International Monetary Fund (IMF) Staff Reaches Staff-Level Agreement on an Extended Credit Facility Arrangement with São Tomé and Príncipe

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An International Monetary Fund (IMF) team led by Mr. Slavi Slavov, Mission Chief for São Tomé and Príncipe, visited São Tomé during February 9 – 23, 2023 and held virtual discussions in the recent weeks, to discuss with the São Toméan authorities IMF support for their policy and reform plans.

At the end of the mission, Mr. Slavov issued the following statement:

“The São Toméan authorities and the IMF team have reached staff-level agreement to support the authorities’ economic adjustment and reform policies with a new 40-month program supported by an arrangement under the Extended Credit Facility (ECF) in the amount of SDR 14.8 million or about US$20 million. The agreement is subject to approval by IMF Management and Executive Board in the period ahead, contingent on the implementation of prior actions by the authorities.

“São Tomé and Principe’s economy is facing serious challenges. The COVID-19 pandemic, persistent energy shortages, the floods at end-2021 and early 2022, and a sharp increase in global food and fuel prices exacerbated long-standing socio-economic vulnerabilities. As a result, in 2022 growth slowed to an estimated 0.9 percent, down from the average of about 4 percent in the past few years. Inflation reached 23.6 percent year-on-year in February 2023, after peaking at 25.6 percent in January. International reserves fell substantially.

“The authorities’ program, supported by the IMF, aims to restore macroeconomic stability, improve the living conditions of the population, foster the economic recovery, and promote sustainable and inclusive growth.

“Key program objectives include an ambitious and front-loaded fiscal adjustment, which remains the main instrument for lowering the high public debt and rebalancing the economy under a pegged exchange rate, complemented by an end to monetary financing of the budget and a tighter monetary policy.

“Efforts to boost domestic fiscal revenues and to rationalize budgetary expenditures will support policies to protect society’s most vulnerable from the burden of the needed adjustment. The authorities will introduce a value-added tax (VAT), which will replace some current taxes and broaden the tax base. These efforts will also create the fiscal space for the implementation of growth-enhancing development programs that will help put public debt on a downward trajectory. In addition, the authorities will strengthen social safety nets and reinforce the existing targeted cash-transfer program for vulnerable households, with support from development partners. To prevent implicit fuel subsidies, contain fiscal risks, and reduce pressure on international reserves, the authorities have resumed the application of the fuel price adjustment mechanism. Under the program, the government will apply this mechanism in a truly automatic way on a monthly basis.

“Moreover, the authorities’ program will prioritize policies to strengthen fiscal transparency and address governance weaknesses to reduce vulnerabilities to corruption. The program will also aim to reduce contingent liabilities from state-owned enterprises (SOEs) and strengthen financial stability.

“Over the medium term, comprehensive structural reforms under the authorities’ program will unleash the country’s growth potential. These reforms primarily include reforming the energy sector, encouraging domestic food production, fostering the tourism sector, adapting to climate change, and empowering women.

“During the visit and subsequent virtual discussions, the mission met with President Carlos Vila Nova; Prime Minister Patrice Émery Trovoada; Minister of the Presidency of the Council of Ministers and Parliamentary Affairs Gareth Guadalupe; Minister of Planning, Finance, and the Blue Economy Ginésio Valentim Afonso da Mata; Governor of the Central Bank Américo D’ Oliveira Ramos; other government officials; representatives of the private sector including banks; and development partners. The mission expresses its deep appreciation to the authorities for their cooperation and constructive policy dialogue.”

Distributed by APO Group on behalf of International Monetary Fund (IMF).