Press Release No. 12/324

Press Release: Statement at the Conclusion of an IMF Mission to the Democratic Republic of São Tomé and Príncipe

September 20, 2012

A team from the International Monetary Fund (IMF), led by Mr. Ricardo Velloso, visited São Tomé and Príncipe during September 14-20, 2012, at the request of the authorities to review macroeconomic developments and 2012 budget execution, assist at a technical level with the preparation of the 2013 draft budget, and follow-up on other technical assistance needs and priorities.

The authorities’ medium-term economic program is supported by the IMF under a three-year Extended Credit Facility (ECF)¹ arrangement in the amount of SDR 2.59 million (about US$4 million). The ECF arrangement was approved by the IMF Executive Board on July 20, 2012, and its first review mission is scheduled for March 2013 (see Press Release No. 12/272).

The IMF team held warm and fruitful discussions with Finance Minister Américo Ramos and Central Bank Governor Maria do Carmo Silveira and their respective senior staffs. The team also met with other senior government officials and private sector representatives.

At the conclusion of the visit, Mr. Ricardo Velloso, the IMF Mission Chief for São Tomé and Príncipe, issued the following statement in São Tomé:

“Growth is still projected to reach 4½ percent in 2012, but downside risks to this projection increased reflecting lower project implementation due to continued difficulties securing financing. Annual inflation declined to 8 percent in April 2012—its lowest level in a decade—but rose to 11½ percent in August, mainly due to heavy rains that disrupted the supply of perishables (prices of domestically-produced fruits and vegetables increased more than 40 percent in June and July). In light of this temporary, supply-driven increase in food prices, annual inflation may end up in the 9-10 percent range, slightly higher than the 8 percent initially projected.

“The IMF mission praised the authorities for their commitment to hard-won fiscal prudence. Budget implementation in the first half of 2012 was consistent with the program targets for the year as a whole. A strict control over non-priority spending offset the underperformance of fiscal revenue due to weaker economic activity. Equally important, the government continued to avoid commercial borrowing and instead focused on grants and highly concessional loans to finance development programs given São Tomé and Príncipe’s still fragile external debt position.

“The IMF mission advised the authorities to continue managing prudently budget execution in the remainder of 2012, and expedite their efforts to secure grant financing for the 2012 budget in the levels initially envisaged. In addition, the mission advised the authorities to prepare a 2013 draft budget based on conservative assumptions given that, unfortunately, the external environment is likely to remain challenging. The IMF mission also advised the inclusion in the 2013 budget proposal of measures to control non-priority spending and widen the tax base.

“The IMF mission noted some progress in addressing the issue of cross-arrears between the Treasury, state-owned water and electricity company EMAE, and oil product importing company ENCO. At the same time, the mission stressed the importance of finding a lasting, credible and negotiated solution to this long-standing problem. Devising such a plan is an end-December 2012 structural benchmark under the ECF arrangement.”

¹ The Extended Credit Facility (ECF) has replaced the Poverty Reduction and Growth Facility (PRGF) as the IMF’s main tool for medium-term financial support to low-income countries. It provides for a higher level of access to financing, more concessional terms, enhanced flexibility in program design, and more focused, streamlined conditionality. Financing under ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years.