax system and private sector investment incentives.

### Statistical system: overview and participation
- Statistical system is still developing and suffers from serious resource constraints (qualified staff, financial and computer resources).
- Authorities participate in the Fund’s General Data Dissemination System (GDDS) and, since 2003, receive technical assistance from STA under the GDDS project for Lusophone Africa.
- Began reporting monetary and balance of payments statistics for International Financial Statistics (IFS) in March 1998.

### National accounts
- Technical assistance provided by World Bank and UNDP since mid-1990s; Fund assistance since 2003 under GDDS Lusophone project.
- National account estimates for 1994-1997 reflect elements of the 1993 System of National Accounts (SNA) methodology after mid-1990s assistance.
- Beginning in 1998, national accounts quality deteriorated due to decline in source data availability and dwindling resources; since then only preliminary flash estimates of GDP at current and constant prices compiled using industry coefficients and growth rate estimates.
- INE efforts with GDDS Lusophone Project:
  - Approved classification systems broadly consistent with internationally accepted classifications.
  - Working to compile national account aggregates with improved methodology.
  - Project goal: elaborate a new GDP series in broad conformity with the 1993 SNA by mid-2005, and assist in compiling a quarterly production index.
- Capacity fragility: retention of qualified staff weak; example—of four national accounts compilers recruited by INE who attended a three-week regional course in mid-2004, one has already left.
- Allocation of adequate human, financial and computer resources to INE remains critical.

### Consumer prices
- CPI calculated monthly and reported to AFR with a lag of one month.
- Since 1997, CPI compilation based on a household survey financed by UNDP.
- Price surveys cover the capital only; authorities intend to develop a regional price series by 2004/2005 based on a new household survey.

### Unemployment
- In 2003, authorities completed the first comprehensive survey of unemployment with World Bank assistance; survey provides detailed breakdown by age, gender and geographic location.

### Government finance statistics (GFS)
- Summary of fiscal data compiled monthly and reported to AFR with a lag of about three weeks.
- Main weaknesses:
  - (i) expenditures on projects financed by donors not adequately monitored by Ministry of Finance (MOF);
  - (ii) below-the-line financing items not yet sufficiently reliable.
- First GFS technical assistance mission under GDDS Lusophone project undertaken in October 2004 to assist MOF to compile and disseminate GFS for the general government in accordance with IMF’s GFSM 2001.
- Mission prepared bridge tables between national budget classifications and GFSM 2001 classifications for reporting to STA and AFR and for policy analysis within MOF.
- Mission reviewed classification of oil revenues under the Oil Revenue Management Law and made recommendations consistent with GFSM 2001; report contains an action plan agreed with MOF officials.
- No GFS are reported to STA for publication in the Government Finance Statistics Yearbook (GFSY) and International Financial Statistics (IFS).

### Monetary statistics
- STA mission provided technical assistance on monetary statistics in December 2004.
- Reporting lags from Central Bank of São Tomé and Principe (BCSTP) to STA shortened; data now reported with two-months lag.
- Mission reviewed collection and compilation procedures, developed a work program to address shortcomings (including issues from the Safeguards Assessment mission), and provided training to CBSTP staff.
- Findings:
  - CBSTP monthly balance sheets adequate to compile monetary statistics in line with the Monetary and Financial Statistics Manual (MFSM).
  - Accounting treatment of revaluation adjustments (holding gains) is not consistent with recommended practices, but data are available for correct reclassification.
  - Plan of accounts of other depository corporations not fully consistent with MFSM, posing challenges especially for recently created banks.
- Mission report and action plan to be sent to authorities.

### External sector
- Exchange rates: authorities record rates of official exchange bureaus, commercial banks, and the parallel market; rates available on the internet with a one-day lag. Official rate is simple average of market rates for the previous day.
- Merchandise trade: significant weaknesses in source data collection; some transactions, including imports related to investment, not fully captured in the balance of payments.
- Monthly data on main exports and imports reported to AFR regularly; unit prices and volumes of exports only occasionally included.
- Balance of Payments:
  - Compiled by BCSTP; annual BOP data reported to STA and published in IFS with long lags and substantial revisions.
  - GDDS Lusophone project launched technical assistance to improve BOP compilation and dissemination.
  - June 2003 mission reviewed shortcomings; weaknesses mainly due to undercoverage of sectors including foreign direct investment and commercial banks’ reports on international transactions.
  - Follow-up mission early June 2004 found partial or non-implementation of some recommendations; inconsistencies in classification of BOP operations persist and disaggregated BOP components largely estimated because of weak source data.
  - Recommended improving coordination and data sharing among data producing agencies, intensifying contacts with survey respondents, and using alternative sources identified by the mission.

### Debt issues
- New unit created in late 2003 within Ministry of Finance, incorporating staff from the debt department of BCSTP, with new staff including a director appointed to improve monitoring of debt statistics.
- 2003 technical assistance mission on BOP statistics noted external debt data are incomplete and do not conform to international guidelines.

### Table of Common Indicators Required for Surveillance (AS OF JUNE 27, 2005) — selected entries
- Exchange Rates: Date of latest observation June 2005; Date received June 2005; Frequency of Data D; Frequency of Reporting D; Frequency of publication D
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation May 2005; Date received June 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M
- Reserve/Base Money: Date of latest observation May 2005; Date received June 2005; Frequency M / Reporting M / Publication M
- Broad Money: Date of latest observation April 2005; Date received June 2005; Frequency M / Reporting M / Publication M
- Central Bank Balance Sheet: Date of latest observation May 2005; Date received June 2005; Frequency M / Reporting M / Publication M
- Consolidated Balance Sheet of the Banking System: Date of latest observation April 2005; Date received June 2005; Frequency M / Reporting M / Publication M
- Interest Rates: Date of latest observation April 2005; Date received June 2005; Frequency M / Reporting M / Publication M
- Consumer Price Index: Date of latest observation May 2005; Date received June 2005; Frequency M / Reporting M / Publication M
- Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of latest observation May 2005; Date received June 2005; Frequency M / Reporting M / Publication M
- Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of latest observation May 2005; Date received June 2005; Frequency M / Reporting M / Publication M
- Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation Dec. 2004; Date received May 2005; Frequency Q / Reporting Q / Publication I
- External Current Account Balance: Date of latest observation Dec. 2004; Date received May 2005; Frequency A / Reporting I / Publication A
- Exports and Imports of Goods and Services: Date of latest observation May 2005; Date received June 2005; Frequency A / Reporting I / Publication A
- GDP/GNP: Date of latest observation 2004; Date received May 2005; Frequency A / Reporting I / Publication A
- Gross External Debt: Date of latest observation Dec. 2004; Date received May 2005; Frequency Q / Reporting Q / Publication I
- Frequency codes: Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).
- Footnotes: Reserve assets include pledged/encumbered and net derivative positions; Interest rates include market-based and officially-determined rates; Financing includes foreign, domestic bank, and domestic nonbank financing; General government definition noted; Debt composition includes currency and maturity.

### Appendix IV — Government letter and program summary (São Tomé, June 30, 2005)
- Government enclosed the Memorandum of Economic and Financial Policies (MEFP) underpinning economic program and PRSP for 2005-2007; sets specific objectives and quarterly financial and structural targets for 2005.
- Social measures and communication:
  - Increase in the monthly minimum wage from US$31 to US$40 in 2005.
  - Government submitted full PRSP promulgated in January 2003 and an update issued in January 2005.
- Key components of the 2005–07 program:
  - A medium-term macroeconomic framework consistent with price stabilization and the PRSP’s macroeconomic targets;
  - A strong fiscal adjustment to contain growth of public expenditure and strengthen tax collections while allowing increases in pro-poor government spending;
  - Gradual use of the oil signature bonus on Block 1 (totaling US$49.2 million), deposited into the government’s National Oil Account held with the Federal Reserve Bank of New York; receipt of this is a prior action for approval of the new PRGF arrangement;
  - Structural adjustment measures in public enterprise reform, public expenditure management, banking sector prudential regulation, business climate, and central bank safeguards assessment implementation.
- Financing request to IMF:
  - Requests a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF), covering the period July 2005-July 2008, in a total amount equivalent to SDR 2.96 million (40 percent of quota), to be provided in seven semi-annual disbursements.
- Program monitoring and consultations:
  - Proposes Fund reviews in December 2005 and April 2006 based on observance of end-September and end-December 2005 quantitative performance criteria and structural performance criteria as in MEFP Tables 1 and 2.
  - Government will consult with Fund on adoption of further measures and provide timely data for monitoring; will not introduce or intensify exchange rate restrictions inconsistent with Article VIII or import restrictions for BOP purposes; will publish MEFP and report periodically on progress.

