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Democratic Republic of São Tomé and Príncipe - 2016 Article IV Consultation, First Review under the Extended Credit Facility, and Request for Waiver for Nonobservance of Performance Criterion and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Exective Director for the Democratic Republic of São Tomé and Príncipe
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Democratic Republic of São Tomé and Príncipe: Staff Report for the 2016 Article IV Consultation, First Review Under the Extended Credit Facility and Request for Waiver for Nonobservance of Performance Criterion and Modification of Performance Criteria—Informational Annex

Author(s):
International Monetary Fund. African Dept.
Published Date:
June 2016
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Relations With the Fund

(As of March 31, 2016)

Membership Status

Joined: September 30, 1977; Article XIV

General Resources Account:

SDR Million% Quota
Quota14.80100.00
Fund holdings of currency (exchange rate)14.80100.02
Reserve tranche position1.8512.50

SDR Department:

SDR Million% Allocation
Net cumulative allocation7.10100.00
Holdings0.314.41

Outstanding Purchases and Loans:

SDR Million% Quota
ECF Arrangements2.9019.57

Latest Financial Arrangements:

TypeDate of ArrangementExpiration DateAmount Approved

(SDR Million)
Amount Drawn

(SDR Million)
ECF107/13/201507/12/20184.440.63
ECF107/20/201207/19/20152.591.11
ECF103/02/200903/01/20122.590.74

Formerly PRGF.

Formerly PRGF.

Projected Payments to Fund2

(SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20162017201820192020
Principal0.290.440.390.330.26
Charges/Interest0.000.000.000.010.01
Total0.290.450.390.340.27

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

Implementation of HIPC Initiative:

Enhanced Framework
Commitment of HIPC assistance
Decision point dateDecember 2000
Assistance committed
by all creditors (US$ Million)1124.30
Of which: IMF assistance (US$ million)1.24
(SDR equivalent in millions)0.82
Completion point dateMarch 2007
Disbursement of IMF assistance (SDR Million)
Assistance disbursed to the member0.82
Interim assistance
Completion point balance0.82
Additional disbursement of interest income20.04
Total disbursements0.87

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts cannot be added.

Under the enhanced framework, an additional disbursement is made corresponding to interest income earned on the amount of HIPC assistance committed but not disbursed.

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts cannot be added.

Under the enhanced framework, an additional disbursement is made corresponding to interest income earned on the amount of HIPC assistance committed but not disbursed.

Implementation of Multilateral Debt Relief Initiative (MDRI):

MDRI-eligible debt (SDR Million)11.43
Financed by: MDRI Trust1.05
Remaining HIPC resources0.38
Debt Relief by Facility (SDR Million)

The MDRI provides 100 percent debt relief to eligible member countries that qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of end-2004 that remains outstanding at the time the member qualifies for such debt relief.

Eligible Debt
Delivery
DateGRAPRGTTotal
December 2007N/A0.380.38
March 2007N/A1.051.05

The MDRI provides 100 percent debt relief to eligible member countries that qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of end-2004 that remains outstanding at the time the member qualifies for such debt relief.

The MDRI provides 100 percent debt relief to eligible member countries that qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of end-2004 that remains outstanding at the time the member qualifies for such debt relief.

Safeguards Assessments:

The recent update of safeguards assessment found that severe capacity constraints have contributed to a weak safeguards framework at the BCSTP. In particular, safeguards relating to independent oversight on audit, financial reporting, and control mechanisms need strengthening. In addition, the BCSTP’s legal framework will need to be revised to align it with leading practices for central banks. While external audits conducted by a reputable audit firm continue to serve as a critical safeguard, ongoing institutional development will be needed to strengthen capacity and bolster the safeguards framework. Further, the engagement of the Audit Board with revised roles and responsibilities will be needed for better oversight.

Exchange Arrangements:

The de jure and de facto exchange rate arrangement is a conventional peg against the euro. Since January 2010 São Tomé and Príncipe has pegged the dobra to the euro at a rate of dobra 24,500 per euro. The organic law of the BCSTP authorizes it to make decisions regarding exchange rate policy. The commission on foreign exchange sales cannot be higher than 2 percent for the euro and 4 percent for other currencies. Purchases of euro must be done at the rate published by the BCSTP and no commissions are allowed. The official euro–U.S. dollar cross rate is based on the European Central Bank (ECB) reference rate of the previous day. The BCSTP finances current international transactions at the official exchange rate only after verification of the documentation establishing the bona fide nature of the bank’s request. Access to foreign exchange is limited to institutions having a net position in the transaction currency of less than 12 percent of qualified capital, a net position in total foreign currency less than 25 percent of qualified capital, and which are in compliance with the central bank’s regulations on bank liquidity and capital adequacy. Financial institutions are allowed access to the central bank’s facilities regardless of the above conditions if the foreign exchange is to be used for importation of goods and services in periods of crisis or for the importation of fuel. Commercial banks that meet these requirements can buy foreign exchange directly from the central bank, which can charge up to 1.5 percent commission on sales of euro and up to a 0.5 percent commission on purchases of euro. The buying rate is mainly indicative because the BCSTP rarely makes purchases. The current exchange rate system has effectively eliminated the multiple currency practice related to the existence of numerous exchange rate markets with differing exchange rates for spot transactions that existed in previous years.

