The DSA update was prepared by IMF and World Bank staffs in collaboration with the authorities of São Tomé and Príncipe. The analysis updates the previous Joint DSA dated July 9, 2018 (IMF Country Report No. 18/251). The DSA follows the IMF and World Bank Staff Guidance Note on the Application of the Joint Fund-Bank Debt Sustainability Framework (DSF) for Low-Income Countries (LICs) (February 2018). The country’s Composite Indicator score was 2.698 and its debt carrying capacity was assessed at to be medium under the revised LIC DSF and the cross-country assessment updated in April 2019.
The country’s debt stocks are zero for some new elements covered under the revised DSA framework, including the social security fund and central bank debt borrowed on behalf of the government. There is no other government guaranteed debt that is excluded from this DSA.
ENCO registers domestically in São Tomé and Príncipe, with 77.6 percent of its shares owned by Sonangol (an Angolan SOE) and 16.0 percent owned by São Tomé and Príncipe’s government. The government’s arrears to ENCO were regularized in 2016, and EMAE’s arrears of $104.4 million as of end-July 2019 were regularized in August 2019.
Based on preliminary data, at end-2018, ENAPORT had commercial loans amounting to about $2.2 million that mature in August 2028; ENASA had two commercial loans of $0.3 million (maturing in September 2028) and $2.0 million (maturing in June 2029), respectively. In total, these loans amount to $4.5 million, or about 1 percent of GDP. There are four other profitable enterprises, in which the government has a minority stake.
Consistent with the previous DSA, pre-HIPC initiative arrears (13.5 percent of GDP) are excluded, on the assumption of debt forgiveness. One pre-HIPC PPP debt of 11.2 percent of GDP is excluded, consistent with the treatment of other pre-HIPC debt. Details about this loan are presented in Text Table 4.
“Guidance Note on the Bank-Fund Debt Sustainability Framework for Low Income Countries,” February 2018, Paragraph 68.
In the event that ENCO is liquidated, its claims on the government, EMAE, and other elements of the public sector could be transferred mostly to Sonangol, which may demand repayments. Note that ENCO’s claims on EMAE and the government are not included in the baseline external debt stock even though they are denominated in USD, as the DSA uses the residency-based assumption (these claims are regarded as domestic debt in the baseline). The size of the Sonangol shock (46.5 percent of GDP) is calibrated to capture the maximum amount of liabilities that would need to be assumed by the government should the contingency materializes; this is a worst-case scenario given that ENCO is a joint venture that is majority (77.6 percent) owned by Sonangol, an Angolan company. The government and private entities of São Tomé and Príncipe hold 16.0 and 6.4 percent of stakes, respectively.
Due to the broadened debt coverage discussed above, the “central government direct and guaranteed debt” in this DSA has the same coverage as the “total PPG debt” in the previous DSA. Consistent with the new DSF framework, the term “total PPG debt” refers to the broadened coverage that includes the central government and EMAE (the government’s arrears to EMAE are excluded during the consolidation).
These arrears include those by HidroEquador, which belongs to the EMAE parent company but reports losses separately. EMAE’s arrears to ENCO have increased substantially since 2016 due to an expansion of the electricity distribution network.
These amounts remained unchanged as of end-June 2019.
The size of the Sonangol shock (46.5 percent of GDP) is calibrated to capture the maximum amount of liabilities that would need to be assumed by the government should the contingency materializes.
As in the previous DSA template, only one of the three total PPG debt ratios (debt-to-GDP ratio) has a benchmark (instead of a strict threshold) in the new template. In addition, the negative real interest rates on domestic debt in Figure 2 are due to the low nominal interest rates (relative to inflation), which are in turn due to the excess liquidity in the banking system.
After an expansion of the electricity network, EMAE’s losses rose to about 4 percent of GDP on average annually during 2016–18, compared with an average of 1.5 percent of GDP in Sub-Saharan Africa.
The repayment schedule for EMAE to ENCO covers both the existing stock of debt and any new arrears that may arise until EMAE returns to an operating surplus.