The International Monetary Fund (IMF) Executive Board has approved a 40-month Extended Credit Facility (ECF) arrangement for São Tomé and Príncipe, totaling SDR 18.5 million, approximately US$24 million. This sum represents 125 percent of the country's quota and aims to support economic and structural reforms in the nation. An immediate disbursement of SDR 3.964 million, about US$5 million, is now available, with the remaining funds to be distributed over the course of the arrangement pending semi-annual reviews.
São Tomé and Príncipe faces significant macroeconomic challenges, including high fuel import needs, limited export potential, and low international reserves. A balance of payments shock in early 2023 created a substantial external financing gap. The economy experienced low growth in 2022 and 2023 due to foreign exchange and energy shortages, with inflation remaining high. Growth is expected to remain weak in 2024 despite a decline in inflation.
The authorities have initiated an ambitious reform plan aimed at restoring macroeconomic stability, improving living conditions, and promoting sustainable growth. This includes fiscal adjustments essential for reducing public debt while protecting vulnerable groups. Reforms are also planned for the electricity sector to transition towards green energy.
Bo Li, Deputy Managing Director and Chair of the IMF Executive Board discussion stated: “São Tomé and Príncipe has been facing significant challenges amid multiple shocks, low international reserves, and high debt vulnerabilities." He noted that the authorities have developed "a strong economic program" to address these issues.
Li added that while growth remains sluggish with declining inflation rates, "decisive implementation of the authorities’ economic program will support the economic recovery," although significant downside risks persist.
To strengthen their external position, São Tomé and Príncipe's authorities are implementing policies to reduce external financing needs alongside structural reforms aimed at boosting competitiveness and diversifying exports. Given considerable financing needs, donor support is deemed critical.
The reform program includes fiscal adjustments while safeguarding social spending priorities. A VAT was introduced leading to fiscal improvements in 2023. Developing a domestic revenue mobilization strategy is crucial for meeting medium-term fiscal targets.
Li further mentioned that maintaining debt sustainability through prudent borrowing practices is essential: “The authorities remain committed to maintaining debt sustainability,” he said.
Efforts continue towards reducing inflation and accumulating international reserves as part of financial stability measures: “They are committed to adopting the new central bank organic law,” Li noted.
A comprehensive reform of the energy sector is anticipated to reduce fuel imports while boosting reserves: “Further efforts...are appropriately focused on strengthening human capital,” Li concluded.