São Tomé and Príncipe continue to avail itself of the transitional arrangements under Article XIV, but it does not maintain restrictions under Article XIV. However, it maintains one measure subject to Fund approval under Article VIII: an exchange restriction arising from Article 3(i) and Article 10.1(b) of the Investment Code (Law No. 7/2008) regarding limitations on the transferability of net income from investment. The restriction results from the requirement that taxes and other obligations to the government have to be paid/full-filled as a condition for transfer, to the extent the requirement includes the payment of taxes and the fulfillment of obligations unrelated to the net income to be transferred.

Article IV Consultation:

The Executive Board concluded the last Article IV consultation with São Tomé and Príncipe on December 13, 2013.

Financial Sector Assessment Program (FSAP), Reports on Observance of Standards and Codes (ROSCs), and Offshore Financial Center (OFC) Assessments:

None.

Resident Representative:

The Fund has not had a Resident Representative office in São Tomé and Príncipe since October 2006.

Technical Assistance:

Date of DeliveryDepartment/Purpose
March 2016MCM mission on banking supervision
November 2015STA mission on national accounts statistics
November 2015FAD mission on automatic fuel pricing mechanism
September 2015MCM mission on banking supervision
July 2015FAD mission on tax administration
June 2015STA mission Balance of Payment and IIP
April 2015FAD mission on medium term framework
March 2015FAD mission on tax administration
March 2015MCM mission on banking supervision
November 2014MCM mission on banking supervision
September 2014STA mission on national accounts statistics
September 2014MCM mission on liquidity management
April 2014STA mission Balance of Payment and IIP
April 2014MCM mission on liquidity management
March 2014MCM mission on banking supervision
February 2014FAD mission on public accounting
December 2013FAD short-term expert visit on public accounting
November 2013MCM mission on banking supervision
August 2013FAD mission on revenue administration
August 2013MCM mission on banking supervision
June 2013FAD mission on public accounting
March 2013MCM mission on banking supervision
January 2013MCM mission on liquidity management
January 2013FAD mission on public accounting
November 2012FAD mission on medium-term fiscal framework
November 2012FIN mission on safeguards assessment
November 2012LEG follow-up mission on AML/CFT
October 2012MCM mission on banking supervision
October 2012FAD diagnostic mission on customs
October 2012FAD mission on public accounting
September 2012MCM mission on liquidity management
July 2012LEG diagnostic mission on AML/CFT
April 2012FAD mission on revenue administration
March 2012FAD mission on public financial management
March 2012STA mission on balance of payments
February 2012LEG diagnostic mission on AML/CFT
February 2012FAD mission on implementation of SAFEe
January 2012FAD diagnostic mission on tax administration
November 2011MCM TA needs assessment mission
November 2011MCM mission on liquidity management
November 2011FAD mission on public accounting
October 2011FAD mission on public financial management
August 2011FAD mission on public accounting
June 2011MCM mission on liquidity management
June 2011FAD mission on public accounting
February 2011MCM mission on bank resolution framework
January 2011FAD mission on public accounting
September 2010MCM mission on liquidity management
August/September 2010STA mission on monetary and financial statistics
December 2009MCM mission on banking supervision
August 2009MCM mission on banking supervision
June 2009FIN mission on safeguards assessment
May 2009FAD mission on public financial management

Relations With the World Bank Group

Joint Managerial Action Plan (JMAP) for São Tomé and Príncipe

(As of April, 2016)

1. The IMF and World Bank São Tomé and Príncipe teams held regular meetings to discuss their respective work programs and macro critical structural reforms for São Tomé and Príncipe. The two institutions’ teams met in the context of the preparations for the current ECF-supported program that discusses policies and financing during the prospective program period 2015–18, and for the prospective financial sector development plan (a World Bank initiative).

