IMF Executive Board Completes First Review under the ECF for São Tomé and Príncipe and Approves US$ 0.564 Million DisbursementPress Release No.13/210
June 13, 2013
The Executive Board of the International Monetary Fund (IMF) has completed the first review under a three-year arrangement under the Extended Credit Facility (ECF) for São Tomé and Príncipe.1 The completion of the review enables the disbursement of an amount equivalent to SDR 0.370 million (about US$ 0.564 million), which will bring total disbursements under the arrangement to SDR 0.740 million (about US$1.129 million). The Executive Board’s decision was taken on a lapse of time basis.2
The economy of São Tomé and Príncipe remains vulnerable to shocks, as reflected in lower growth and a smaller decline in inflation than projected for 2012, but the authorities have managed to preserve hard-won fiscal prudence. Money growth accelerated slightly reflecting an accumulation of foreign exchange assets, while the central bank has continued to take steps to strengthen the financial sector.
Performance under the program has been good, despite a challenging environment. Increased efforts to contain spending against the backdrop of revenue and financing shortfalls helped achieve the fiscal targets, while supporting the exchange rate peg and contributing to reducing the rate of inflation. The authorities have also made good progress on structural reforms in the areas of tax administration, monetary management, financial stability, and the Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) framework.
While the medium-term outlook remains positive, reflecting the prospects for oil production and exports in 2015, the near-tem economic outlook is challenging. Growth in 2013 has been revised slightly downward to 4½ percent in light of lingering uncertainties in the global economy, while inflation has been revised slightly upwards. International reserves are expected to remain above 3 months import coverage.
The government should stay the course of prudent fiscal policy, while addressing the long-standing issue of cross-arrears. In this regard, it is crucial that the government keeps budgetary execution in line with the programmed fiscal target and continues with prudent external borrowing policies, while bolstering efforts to mobilize additional revenues to create more space for priority spending. The program will continue to focus on ensuring financial stability, including on-site inspection of banks, while the central bank should stand ready to require banks to raise capital, as needed, to ensure financial stability.
The three-year SDR 2.59 million (then about US$ 3.9 million) ECF arrangement with São Tomé and Príncipe was approved by the IMF’s Executive Board on July 20, 2012 (see Press Release No.12/272).
1 The IMF’s framework for ECF is designed for low-income countries that need IMF financial assistance.
2 The Executive Board takes decisions under its lapse of time procedures when it is agreed by the Board that a proposal can be considered without convening formal discussions.