The fiscal challenges of Brazil’s states and municipalities can have a significant impact on the economy and the provision of core public services. The subnational governments (SNGs) account for a large share of public expenditures, including public investment. As such, their fiscal problems can hamper the economic recovery and the public finances of the federal government. In recent years, many states and municipalities have been struggling with high debt or severe liquidity pressures. Some have already defaulted on part of their debt and are running payment arrears (wages and suppliers). The federal government has already provided a substantial package of financial support through debt service relief.
The pandemic is taking a heavy toll on the fragile island nation of São Tomé and Príncipe. Tourist arrivals came to an abrupt halt in mid-March, externally financed projects are being delayed, and supply shipments are disrupted. In response to the local outbreak, emergency confinement measures have been in place since March to contain infection. The authorities began phasing out these measures in late June, aiming for a full reopening of the economy by end-July. A disbursement supported by the Rapid Credit Facility (SDR 9.028 million) was approved in April 2020. The authorities request an augmentation of the ECF program by 10 percent of quota (SDR 1.48 million).
São Tomé and Príncipe is a fragile, small island-state, with limited resources
and capacity. The last Extended Credit Facility (ECF) arrangement expired at end-2018
having gone off-track amid parliamentary elections, power outages, internal and external
imbalances, and high debt vulnerability. Growth slowed, inflation rose, the fiscal position
deteriorated, and foreign reserves declined sharply in 2018, while some critical structural
reforms were delayed. Higher and more inclusive growth is needed to reduce poverty
and unemployment, particularly among the large youth population.