Front Matter Page
INTERNATIONAL MONETARY FUND
IMF Country Report No. 18/251
DEMOCRATIC REPUBLIC OF SÃO TOMÉ AND PRÍNCIPE
2018 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE EXTENDED CREDIT FACILITY, REQUEST FOR WAIVERS FOR NONOBSERVANCE OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW
August 2018
In the context of the Article IV Consultation and the Fifth Review Under the Extended Credit Facility Arrangement, Request for Waivers for Nonobservance of Performance Criteria, and Financing Assurances Review, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on July 23, 2018, following discussions that ended on June 12, 2018, with the officials of the Democratic Republic of São Tomé and Príncipe on economic developments and policies underpinning the IMF arrangement under the Extended Credit Facility. Based on information available at the time of these discussions, the staff report was completed on July 9, 2018.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by the staff of the IMF and the International Development Association (IDA).
A Statement by the Executive Director for Democratic Republic of São Tomé and Príncipe.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2018 International Monetary Fund
Front Matter Page
INTERNATIONAL MONETARY FUND
DEMOCRATIC REPUBLIC OF SÃO TOMÉ AND PRÍNCIPE
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE EXTENDED CREDIT FACILITY, REQUEST FOR WAIVERS FOR NONOBSERVANCE OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW
July 9, 2018
Key Issues
Context: Progress has been made in fiscal consolidation and structural reform in the past year. Nevertheless, the country still faces a high debt level, has a low ratio of tax revenue to GDP, and relies heavily on external support. While the economy grew steadily at about 4 percent in the past three years, accelerating growth through consolidating macroeconomic stability and continued structural reforms will be essential for poverty reduction in a country with a young population.
Program review: Performance was mixed under extenuating circumstances. Three out of five end-2017 performance criteria (PCs) were missed. The PC on the domestic primary deficit (DPD) was missed by ½ percent of GDP, mirrored by the PC on net credit to the government, though the DPD was still reduced by 1¾ percent of GDP relative to 2016. Meanwhile, net international reserves fell below the target mainly because of lower-than-expected external support. The continuous PC prohibiting the introduction or intensification of exchange restrictions was inadvertently missed. Structural reforms were broadly on track. Staff recommends completion of the fifth review and modification of indicative targets and structural benchmarks through the rest of 2018, and supports the authorities’ request for waivers for nonobservance of PCs based on prior actions and corrective measures.
Recommendations: In 2018, enhance tax arrears collection and restrain spending to available resources to safeguard the fiscal targets and avoid new domestic arrears. Step up the preparation for the transition to a VAT in 2019 to increase revenue mobilization. Continue to reform EMAE (a state-owned electricity company) to contain its losses and the associated fiscal risks. Expedite structural reforms and project implementation to unlock growth potential and to avoid delays in inflows of external support. Continue to implement the strategy for reducing non-performing loans and strengthen risk-based supervision. Over the medium term, reduce the debt level by continuing fiscal consolidation and borrowing only at concessional terms and at a measured pace. Implement the tourism development strategy to promote poverty-reducing growth.
Outlook and risks: GDP growth is expected to stay at 4 percent in 2018 and to rise to 5 percent in the medium term. Main risks include spending pressure ahead of the legislative elections in October. On the upside, earlier implementation of large infrastructure projects could accelerate growth.
Approved By
David Owen (AFR) and Kevin Fletcher (SPR)
Discussions were held in São Tomé during March 28 to April 12 and June 6-12, 2018. The initial staff team included Xiangming Li (head), Marlon E. Francisco, Jehann Jack, Gabriel Srour, Torsten Wezel, and Yunhui Zhao (all AFR). Luiza Antoun de Almeida (EUR) provided extensive support for the mission preparation, María Inés Canales Munoz (AFR) provided administrative support, and Yun Liu (AFR) provided research support (all from headquarters). Kelvio Carvalho da Silveira (OED) joined the mission. The mission met with Prime Minister Patrice Trovoada, Minister of Finance Américo Ramos, Minister of Justice Ilza Vaz, Minister of Agriculture Teodorico Campos, the Governor of the Central Bank Hélio Almeida, other senior government officials, and representatives of the private sector and development partners. The follow-up staff team comprised Ms. Li (head) and Mr. Srour (both AFR) and Djaima Costa (STA); it was joined by Audrey Yiadom and Gabriela Rosenberg (both LEG) and Svetlana Popova (MCM), working on Article VIII related issues. The follow-up mission was assisted by Ms. Jack and Mr. Zhao (both AFR) from headquarters.
