IMF Staff Completes Review Visit to São Tomé and Príncipe

October 5, 2017

A staff team from the International Monetary Fund (IMF) led by Xiangming Li visited São Tomé and Príncipe from September 20-October 5, 2017, to discuss progress with the country’s economic program supported by the IMF’s three-year Extended Credit Facility (ECF) arrangement. [1]

At the end of the visit, Ms. Li issued the following statement:

“Discussions during the visit focused on recent economic developments, performance under the authorities’ ECF-supported program, near term challenges, and policies for 2017/18 and beyond. The team reached understanding on most key economic policy issues for the completion of the third and fourth ECF program reviews. Economic growth remains stable, with real GDP expected to expand by 4 percent in 2017. Meanwhile, inflation reached 6.5 percent year-on-year at end-August 2017, driven mainly by increased prices of locally-produced goods that resulted from higher than usual rainfall. The medium-term outlook is broadly positive and real GDP growth is projected to reach 5-6 percent, supported by robust activity in the construction, agricultural, and tourism sectors.

“Program performance during the first half of 2017 was generally positive. After missing the end-December 2016 fiscal targets, the government adopted corrective measures in the revised 2017 budget to bring the fiscal path back on track. The end-June 2017 targets on domestic primary deficit, net international reserves, and net bank financing were all met. The implementation of structural reforms under the ECF supported program is ongoing but the pace has been slow, due mainly to capacity constraints and delays in the delivery of technical assistance.

“The government is facing significant fiscal pressures. Revenues through end-August 2017 were less buoyant than expected due to lower receipts from income and international trade taxes. For the rest of 2017, tax compliance, especially by large taxpayers and state-owned enterprises, needs to be reinforced, and careful monitoring of the outlook for revenues and budget support needs to continue, to help match expenditures with available resources. As domestic revenues continue to be low, external budget support is declining, and the debt level remains high, the 2018 budget needs to aim for further consolidation to ensure that adequate resources are available to fund priority sectors, including health and education. The team reached agreement on the main parameters of 2018 budget that would balance macroeconomic and social needs, demonstrating the authorities’ strong commitment to the program.

“The fiscal program of the government also prioritizes the clearance of the state’s own arrears to suppliers and seeks to bring the arrears clearance plan elaborated in 2015 back on track by 2019. In this context, the implementation of a reform plan to make EMAE financially viable will be an important step in reducing fiscal risk posed by the state utility.

“The resolution of Banco Equador has restarted, with the end of a judicial strike in July and the installation of the court-appointed liquidator in September. Among a package of monetary reforms, the central bank has announced plans to redenominate the currency, exchanging 1 new dobra for 1,000 old dobras, from January 1, 2018.

“During its visit, the team met with the Prime Minister Patrice Trovoada, Minister of Finance, Commerce and the Blue Economy Américo Ramos, Minister of Foreign Affairs and Community Urbino Botelho, Minister of Justice, Public Administration and Human Rights Ilza Vaz, the Governor of the Central Bank of São Tomé and Príncipe Hélio Almeida, the President of the autonomous region of Príncipe José Cassandra , other senior government officials, representatives of the private sector, including banks and the Chamber of Commerce, and development partners.

“The team expresses its deep appreciation to the authorities and technical staff for their cooperation and policy dialogue. The team looks forward to an active and continued dialogue with the aim of maintaining macroeconomic stability and achieving inclusive growth in São Tomé and Príncipe.”

[1] The ECF is a lending arrangement that provides sustained program engagement over the medium to long term in case of protracted balance of payments problems. The arrangement for São Tomé and Príncipe in the amount of SDR 4.4 million (about US$6.2 million or 60 percent of quota) was approved by the IMF Executive Board on July 13, 2015 (see Press Release No. 15/336 ).

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