*Source: IMF staff report content as provided in the supplied document.*

### 2.      The program centers around two principal objectives: (i) create the conditions for

### _cr05323 - 2.      The program centers around two principal objectives: (i) create the conditions for

### Program objectives and overarching strategy
- Principal objectives:
  - (i) create the conditions for high and sustained economic growth over the medium-term; and
  - (ii) contribute to a reduction in poverty.
- Strategy to achieve objectives:
  - Pursue rigorous financial policies and wide-ranging structural reforms.
  - Safeguard pro-poor spending as envisioned in the government’s Poverty Reduction Strategy (Estratégia Nacional de Redução da Pobreza).
  - Increase expenditure on health and education during the program.
  - Strengthen good governance and transparency in public resource management.
  - Government will create an inter-ministerial commission by end-July 2005 to monitor implementation.

### Recent economic developments (summary of 2004 and implications)
- Real GDP and growth:
  - Real GDP grew by 3.8 percent in 2004.
  - Real GDP per capita has been increasing only marginally during the last five years.
- Inflation and poverty:
  - Inflation edged up to 15.2 percent (end-of-year) in 2004.
  - 54 percent of the population remain poor, with 15 percent living in extreme poverty.
- Fiscal and debt outcomes:
  - Overall fiscal deficit (on a commitment basis) in 2004: 26.3 percent of GDP.
  - Domestic primary deficit (excluding foreign-financed outlays and external interest) rose from 11.7 percent of GDP in 2003 to 20.6 percent in 2004.
  - External payment arrears to Paris Club and non-Paris Club creditors continued to accumulate in 2004; government expects to reschedule Paris Club debts and benefit from Enhanced HIPC once Fund arrangement and Completion Point triggers are fulfilled.
- Foreign-exchange reserves and central bank actions:
  - Gross official reserves declined from US$23 million at end-2003 to US$18 million at end-2004.
  - Reserves measured in months of imports fell from 4.5 to 3.4 months of imports of goods and services.
  - Central bank intervened heavily in foreign exchange and mopped up excess liquidity from large fiscal deficits and rapid bank credit expansion.

### Macroeconomic framework for 2005–07
- Growth and inflation outlook:
  - Annual GDP growth is envisaged to slow in 2005 due to tight financial policies, then pick up gradually during 2006–07 mainly from services-sector expansion.
  - End-year inflation is projected to drop to single-digit levels by end-2007.
- Reserves and external accounts:
  - Framework envisages maintaining gross international reserves at around 3 ½ months of imports.
  - External current account deficits after grants will remain large owing mainly to growing imports of oil-sector-related investment goods.
  - Financing mix: medium- and long-term borrowing, foreign direct investment, debt relief assuming HIPC completion point in the first half of 2006, and gradual use of oil bonus revenue from Block 1 to be received in late-June 2005.
  - Remaining financing gaps average less than US$0.5 million during 2006–07—down from US$18 million in 2005—and could be covered by program grants and loans from donors and multilateral creditors.
  - Government will seek additional donor support at Donors’ Round Table tentatively scheduled for October 2005.
- Debt indicators:
  - Total external debt is expected to decline from 483 percent of GDP in 2004 to 308 percent in 2007.
  - Domestic debt will remain insignificant over the medium term.

### The 2005 economic program — objectives and institutional arrangements
- Core 2005 objectives:
  - (i) reverse the upward trend in inflation registered in 2004;
  - (ii) address the rapidly deteriorating fiscal situation;
  - (iii) tackle the weakening central bank reserve position; and
  - (iv) set the stage for a new external debt rescheduling agreement with the Paris Club.
- Institutional arrangements:
  - Concerted implementation of fiscal and monetary policies and key structural reforms embodied in the PRSP.
  - Inter-ministerial commission to monitor program implementation by end-July 2005.

### Fiscal policy for 2005 — targets and instruments
- 2005 budget targets and fiscal stance:
  - Target reduction in domestic primary deficit from 20.6 percent of GDP in 2004 to 17.5 percent in 2005.
  - Domestic financing of the deficit limited to 0.7 percent of GDP.
  - Eliminate government recourse to central bank financing after 2005.
  - No new domestic or non-reschedulable external payment arrears during the program period.
- Measures to secure consolidation:
  - Increase tax revenue (tax policy reform and tax administration reform).
  - Reduce wasteful government expenditure.
  - Austere spending envelope for goods and services and capital expenditure financed by the treasury.
- Social and wage measures:
  - Increase in monthly minimum wage from US$31 to US$40 in 2005.
  - Wage increase to be implemented together with reform of the public sector compensation system to keep the wage bill sustainable.
  - Commitment to avoid any other ad-hoc wage increases.
  - Policy to eliminate selective salary increases and special wage regimes; broaden scope of wage negotiations and redefine remuneration to include basic salary, overtime fees, supplementary payments, and subsidies.
  - With these measures, the increase in the nominal wage bill will be contained below the annual inflation rate in 2006 and 2007.
  - For embassies, the wage bill for 2006–07 will be kept constant at end-2005 euro values for European embassies and US dollars for other embassies.

### Tax policy reform (measures and fiscal impact)
- Key 2005 measures (already taken or contemplated):
  - Increased (dobra-denominated) reference prices for excise duties on a core group of nonfood imports (effective January 7, 2005). Expected yield: dobras 9.5 billion, equivalent to 1.4 percent of GDP in 2005.
  - Excise tax on provision of services increased effective July 15, 2005, from 2 percent to 5 percent. Expected yield: dobras 3.3 billion, equivalent to 0.4 percent of GDP in 2005.
  - Termination of concession on excise duty on domestically-produced beer; new ad valorem rate set at 25 percent. Expected yield: dobras 1.5 billion, equivalent to 0.2 percent of GDP in 2005.
  - Government policy to keep retail petroleum prices in line with world market prices; for 2005 declines in world prices will not be passed through and margins will accrue to the treasury to improve tax revenue beyond program targets.
  - Urban property tax coverage and enforcement to be increased; coverage could be tripled from the current level of 4,000 registered dwellings, yielding dobras 800 million (0.1 percent of GDP) in additional revenue in 2005.
- Tax reform package to be submitted by end-July 2005 (effective 2006):
  - New personal income tax code: broaden tax base, introduce progressive income tax system (structural performance criterion). Preliminary government estimates show the reform will lower personal income tax revenues by 0.3 percentage points of GDP in 2006.
  - New corporate income tax code: lower average profit tax rate to the 25–30 range; limit tax holidays to new licensed investors to a maximum of three years and tax deductions covering up to 75 percent of profit taxes due (structural performance criterion). Preliminary estimates show a net revenue loss of 0.4 percent of GDP in 2006, which could be partially offset by increased investment.

### Tax administration reform (objectives and structural benchmarks)
- Objectives and planned reforms:
  - Remove ambiguities in tax laws.
  - Introduce a new tax code (Codigo General Tributario) and a new tax procedural code (Codigo de Processo Tributario) establishing:
    - tax tribunals at regional and national levels to handle disputes (structural performance criterion);
    - penalties and fines for underpayment, late payment, and other tax violations (structural performance criterion);
    - more adequate resources for tax collection and enforcement agencies.
  - Develop new official registries for urban real estate (Contribuiçao Predial Urbana) to apportion taxes (structural performance criterion).
  - Simplify and broaden taxable bases and increase rates for inheritance taxes, taxes on grants, and taxes on asset transfers (structural benchmark).
  - Enforce use of taxpayer identification numbers (cartao de identidad fiscal) throughout the territory.

### Government expenditure adjustments and pro-poor spending
- Goods and services and capital spending:
  - Outlays in goods and services projected to decline from 15.2 percent of GDP in 2004 to 7.8 percent in 2005.
  - Reduction includes a 3.3 percent of GDP decline attributable to the exceptional CPLP conference expenditures in July 2004.
  - Specific reductions projected:
    - Telecommunication spending: from 2.8 percent of GDP in 2004 to 1.3 percent in 2005.
    - Water and electricity consumption: from 4.0 percent of GDP in 2004 to 3.0 percent in 2005.
    - Spending on official travel: from 1.5 percent of GDP in 2004 to 1.0 percent in 2005.
  - Domestically-financed capital expenditure targeted at dobras 29 billion in 2005 (equivalent to 3.9 percent of GDP), down from dobras 51 billion in 2004 (equivalent to 8.0 percent of GDP).
  - Part of capital reduction reflects projects to be funded through counterpart funds from the Japanese government.
- Pro-poor spending and social safety:
  - Aggregate pro-poor spending (including HIPC-financed expenditure) budgeted at 29.3 percent of GDP in 2005, compared with estimated pro-poor spending of 22.2 percent of GDP in 2004.
  - Social safety mechanisms strengthened to mitigate adjustment costs on the poorest.
  - Pro-poor spending on health will be substantially increased.

