Press Release No. 16/275

Press Release: IMF Executive Board Completes the First Review under the ECF Arrangement for São Tomé and Príncipe and Approves US$0.9 Million Disbursement

June 10, 2016

The Executive Board of the International Monetary Fund (IMF) today completed the first review of São Tomé and Príncipe’s performance under the economic program supported by an Extended Credit Facility (ECF) arrangement.¹ Completion of the review enables the disbursement of SDR 634,285 (about US$ 0.9 million), bringing total disbursements under the arrangement to SDR 1.27 million (about US$ 1.8 million).

In completing the review, the Executive Board also approved a waiver for the nonobservance of the end-December 2015 performance criterion on the domestic primary deficit, based on the corrective measures introduced by the authorities. The Executive Board also approved new program targets for 2016.

São Tomé and Príncipe’s three-year ECF arrangement for SDR 4.44 million (about US$ 6.3  million or 60 percent of quota) was approved by the Executive Board on July 13, 2015 (see Press Release No. 15/336). It supports the government’s economic reform program for stronger and more inclusive growth, and it also plays a catalytic role for bilateral and multilateral assistance.

Following the Executive Board’s discussion on São Tomé and Príncipe, Mr. Min Zhu, Deputy Managing Director and Acting Chair, made the following statement:

“São Tomé and Príncipe’s economy has been resilient even after prospects for commercial oil production became uncertain with the withdrawal of a large oil company from exploration. In addition, performance under the program supported by the Extended Credit Facility has been satisfactory. International reserves have increased, and inflation has continued to decline, reaching its lowest level in the past two decades. Fiscal performance was, however, impacted by tax revenue underperformance.

“GDP growth is projected to pick up to 5 percent in 2016—albeit below the authorities’ medium-term target of 6 percent needed to significantly impact poverty—aided by higher public investments, a recovery in cocoa production, and increased foreign direct investment in the tourism sector. Inflation is expected to remain around 4 percent in 2016 and stabilize around 3 percent over the medium term, while the current account deficit is set to contract further.

“The authorities’ 2016 economic program focuses appropriately on sustaining the fiscal consolidation to help bring debt toward a moderate risk of debt distress. This will require sustained efforts to boost tax revenue collection, clear arrears, strengthen expenditure monitoring and control, and gradually scale up the infrastructure program, which will be backed by enhanced investment management capacity in project selection, implementation, and evaluation. Strengthening debt management capacity and continued reliance on grants and concessional financing will help mitigate the high risk of debt distress.

“The outlook is facing macro-financial challenges. Elevated bank lending risks and potential contingent claims on the budget, in an environment marked by rising nonperforming loans and highly indebted households and businesses, will continue to hold back private sector credit expansion and the prospects for higher growth. Against this backdrop, the authorities are working to increase the banking system’s efficiency, profitability, and resilience.

“Looking ahead, it is important that the authorities maintain the policy resolve and commitment demonstrated so far, especially in an election year, to mitigate these risks and bring the benefits of reforms to a broader segment of the population.”

¹ The ECF is a lending arrangement that provides sustained program engagement over the medium to long term in case of protracted balance of payments problems.