Abstract
Second Review under the Extended Credit Facility, Request for Waiver for Nonobservance of Performance Criterion, Request for Modification of Performance Criteria, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for the Democratic Republic of S�o Tom�
This staff statement provides an update on the status of prior actions, financial assurances, and new developments since the staff report was issued. The statement does not alter the thrust of the staff appraisal.
Prior Actions on Fiscal Transparency and on the 2021 Budget
1. The prior action on publication of procurement contracts, adjudication notices a nd ex -post validation of delivery reports ha s be en met. On January 25, 2020, the full set of information required under the prior action was m a d e available on the Ministry’s website.1 The authorities have also continued publishing monthly COVID-19 related expenditure, now available up to December 2020.
2. The prior action on the 2021 budget has been met. The domestic primary balance under the 2021 budget, approved by parliament, is in line with the program target, thus supporting program implementation in 2021. The budget contains, however, some spending reallocations, including higher personnel expenses (by 0.3 percent of GDP) and lower domestically financed emergency COVID-19 -related allocations (by a similar amount). According to the authorities, the increase in personnel expenses was prompted by the need for new hiring in the health and education sectors, in part to address more permanent pandemic-related demands (e.g., staf fing and social distancing in new schools). The authorities do not expect the reductions in COVID-19 related expenditure to reduce pro-po or spending nor to undermine the achievement of the program’s indicative floor on such spending. The higher personnel expenditures may require additional policy actions to meet the authorities’ MEFP commitment to gradually reduce the civil service wage bill to close to 10 percent by 2023. Staff will continue to follow up on this issue during the remainder of the program.
Financial Assurances
3. Angola and Equatorial Guinea, with which São Tomé and Príncipe has external payment arrears, have provided consent to the completion of the Second ECF Review.
Update on New Developments
4. The authorities have informed staff that preliminary end-December outturns indicate that they are on track to meet key end-year program targets for the subsequent review. Specifically, they estimate the 2020 domestic primary deficit at about 4 percent of GDP (program target 6.3 percent of GDP), and international reserves at end-December were US$37 million (program floor US$25 million). In February, the authorities reported preliminary 2020 GDP estimates that indicated positive real GDP growth. Staff will verify this and other information for the subsequent review.