IMF Executive Board Completes Second Review of Extended Credit Facility Agreement for the Democratic Republic of São Tomé and Príncipe

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IMF Executive Board Completes Second Review of Extended Credit Facility Agreement for the Democratic Republic of São Tomé and Príncipe

February 26, 2021

  • The decision of the IMF Executive Board authorizes an immediate disbursement of approximately US $ 2.73 million to São Tomé and Príncipe to help meet the country’s financing needs, support social spending and post-pandemic recovery.
  • The authorities’ actions and unprecedented international financial support are helping the country overcome the emergency, but serious economic challenges remain.
  • The ECF agreement continues to support the government’s efforts to restore macroeconomic stability, reduce debt vulnerability and create the foundation for stronger and more inclusive growth.

Washington DC: The Executive Board of the International Monetary Fund (IMF) today completed the second review of the Extended Credit Facility (ECF) Agreement for São Tomé and Príncipe. The Council’s decision allows for the immediate disbursement of SDR 1.90 million (approximately US $ 2.73 million). This brings São Tomé and Príncipe’s total disbursements under the arrangement to SDR 7.19 million (approximately US $ 10.34 million).

São Tomé and Príncipe’s 40-month FEC deal was approved on October 2, 2019 for SDR 13.32 million (around US $ 18.15 million, or around 90% of the country’s quota)

(see press release n ° 19/363). The program aims to support the government’s economic reform program to restore macroeconomic stability, reduce debt vulnerability, ease pressures on the balance of payments and lay the foundation for stronger and more inclusive growth.

The first review was completed in July 2020, with a disbursement of approximately US $ 2.67 million, and at the same time, an increase in the ECF arrangement of US $ 2.08 million was approved by the Executive Board of the IMF (see press release n ° 20/272). In April 2020, the Board of Trustees also approved emergency funding of US $ 12 million for São Tomé and Príncipe under the Rapid Credit Facility (CRF) and the Service Relief of the IMF debt under the Containment and Disaster Relief Fund (CCRT) to meet external financing needs arising from the COVID-19 pandemic (see press release No. 20/179).

The pandemic continues to have a severe impact on the economy of São Tomé and Príncipe, exacerbating external and budgetary imbalances. A complete shutdown of international tourism and a sharp drop in foreign remittances have exacerbated the need for external financing. Although the epidemic was generally under control, containment measures and the weakness of external demand caused a deep recession and increased budgetary financing needs, in a context of already high public debt.

The authorities’ actions and unprecedented international financial support are helping the country overcome the emergency, but deep economic challenges remain. The authorities have improved health services and provided assistance to vulnerable households. However, although sustainable, public debt has risen from already high levels. Problems in the energy sector continue to create debt and hamper growth. External balances and buffers remain under pressure. In addition, in recent years, growth has been insufficient to reduce poverty and meet the needs of a young and growing population.

Following the Board’s discussion on São Tomé and Príncipe, Mr. Tao Zhang, Deputy Managing Director and Acting President, made the following statement:

“The rapid response of the Sao Tome authorities to the pandemic, supported by emergency funding from the Fund, this ECF agreement and other unprecedented international aid, has helped the country overcome the initial impact of the pandemic.

“Although the COVID-19 crisis affected the performance of the program in the first half of the year, the authorities have taken the appropriate corrective measures and the preliminary information on performance at the end of 2020 is encouraging. In addition, the authorities remain committed to improving tax transparency and public financial management and have started publishing important government contracts and monthly reports on COVID-19-related spending.

“Budget 2021 rightly focuses on meeting immediate social and economic needs, supporting the nascent economic recovery, and initiating the gradual fiscal consolidation needed to preserve debt sustainability and external buffers. In this context, it will be crucial to keep the authorities’ commitment to introduce a VAT in 2021 and to contain the dynamics of spending in the future, in particular on staff costs. Accelerating energy sector reforms would also help reduce debt and exchange rate pressures over time, strengthen energy security and support long-term growth.

“Monetary policy should continue to support the peg in the exchange rate and the start of the recovery, in particular by actively managing liquidity. It is also important to continue with financial sector reforms, such as strengthening the capacity of the central bank to monitor and manage vulnerabilities and risks in the banking sector, tackle existing non-performing loans and implement the recommendations of the safeguards assessment.

“Promoting more resilient and inclusive growth is essential to advance the country’s development. There is an urgent need to implement large-scale structural reforms that facilitate private investment and develop the tourism sector, such as modernizing the national payment system, taking measures to remove the country from the aviation safety list of the EU and the implementation of the planned infrastructure and climate. adaptation projects. ”

IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER:

Call: +1 202 623-7100E-mail: [email protected]

@IMFSpokesperson





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