Front Matter Page
© 2008 International Monetary Fund
September 2008
IMF Country Report No. 08/307
Democratic Republic of São Tomé and Príncipe: 2008 Article IV Consultation and Sixth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, and Request for Waivers of Performance Criteria—Staff Report; Staff Supplement; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for the Democratic Republic of São Tomé and Príncipe
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of a combined discussion of the 2008 Article IV consultation with the Democratic Republic of São Tomé and Príncipe and sixth review under the three-year arrangement under the Poverty Reduction and Growth Facility and request for waivers of performance criteria, the following documents have been released and are included in this package:
The staff report for the combined 2008 Article IV Consultation and Sixth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waivers of Performance Criteria, prepared by a staff team of the IMF, following discussions that ended on March 26, 2008, with the officials of the Democratic Republic of São Tomé and Príncipe on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 4, 2008. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A staff supplement on the joint IMF/World Bank debt sustainability analysis.
A Public Information Notice (PIN) and Press Release, summarizing the views of the Executive Board as expressed during its June 18, 2008 discussion of the staff report on issues related to the Article IV consultation and the IMF arrangement, respectively.
A statement by the Executive Director for the Democratic Republic of São Tomé and Príncipe.
The documents listed below have been or will be separately released.
Selected Issues Paper
Letter of Intent sent to the IMF by the authorities of the Democratic Republic of São Tomé and Príncipe*
Memorandum of Economic and Financial Policies by the authorities of the Democratic Republic of São Tomé and Príncipe *
Technical Memorandum of Understanding*
*Also included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
700 19th Street, N.W. • Washington, D.C. 20431
Telephone: (202) 623-7430 • Telefax: (202) 623-7201
E-mail: publications@imf.org • Internet: http://www.imf.org
Price: $18.00 a copy
International Monetary Fund
Washington, D.C.
Front Matter Page
INTERNATIONAL MONETARY FUND
DEMOCRATIC REPUBLIC OF SÃO TOMÉ AND PRÍNCIPE
Staff Report for the 2008 Article IV Consultation and Sixth Review under the Three Year Arrangement under the Poverty Reduction and Growth Facility, and Request for Waivers of Performance Criteria
Prepared by the African Department
(In consultation with other departments)
Approved by Jean A. P. Clément and Scott Brown
June 4, 2008
Main topics
Program review. Overall economic performance has been mixed. Staff supports the authorities’ request for waivers of nonobservance of two quantitative performance criteria and one structural performance criterion for end-December 2007, based on remedial measures and policy commitments for the remainder of the program.
Article IV consultation. Based on a review of São Tomé and Príncipe’s recent adjustment experience, this report discusses policy challenges over the medium-term. The discussions focused on the need to consolidate the macroeconomic environment and develop the country’s production and export base, to achieve a sustainable private sector-led growth and reduce poverty.
The exchange rate system is a managed float. Sustainability of the country’s external position depends critically on finding commercially extractable oil reserves. If oil prospects do not materialize, maintaining external stability will require further economic adjustment, including that of the real exchange rate.
Mission
Discussions were held in São Tomé during March 13–26, 2008. The staff team comprised Mr. Wang (head), Ms. Farhan, Ms. Takebe, and Mr. Fernandez (All AFR). Mr. Shanghavi (AFR) helped prepare the staff report. The mission met with Mr. Trovoada, the Prime Minister, Mr. Cravid, Minister of Planning and Finance, Ms. Soares, former Acting Governor of the Central Bank (BCSTP), other senior government and central bank officials, members of the National Assembly, trade unions, and representatives of the private sector, the donor community, and the press.
selected issues papers
Two selected issues papers were prepared, based on a seminar held in São Tomé during the mission, on the policy mix to achieve a sustainable reduction in inflation and domestic revenue mobilization.
Table of Contents
Abbreviations and Acronyms
Executive Summary
I. Background
II. Recent Developments and Performance under the Program
III. Policy Discussions
A. Lessons from the Past
B. Medium-Term Outlook and Challenges
C. Macroeconomic Policies for the Remainder of the Program
Fiscal Policy
Monetary and Exchange Rate Policies
Structural Reforms
Program Monitoring
IV. Exchange Rate Arrangement and Other Issues
A. Exchange Rate Arrangement and External Stability
B. Debt Management
C. Statistics, Capacity Building, and Other Issues
V. Staff Appraisal
Boxes
1. Recent Rise in Inflation: Domestic Policies vs. External Shocks
2. Policy Mix, Sustainable Disinflation, and Revenue Mobilization
3. São Tomé and Príncipe: Status of Oil Exploration
4. The Equilibrium Exchange Rate and External Competitiveness
Figures
1. São Tomé and Príncipe: Income and Exports in a Regional Context
2. São Tomé and Príncipe: Recent Macroeconomic Developments, 2003-07
3. Medium-term Fiscal Scenarios
4. São Tomé and Príncipe: 2008 Fiscal Program
Tables
1. Selected Economic Indicators, 2005–2013
2. Financial Operations of the Central Government, 2005-2008
3. Summary Accounts of the Central Bank, 2006–2008
4. Monetary Survey, 2006–2008
5. Balance of Payments, 2005–2013
6. External Financing Requirements and Sources, 2005–2008
7. Financial Soundness Indicators for the Banking Sector, 2003–2007
8. Millennium Development Goals
9. Schedule of Disbursements under the PRGF Arrangement, 2005–2008
10. Indicators of Capacity to Repay the Fund, 2007–2013
Appendices