2. The World Bank’s work program is guided by a Country Assistance Strategy for the fiscal years 2014 to 2018 approved in 2014 that focuses on supporting growth and job creation through two broad themes: macroeconomic stability and national competitiveness, and reducing vulnerability and strengthening human capacity. Gender, partnership, and capacity building are elements that cut across all the proposed engagements. A Debt Management and Performance Assessment (DeMPA) report was completed in October 2011, and an accompanying reform plan to improve debt management was completed in March 2012. The Bank has suggested the government to formally ask for a follow-up DeMPA mission.

3. The IMF’s work program includes the Executive Board’s consideration of the second review under the ECF-supported program, together with the 2013 Article IV consultation, a staff visit in February 2015, mission in April 2015 to negotiate a new ECF-supported program, and assistances with capacity development in the areas of public financial management, revenue administration, statistics, monetary liquidity management, and banking supervision.

4. The Bank and the Fund are providing complementary support to help São Tomé and Príncipe strengthen public financial management and make progress toward debt sustainability. Regarding the latter, the teams prepared a Joint IMF-World Bank Debt Sustainability Analysis (DSA) update in 2014, and a new update has recently been prepared to accompany the new ECF-supported program request.

Work Program for Period 2016–17
TitleProductsProvisional timing

of missions
Expected delivery

date
A. Mutual information on relevant work programs
World Bank work program in the next 12 months
  • STP Power Sector Recovery Project

  • STP Programmatic DPO Series

  • Adaptation to Climate Change – Additional Finance

  • EITI

  • Financial sector support to Bank supervision

  • South-South support to investment promotion

N.A.

June 2016



N.A.



N.A.

N.A.



N.A.
FY2016

FY2017



FY2017



FY2017

FY2017
IMF work program in the next 12 months
  • ECF first review and Article IV

  • ECF second review

  • Technical Assistance from FAD:

    • Tax policy (VAT)

    • PFM

  • MCM:

    • Contingency planning and crisis management

    • Banking Supervision

March 2016

September 2016



September 2015

April 2016





November 2016
June 2016

November 2016
B. Requests for work program inputs
Fund request to Bank
  • Information on Bank budget support operations and disbursement schedule

To support the 2016-17 fiscal programOctober 2016
Bank request to Fund
  • Collaboration on providing full set of macroeconomic framework and tables

Ongoing

Relations With the African Development Bank Group

(As of May, 2016)

1. São Tomé and Príncipe (STP) became a member of the African Development Bank Group (AfDB) in 1976. To date, the AfDB has financed 40 operations in the country. This comprises of 30 projects, including institutional support, and 10 studies, for a total net commitment of UA 134 million under the African Development Fund (ADF) (98.9 percent), and one special support operation of UA 1 million under the Nigeria Trust Fund (NTF). The vast majority of these operations (94 percent) were financed through loans with the remaining 6 percent through grants.

2. As of May 31, 2016, the AfDB’s ongoing portfolio comprised of six active projects for a total commitment of UA 26.2 million. These are: the Infrastructure Rehabilitation for Food Security (PRIASA I); Infrastructure Rehabilitation for Food Security (PRIASA II); the Public Finance Management Project (PAGEF); the National Planning Scheme study; the Study on Water Supply and Sanitation Programme Rural; the Trade Facilitation project (second phase of ASYCUDA); (Table 1). The portfolio is relatively young. The average age of the ongoing portfolio is 3 years against 5.4 years recorded in 2011. Such improvement is mainly linked to new projects approved in the first quarter of 2013 and 2015. The portfolio’s average disbursement rate stands at 25.8 percent lower than 29.3 percent reported in the last portfolio review conducted in 2014. In terms of sector distribution, agriculture contributes a substantial proportion, representing 71 percent of the total value of the portfolio, followed by multi-sector (26 percent) and water and sanitation (3 percent). There is no ongoing private sector or multinational projects.

Table 1.AfDB Ongoing Projects (Millions of UA)
Title of ProjectsWindowCommitmentDisbursement

Rate (Percent)
PRIASA IADF Grant5.090.8
PRIASA IIADF Loan14.040
Study on water supply and sanitation ProgrammeRWSSI Trust Fund0.745.1
PAGEFADF+FSF

Grants
729.3
National Planning SchemeADF Loan2NA
Trade Facilitation ProjectTrust Fund0.355NA
Total28.624 (Average)

3. The AfDB current involvement in STP is guided by the Country Strategy Paper (CSP) 2012–16, approved in July 2012. The CSP’s main objective is to prepare the authorities for the forthcoming oil production era and the associated challenges and risks to the country’s socioeconomic development. A mid-term review of the strategy was concluded in 2014. During the review process the AfDB and the government agreed to add a second pillar in order to respond to the country’s development needs. Therefore, the AfDB’s strategy focuses on Pillar I- Strengthening Governance; and Pillar II- Promotion of Agriculture Infrastructure. Both pillars are consistent with the authorities’ priorities as well as with the AfDB’s priorities outlined in the 2013–2022 strategy for the continent. More specifically, the strategy aims at improving the capacity of key public administration institutions, including human resource development, country systems, and strategic legal and regulatory frameworks by the time the oil era begins. In addition, it will also help to address the issues of food security, job creation, transformation of local products and global value chains.

