The COVID-19 pandemic is having a severe impact on São Tomé and Príncipe’s economy, exacerbating fiscal and external imbalances. Tourism activities and external remittances dropped sharply, while lockdown measures further deepened the recession. The authorities’ swift actions and unprecedented international financial support are helping the country weather the emergency. The economy began to reopen in the fall, but the outlook for 2021 remains challenging and subject to significant uncertainty.
Mr. Armando Méndez Morales and Maria del Mar Cacha
Bank borrowers' currency mismatches often result from unhedged foreign currency borrowing in economies where there is significant dollarization, exposing the financial sector to disguised credit risk. In the absence of standard tools or guidelines to counteract this risk, countries have resorted to outright regulatory limits in cases of moderate dollarization and to undesirable exchange controls in other cases. This paper proposes a "specific-to-group" provision rule based on the effective borrowing cost differential between domestic and foreign currency. Such a rule would help internalize the corresponding risks for banks and their borrowers in line with internationally accepted prudential and accounting standards.
Compensatory financing as a means of helping primary exporting countries with balance of payments difficulties caused by shortfalls in their export earnings has been in use for many years. It gained prominence following the worldwide recession of 1975. This article reviews the latest commodity cycle and describes the enormous increase in compensatory drawings from the Fund since the liberalization of the Fund’s facility in December 1975.