IMF Staff Completes Visit to São Tomé and Príncipe

IMF News, April 5, 2017

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A staff team from the International Monetary Fund (IMF) led by Xiangming Li visited São Tomé from March 22 to April 5, 2017, to discuss progress of the country’s economic program supported by the IMF’s three-year Extended Credit Facility (ECF) arrangement.
End-of-Mission press releases convey preliminary findings; views are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
The ECF arrangement for São Tomé and Príncipe is in the amount of SDR 4.4 million (about US$6.2 million or 60 percent of quota) and was approved by the IMF Executive Board on July 13, 2015.

2016 growth: "São Tomé and Príncipe’s economy is estimated to have grown by 4.1 percent in 2016, driven by strong performance in the manufacturing (food processing) sector and tourism industry."
2017 growth projection: "Economic prospects are favorable, with growth expected to be around 5 percent in 2017, boosted by anticipated robust activity in the construction sector and tourism industry, and supported by higher inflows of foreign direct investment."
Inflation:
- "Inflation rose to 5.1 percent at end-2016, up from 4 percent in the previous year, primarily due to one-off factors, such as the change in the CPI basket."
- Near-term projection: "Higher oil prices relative to 2016 are expected to keep consumer prices elevated, such that inflation is likely to decelerate only moderately, to about 4 percent."

Fiscal outcome 2016:
- "The domestic primary deficit in 2016 was significantly higher than expected, exceeding the program’s target by 2 percent of GDP, driven by a sharp drop of tax revenues from imports and fiscal policy slippages in the run-up to the presidential elections."
- "At the same time domestic arrears, including those incurred by the state-owned utility company EMAE, have increased substantially."
- "Reflecting the same fiscal pressure, domestic credit to the central government was also elevated."
Revenue and execution constraints: Delays in external disbursements negatively affected execution of externally-financed investment projects and constrained faster growth in 2016.

Progress on structural reforms:
- "The authorities have made good progress on structural reforms."
- Introduction of an automatic fuel price adjustment mechanism in late 2016, with mitigating measures for poorer segments of society.
- Initiation of a reform plan to make EMAE financially viable.
Financial sector and monetary policy measures:
- Establishment of an Audit Board for Banco Central de São Tomé e Príncipe that specifies a role similar to a conventional audit committee.
- Completion of the assessment of banking regulation and supervision.
- Recommendations to expedite the liquidation of Banco Equador and implement the strategy for reducing nonperforming loans in the banking sector to minimize fiscal costs and safeguard financial stability.
Governance and business environment:
- Authorities are taking steps to reform the judiciary system, described as essential for improving the business environment.

Corrective fiscal measures:
- Discussions focused on corrective measures to address the 2016 fiscal slippage and to recast the 2017 budget to ensure that the 2017 fiscal targets are met.
- Strengthening public spending commitment controls so budget entities observe the budget envelope.
- Measures to mitigate tax evasion.
Use of proceeds and reserves:
- Authorities were encouraged to use privatization proceeds (if any) to reduce arrears and build a reserve fund for contingencies.
Continued engagement:
- Provided progress is made in implementing the program, "an IMF staff visit to conduct the combined third and fourth review could take place in the fall of 2017."

The mission team was joined by Mr. David Owen, the Deputy Director of the African Department at the IMF.
Meetings held with:
- H.E. Patrice Trovoada, Prime Minister of the Democratic Republic of São Tomé and Príncipe.
- Minister of Finance, Commerce and the Blue Economy Américo Ramos.
- Minister of Justice, Public Administration and Human Rights Ilza Vaz.
- Governor of the Central Bank Hélio Almeida.
- The Parliamentary Economic Commission, senior government officials, representatives of the private sector (including banks), professional organizations and the Chamber of Commerce, the international donor community, and student groups.
The team expressed thanks for hospitality and constructive discussions and "looks forward to an active and continued dialogue with the aim of maintaining macroeconomic stability and achieving inclusive growth in São Tomé and Príncipe."

Source: IMF press release, April 5, 2017.