4. As part of its strategy and knowledge products, the AfDB also envisages to undertake the following economic and sector works: (i) the study on agriculture transformation; (ii) the study on national planning scheme; and (iii) the study on accreditation of the agriculture research and investigation centre (CIAT). In addition, the AfDB also concluded the private sector strategy 2015–2024 for STP. Within the context of its project, the AfDB will also undertake the following studies; (i) study on the accreditation of the Technology and Agronomic Centre (CIAT); (ii) study on the cartography and selectivity of energy including network protection of EMAE-Electricity and Water Company). STP reached the Highly Indebted Poor Countries (HIPC) decision and completion points in 2000 and 2007, respectively. To this effect, the country became eligible for the MDRI with an estimated US$99.56 million in debt service according to the terms of the MDRI. The AfDB’s total assistance under HIPC and MDRI amounted to US$187.92 million in debt relief. At the end of December 2008, the AfDB provided US$13.33 million in debt relief under HIPC and US$99 million under MDRI.

Statistical Issues

(As of April, 2016)

I. Assessment of Data Adequacy for Surveillance
General: Economic data are broadly adequate for surveillance. At the same time, serious financial, human, and technological resource constraints have slowed down efforts to strengthen the statistical system.
National Accounts: Statistics on GDP/GNP are compiled on a yearly basis and provided at the time of the Article IV consultation and program review missions. Weak source data affect the quality national accounts estimates. A technical assistance mission is planned early during FY2017 to further help (i) change the base year of GDP series to 2008; (ii) assist the authorities to improve the flash GDP estimates based on high frequency indicators; and (iii) migrate the GDP series to an improved statistical platform that better captures survey and market information and includes estimates of the informal sector.



The current GDP series (base year 2001) became available in mid–2011. Compared with the previous series, the revised ones reflect more accurately recent economic developments. While the revision of the GDP series represented a significant improvement, a number of shortcomings remain. Further improvements would require input from the recently completed household expenditure survey (rather than living conditions survey), using producer prices, and better estimates for agricultural production.
Consumer Price Statistics: From January 2016, the INE is disseminating a new CPI (base 100 = 2014). With the assistance of AFRISTAT, the product mix was changed and the weights were updated, using the results of a household expenditure survey conducted in 2010. Due to financial constraints, the new CPI only covers the capital city.
Government Finance Statistics: Detailed revenue and expenditure data are compiled and reported to AFR. The main areas that need to be strengthened are (i) monitoring of expenditures on projects financed by donors; and (ii) financing operations. All project loans financed by donors are programmed in the budget, but some are executed independently. The government has requested development partners to help in recording all external financing in the budget. The recording of financing operations and stocks is expected to improve since the debt data management capacity is expected to be strengthened.



The 2010 government accounts were finalized and presented to the Court of Audit in June 2013 (the first time in over two decades that government accounts have been prepared and submitted). The authorities are working on the 2011 and 2012 government accounts, but preparing the latter using the accounting feature of SAFE-e has taken longer than expected, highlighting the need for additional technical assistance and training in this area.



An October 2004 government finance statistics (GFS) mission helped the Ministry of Finance to compile and disseminate GFS for the general government in accordance with the Government Finance Statistics Manual 2001 (GFSM 2001). The mission prepared bridge tables between national budget classification and GFSM 2001 classifications to be used to compile GFS for reporting to STA and AFR, as well as in Ministry of Finance policy work. The mission also reviewed the classification of oil revenues under the Oil Revenue Management Law and made recommendations on classification of such transactions. A September 2007 follow-up mission found some progress with regard to the recommendations made by the 2004 mission. In particular, in January 2007 a new budget law was approved that significantly improved national budget classifications. More recently, the authorities are revising all financial statements of government operations for 2010 through 2014 and GFS series are expected to be aligned by July. Notwithstanding these efforts, faster statistical progress is hampered by an inadequate accounting system. Successive FAD missions aimed at improving public accounting have begun to address this issue.
Monetary and Financial Statistics: STA missions provided technical assistance on monetary statistics in December 2004, April/May 2006, June 2007 and September 2010. As a result, the accuracy and timeliness of the monetary data reported in the standardized report forms (SRF) for the central bank and the other depository corporations’ data improved significantly. The BCSTP was reporting monthly data to STA for the central bank and other depository corporations (ODCs) on regular basis, but since February 2015 stopped the data transmission, notwithstanding repeated requests from STA to resume reporting.



