IMF Executive Board Completes Fourth Review Under the Extended Credit Facility and Concludes the 2022 Article IV Consultation for São Tomé and Príncipe

IMF News, March 30, 2022

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Canonical URL: IMF Executive Board Completes Fourth Review Under the Extended Credit Facility and Concludes the 2022 Article IV Consultation for São Tomé and Príncipe

The Executive Board concluded the 2022 Article IV consultation and completed the fourth review of the Extended Credit Facility (ECF) arrangement with São Tomé and Príncipe on March 30, 2022.
The Board’s decision enables the immediate disbursement of SDR 1.90 million (about US$2.70 million).
Total disbursements under the arrangement now total SDR 10.99 million (about US$15.15 million).
The Executive Board approved waivers for nonobservance of performance criteria pertaining to:
- net international reserves at end-June 2021 (due to lower-than-expected external disbursements), and
- the continuous performance criterion on non-accumulation of external arrears.
The 40-month ECF arrangement was approved on October 2, 2019 for SDR 13.32 million (about US$18.15 million or around 90 percent of the country’s quota).

Macroeconomic stability has been maintained despite multiple challenges.
Growth and inflation in 2021:
- Growth slowed to 1.8 percent in 2021, down from 3 percent in 2020.
- Power outages and the pandemic contributed to the slowdown.
Program objectives:
- restore macroeconomic stability,
- reduce debt vulnerability,
- alleviate balance of payments pressures,
- create foundations for stronger and more inclusive growth.

Growth projections:
- 2022: 2.3 percent.
- 2023: 2.8 percent.
- Medium term: expected to reach 4 percent (supported by better infrastructure and a stronger potential for tourism).
International reserves:
- Expected to stabilize at about 3.8 months of imports in 2022.
Fiscal and inflation dynamics:
- Expected domestic fuel price adjustments to reflect higher international fuel prices will impact inflation in 2022.
- Strengthening revenues with an introduction of the VAT in 2022, phasing out pandemic-related spending, and gradually consolidating the domestic primary balance would put public debt on a downward trajectory.
- Fiscal adjustment coupled with a gradual increase in tourism receipts is expected to strengthen the current account balance in the medium term.

Pandemic-related risks:
- New COVID-19 variants and future pandemic waves pose risks to livelihoods and to growth and stability.
External shocks:
- The war in Ukraine and extended global supply chain disruptions could:
- lead to shortages of intermediate and final consumer goods,
- cause growth slowdowns,
- produce price surges.
- Inward spillovers from increasing international fuel prices may:
- hinder the recovery,
- worsen power outages and inflation,
- adversely impact revenues and implicit subsidies.
Domestic implementation risks:
- Delays in revenue reforms could narrow fiscal space for social and development spending.
- Lower-than-expected grant support or delayed disbursements from donors would deteriorate financing options.
- Delayed EMAE reforms and prolonged power outages could put additional strain on revenue performance and delay growth recovery.
Upside scenario:
- Accelerated reforms and key infrastructure development projects could promote medium-term growth.

Overall assessment:
- Performance under the program supported by the IMF’s ECF has been broadly satisfactory.
- Macroeconomic stability has been maintained despite multiple challenges.
Fiscal policy and revenue:
- Implement a medium-term fiscal framework and strengthen expenditure controls to deliver on the authorities’ fiscal consolidation strategy.
- Boost domestic revenue, including implementation of VAT in 2022, to support growth-enhancing social and infrastructure development programs and place public debt on a downward trajectory.
Monetary and financial sector:
- Modernize monetary and financial legal frameworks.
- Continue active liquidity management to anchor the peg to the Euro and support access to credit and economic recovery.
- The Banco Central São Tomé and Príncipe should enhance capacity to actively manage risks and vulnerabilities in the financial sector.
Structural reforms and public sector governance:
- Sustain implementation of structural reforms to support inclusive, green growth and improve external competitiveness.
- Priorities include:
- closing the infrastructure gap,
- improving human capital,
- deepening financial intermediation,
- clearing domestic arrears,
- reforming the energy sector and improving energy efficiency,
- enhancing governance of public enterprises,
- supporting targeted social transfer programs to contribute to inclusive growth.

Press Release No. pr22/100 — IMF Communications Department, March 30, 2022.