I. Letter of Intent
Attachment I: Memorandum of Economic and Financial Policies
Attachment II: Technical Memorandum of Understanding
Abbreviations and Acronyms
| GDP | Gross Domestic Product |
| NIR | Net international reserves |
| AML/CFT | Anti-Money-Laundering/Combating Financial Terrorism |
| BCSTP | Central Bank of São Tomé and Príncipe |
| DPO | Development Policy Operation of the World Bank |
| DSA | Debt Sustainability Analysis |
| EEZ | Exclusive Economic Zone |
| EITI | Extractive Industries Transparency Initiative |
| JDA | Joint Development Agency (with Nigeria) |
| ORML | Oil Revenue Management Law |
| NA | National Assembly |
| EMAE | Water and electricity state enterprise |
| ENASA | Airport state enterprise |
| ENAPORT | Port state enterprise |
| INE | National Institute of Statistics |
| SAFE | Public financial management system |
| eSAFE | Integrated computerized SAFE |
| SAFINHO | Pilot system for eSAFE |
| PRSP | Poverty Reduction Strategy Paper |
| HIPC | Heavily indebted poor countries |
| MDRI | Multilateral Debt Relief Initiative |
| IDA | International Development Association (of the World Bank Group) |
| MCC | Millennium Challenge Corporation |
| LOI | Letter of Intent |
| MEFP | Memorandum of Economic and Financial Policies |
| TMU | Technical Memorandum of Understanding |
Executive Summary
Economic performance under the PRGF-supported program has been mixed. While economic activity remained robust, inflation accelerated in the second half of 2007, reflecting surging international prices of food and fuel, as well as a budgetary expenditure overrun, which put pressure on base money growth. As a result, the performance criteria for end-December 2007 related to the domestic primary fiscal deficit and net credit to the government were not met. The structural performance criterion for end-2007 on a pilot system to strengthen budget execution and monitoring was implemented with delay—the intended steps were taken in early 2008.
Discussions for the sixth and final review under the PRGF arrangement focused on corrective measures to restore financial stability. The authorities are committed to strengthening expenditure control and reducing the domestic primary deficit in 2008. To mitigate the impact of the recent shocks, the fiscal program has been eased to provide targeted assistance to the poor, drawing on additional World Bank grants. A more active monetary policy has led to a slow down in base money growth and currency depreciation in the first quarter of 2008.
Maintaining external stability over the medium term requires further economic adjustment, continued donor support, and a significant improvement in export earnings. São Tomé and Príncipe’s medium-term outlook depends critically on the prospects for oil exports and revenue, which remain uncertain at this time. The main challenges are to maintain fiscal sustainability and to develop the country’s production and export base. The pursuance of fiscal consolidation and an active monetary policy in the context of a flexible exchange rate regime will be important to buttress macroeconomic stability. Prudent policy on external borrowing will also be important for maintaining debt sustainability.
There was broad agreement that structural reforms need to be accelerated to achieve a sustainable private sector-led growth. The improvement of the investment climate through regulatory reform and upgrading infrastructure are vital for attracting private investment. The authorities welcomed the staff’s assessment of the country’s monetary and exchange arrangements and are committed to maintaining an open exchange and trade regime.
Staff recommends completion of the sixth review based on understandings reached on policy implementation. Staff supports the authorities’ request for waivers for the nonobservance of the afore-mentioned quantitative and structural performance criteria for end-December 2007, based on the authorities’ remedial actions to contain budgetary expenditure and base money growth below the indicative targets and policy commitments for the remainder of the program.
Front Matter Page
INTERNATIONAL MONETARY FUND
INTERNATIONAL DEVELOPMENT ASSOCIATION
DEMOCRATIC REPUBLIC OF SÃO TOMÉ AND PRÍNCIPE
Joint IMF-World Bank Debt Sustainability Analysis for Low-Income Country Framework Update 1
Prepared by the staffs of the International Development Association and the International Monetary Fund
Approved by Carlos Alberto Primo Braga and Sudhir Shetty (WB) Jean A. P. Clément and Scott Brown (IMF)
Front Matter Page
INTERNATIONAL MONETARY FUND
DEMOCRATIC REPUBLIC OF SÃO TOMÉ AND PRÍNCIPE
Staff Report for the 2008 Article IV Consultation and Sixth Review under the Three-Year Arrangement under the Poverty Reduction and Growth Facility—Informational Annex
Prepared by the African Department
(In consultation with other departments)
Approved by Jean A. P. Clément and Scott Brown
Relations with the Fund. Describes financial and technical assistance by the IMF and provides information on the safeguards assessment and exchange rate system. At end-January 2008, outstanding PRGF loans amounted to SDR 2.54 million. Completion of the sixth review would allow a disbursement equivalent to SDR 0.423 million.
Relations with the World Bank Group. Describes IDA program and portfolio; and IMF-World Bank collaboration in specific areas.
Relations with the African Development Group. Describes the African Development Fund (ADF) and Technical Assistance Facility (TAF) ongoing projects.
Statistical Issues. Describes the availability and quality of macroeconomic statistics.
Table of Contents
Appendices
I. Relations with Fund
II. Relations with the World Bank Group
III. Relations with the African Development Bank Group
IV. Statistical Issues
Front Matter Page
Public Information Notice (PIN) No. 08/89
FOR IMMEDIATE RELEASE
July 24, 2008
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Front Matter Page
Press Release No. 08/143
FOR IMMEDIATE RELEASE
June 19, 2008
International Monetary Fund
Washington, D.C. 20431, USA
Front Matter Page
June 18, 2008
