IMF Staff Completes Virtual Mission for Third Review of Extended Credit Facility to São Tomé and Príncipe

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. This mission has been a virtual visit. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision.

  • Exceptional international support and the authorities’ swift actions are helping address the health and socio-economic impacts of the COVID-19 pandemic.
  • Macroeconomic stability has been maintained and program performance under the Extended Credit Facility (ECF) has been steady, although the pandemic has delayed some structural reforms.
  • The IMF mission reached a staff-level agreement on measures for the completion of the third review under the ECF subject to approval by IMF management and the IMF Executive Board.

Washington, DC: A staff team from the International Monetary Fund (IMF), led by Ms. Eteri Kvintradze, held a virtual mission during June 7-July 7, 2021 to conduct the third review of São Tomé and Príncipe’s economic program supported by the IMF’s Extended Credit Facility (ECF) arrangement. At the end of the mission, Ms. Kvintradze issued the following statement:

“The IMF team and the authorities of São Tomé and Príncipe have reached a staff level agreement on measures for the completion of the third review under the ECF arrangement. The staff-level agreement is subject to approval by IMF management and the IMF Executive Board. Consideration by the Board is tentatively scheduled for August 2021.

“The COVID-19 pandemic has unsettled the fragile balance in São Tomé and Príncipe, putting lives and livelihoods at risk. Considering the on-set of new potential COVID-19 waves, the authorities aim to implement vaccinations promptly subject to a timely and sufficient supply of vaccines.

“Real GDP growth in 2020, preliminarily estimated at 3 percent, was supported by an extraordinary scaling-up of externally financed public spending. Growth is projected to slow to 2 percent in 2021, reflecting delay in the return of tourists, before approaching a long-term growth rate of about 4 percent. However, there are significant risks and uncertainties to this outlook due to the pandemic.

“The ECF review discussions focused on measures to meet the country’s immediate health, social, and economic needs and to support the upcoming recovery.

“Mitigating the pandemic’s impact requires adequate external support for addressing immediate social and economic needs. The 2021 budget remains appropriate to address the effects of the pandemic and support economic recovery, while delivering on the authorities’ gradual fiscal consolidation plans. Staff welcome the authorities’ commitment to introduce the VAT in 2021, while maintaining pro-poor and social spending programs focused on boosting healthcare, expanding existing cash transfer programs to vulnerable households, increasing food distribution, and targeting private sector incentives to retain workers. Going forward efforts should continue towards strengthening wage bill planning to further stabilize budget execution process. Reforms in revenue administration, public financial management, governance, and transparency frameworks need to continue and are important for supporting a credible medium-term fiscal strategy.

“The financial sector remains broadly sound, but the pandemic may put pressure on banks’ asset quality. It remains important for the central bank of São Tomé and Príncipe to actively monitor and promptly act on credit risk pressures. Legislative reforms to strengthen central bank independence and align financial sector regulations with best international standards need to be fast-tracked.

“Stepping up reforms in the public utility company Empresa de Água e Electricidade (EMAE) to improve energy supply and contain losses are key for ensuring sustainable debt dynamics and promoting growth. Permanent solutions to recent electricity shortages require accelerating development of alternative sustainable energy sources as part of overall energy sector reform strategy.

“An acceleration of other structural reforms would help to reducing the country’s vulnerabilities and lifting long-term growth potential. The authorities’ commitment to take steps to remove the country from the European Union air safety list of banned operators would help support the recovery in tourism. Reforms to improve the business environment, promote gender equality, and adapt to climate change are also important.

“The mission thanks the authorities for the productive and open discussions.”

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