### Public expenditure management reforms and monitoring
- Institutional and system improvements:
  - PRSP unit established at the Ministry of Planning and Finance to ensure implementation and monitoring of the PRSP; unit updating PRSP areas such as domestic oil-sector developments and management of oil revenues. By end-September 2005, the unit will issue a report on PRSP implementation status.
  - PRSP unit and Directorate of Planning to monitor grants and ensure adequate execution of donated funds, with emphasis on pro-poor projects. Information to form the basis of reporting of pro-poor spending for the Ministry and to the Fund under the 2005-08 PRGF-supported program.
  - With UNDP support, review and computerization of wage and salary payment system and development of a public employees’ register. By September 2005 the government expects to have: (i) a computerized registry for public sector HR management; (ii) trained personnel to handle the registry; and (iii) necessary hardware and technical equipment. Rest of project implemented no later than January 2006.
  - Government to implement Auditor General’s Office recommendations from the review of 2004 central government financial accounts during 2005; report expected in the third quarter of 2005.
  - Launch in 2005 of a fully integrated, computerized budget and public expenditure management system developed with FAD and World Bank assistance. Timetable (established June 2005) provides for implementation of the integrated budgetary classification system by mid-2006, including new budget classifiers and a double-entry method compatible with a new chart of government accounts (structural benchmark).
- Cash and commitment controls:
  - Introduction of an expenditure/cash management system underpinned by quarterly projections of government revenue.
  - Expenditure commitments to be prioritized in line with expected revenue to avoid re-emergence of domestic arrears and to allow the Budget Directorate to identify and monitor revenue seasonality and adapt expenditure paths within the calendar year.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05323.pdf*

### 23.      The government is also committed to improve the system of public procurement

### _cr05323 - 23.      The government is also committed to improve the system of public procurement

### Public procurement and asset management
- Objectives for the next three years:
  - (i) establish guidelines for government accounting practices regarding the acquisition, transfer and consumption of goods and services;
  - (ii) update and computerize the cadastre of government assets.
- Financing: World Bank’s loan on Governance and Capacity Building Technical Assistance will finance the project.
- Timing: New procurement practices expected to be in place by end-2005.

### Monetary and exchange rate policy
- Monetary policy objective:
  - Reduce inflation to 15 percent by end-2005.
- Quantitative targets for the BCSTP:
  - Limit stock of net domestic assets to dobras -82.9 billion at end-2005.
  - Floor on the stock of net international reserves (NIR) set at US$14.9 million.
  - These targets should allow end-2005 gross international reserves to remain at 3.4 months of imports of goods and services and provide more than 100 percent coverage of short-term liabilities, including base money.
- Monetary program assumptions and projections:
  - Broad money growth projected at 12.3 percent.
  - Private sector credit growth expected to slow from 116 percent in 2004 to 19 percent in 2005.
  - Stock of bank credit to the private sector is about 28.1 percent of GDP.
- Operational measures and coordination:
  - BCSTP to work with IMF MFD on implementing indirect monetary instruments (certificates of deposit, special liquidity facility).
  - BCSTP may change reserve requirements if necessary to manage liquidity.
  - Enhanced coordination of fiscal and monetary policies to secure effective use of the oil bonus.
- Exchange rate regime:
  - BCSTP committed to a flexible exchange rate arrangement.
  - Foreign exchange auctions recently introduced; scope and timing to be consistent with NIR targets.

### Financial sector reform
- Overall aims:
  - Improve soundness of banking system via improved licensing regulation, enhanced prudential standards, anti–money laundering and counter–terrorist financing mechanisms, and deterrence of domestic financial crime.
- Licensing of financial institutions:
  - Regulation on licensing approved in April 2004.
  - As of end-December 2004, two applications reviewed under new standards.
- Prudential regulation and supervision (main actions during 2005):
  - Implement, by September 2005, a consolidated quarterly “call report” for banks covering quality of assets, liquidity ratios, capital adequacy, profitability, interest rate and foreign exchange risk.
  - Review prudential regulation with emphasis on capital requirements, asset classification, auditing and internal controls; incorporate elements of Basel II such as the standard approach for credit risk.
  - Implement on-site examination guidelines focused on credit portfolio evaluation, loan classification, provisioning, examination procedures and remedial actions.
  - Establish a Credit Risk Bureau during the third quarter of 2005 for global surveillance of credit risk.
  - Maintain strict surveillance over Banco do Equador; shareholders agreed on additional recapitalization effective March 2005.
- Anti–money laundering and counter–terrorist financing:
  - Government committed to legislation criminalizing money laundering and financing of terrorism.
  - Action plan to submit proposed legislation to the National Assembly by September 2005 (structural benchmark).
  - Formal request for technical assistance submitted to the IMF in January 2005.

### External sector policies
- Trade-related technical assistance (Integrated Framework):
  - Areas of focus include: (i) analysis of economic effects of free trade zones; (ii) adoption by end-September 2005 of an action plan for streamlining business establishment processes; (iii) review and update of the commercial code with World Bank and other donors.
- Ministry of Commerce to assess major trade policy issues in 2005, mindful of impacts on domestic tax revenue.
- Trade regime reforms in 2005:
  - Conduct survey of existing customs exemptions with view to gradual elimination, except those in international agreements.
  - Eliminate non-tariff barrier related to CST by end-December 2005; regulations protecting CST from competition will expire on that date.

### Governance and structural reform
- Oil sector policies (2005–07):
  - Strengthen public information campaign on petroleum industry; continue dialogue with civil society. Workshop on February 28–March 1, 2005 launched public information on: (i) Oil Revenue Management Law content; (ii) status of Block 1 contract negotiations and recent bids; (iii) setting of National Petroleum Agency (ANP).
  - Finalize overall petroleum sector strategy during third quarter of 2005 (developed with World Bank and UNDP) addressing institutional options including national oil company and joint ventures.
  - Implement Abuja Declaration measures adopted by Joint Ministerial Council in November 2004 to align JDA practices with EITI and amend confidentiality clauses in JDA Regulation for Petroleum Operations.
  - Develop ANP work plan and foster production, publication and dissemination of oil sector information with World Bank EITI Trust Fund support; prioritize website, internal controls and auditing practices.
- Public enterprise reform:
  - Strengthen EMAE (public water and electricity company) financial position via prepayment electricity metering keypads; EMAE to receive a bank loan guaranteed by government conditional on a broader financial strategy and timetable for arrears reduction by end-July 2005 (structural benchmark).
  - At first review, government will present a firm timetable for arrears clearing and may propose a new structural performance criterion for end-December 2005.
  - Medium-term electricity production expected to be in hands of private investors; mid-2004 contract signed for construction of new hydroelectric plant and refurbishing/exploration rights of Contador plant; EMAE to remain in charge of distribution.
  - Privatization: government intends to complete feasibility studies by end-2005 (structural benchmark) and decide on privatization of ENASA and ENAPORT.
- Judicial sector reform and business climate:
  - World Bank–supported work plan for judicial reform covering: (i) justice sector capacity assessment and multi-year reform strategy; (ii) training for judges, prosecutors and court personnel; (iii) review and modernization of legal framework including civil, criminal, and commercial codes; (iv) review of informal conflict resolution systems.
  - Submit new investment code to National Assembly by end-July 2005 (structural performance criterion) to provide equal treatment for domestic and foreign investors; revisit other tax legislation before end-July 2005 to close tax loopholes.
  - New investment code guarantees: (i) free and fair competition; (ii) investors’ rights to freely transfer abroad receipts and/or profits according to the law; (iii) repatriation of capital; benefits may include access to land and user rights on state-owned dwellings necessary for investments; government to seek World Bank and donor advice on land/dwelling rights.
  - Develop terms of reference by end-December 2005 for study on land tenure (structural benchmark).
- Central bank safeguards assessment and actions:
  - Safeguards assessment by Fund Finance department in March/April 2004 found progress; government addressing remaining legal, reporting, internal audit, and internal control weaknesses.
  - Specific measures:
    - Letter of Commitment signed May 31, 2005 between BCSTP Governor and Minister of Planning and Finance allowing central bank to distribute only realized earnings to General Reserve and to the government.
    - Protocol to be signed by end-August 2005 to confirm outstanding stock of government debt to BCSTP and set (i) interest rate and (ii) amortization schedule.
    - Confirmation that BCSTP Vice-Governor position filled on September 20, 2004.
    - BCSTP Board authorized hiring BDO Binder Co. on October 20, 2004 to audit annual financial statements with a three year term and yearly renewal clause.
    - By end-July 2005 BCSTP will post 2003 and 2004 audited financial statements with detailed notes and audit opinion on its website; publication to become a norm.
    - During 2005 BCSTP will, with IMF STA, start deriving monetary statistics automatically from the central bank accounting balance sheet; working to generate central bank and deposit money banks balance sheets in electronic format.
    - In coordination with IMF FIN, BCSTP will seek to implement remaining technical recommendations from safeguards assessment during 2005, including early adoption of IFRS; modernization of internal audit and financial risk analysis; development of formal investment guidelines for foreign reserves.

