Press Release No. 07/142

Press Release: IMF Executive Board Completes Fourth Review of São Tomé and Príncipe’s Three-Year PRGF Arrangement and Approves US$600,000 Disbursement

June 25, 2007

The Executive Board of the International Monetary Fund (IMF) has completed today the fourth review of São Tomé and Príncipe's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the review enables the release of an amount equivalent to SDR 423,000 (about US$600,000), which would bring total disbursements under the arrangement to SDR 2.12 million (about US$3.1 million).

In completing the review, the Executive Board approved a waiver for the nonobservance of an end-March 2007 structural performance criterion on the adoption of a decree establishing a new public accounting plan.

The Executive Board approved the three-year arrangement on August 1, 2005 (see Press Release No. 05/187), for a total amount of SDR 2.96 million (about US$4.26 million) to support the government's economic program for 2005-07.

In commenting on the Executive Board's discussion on São Tomé and Príncipe, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:

"São Tomé and Príncipe has made significant progress in macroeconomic stabilization. Real GDP growth accelerated in 2006. Inflation has been declining since August. The primary fiscal deficit was significantly reduced; and international reserves exceeded the targets under the PRGF-supported program, owing to concerted efforts by the government and the central bank.

"The authorities are determined to consolidate the recent stabilization gains and further reduce inflation under their 2007 economic program. To safeguard the program's fiscal objectives, they will need to press ahead with tax reforms to broaden the tax base and to curtail non-essential spending in the event of revenue shortfalls, while preserving priority expenditures. Close cooperation between the fiscal and monetary authorities is essential for the implementation of a pro-active monetary policy to effectively contain liquidity growth.

"On structural reforms, the authorities have given high priority to improving public financial management to increase the efficiency and transparency in the use of public resources, including oil bonuses and debt relief savings. It will be important to move forcefully in regulatory reform to reduce the cost of investing and doing business in the country. Promoting private sector-led growth will also require progress in financial sector reform, particularly in strengthening banking supervision and further developing the foreign exchange market, and in upgrading the country's infrastructure.

"São Tomé and Príncipe's medium-term outlook depends importantly on the prospects of oil exports and revenue. The authorities need to manage fiscal adjustment beyond 2007 based on a careful review of oil prospects, while preserving priority expenditures. Prudent debt management will be important for maintaining long-term debt sustainability," Mr. Portugal said.