The Democratic Republic of São Tomé and Príncipe shows prudence in maintaining its fiscal stance assisted by the IMF extended credit facility (ECF). The authorities aim to concentrate on maintaining macroeconomic stability even though debt distress owing to a narrow export base and other issues loom as threats. Focus is on strengthening of existing monetary and public finances policies, banking supervision, and anti-money laundering, which will help in reducing poverty. Revenue from oil production is also expected to help achieve the target by 2015.
This paper discusses the Democratic Republic of São Tomé and Príncipe’s First Review under the Extended Credit Facility Arrangement. The economy remains vulnerable to external and domestic shocks. Growth decelerated to 4 percent in 2012, reflecting persistent global uncertainties, particularly in Europe, which contributed to a slowdown in foreign direct investment, and in the execution of the foreign-financed public investment program. Commercial banks profitability and capital-to-risk weighted assets ratio declined in 2012, reflecting more challenging lending conditions. The central bank continues to strengthen its banking supervision function through on-site inspections and enforcement of banking regulation.
São Tomé & Príncipe remains at high risk of debt distress, although it has received substantial debt relief. The increases in world food and fuel prices have rekindled domestic inflation pressures. Inflation has declined substantially since 2008, but remains at double-digit levels. A tightening of fiscal and monetary policies in 2008 followed by a decline in world food and oil prices helped lower year-over-year inflation from a peak of 37 percent in July 2008 to 11.5 percent in June 2010.