### Statistical issues
- Government commitment to produce more timely and accurate statistics to support transparency and economic assessment.
- CBSTP to work with IMF Statistics Department on standardized forms for monetary data reporting and development of an integrated monetary database.
- Technical assistance from STA under GDDS Lusophone Project viewed as crucial.
- Ongoing work:
  - Production of revised system of national accounts for 1996–2002.
  - Development of new survey systems by National Statistics Institute (INE) to compile national accounts data.
  - World Bank Governance Capacity Building technical assistance credit supports INE capacity-building.

### Social framework for the program
- Social strategy to build public support for the program and progress toward HIPC goals:
  - PRSP includes detailed critical social projects, review of PRSP implementation, and macroeconomic framework underlying the MEFP; program policies aim to respond to population needs, especially the less privileged, consistent with fiscal sustainability.
  - Preliminary identification, with World Bank and IMF staff, of pro-poor expenditure items for regular reporting in 2005–07 program:
    - Current pro-poor spending:
      - (i) salaries of the ministries of Education and Culture, Health, and Labor and Solidarity;
      - (ii) spending on goods and services, and on transfers, of the Education and Culture, and of the Health ministries that directly impact poverty alleviation.
    - Capital outlays considered pro-poor include projects in:
      - (a) provision of potable water and electricity to low-income communities;
      - (b) education (e.g., building and furnishing classrooms);
      - (c) health (equipping and provision of technical assistance for the main hospital in São Tomé).
  - Government will review categorization further; a template agreed with Fund staff will be the basis for regular reporting in the 2005–07 program.

*Source: _cr05323 - 23.      The government is also committed to improve the system of public procurement*

### 45.      The government considers attaining the HIPC Initiative completion point as one of its

### _cr05323 - 45.      The government considers attaining the HIPC Initiative completion point as one of its

### HIPC implementation progress and priorities
- Government considers attaining the HIPC Initiative completion point a priority and has progressed steadily toward implementing policy reforms and social measures from the HIPC decision point document.
- Sectoral strategies for health and education have been developed and costed.

### Education and health sector outcomes (HIPC completion triggers)
- Education:
  - Since 1999 the government has built most of the primary and secondary school classrooms agreed as a HIPC completion trigger.
  - Between 1999 and 2004, 134 primary school teachers and 174 kindergarten teachers were hired.
- Health:
  - During 1999–2002, 7 health centers were built and another 2 posts were re-habilitated.
  - Three of the newly built health centers have been equipped.
  - Vaccination for major childhood diseases (DPT3, Polio, BCG and measles) has met or surpassed the HIPC completion triggers (set at 85 percent).
  - As of 2002 the government had not yet succeeded in reducing under-5 mortality from malaria; an anti-malarial campaign launched in 2003 in Príncipe (education, fumigation, bed nets) and extended in 2004 to São Tomé provides anecdotal evidence of a large drop in infections and will reduce mortality rates, particularly that of children.

### Public expenditure management actions and gaps
- Monitoring and oversight of HIPC funds:
  - HIPC funds are included in the budget and supervised by the directorates of Treasury and Planning.
  - The Ministry of Planning and Finance has undertaken internal and external audits.
- Foreign-financed capital expenditure:
  - Programming and execution of foreign-financed capital expenditure (loans) are under the control of the Ministry of Planning and Finance.
  - Government has requested development partners to help bring all external assistance under the budgetary system to streamline reporting and avoid execution inconsistencies for some grants.
- Medium term expenditure framework (MTEF):
  - The country does not yet have an MTEF.
  - Government committed to develop an MTEF within the next three to four years with World Bank and IMF support.
  - Ongoing work on a computerized budget and public expenditure management system (see paragraph 21 in source) is fundamental to this effort.

### Governance measures (HIPC completion triggers)
- Petroleum sector:
  - Oil Revenue Management law approved by the National Assembly in December 2004.
  - Institutional framework for national petroleum policy supervision and regulation became operational in the first half of 2004.
  - Framework includes the National Committee on Petroleum (NCP) and the National Petroleum Agency (NPA), which absorbed the small technical petroleum unit functional since 2002.
- Audit and arbitration:
  - Auditor General’s Office (Tribunal de Contas) functional since mid-June 2003.
  - Tribunal of arbitration for business and contract matters not yet operational.

### Oil sector development challenges and strategy
- Government views oil sector development as key to economic growth and development.
- Progress in auctioning oil fields in the Joint Development Zone confirms potential.
- Government recognizes risks of ineffective oil revenue management and distortions to the non-oil economy from a capital-intensive energy sector.
- Commitments:
  - Foster transparency and accountability in oil revenue management.
  - Effective PRSP implementation should raise productivity via improved basic health and education services, and higher physical and human capital to absorb future high-tech, capital-intensive enterprises (e.g., oil-sector related manufacturing and services), offshore fishing, trans-shipment entrepôt services, specialized agriculture, and eco-tourism.

### Program monitoring for 2005
- Technical Memorandum of Understanding (TMU):
  - Program monitored using definitions, data sources, and monitoring frequency set out in the TMU.
  - Government will make available to the Fund all necessary data, appropriately reconciled and on a timely basis as specified in the TMU.
- Prior actions:
  - Government will undertake actions prior to the IMF Board meeting to consider a three-year PRGF arrangement (see Table I.2 in source).
- Performance criteria:
  - Table I.1 shows quantitative performance criteria set for end-September and end-December 2005.
  - Nonaccumulation of external payment arrears (as defined in the TMU) is a continuous performance criterion, along with standard injunctions on restrictions on current payments, multiple currency practices, inconsistent bilateral payments agreements, or import restrictions for balance of payments reasons.

### Quantitative performance criteria for 2005 (Table I.1; values preserved)
- 1. Floor on domestic primary balance (cumulative from beginning of year): end-Sept. -84.4; end-Dec. -130.6 (in billions of dobras, unless otherwise specified).
- 2. Ceiling on domestic primary spending (cumulative from beginning of the year) 1/: end-Sept. 223.93; end-Dec. 329.4.
- 3. Ceiling on changes in net domestic financing of the government (cumulative from beginning of year, in billions of dobras at program exchange rate) 2/ 3/: end-Sept. -27.6; end-Dec. 0.8.
- 4. Ceiling on changes in net domestic assets of the central bank (cumulative from beginning of year, in billions of dobras at program exchange rate) 2/ 3/: end-Sept. -18.5; end-Dec. 9.9.
- 5. Floor on changes in the net international reserves of the central bank (cumulative from beginning of the year, in millions of U.S. dollars) 4/: end-Sept. 4.8; end-Dec. 0.9.
- 6. Ceiling on central government's outstanding external payment arrears (stock, in millions of U.S dollars) 5/: end-Sept. 0.0; end-Dec. 0.0.
- 7. Ceiling on the contracting or guaranteeing of new non-concessional external debt with original maturity of more than one year by the central government or the BCSTP (cumulative from the beginning of the year, in millions of euros) 6/ 7/: end-Sept. 1.7; end-Dec. 1.7.
- 8. Ceiling on the outstanding stock of external debt with original maturity of less than one year owed or guaranteed by the central government or the BCSTP (cumulative from the beginning of the year, in millions of U.S. dollars) 8/: end-Sept. 15.0; end-Dec. 15.0.
- Memorandum items:
  - Oil signature bonuses (in millions of U.S. dollars): 49.2 (end-Sept.); 49.2 (end-Dec.).
  - Official external program support as defined in the TMU (in billions of dobras): 10.4 (end-Sept.); 21.6 (end-Dec.).