The BCSTP monthly trial balance sheet is broadly adequate to compile monetary statistics in line with the Monetary and Financial Statistics Manual (MFSM).



A new plan of accounts for ODCs was introduced in January 2010. The September 2010 mission reviewed the new plan of accounts for the financial system, and found it adequate for a proper classification, sectorization, and valuation of financial instruments, and in line with the methodology of the MFSM. However, the mission detected serious shortcomings in the information reported by some banks and an inconsistent approach in the way banks report to the BCSTP. Following the mission’s recommendations, the BCSTP worked towards eliminating those problems. The central bank has begun to collect data from insurance companies which opened in the past few years. The asset sizes of insurance companies remain small enough not to warrant inclusion in monetary statistics at this time.



The central bank produces a quarterly FSI table. MCM TA missions on banking supervision have helped expand the coverage of the table and improved the data quality. The additional information compiled could permit the beginning of stress testing exercises in the near future. STA contacted the BCSTP to receive FSI data on a regular basis according to the methodology of the FSI Compilation Guide for their posting on the IMF’s website: after an initial exchange, the BCSTP stopped responding to STA’s requests.
External Sector Statistics: The BCSTP compiles quarterly balance of payments statistics consistent with the guidelines of the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) which was implemented in 2014. Quarterly IIP data on a BPM6 basis (for December 2014 and March 2015) were submitted to STA in June 2015 during a TA mission. However, since then the BCSTP has not submitted additional IIP data. The BCSTP should compile and submit quarterly IIP data for later periods consistent with the balance of payments data. The BCSTP has recently started conducting quarterly surveys to collect balance of payments and IIP data from the private sector and improve the coverage of the external sector statistics (ESS). However, the response rates of the surveys addressed to the nonfinancial private sector and oil and gas sector need to improve and these data should be carefully validated before addition to the ESS to assure the accuracy of the disseminated data. The net errors and omissions figures for 2014 are still very large.



A June 2015 mission recommended improving coordination and data sharing among data-producing agencies, increasing staff dedicated to the compilation and collection of ESS, and discussing with the Joint Development Authority the establishment of mechanisms for receiving regular data on production sharing agreement contracts. The National Petroleum Agency has started submitting regular data.



The authorities have built on previous efforts to strengthen debt data management, and a unit was created in late 2003 within the Ministry of Finance. The Commonwealth Secretariat debt recording and management system is being operationalized.
II. Data Standards and Quality
São Tomé and Príncipe has participated in the Fund’s General Data Dissemination System (GDDS) since April 20, 2004. Currently, it is in its successor data dissemination initiative, eGDDS.
Democratic Republic of São Tomé and Príncipe: Table of Common Indicators Required for Surveillance(As of April 30,2016)
Date of

Latest

Observation
Date

Received
Frequency

of

Data6
Frequency

of

Reporting
Frequency

of

Publication
Exchange ratesApr. 2016Apr. 2016DDD
International reserve assets and reserve liabilities of the monetary authorities 1Mar. 2016Apr. 2016DDD
International investment positionMar. 2015Jun. 2015QQQ
Reserve/base moneyMar. 2016Apr. 2016DDD
Broad moneyMar. 2016Apr. 2016MMM
Central bank balance sheetMar. 2016Apr. 2016MMM
Consolidated balance sheet of the banking systemMar. 2016Apr. 2016MMM
Interest rates 2Mar. 2016Apr. 2016MMM
Consumer Price IndexMar. 2016Apr. 2016MMM
Revenue, expenditure, balance and composition of financing 3 – general government 4Mar. 2016Apr. 2016QQQ
Revenue, expenditure, balance and composition of financing 3 – central governmentMar. 2016Apr. 2016QQQ
Stocks of central government and central government-guaranteed debt 5Mar. 2016Apr. 2016QIQ
External current account balanceMar. 2016Apr. 2016AIA
Exports and imports of goodsMar. 2016Apr. 2016MMA
GDP/GNP2013Mar. 2016AIA
Gross external debtMar. 2016Mar. 2016QIA

Includes reserve asset pledged or otherwise encumbered as well as net derivative positions.

Central bank’s reference rate.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra-budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); not available (NA).

Includes reserve asset pledged or otherwise encumbered as well as net derivative positions.

Central bank’s reference rate.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra-budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); not available (NA).

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