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 is 2.685, which is based on the October 2019 WEO and the 2018 CPIA, and its debt carrying capacity is assessed to be medium.
World Bank staff simulated a scenario assuming full disbursement of annual IDA allocations under credit terms, which did not affect the risk of external debt distress rating.
São Tomé and Príncipe has requested participation in the DSSI from all its official bilateral creditors. As of July 13, 2020, none of the creditors had yet formally responded to this request. The DSA baseline assumes the application of DSSI terms to eligible debt from G20/Paris Club creditors and other bilateral creditors that may associate with the Paris Club Memorandum of Understanding. Pending confirmation, DSSI terms are not applied to eligible debt from other bilateral creditors (Equatorial Guinea and Angola).
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.
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.
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 $111 million as of end-2019 were regularized in August 2019.
As the DSA uses the residency-based assumption on debt, the dollar-denominated EMAE arrears are classified as domestic since ENCO, majority-owned by an Angolan SOE, registers domestically.
The World Bank is providing additional support through a $2.5 million emergency response project focused on strengthening the health system, accelerating disbursement of existing projects (including on social protection), and increasing in the expected budget support grant in 2020 (from $5 million to $10 million). Budget support grants from the World Bank and African Development Bank in 2020 are expected to amount to around $20 million.
The size of the Sonangol shock (51.4 percent of GDP) is calibrated to capture the maximum amount of liabilities that would be assumed by the government should the contingency materialize. The payment terms are assumed to have a grant element of about 37 percent, broadly consistent with the concessionality of PPG external debt.