### Prior actions, structural performance criteria, and benchmarks for 2005 (Table I.2; preserved text)
- Prior actions for approval of new PRGF arrangement:
  - Obtain parliamentary passage of a 2005 budget with aggregate revenues, expenditures, and net domestic financing consistent with the MEFP.
  - Receipt of the oil signature bonus on Block 1 (totaling US$49.2 million) and deposit of these funds in the government’s National Oil Account held with the Federal Reserve Bank of New York.
- Structural performance criteria (submission deadlines by end-July 2005 unless otherwise noted):
  - Submit to the National Assembly a new tax code on personal income taxation broadening the tax base (to include bonuses, monetary premiums, and in-kind benefits) and updating the tax rate schedules to provide progressivity (MEFP, para. 13).
  - Submit to the National Assembly a new code on corporate taxation that limits tax holidays for new licensed investors to a maximum of three years, with tax reductions covering up to 75 percent of profit taxes due (MEFP, para. 13).
  - Submit to the National Assembly a new tax procedural code establishing tax tribunals at regional and national levels and addressing penalties and fines (MEFP, para.14).
  - Submit to the National Assembly a new investment code providing equal treatment for domestic and foreign investors and consistent with the new corporate tax code (MEFP, para. 40).
- Structural benchmarks:
  - By end-July 2005, establish a timetable for reduction of outstanding payments arrears to the water and electricity company (EMAE) (MEFP, para.36).
  - By end-December 2005, complete feasibility studies on the privatization of ENASA and ENAPORT (MEFP, para. 38).
  - By end-July 2005, submit to the National Assembly new guidelines on urban property taxation to support development of official registries for quantity, value, and ownership of urban real estate (MEFP, para.14).
  - By end-July 2005, submit to the National Assembly new legislation on inheritance taxes clarifying the tax rate and tax base (MEFP, para.14).
  - By end-September 2005, submit to the National Assembly proposed legislation criminalizing money laundering and financing of terrorism (MEFP, para. 31).
  - By end-December 2005, develop terms of reference for a study on land tenure analyzing economic effects from lack of complete property rights (MEFP, para. 41).

### Technical Memorandum of Understanding (selected definitions and key metrics)
- Data provision:
  - Data for performance variables provided monthly with a lag no more than four weeks for net domestic assets and net international reserves of the BCSTP, and eight weeks for other data.
- Government definition:
  - “Government” comprises the central government and excludes state-owned enterprises.
- Government domestic revenue:
  - Comprises all tax and non-tax revenue (domestic and foreign currency), excluding foreign grants, receipts from local sale of crude oil received from Nigeria as in-kind grant, and gross inflows from oil signature bonus payments. Measured on a cash basis as reported in the table of government financial operations.
- Domestic primary expenditure:
  - Comprises all government spending on a commitment basis, excluding: (i) foreign-financed capital expenditure, (ii) externally-financed overseas scholarships, and (iii) other foreign-financed current expenditures.
- Pro-poor expenditure (definitions and reporting):
  - Pro-poor current spending: specified ministry budget codes and expenditure categories (ministry of Education and Culture; ministry of Health; ministry of Labour and Solidarity) as detailed in the source matrix.
  - Pro-poor capital spending: selected projects in education, health, social safety nets, agriculture and fisheries, rural development, planning and finance, youth and sports, potable water provision, and electrification.
  - Reporting: execution data provided quarterly by the Directorate of Budget (current) and Directorate of Planning (capital) at the Ministry of Planning and Finance.
- Domestic primary balance (2004 assessment):
  - Government domestic revenue: Db 165.0 billion
  - Less: government primary expenditure (excluding specified foreign-financed items): Db 293.1 billion
  - Equals: Domestic primary balance: Db -128.1 billion
- Program exchange rates (end-December 2004):
  - Program exchange rate: Db10,104 per US dollar.
  - Dobra against the euro at end-December 2004: 12,314.
  - Dobra against the SDR at end-December 2004: 15,558.
- Net domestic financing (definition and end-December 2004 stock):
  - Net credit to government at end-December 2004: Db 35.8 billion, broken down as:
    - BCSTP credit, including use of IMF resources: Db 83.6 billion
    - Less: government deposits with BCSTP: Db 41.0 billion
    - Equals: Net credit to government by the BCSTP: Db 42.6 billion
    - Plus: DMBs credit: Db 0.0 billion
    - Less: government deposits with DMBs (including counterpart funds): Db 6.9 billion
    - Equals: Net domestic financing of the government: Db 35.8 billion
- Base money (end-December 2004 assessment):
  - Currency issued: Db 67.2 billion
    - Of which: Cash in vaults: Db 7.2 billion
    - Currency outside banks: Db 60.0 billion
  - Bank reserves: Db 52.1 billion
  - Equals: Base Money: Db 119.2 billion

*Source: IMF staff report content provided in the supplied PDF content unit.*

### 11.      Net international reserves (NIR) of the BCSTP are defined for program monitoring

### 11.      Net international reserves (NIR) of the BCSTP are defined for program monitoring

### Definition of NIR
- NIR are defined as short-term foreign assets of the BCSTP minus short-term external liabilities.
- All short-term foreign assets that are not fully convertible external assets readily available to and controlled by the BCSTP (i.e., they are pledged or otherwise encumbered external assets, including, but not limited to, the HIPC umbrella SDR account, and assets used as collateral or guarantees for third party liabilities) will be excluded from the definition of NIR.
- All values are to be converted to U.S. dollars at actual market exchange rates prevailing at the test date.

### NIR and related monetary positions at end-December 2004
- Net Foreign Assets: Db 189.3 billion
- Less: Other foreign assets: Db 49.5 billion
- Plus: Other liabilities: Db -29.4 billion
- Equals: Net International Reserves: Db 169.2 billion
- Of which:
  - Gross reserves: Db 197.1 billion
  - Short-term liabilities: Db - 27.9 billion

### Net domestic assets (NDA) of the BCSTP at end-December 2004
- Definition: difference between base money and net foreign assets of the BCSTP. All foreign denominated accounts will be converted to dobras at the program exchange rate.
- Base Money: Db 119.2 billion
- Less: Net Foreign Assets: Db 189.3 billion
- Equals: Net domestic assets of the BCSTP: Db -70.0 billion

### Performance criteria: external debt and arrears (end-December 2004 stocks)
- Short-term external debt (original maturity ≤ 1 year, incl. overdrafts and debt owed or guaranteed by government or BCSTP): US$1.0 million.
- Nonconcessional medium- and long-term external debt (contracting or guaranteeing by government; original maturity > 1 year): US$15 million.
  - Debt reschedulings and restructurings are excluded from the ceilings on nonconcessional borrowing.
  - Medium- and long-term debt reported by Debt Management Unit and (as appropriate) by the BCSTP, measured in US dollars at current exchange rates.
  - Government will consult Fund staff before contracting obligations if uncertain whether obligations are included in performance criterion limits.
- Outstanding stock of external arrears pending debt-rescheduling agreement: US$18 million.
  - Nonaccumulation of new external payment arrears is a continuous performance criterion.
  - External payment arrears defined as all unpaid external public debt obligations per Debt Management Unit and (as appropriate) BCSTP, except arrears pending rescheduling arrangements.
  - Performance criterion on external arrears does not apply to external arrears pending conclusion of a Paris Club debt-rescheduling agreement.

### Concessionality assessment (summary of methodology)
- Concessionality of loans assessed according to the reference interest rate by currency published by the Development Assistance Committee of the OECD.
- For loans of terms ≥ 15 years: ten-year average of commercial interest reference rates (CIRR) for the loan currency will be used.
- For loans of shorter terms: six month average will apply.
- A loan is deemed concessional if, on initial disbursement date, the ratio of the present value of the loan (calculated on the basis of the reference interest rate) to the nominal value of the loan is less than 50 percent (i.e., a grant element of at least 50 percent, excluding Fund resources).
- For currencies with no available reference interest rates, the SDR rate will be used.

