IMF Executive Board Concludes Third and Fourth Reviews of the Program Supported by the Extended Credit Facility (ECF) Arrangement with São Tomé and Príncipe

IMF News, December 11, 2017

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Canonical URL: IMF Executive Board Concludes Third and Fourth Reviews of the Program Supported by the Extended Credit Facility (ECF) Arrangement with São Tomé and Príncipe

The Executive Board completed the third and fourth reviews of the arrangement under the Extended Credit Facility (ECF) for São Tomé and Príncipe.
The Board’s decision enables the immediate disbursement of SDR 1,268,570 (about US$1.8 million).
Total disbursements under the arrangement now total roughly SDR 3.17 million (about US$4.5 million).
The ECF arrangement for São Tomé and Príncipe is in the amount of SDR 4.44 million (about US$6.2 million or 60 percent of the country’s quota at the time of approval) and was approved on July 13, 2015.

The Executive Board granted the authorities’ request for waivers for nonobservance of the end-December 2016 performance criteria on:
- the domestic primary balance, and
- changes in net bank financing of the central government.
Waivers were granted based on corrective measures introduced by the authorities.
The Executive Board established targets and structural benchmarks for 2018.

Key analytical point: bringing public debt to sustainable levels is essential to achieving sustained, robust growth and reducing poverty.
Program guidance and authorities’ commitments:
- The 2018 budget appropriately targets further consolidation to lower the domestic primary deficit.
- Efforts will be made to prevent new domestic arrears and reduce the current stock of arrears.
- Authorities aim to strengthen public financial management.
- To ensure debt sustainability while meeting large investment needs, external borrowing should be at concessional terms.
Operational and fiscal risk highlighted:
- Large operational losses at the state-owned electricity and water enterprise pose fiscal risks.

Macroeconomic assessment:
- “São Tomé and Príncipe’s economy continues to grow steadily and the outlook is favorable.” (quote)
Development strategy endorsed:
- The 2017-21 National Development Plan is expected to help diversify the economy and improve the business environment.
- Authorities’ development strategy focuses on boosting investment in infrastructure and human capital, increasing social spending, and advancing structural reforms to promote more inclusive and sustained growth.

Progress and actions:
- Program targets have been met and good progress was made on structural reforms, including the planned adoption of a VAT.
- Measures have been taken to meet the end-2017 fiscal targets.

Financial sector developments:
- Banking supervision has been strengthened and financial soundness indicators have improved.
- The liquidation of Banco Equador has resumed.
- Steps will be taken to reduce the stock of non-performing loans and further enhance financial stability.

Key excerpts:
- “São Tomé and Príncipe’s economy continues to grow steadily and the outlook is favorable. However, implementing sound policies to bring the fiscal deficit and public debt to sustainable levels will be key to achieving sustained, robust growth and reducing poverty.”
- “The authorities have taken decisive action to bring the program back on track.”
- “To ensure debt sustainability while meeting the large investment needs, external borrowing should be at concessional terms.”
- “In the financial sector, banking supervision has been strengthened and financial soundness indicators have improved. The liquidation of Banco Equador has resumed. Steps will be taken to reduce the stock of non-performing loans and further enhance financial stability.”

Press Release No. 17/482 — IMF Communications Department, December 11, 2017