Press Release No. 16/430

IMF Staff Completes Review Mission to São Tomé and Príncipe

September 28, 2016

A team from the International Monetary Fund (IMF) led by Maxwell Opoku-Afari, IMF Mission Chief for São Tomé and Príncipe visited São Tomé from September 14 to 28, 2016 to conduct the second review of the country’s economic program supported by the IMF’s three-year Extended Credit Facility (ECF). [1]

At the end of the mission, Mr. Opoku-Afari issued the following statement:

“São Tomé and Príncipe’s economy continues to perform well despite some challenges. GDP growth for 2016 is now estimated at 4 percent, somewhat lower than the projected 5 percent under the program. This mainly reflects delays in external financing ahead of the presidential elections that were held in July 2016 (and the run-off in August 2016) which impacted negatively on the execution of externally-financed investment projects, supply constraints resulting from ongoing pressures on foreign exchange supply, and lackluster credit growth. Inflation increased to 5.5 percent at the end of August 2016 from 4.0 percent in December 2015, reflecting rising underlying inflationary pressures from the ongoing supply constraints, and to some extent, a change in the CPI basket.

“Prospects for near-term growth remain favorable as the government steps up efforts to address the ongoing supply constraints that have impacted imports of capital and intermediate goods. It is also expected that externally-financed capital spending will pick up in the second half of the year to support growth. Inflationary pressures are building, and could keep inflation at 5.5 percent at the end of the year, instead of the 4 percent projected earlier.

“Performance under the ECF-supported program through end-June 2016 has been broadly satisfactory overall, although there were some delays and slippages ahead of the July elections. Four of the six performance criteria (PCs) were met and all but one of the structural benchmarks were implemented. The PCs on the domestic primary fiscal balance and on net international reserves were missed, due to the bringing forward of some domestic primary spending ahead of the July and August presidential elections and delayed disbursement of external financing respectively. Moreover, the introduction of an automatic fuel price adjustment mechanism to address the longstanding problem of accumulation of domestic arrears which has hampered fiscal consolidation efforts, has been delayed. The authorities are however, committed to introducing this measure by the end of November 2016.

“Discussions during the mission centered on policies to address revenue shortfalls in tax collection by vigorously implementing tax arrears collection following the passage of the legislation to transfer the collection of tax arrears to the tax administration. There were also discussions on the need to keep spending within the available resource envelope in the remaining months of the year, manage the liquidation of Banco Equador to safeguard financial stability and minimize fiscal costs, enhance liquidity management, and strengthen public financial management to anchor the debt reduction program. The mission reached staff-level agreement with the Sãotoméan authorities, subject to approval by IMF management and the Executive Board, on the set of policies needed to complete the second review under the ECF. The IMF Executive Board is expected to consider the second ECF review in December 2016.

“The mission was joined by Mr. David Owen, the Deputy Director of the African Department at the IMF, and met with the President of the Democratic Republic of São Tomé and Príncipe H.E. Evaristo Carvalho, Vice President of the National Assembly Levy Nazare, Minister of the Presidency of the Council of Ministers and Parliamentary Affairs Afonso Varela da Silva, Minister of Finance and Public Administration Americo d’Oliveira Ramos, the Governor of the Central Bank of São Tomé and Príncipe Maria do Carmo Trovoada Silveira, senior government officials, representatives of the private sector, including banks and the Chamber of Commerce, the international donor community, and student groups. The mission would like to thank the authorities for the very constructive discussions during the visit.”