IMF Mission Reaches Staff-Level Agreement with São Tomé and Príncipe on an Extended Credit Facility Arrangement
A team from the International Monetary Fund (IMF), led by Maxwell Opoku-Afari, visited São Tomé and Príncipe from April 24 to May 7, 2015 to discuss the authorities’ economic and financial program and possible financial support by the IMF.
Mr. Opoku-Afari issued the following statement at the end of the mission:
“The mission has reached a staff-level agreement with the São Toméan authorities, subject to approval by IMF Management and the Executive Board, on an economic program that could be supported by a three-year Extended Credit Facility (ECF) arrangement. Proposed access could total SDR 4.44 million (around US$6.24 million), or 60 percent of São Tomé and Príncipe’s IMF quota. Consideration by the Executive Board is tentatively scheduled for early July 2015.
“Recent macroeconomic performance in São Tomé and Príncipe has been generally positive. Real GDP growth has been slow to pick up after slowing down to 4 percent in 2012, reflecting lingering uncertainties stemming from the challenging external environment and slowdown in oil exploration activities. There are however, encouraging signs as a rise in foreign direct investment and steady donor-financed projects pushed growth to 4.5 percent in 2014. Inflation has receded following the adoption of the peg to the euro in January 2010, reaching 6.5 percent in March 2015. The domestic primary deficit fell from 3.3 percent of GDP in 2012 to 0.8 percent of GDP in 2013, but went up sharply to 3.6 percent of GDP in 2014, as a result of revenue under-performance and expenditure overruns in the run up to the general elections in October 2014.
New arrears were accumulated, adding to the already large stock of domestic arrears, which is serving as a drag on fiscal consolidation. Growth in monetary aggregates has remained in line with the objective of maintaining the credibility of the conventional peg exchange rate regime, but bank credit to the private sector continues to contract as banks reduce their exposure to over-indebted businesses and households. The external current account deficit continued to decline in line with weaker economic activity and a lower oil import bill, and the Central Bank’s gross international reserves is estimated at US$ 69 million at the end of March 2015.
“The main objective of São Tomé and Príncipe’s economic reform program is to continue to maintain debt on a sustainable path through continued fiscal consolidation, while at the same time creating space for growth-enhancing capital spending. The program also aims to promote macroeconomic and financial stability, including through achieving and sustaining a lower domestic primary deficit to anchor debt, and implementing a comprehensive set of structural measures to diversify and broaden the export base, promote private-sector led growth, and ensure social stability by safeguarding priority spending.
“This involves reforms to: (i) strengthen domestic revenue mobilization, expenditure rationalization, public debt management, and public financial management to restore fiscal discipline and reduce the risk of debt distress; (ii) introduce a comprehensive plan to eliminate the stock of arrears and also prevent the accumulation of new arrears; (iii) enhance financial sector stability through strengthened supervisory, regulatory, crisis management and bank resolution frameworks; (iv) improve the business environment (including through targeted improvements in physical infrastructure) to boost growth; and (v) enhance the capacity of key government institutions through well-tailored technical assistance (TA).
“The authorities have made significant progress in firming up financing assurances from their main bilateral donors and other international financial institutions to support the economic reform program.
“The mission met with the Prime Minister, His Excellency, Patrice Trovoada, Minister of Finance and Public Administration Americo Ramos, Minister of Economy Agostinho Fernandes, Minister of Works and Natural Resources Carlos Vila Nova, Central Bank Governor Maria do Carmo Silveira, Minister at the Presidency Afonso Varela, senior government officials, and representatives of the donor community. The mission team wishes to thank the authorities for their warm hospitality and quality discussions.”