Staff completes virtual mission for the third review of the Extended Credit Facility in São Tomé and Príncipe
End-of-mission press releases include statements from IMF staff teams conveying preliminary findings after a country visit. This mission was a virtual visit. The views expressed in this statement are those of the staff of the IMF and do not necessarily represent those of the Executive Board of the IMF. Based on the preliminary findings of this mission, staff will prepare a report which, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.
- Exceptional international support and the rapid actions of the authorities are helping to cope with the health and socio-economic impacts of the COVID-19 pandemic.
- Macroeconomic stability has been maintained and the performance of the Extended Credit Facility (ECF) program has been stable, although the pandemic has delayed some structural reforms.
- The IMF mission reached agreement at the staff level on measures for the completion of the third review under the ECF subject to the approval of IMF management and the Executive Board.
Washington, DC: An International Monetary Fund (IMF) team, led by Ms. Eteri Kvintradze, held a virtual mission from June 7 to July 7, 2021 to conduct the third review of São Tomé and Príncipe’s economic program supported by the Accord de IMF Extended Credit Facility (ECF). At the end of the mission, Ms. Kvintradze made 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 arrangement is subject to approval by IMF management and the IMF Executive Board. The Board’s review is tentatively scheduled for August 2021.
“The COVID-19 pandemic has shaken the delicate balance in São Tomé and Príncipe, putting lives and livelihoods at risk. In light of the outbreak of potential new waves of COVID-19, authorities aim to implement vaccinations quickly subject to a timely and sufficient vaccine supply.
“Real GDP growth in 2020, preliminarily estimated at 3%, has been supported by an extraordinary increase in externally financed public spending. Growth is expected to slow to 2% in 2021, reflecting the delay in returning tourists, before approaching a long-term growth rate of around 4%. However, there are significant risks and uncertainties to this outlook due to the pandemic.
“Discussions on the ECF review focused on measures to meet the country’s immediate health, social and economic needs and support the recovery to come.
“Mitigating the impact of the pandemic requires adequate external support to meet immediate social and economic needs. The 2021 budget remains appropriate to cope with the effects of the pandemic and support economic recovery, while implementing the authorities’ progressive fiscal consolidation plans. IMF staff welcome authorities’ commitment to introduce VAT in 2021, while maintaining pro-poor and social spending programs focused on strengthening health care, expanding existing cash transfer programs to households vulnerable groups, increasing food distribution and targeting private sector incentives to retain workers. Going forward, efforts should continue to strengthen wage bill planning to further stabilize the budget execution process. Reforms in revenue administration, public financial management, governance and transparency frameworks must continue and are important to support a credible medium-term fiscal strategy.
“The financial sector remains strong overall, but the pandemic could put pressure on the quality of banks’ assets. It remains important for the central bank of São Tomé and Príncipe to actively monitor and act quickly on credit risk pressures. Legislative reforms aimed at strengthening the independence of the central bank and aligning financial sector regulations with the best international standards must be accelerated.
“Intensifying reforms in the utility company Empresa de Água e Electricidade (EMAE) to improve energy supply and contain losses is essential to ensure sustainable debt dynamics and promote growth. Permanent solutions to recent power shortages require accelerating the development of sustainable alternative energy sources as part of the overall energy sector reform strategy.
“Accelerating other structural reforms would help reduce the country’s vulnerabilities and increase long-term growth potential. The authorities’ commitment to take action to remove the country from the European Union’s aviation safety list of banned operators would help support the resumption of tourism. Reforms aimed at improving the business environment, promoting gender equality and adapting to climate change are also important.
“The mission thanks the authorities for the productive and open discussions.