### Official external program support (2004)
- Definition: grants and loans provided by foreign official entities that are received by the budget—excluding project grants and loans—and other exceptional financing.
- For 2004, official external program support totaled US$7.1 million, composed of:
  - Non-project grants: US$2 million
  - Program loans: US$5.1 million

### Adjusters for deviations in official external program support
- Deviations measured cumulatively from December 31, 2004.
- Ceilings on net domestic financing (NDF) of the government and net domestic assets (NDA) of the BCSTP:
  - Monthly differences between projected and actual official external program support and external debt service payments in foreign exchange will be converted to dobras at the actual monthly exchange rate and cumulated to the test date.
  - Ceilings on NDF and NDA will be reduced by the sum of:
    - (i) excess official external program support; and
    - (ii) the shortfall in external debt service payments.
  - Both ceilings will be increased by 100 percent of any cumulative shortfall in official external program support or excess in external debt service.
  - Downward adjustment to NDF and NDA for higher-than-programmed official external program support will not take place to the extent that additional external program support is used to accommodate higher capital outlays by the government, up to US$1 million, converted to dobras at actual exchange rates (as indicated in Table I.1).
- Floor on NIR of the BCSTP:
  - Quarterly difference between projected and actual official external program support and external debt service payments will be converted to U.S. dollars at the actual exchange rates prevailing at the test date.
  - The floor on NIR will be raised by the sum of:
    - (i) excess external program support; and
    - (ii) any shortfall in external debt service payments.
  - Upward adjustment to NIR for higher-than-programmed official external program support will not take place to the extent that additional external program support is used to accommodate higher capital outlays by the government, up to US$1 million, converted to dobras at actual exchange rates (as indicated in Table I.1).

### Data reporting requirements and timing
- Except for net domestic assets and net international reserves (provided by the BCSTP within four weeks at the end of each month), other monetary data to IMF staff:
  - Monthly monetary data: within eight weeks after the end of each month.
  - Quarterly data: within eight weeks after the end of each quarter.
  - Annual data: within eight weeks after the end of each year.
- Fiscal data (Directorate of Budget, Ministry of Planning and Finance) to provide:
  - Monthly data on central government operations for revenues, expenditure and financing
  - Monthly detailed tax and non-tax revenues
  - Monthly detailed current and capital expenditure data
  - Quarterly data on official external program support (non-project)
  - Quarterly data on execution of the public investment program (PIP) and sources of financing
  - Quarterly data on project grant disbursement (HIPC and Non-HIPC)
  - Quarterly data on project loans disbursement
- Monetary data (BCSTP) to provide:
  - Weekly data on exchange rates
  - Monthly data on interest rates
  - Monthly balance sheet data of BCSTP (in BCSTP and IMF formats)
  - Monthly balance sheet data of individual deposit money banks (in BCSTP and IMF formats)
  - Monthly consolidated balance sheet data of deposit money banks (in BCSTP and IMF formats)
  - Monthly monetary survey (in BCSTP and IMF formats)
  - Monthly central bank foreign exchange balance (Balança cambial)
  - Latest position of NIR and Liquid Reserves of the BCSTP (last available; monthly)
- External debt data (Debt Management Unit, Ministry of Planning and Finance) to provide:
  - Monthly data on amortization of external debt (HIPC and Non-HIPC)
  - Monthly data on paid interest on external debt (HIPC and Non-HIPC)
  - Monthly data on disbursements external project and BOP support loans
- National accounts and trade statistics (National Institute of Statistics) to provide:
  - Monthly consumer price index data
  - Monthly data on imports as reported by Customs (value and import taxes collected)
  - Monthly commodity export values

*Source: _cr05323 - 11.      Net international reserves (NIR) of the BCSTP are defined for program monitoring*

### 5.      In addition to exchange rate fluctuations, the external debt outlook is vulnerable

### _cr05323 - 5.      In addition to exchange rate fluctuations, the external debt outlook is vulnerable

### Vulnerabilities and scope of analysis
- External debt outlook is vulnerable to declining exports and non-debt creating flows (foreign grants and FDI).
- Sensitivity analysis conducted using the Low Income Country DSA template.
- Main variables considered: real GDP, export value, U.S. dollar GDP deflator, and net non-debt creating flows (historical averages for 1995–2004 used as benchmarks).

### Most extreme shock (exports fall)
- A decline in the export level in 2005–06 by one standard deviation from historical levels (the average export level in 1995–2004) pushes the NPV of debt-to-exports ratio to 421 percent in 2006.
- Baseline NPV of debt-to-exports ratio in 2006: 306 percent.
- Comparison points referenced: Figure 4; Table 2b.

### Historical scenario (half standard deviation shocks)
- “Historical scenario” assumes main macroeconomic variables were subject to one half standard deviation shocks from their historical levels (1995–2004 averages).
- Under this scenario the NPV of debt-to-exports ratio rises to 346 percent in 2006.

### Impact of declines in non-debt creating flows
- The NPV of debt-to-exports ratio deteriorates significantly when non-debt creating flows decline.
- The impact of declining non-debt creating flows is felt with a one-year lag.

### Selected key baseline and sensitivity figures (as reported)
- Baseline NPV of debt-to-exports ratio series (selected years):
  - 2004: 326
  - 2005: 312
  - 2006: 306
  - 2007: 298
  - 2008: 305
  - 2009: 293
  - 2010: 285
  - 2011: 276
- Most extreme DSA stress test (NPV of debt-to-exports ratio):
  - 2006: 421 (export-level shock of one standard deviation in 2005–06)
- Historical scenario (NPV of debt-to-exports ratio):
  - 2006: 346 (one half standard deviation shocks to main macro variables in 2005–06)

### Summary of scenario matrix (from Table 2b, selected entries)
- NPV of Debt-to-GDP Ratio (baseline and stress examples):
  - Baseline 2006: 129
  - B2 (Export value growth at historical average minus one standard deviation in 2005-06): 2006 = 131
  - B5 (Combination of B1-B4 using one-half standard deviation shocks): 2006 = 153
  - B6 (One-time 30 percent nominal depreciation relative to the baseline in 2005): 2006 = 181
- NPV of Debt-to-Exports Ratio (baseline and stress examples):
  - Baseline 2006: 306
  - B2 (Export value growth shock): 2006 = 421
  - B3 (US dollar GDP deflator shock): 2006 = 307
  - B4 (Net non-debt creating flows shock): 2006 = 324
  - B5 (Combination one-half sd): 2006 = 351
  - B6 (One-time 30 percent nominal depreciation in 2005): 2006 = 306

### Observations for policymakers (implied by analysis)
- Export shocks produce the largest deterioration in NPV of debt-to-exports ratios among tested shocks.
- Combined shocks and exchange rate depreciation scenarios can substantially worsen debt indicators.
- Reductions in net non-debt creating flows (grants, FDI) materially weaken debt metrics, with effects generally lagged by one year.
- Monitoring and policies that support export performance and sustain non-debt creating flows are critical to debt sustainability.

*Source: Staff projections and simulations; Table 2b, Figure 4 (São Tomé and Príncipe: NPV of debt-to-exports, 2004-24).*

### 1. This statement reports on information received since the staff report was issued. This

### _cr05323 - 1. This statement reports on information received since the staff report was issued. This

### Update since the staff report
- The information received since the staff report “does not alter the thrust of the staff appraisal.”
- Two prior actions for Executive Board consideration of a new PRGF arrangement with São Tomé and Príncipe were met, including:
  - Passage of the 2005 budget consistent with the authorities’ Memorandum of Economic and Financial Policies.
  - Receipt of the oil signature bonus on Block 1.

### Structural measures and end-July 2005 benchmarks
- The authorities informed staff on July 26, 2005 that all structural performance criteria set for end-July 2005 under the proposed three-year PRGF arrangement were met. Submissions to the National Assembly included:
  - (i) A new tax code on personal income-taxation broadening the tax base and updating tax rate schedules to provide progressivity to the personal income-tax system.
  - (ii) A new code on corporate taxation limiting tax holidays to new licensed investors to a maximum of three years, with tax reductions covering up to 75 percent of profit taxes due.
  - (iii) A new tax procedural code establishing tax tribunals at different levels of government and penalties/fines for underpayment, late payment and other tax violations.
  - (iv) A new investment code providing equal treatment of domestic and foreign investors and consistent with the new corporate tax code.
- On July 29, 2005, the authorities provided staff with a timetable for reduction of outstanding payment arrears to the water and electricity company (EMAE), a structural benchmark set for end-July 2005.
- The programmed increase in excise duties on services and domestically-produced beer was implemented on July 29, 2005 (two-week delay from originally planned).

