IMF Executive Board Discusses the Ex Post Assessment of Longer-Term Program Engagement with São Tomé and PríncipePublic Information Notice (PIN) No. 12/68
July 2, 2012
Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.
On June 20, 2012, the Executive Board of the International Monetary Fund (IMF) discussed the Ex Post Assessment (EPA) of Longer-Term Engagement with São Tomé and Príncipe.1
The report reviews the experience of the Fund’s longer-term engagement with São Tomé and Príncipe since 2000. It covers three Poverty Reduction and Growth Facility (now Extended Credit Facility) arrangements and one staff-monitored program.
Fund-supported programs played a useful role in helping São Tomé and Príncipe ensure macroeconomic stability and advance key structural reforms, especially in the fiscal area, after a period of important imbalances in the 1990s. Annual real GDP growth has averaged 5 percent a year since 2000 and substantial progress has been made toward meeting the Millennium Development Goals. Satisfactory performance under the programs secured considerable debt relief under the Heavily Indebted Poor Country (HIPC) and Multilateral Debt Relief Initiatives (MDRI), and created space for an increase in pro-poor spending. However, overall program performance was mixed given a modest track record of completion of program reviews and limited success in containing inflationary pressures.
Executive Board Assessment
Executive Directors noted the Ex Post Assessment’s conclusion that, while performance under successive Fund-supported programs in São Tomé and Príncipe since 2000 has been mixed, Fund involvement has helped improve macroeconomic policies and advance key structural reforms. Directors highlighted several lessons for future program design and implementation, including the paramount importance of strong program ownership by the authorities. Directors considered that a successor Fund-supported program will be useful, but it should take into account the specific challenges of São Tomé and Príncipe’s small-island economy with limited resources and capacity. In particular, any future program should have more streamlined and macro-critical conditionality, focus the reform effort on the most critical areas, and be flexible enough to accommodate implementation constraints and uncertainty about the timing and magnitude of future oil production. Furthermore, program implementation would need to be supported by well-targeted and coordinated training and technical assistance. Directors underscored that future policy priorities should include strengthening shock buffers, containing inflation and public debt, increasing public sector efficiency and capacity, and improving the business environment. Given the fixed exchange rate regime and fragile debt situation, prudent fiscal and debt management will be crucial for macroeconomic stability and debt sustainability.