International Monetary Fund (IMF) Reaches Staff-Level Agreement on an Extended Credit Facility Arrangement with São Tomé and Príncipe

IMF staff and the São Toméan authorities have reached staff-level agreement on economic policies and reforms to be supported by a new 40-month arrangement under the Extended Credit Facility (ECF), updating the agreement reached last year. This renewed staff-level agreement is subject to IMF Management approval and IMF Executive Board consideration, contingent on the implementation of the agreed prior actions and the timely confirmation of the necessary financing assurances from the country’s development partners.
The authorities’ ambitious reform program aims at restoring macroeconomic stability while laying the foundations for faster and more inclusive growth. This includes a sizable and front-loaded fiscal adjustment while protecting the vulnerable. The program includes decisive near-term reforms in the electricity sector and medium-term structural reforms to facilitate the green energy transition and unleash the country’s growth potential.

An International Monetary Fund (IMF) team led by Mr. Slavi Slavov, Mission Chief for São Tomé and Príncipe, visited São Tomé during May 23 – June 5, 2024, and held virtual discussions in the recent months, to discuss with the São Toméan authorities IMF support for their policies and reform plans.

At the end of the mission, Mr. Slavov issued the following statement:

“The São Toméan authorities and the IMF team have reached a renewed staff-level agreement to support the authorities’ economic adjustment and reform policies with a new 40-month program supported by an arrangement under the Extended Credit Facility (ECF). The agreement is subject to approval by IMF’s Management and Executive Board in the period ahead, and is contingent on the implementation of prior actions by the authorities and the timely confirmation of the necessary financing assurances from the country’s development partners to cover the external financing gap.

“São Tomé and Príncipe faced a very challenging 2023 and continues to struggle with high fuel import needs and depleted international reserves. Over the past few years, the country has been hit by multiple shocks, whose impact on the economy continues to reverberate. This includes the massive external shock in early 2023 when a major fuel exporter stopped supplying fuel on credit, opening a large external financing gap.

“These factors, along with energy shortages, contributed to a slowdown of real GDP growth to 0.2 percent in 2022 and 0.4 percent in 2023. Inflation accelerated to 19.2 percent in April 2024 before declining to 12 percent in August, year-on-year. International reserves fell sharply.

“The authorities’ program aims to restore macroeconomic stability, improve the living conditions of the population, foster the economic recovery, and promote sustainable and inclusive growth. The necessarily ambitious and front-loaded fiscal adjustment is crucial to lowering the high public debt and rebalancing the economy under a pegged exchange rate, but is designed with care to protect the vulnerable.

“The authorities have already implemented significant reforms. They launched the Value-Added Tax in June 2023 and implemented a large fiscal adjustment in 2023. Fuel prices were adjusted, and explicit fuel subsidies have been eliminated in the aggregate. The central bank (Banco Central de São Tomé e Príncipe or BCSTP) ended monetary financing of the budget and implemented tightening measures.  

“The authorities will make further efforts to strengthen tax and customs administration and to rationalize budgetary expenditures. These efforts will create the fiscal space for implementing growth-enhancing development programs that will help put public debt on a downward trajectory. In addition, the authorities will strengthen social safety nets and reinforce the existing targeted cash-transfer program for vulnerable households. Given the country’s high public debt, ensuring that new financing takes the form of highly concessional loans or ideally grants will be vital to ensure sustainability and also meet vital spending needs.

“Moreover, the program will urgently implement near-term reforms to address the crisis in the electricity sector. This would alleviate pressures on public debt and foreign exchange reserves. To prevent implicit fuel subsidies and contain fiscal risks, the authorities will apply the fuel price adjustment mechanism in a truly automatic way on a monthly basis. The government will strengthen transparency and address governance weaknesses to reduce vulnerabilities to corruption. Finally, the authorities will strengthen the BCSTP, ensuring its autonomy and appropriate governance arrangements.

“Over the medium term, structural reforms will unleash the country’s growth potential. These include the reform strategy for the energy sector with a focus on shifting towards renewable sources, encouraging domestic food production, fostering the tourism sector, adapting to climate change, and empowering women.

“During the visit and subsequent virtual discussions, the mission met with President Carlos Vila Nova; Prime Minister Patrice Émery Trovoada; Minister of Planning and Finance Ginésio Valentim Afonso da Mata; Minister of Economy Disney Leite Ramos; Governor of the Central Bank Américo D’Oliveira dos Ramos; President of the Court of Auditors Ricardino Costa Alegre; other government officials; representatives of the private sector including banks; and development partners. The mission expresses its deep appreciation to the authorities for their cooperation and constructive policy dialogue.”

Distributed by APO Group on behalf of International Monetary Fund (IMF).