### Prices, tariffs, and utility finances
- Retail prices for fuel products increased, on average by 22 percent, on July 9, 2005, consistent with the government’s policy of full pass-through of world crude oil price increases to domestic consumers.
- EMAE requested government authorization to increase electricity tariffs to cover diesel price increases (diesel extensively used in thermal electricity production).
- Addressing EMAE’s fragile financial position and eliminating its outstanding payment arrears were highlighted as critical to macroeconomic stability.

### IMF Executive Board decision and program framework
- The IMF Executive Board approved a three-year PRGF arrangement for São Tomé and Príncipe in the amount of SDR 2.96 million (about US$4.3 million).
  - Disbursements under the arrangement shall not exceed the equivalent of SDR 1.269 million (about US$1.9 million) until July 31, 2006.
- PRGF terms: annual interest rate of 0.5 percent; repayable over 10 years with a 5½-year grace period on principal payments.
- The PRGF-supported program for 2005-07 aims at correcting macroeconomic imbalances and setting conditions for sustained strong growth:
  - Real GDP envisaged to slow in 2005 due to tight financial policies, then pick up thereafter.
  - Inflation projected to decline to single-digit levels by 2007.
  - Gross international reserves would be kept at around 3½ months of imports and services.
  - Program includes major fiscal consolidation over 2005-07 and key structural reforms in the PRSP.

### Selected findings and policy recommendations from the Executive Board statement
- Commendation for actions taken to address 2004 fiscal relaxation and rapid credit growth that led to increased inflation.
- Emphasis on prioritizing sectoral strategies consistent with the annual fiscal budget and the government’s price stability target.
- Need for steadfast implementation of economic policies and timely execution of institutional and structural reforms, with technical and financial support from development partners to mobilize concessional financing from donors and strengthen policy credibility.
- Fiscal consolidation required to rein in expectations fueled by prospective oil revenues while protecting pro-poor spending.
- New revenue measures in the 2005 budget, proposed personal and corporate tax code reforms, tax administration reforms, and projected debt relief under enhanced HIPC should help achieve PRSP spending priorities.
- Concern over continuous large increases in the civil service wage bill; wage increases granted in 2005 should be treated as exceptional and other ad-hoc wage increases avoided.
- Praise for passage of the Oil Revenue Management Law and the government’s decision to participate in the Extractive Industries Transparency Initiative (EITI).
- Importance of devising and implementing a comprehensive structural reform program in agriculture, basic education and health services, public expenditure management, and privatization of state enterprises.

### Recent economic context (highlights)
- São Tomé and Príncipe is a small economy heavily dependent on external assistance and heavily indebted.
- Exports of goods and services (primarily tourism and cocoa) are equivalent to a third of GDP; GDP is about US$60 million (or US$375 GDP per capita).
- Oil and natural gas deposits discovered offshore; oil production expected to start no earlier than 2012.
- In 2004:
  - Real GDP growth estimated around 4 percent.
  - Inflation increased to 15 percent by year-end.
  - External payments arrears continued to increase.
  - Overall fiscal deficit increased to 26.3 percent of GDP (from 17 percent in 2003).
  - Consumer prices 15.2 percent in 2004 (from 10.2 percent in 2003).
- During first semester 2005, macroeconomic policy implementation improved; authorities tightened financial policies despite strong pressures.

### PRS objectives and institutional steps
- PRS pillars:
  - Accelerated and redistributive growth;
  - Creating opportunities to increase and diversify income;
  - Developing human resources and access to basic social services;
  - Reforming public institutions, capacity building and promotion of good governance;
  - Mechanisms for monitoring, assessing and updating the strategy.
- PRS long-term objectives: reduction by half of poverty by 2010 and by more than two thirds by 2015; aims for universal access to basic social services by 2015.
- Oil sector governance: National Committee on Petroleum (NCP) and National Petroleum Agency (NPA) operational; public information campaign started to disseminate basic information on petroleum industry and revenue management.
- Oil Revenue Management Law adopted by Parliament in December 2004; authorities committed to managing oil resources to maintain macroeconomic stability and achieve poverty reduction objectives.

### Key quantitative indicators (selected figures from Table 1, São Tomé and Príncipe: Selected Economic Indicators, 2002-07)
- GDP at constant prices (annual percentage changes): 2002: 4.1; 2003: 4.0; 2004: 3.8; 2005: 3.2; 2006: 4.5; 2007: 5.5.
- Consumer prices (end of period, percentage change): 2002: 8.9; 2003: 10.2; 2004: 15.2; 2005: 15.0; 2006: 12.0; 2007: 9.4.
- Consumer prices (average, percentage change): 2002: 9.2; 2003: 9.6; 2004: 12.8; 2005: 15.1; 2006: 13.4; 2007: 10.6.
- Exports, f.o.b. (annual percentage changes): 2002: 37.6; 2003: 19.4; 2004: 13.8; 2005: 6.0; 2006: 0.2; 2007: 0.0.
- Imports, c.i.f. (annual percentage changes): 2002: 16.6; 2003: 17.2; 2004: 9.0; 2005: 4.6; 2006: 6.7; 2007: 11.3.
- Net domestic assets (end of period, percent of broad money at beginning of period): 2002: -0.2; 2003: 11.0; 2004: 17.1; 2005: 3.6; 2006: 9.0; 2007: 14.0.
  - Credit to the economy (end of period): 2002: 12.1; 2003: 20.6; 2004: 34.4; 2005: 11.3; 2006: 15.1; 2007: 14.1.
- Broad money (end of period, percent change): 2002: 26.9; 2003: 41.8; 2004: 7.4; 2005: 12.3; 2006: 21.9; 2007: 21.9.
- Consumption (percent of GDP): 2002: 117.5; 2003: 116.7; 2004: 122.0; 2005: 122.0; 2006: 121.4; 2007: 118.1.
- Gross investment (percent of GDP): 2002: 32.5; 2003: 36.1; 2004: 34.5; 2005: 37.3; 2006: 40.2; 2007: 47.7.
  - Public investment (percent of GDP): 2002: 14.5; 2003: 20.1; 2004: 19.4; 2005: 16.4; 2006: 16.0; 2007: 15.5.
  - Private investment (percent of GDP): 2002: 18.0; 2003: 16.0; 2004: 15.1; 2005: 21.0; 2006: 24.3; 2007: 32.2.
- Gross domestic savings (percent of GDP): 2002: -17.5; 2003: 17.6; 2004: 12.2; 2005: 10.6; 2006: 16.0; 2007: 16.8.
- Total revenue, grants and oil signature bonus (percent of GDP): 2002: 50.5; 2003: 58.1; 2004: 59.3; 2005: 127.9; 2006: 63.9; 2007: 61.9.
  - Tax revenue (percent of GDP): 2002: 19.5; 2003: 20.7; 2004: 23.4; 2005: 24.1; 2006: 24.2; 2007: 24.6.
  - Grants (percent of GDP): 2002: 27.2; 2003: 32.5; 2004: 30.9; 2005: 28.2; 2006: 33.2; 2007: 31.2.
  - Oil signature bonus (percent of GDP): 2005: 71.0.
- Total expenditure and net lending (percent of GDP): 2002: 66.9; 2003: 75.1; 2004: 85.6; 2005: 76.5; 2006: 71.2; 2007: 66.1.
  - Noninterest current expenditure (percent of GDP): 2002: 26.9; 2003: 28.4; 2004: 41.7; 2005: 37.8; 2006: 33.6; 2007: 30.2.
  - Capital expenditure (percent of GDP): 2002: 28.8; 2003: 35.8; 2004: 35.8; 2005: 29.3; 2006: 28.9; 2007: 28.1.
- Domestic primary balance (commitment basis; incl. HIPC Initiative spending; percent of GDP): 2002: -4.3; 2003: -11.7; 2004: -20.6; 2005: -17.5; 2006: -11.9; 2007: -7.6.
- Overall balance (commitment basis; including grants; percent of GDP): 2002: -16.4; 2003: -17.0; 2004: -26.3; 2005: 51.4; 2006: -7.3; 2007: -4.1.
- Current account balance (including official transfers; percent of GDP): 2002: -24.6; 2003: -20.2; 2004: -27.3; 2005: -28.2; 2006: -23.5; 2007: -28.7.
- Net present value of total external debt (selected series):
  - Series 1 (units as in table): 2002: 512.7; 2003: 499.2; 2004: 449.0; 2005: 465.3; 2006: 358.1; 2007: 375.6.
  - Series 2 (units as in table): 2002: 693.2; 2003: 634.2; 2004: 550.6; 2005: 619.7; 2006: 427.3; 2007: 440.6.
- Scheduled external debt service before debt relief (percent of exports of goods and nonfactor services, three-year backward-looking average): 2002: 60.8; 2003: 58.0; 2004: 50.6; 2005: 56.7; 2006: 51.9; 2007: 49.6.
- Overall balance (in millions of U.S. dollars): 2002: -2.4; 2003: 1.8; 2004: -9.5; 2005: 19.2; 2006: -12.6; 2007: -11.8.
- Gross foreign reserves (in months of following year's non-oil imports of goods and nonfactor services): 2002: 3.9; 2003: 4.5; 2004: 3.4; 2005: 3.4; 2006: 3.5; 2007: 3.5.
- Permanent oil fund (in millions of U.S. dollars): 2005: 23.1; 2006: 19.2; 2007: 15.1.

