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International Monetary Fund. African Dept.

EXECUTIVE SUMMARY Context: São Tomé and Príncipe’s economic development is constrained by its insularity, fragility, limited resources, and low capacity as a small island state. The current ECF arrangement is set to expire on July 19, 2015, with four reviews outstanding. Program performance was satisfactory during the first year and half of implementation but went off track in early 2014 upon the contracting of a loan resulting in nonobservance of the performance criterion on non-concessional debt, and expenditure slippages in the run up to national elections further delayed program resumption. In the meantime, the key assumptions of the macroeconomic framework agreed under the current program changed significantly due to a lower probability of commercial oil production. Extended Credit Facility. The São Toméan authorities have requested a three-year arrangement under the ECF in an amount equivalent to SDR 4,440,000 (60 percent of quota) to rebuild buffers and catalyze financing in support of their medium-term economic reform program. The existing program would be cancelled. Main elements of the program. The program seeks to address the high debt vulnerability while also creating the conditions for sustained growth, anchored by the PRSP II. This involves reforms to: • Strengthen domestic revenue mobilization, expenditure rationalization, public debt management, and public financial management to restore fiscal discipline and reduce the risk of debt distress. • Introduce a comprehensive plan to eliminate the stock of arrears and also prevent the accumulation of new arrears. • Enhance the capacity of key government institutions through well-tailored technical assistance (TA). • Enhance financial sector stability through strengthened supervisory, regulatory, crisis management and bank resolution frameworks.

Karim Barhoumi, Ha Vu, Shirin Nikaein Towfighian, and Mr. Rodolfo Maino
There is significant room to improve public investment efficiency in sub-Saharan Africa. Investment in sub-Saharan African countries is lagging vis-à-vis peers such as emerging and developing Asia as well as Latin America and the Caribbean, and the region’s infrastructure is perceived as being of relatively low quality. Improving the efficiency of sizable investment programs in the region could contribute to more solid economic growth and help achieve desired social priorities and development goals. Results point to some variability in public investment efficiency within the region. Comparing efficiency scores across country groups suggests that investment efficiency in sub-Saharan African oil exporters tends to be lower than in sub-Saharan African non-resource-intensive countries. Additionally, countries in East African Community (EAC) perform better than those in Central African Economic and Monetary Community (CEMAC) and West African Economic and Monetary Union (WAEMU). Stronger institutions could foster more efficient public investment. The regression results in this paper show a positive correlation between public investment efficiency and the quality of institutions, suggesting that devel-oping stronger institutions in sub-Saharan Africa could lead to a significant improvement in investment efficiency. This is particularly relevant for coun-tries with weak institutional quality, where governments may use capital spending as a vehicle for rent-seeking, leading to inefficient spending. Given the current drive for scaling up investment in sub-Saharan Africa, the task of improving institutions quickly should become a priority.
International Monetary Fund. African Dept.

Third and Fourth Reviews under the Extended Credit Facility Arrangement, Extension of the Arrangement, and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for the Democratic Republic of S�o Tom� and Pr�ncipe