Contents
CONTEXT: REFORM TO ACCELERATE GROWTH
RECENT ECONOMIC DEVELOPMENTS
PROGRAM PERFORMANCE
ECONOMIC OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Address Revenue Shortfall and Contingent Liabilities, and Reduce Debt Burden over the Medium Term
B. Boost International Reserves Buffers
C. Safeguard Financial Stability
D. Accelerate Growth-Enhancing Projects And Structural Reforms
PROGRAM ISSUES, SAFEGUARDS, AND RISKS
OTHER SURVEILLANCE ISSUES
STAFF APPRAISAL
BOXES
1. Main Recommendations of the 2016 Article IV Consultation and Their Current Status
2. Risk Assessment Matrix 2018
3. Introduction of the VAT
4. Economic Diversification in São Tomé and Príncipe
FIGURES
1. Recent Macroeconomic Developments, 2009-18
2. Financial Sector Developments, 2011-18
TABLES
1. Selected Economic Indicators, 2015–20
2a. Financial Operations of the Central Government, 2015–20 (millions of new dobra)
2b. Financial Operations of the Central Government, 2015–20 (in percent of GDP)
3. Summary Accounts of the Central Bank, 2015–20
4. Monetary Survey, 2015–20
5. Financial Soundness Indicators, December 2012 – March 2018
6a. Balance of Payments, 2015–20 (millions of U.S. dollars)
6b. Balance of Payments, 2015–20 (in percent of GDP)
7. External Financing Requirements and Sources, 2015–20
8. Indicators of Capacity to Repay the Fund, 2018–32
9. Schedule of Disbursements Under an Extended ECF Arrangement, 2015–18
ANNEXES
I. Capacity Development Strategy 2018-20
II. External Sector Assessment
APPENDIX
I. Letter of Intent
Attachment I. Supplementary Memorandum of Economic and Financial Policies for 2018
Attachment II. Technical Memorandum of Understanding, July 2018
Front Matter Page
INTERNATIONAL MONETARY FUND
DEMOCRATIC REPUBLIC OF SÃO TOMÉ AND PRÍNCIPE
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE EXTENDED CREDIT FACILITY, REQUEST FOR WAIVERS FOR NONOBSERVANCE OF PERFORMANCE CRITERIA AND FINANCING ASSURANCES REVIEW—INFORMATIONAL ANNEX
July 9, 2018
Prepared By
The African Department (in consultation with other Departments)
Contents
RELATIONS WITH THE FUND
RELATIONS WITH THE WORLD BANK GROUP
RELATIONS WITH THE AFRICAN DEVELOPMENT BANK GROUP
STATISTICAL ISSUES
Front Matter Page
INTERNATIONAL MONETARY FUND
DEMOCRATIC REPUBLIC OF SÃO TOMÉ AND PRÍNCIPE
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION, FIFTH REVIEW UNDER THE EXTENDED CREDIT FACILITY, REQUEST FOR WAIVERS FOR NONOBSERVANCE OF PERFORMANCE CRITERIA AND FINANCING ASSURANCES REVIEW—DEBT SUSTAINABILITY ANALYSIS 1
July 9, 2018
Approved By
David Owen and Kevin Fletcher (IMF) and Paloma Anos-Casero (IDA)
Prepared by International Monetary Fund and International Development Association staffs in collaboration with the authorities of São Tomé and Príncipe.
São Tomé and Príncipe is classified as being in debt distress according to this joint World Bank-IMF low-income country debt sustainability analysis (DSA). This assessment has changed from the previous DSA completed in December 2017 (high risk of external debt distress) due to the prolonged negotiations on rescheduling external arrears. Nonetheless, São Tomé and Príncipe’s debt ratios have improved since the previous DSA. Specifically, the ratio of the present value of public and publicly-guaranteed (PPG) external debt to GDP no longer exceeds its threshold under the baseline scenario, due to lower-than-expected loan disbursements in 2017, an appreciation of the euro vis-à-vis the U.S. dollar, and higher-than-expected GDP deflator growth. As in the previous DSA, the debt service ratios stay below their respective thresholds under almost all scenarios. Nevertheless, the ratios of the present value of debt to exports and to revenue still exceed their respective thresholds under the baseline scenario early in the projection period, though they decline over time. This DSA underscores the importance of lowering all PPG external debt indicators below their thresholds by continuing fiscal consolidation, eschewing non-concessional loans, promoting growth, and expanding the export base.
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Press Release No. 18/303
FOR IMMEDIATE RELEASE
July 23, 2018
International Monetary Fund
Washington, D.C. 20431 USA
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Press Release No. 18/314
FOR IMMEDIATE RELEASE
July 27, 2018
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Front Matter Page
July 23, 2018