*Source: IMF staff report and related Executive Board documents as presented in the PDF content provided.*

### Box 2 of the staff report, the ORML sets the conditions and mechanisms for a transparent use

### Box 2 of the staff report, the ORML sets the conditions and mechanisms for a transparent use of oil resources

### Institutional framework and oil governance
- A National Petroleum Agency (ANP) has been set up with the assistance of the World Bank.
- Authorities have expressed their interest in participating in the EITI.
- Authorities will actively enforce the provisions of the ORML starting with the establishment of the bodies provided in the law.
- Authorities will finalize by the end-September 2005 an overall strategy for the oil sector development, with the assistance of the World Bank and UNDP.
  - The strategy will address options for institutional settings regarding the development of the country’s Exclusive Development Zone (EDZ) and the country’s possible participation in petroleum exploration and development activities.
  - In accordance with the Abuja Declaration, authorities intend to foster the production, and dissemination of oil-related information.

### PRS and growth diversification
- The PRS emphasizes that growth should not come from one source (e.g., the advent of oil).
- The PRS contemplates alternative sources of growth through development of sectors where STP has a comparative advantage and where most of the poorest population is concentrated, notably tourism and agriculture.
- The PRS envisions a set of actions to improve the business climate; some measures such as the Auditor General’s Office have been implemented.
- The PRS recognizes the need to maintain macroeconomic stability as a condition to reduce poverty.

### Program for 2005-2007: objectives
- The program aims at:
  - achieving a GDP growth of 4.3 percent on average per year,
  - further fiscal consolidation following the rise in current expenditures in late 2003 and 2004, while maintaining pro-poor spending consistently with the PRS objectives,
  - bringing back inflation to single digit level.

### Fiscal consolidation and targets
- Fiscal consolidation over the medium-term will be achieved through increasing tax revenue and improving government expenditures.
- Authorities intend to reform tax policy and administration in the context of a tax package to be submitted to the National Assembly.
- Significant cuts in expenditures will be undertaken over the program period.
- The wage bill will increase in the first year of the program to reflect augmentation in the civil servants’ minimum wage.
- No recourse to central bank financing is envisaged over the program period and, as reflection of improved budget management, no new domestic or external arrears will be accumulated.
- Program targets:
  - reduction in the domestic primary deficit from 20.6 percent in 2004 to 7.6 percent in 2007.

### Monetary policy, exchange rate, and reserves
- Monetary policy will be consistent with the inflation reduction objective.
- Exchange rate policy will aim at achieving appropriate level of NIR.
- To improve liquidity management, the central bank will:
  - launch open market operations with central certificates of deposits,
  - allow interest rates to be market-determined,
  - continue its policy of auctioning foreign exchange.
- Authorities will maintain a tight monetary policy stance to achieve their inflation reduction objective set at 15 percent this year.

### Financial sector reform and prudential measures
- Efforts to improve financial sector reform and banking soundness through:
  - improved regulation and licensing of new banks,
  - enhanced prudential standards,
  - strengthened mechanisms to prevent money laundering and financing of terrorism and deter financial crime.
- Central bank intentions and timelines:
  - implement a consolidated reporting mechanism on financial conditions to be submitted by banks to the central bank by September 2005,
  - establish a Credit Risk Bureau during the third quarter of 2005.
- With the assistance of LEG, legislation to criminalize money laundering and the financing of terrorism is being elaborated and is expected to be submitted by September 2005.

### Debt situation
- STP is a highly indebted country and its debt will remain high over the medium-term; this debt situation is an impediment to the growth and poverty reduction strategy.
- Authorities intend to request a debt rescheduling from the Paris Club in 2005, along with the agreement with the Fund on a PRGF-supported program.
- Even after debt rescheduling and further debt relief at the enhanced HIPC initiative completion point, the NPV of debt-to-export ratio is projected to fall from 450 percent at end-2004 to 402 percent by end-2010, compared with the threshold of 150 percent.

### Policies and measures for the remainder of 2005
- The medium-term program provides for a frontloading of measures in the first years; authorities intend to maintain the policy stance adopted since late 2004.
- Revenue measures and tax reform:
  - Most of the enhancing-revenue measures related to changes in tax procedural code, coverage and rates will be implemented during this year and are expected to raise revenue by 2.1 percent of GDP in 2005.
  - Draft new tax codes will be submitted to the National Assembly during this quarter, with the new tax regimes entering into effect in January 2006.
- Expenditure adjustments:
  - Cuts will be operated essentially in goods and services, including telecommunications, water and electricity and official travel items, and in domestically-financed investment expenditures, while ensuring that pro-poor spending is not affected.
  - Both expenditure items will decrease by 11.5 percent of GDP.
- Public financial management and governance milestones:
  - Developing a fully integrated, computerized budget and public expenditure management system with the assistance of the World Bank and FAD; it should be operational by mid-2006.
  - Auditor General’s Office expected to complete the review of the 2004 financial accounts of central government during this quarter; the government will start implementing recommendations in the last quarter of this year.
  - Government committed to improve the system of public procurement during the next three years with assistance of the World Bank; new procurement practices are expected to be in place by end-2005.
  - A PRSP unit has been set up at the Ministry of Planning and Finance to ensure implementation and monitoring of the PRSP; this unit will issue a report on the status of implementation by September 2005.
  - Undertake the revision of payment of wages and salaries, and develop a public employee’s register with the assistance of UNDP; by September 2005, a computerized registry of public servants, among others, will be developed.
- Monetary and credit targets:
  - Private sector credit growth will be reduced from 116 percent in 2004 to 19 percent in 2005.
  - The central bank will continue to work closely with MFD regarding implementation of indirect monetary instruments such as certificates of deposit and the special liquidity facility.
  - The central bank is committed to the continuation of a flexible exchange rate arrangement, as signaled by the recent introduction of foreign exchange auctions in late 2004.
- Structural reforms and business climate:
  - Submit to the National Assembly in the third quarter of 2005 a new investment code and adopt by end-September 2005 an action plan for streamlining the process of establishing businesses.
  - Elaborate terms of reference for a study on land tenure by end-2005 as part of land reform progress.
  - With World Bank support, address urgent needs for institutional reform and technical capacity building of the judicial system over the program period.
- Public enterprise restructuring and privatization plans:
  - EMAE will introduce a prepayment system through electricity metering keypads for residential and commercial users to avoid further consumer debt accumulation.
  - EMAE and the government agreed on a performance contract under which the government will grant a guarantee to a bank loan to EMAE for implementation of this system on the condition that EMAE develops a broader financial strategy to address its weak financial position.
  - A first step will be the elaboration of a timetable for the reduction of outstanding payments arrears by customers during this quarter.
  - Authorities are considering the divestment of other public enterprises and intend to complete feasibility studies on the privatization of ENASA and ENAPORT by end-2005.

### Conclusion
- Authorities view this strong and ambitious medium-term program, for which they are requesting Fund assistance under a PRGF arrangement, as able to help meet objectives of growth and poverty reduction.
- The program is intended to contribute to strengthening the institutions of the country and help put in place reforms to improve economic performance and establish a strong foundation in preparation for the oil era.
- Authorities are hopeful to continue to rely on the full support of the international community and seek Directors’ support for their request for a PRGF arrangement.

*Box 2, staff report: the ORML sets the conditions and mechanisms for a transparent use of oil resources.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05323.pdf_