Press Release No. 22/298

IMF Executive Board Completes Fifth Review Under the Extended Credit Facility for São Tomé and Príncipe

August 31, 2022

• The IMF Executive Board decision allows for an immediate disbursement of about US$2.48 million to São Tomé and Príncipe to help meet the country’s financing needs, support social spending and the post-pandemic recovery.
• São Tomé and Príncipe has faced many challenges including the impact of the COVID-19 pandemic, the war in Ukraine, and the floods at end-2021. Despite these challenges, program performance under the Extended Credit Facility (ECF) has been broadly satisfactory, although some structural reforms have been delayed.
• The authorities’ swift actions and timely international financial support have been helping address the socio-economic challenges of the country.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed today the fifth review of the ECF arrangement with São Tomé and Príncipe. The Board’s decision enables the immediate disbursement of SDR 1.90 million (about US$2.48 million [1] ). This brings São Tomé and Príncipe’s total disbursements under the arrangement to SDR 12.90 million (about US$16.79 million).

In completing the fifth review, the Executive Board also approved the authorities’ request for a waiver for nonobservance of continuous performance criterion on non-accumulation of external arrears, based on corrective measures taken by the authorities.

São Tomé and Príncipe’s 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) (see Press Release No. 19/363 ). The program aims to support the government’s economic reform program to restore macroeconomic stability, reduce debt vulnerability, alleviate balance of payments pressures, and create the foundations for stronger and more inclusive growth.

At the conclusion of the Executive Board’s discussion, Mr. Bo Li, Deputy Managing Director and Acting Chair, made the following statement [2] :

“São Tomé and Príncipe’s performance under the program supported by the IMF’s Extended Credit Facility Arrangement has been broadly satisfactory. Macroeconomic stability has been maintained despite multiple challenges. However, the short-term macroeconomic outlook is clouded by significant uncertainty and downside risks due to spillovers from increasing international food and fuel prices which could dampen economic activity, worsen power outages and inflation, and adversely impact revenues and implicit subsidies. Stepping up implementation of key infrastructure projects and structural reforms and continued strong and flexible engagement from the Fund will be critical to boost medium-term growth.

“Implementing growth friendly fiscal consolidation and strengthening expenditure controls are key to achieving the authorities’ fiscal objectives. Efforts to boost domestic revenue, including the implementation of the VAT in 2022, and rationalize expenditures would support growth-enhancing social and infrastructure development programs and put public debt on a downward trajectory.

“Maintaining tighter monetary policy would address rising inflation, strengthen reserve buffers, and support the exchange rate peg. In the short term, this needs to be complemented by continued mobilization of external grant inflows and implementation of other project financing commitments. In the medium term, continued fiscal consolidation would help ease demand pressures, increase fiscal space, and build a higher reserve buffer.

“Efforts to further strengthen the implementation of monetary policy and financial legislative framework should remain a priority and focus on approvals of the new Central Bank Law and the Financial Institutions Law, and implementation of the remaining safeguards recommendations. Additional efforts are also needed to strengthen supervisory capacity.

“A more comprehensive approach to implementing structural reforms is critical. Those should aim at expanding tourism services, including a comprehensive approach focused on developing human capital through education programs, building climate-resilient infrastructure, expanding transportation links, and improving the business environment. Efforts should also focus on improving energy sector efficiency, enhancing governance of public enterprises, and supporting targeted social transfer programs.”