IMF Completes Second Review of ECF Arrangement for São Tomé
Evaristo Carvalho, President of Sao Tome and Principe

IMF Completes Second Review of ECF Arrangement for São Tomé

The Executive Board of the International Monetary Fund (IMF) today completed the second review of the Extended Credit Facility (ECF) arrangement for São Tomé and Príncipe.

The Board’s decision enables the immediate disbursement of SDR 1.90 million (about US$2.73 million).

This brings São Tomé and Príncipe’s total disbursements under the arrangement to SDR 7.19 million (about US$10.34 million).

São Tomé and Príncipe’s 40-month ECF arrangement was approved on October 2, 2019 for SDR 13.32 million (about US$18.15 million or around 90 percent of the country’s quota)

The program aims to support the government’s economic reform program to restore macroeconomic stability, reduce debt vulnerability, alleviate balance of payments pressures and create the foundations for stronger and more inclusive growth.

The first review was completed in July 2020, with a disbursement of about US$2.67 million, and, at the same time, an augmentation of the ECF arrangement of US$2.08 million was approved by the IMF Executive Board.

In April 2020, the Executive Board also approved emergency financing of US$12 million for São Tomé and Príncipe under the Rapid Credit Facility (RCF) and IMF debt service relief under the Catastrophe Containment and Relief Trust (CCRT) to address external financing needs arising from the COVID-19 pandemic.

The pandemic continues to have a severe impact on São Tomé and Príncipe’s economy, exacerbating external and fiscal imbalances.

A complete halt in international tourism and a sharp drop in foreign remittances have deepened external financing needs.

Though the outbreak has been broadly brought under control, containment measures and weak external demand have prompted a deep recession, and raised fiscal financing needs, amid already high public debt.

The authorities’ actions and unprecedented international financial support are helping the country weather the emergency, but deep economic challenges remain.

The authorities have enhanced health services and provided assistance to vulnerable households. However, while sustainable, public debt has risen from already high levels.

Energy sector issues continue to create debt and hinder growth. External balances and buffers remain under pressure.

Moreover, over recent years, growth has been insufficient to reduce poverty and meet the needs of a rising and young population.

Following the Executive Board’s discussion on São Tomé and Príncipe, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, issued the following statement:

“The Sãotoméan authorities’ swift response to the pandemic, supported by Fund emergency financing, this ECF arrangement, and other unprecedented international assistance, has helped the country weather the pandemic’s initial impact.

“Although the COVID-19 crisis adversely affected program performance in the first half of the year, the authorities have taken appropriate corrective actions, and preliminary information on end-2020 performance is encouraging.

“Moreover, the authorities remain committed to improving fiscal transparency and public financial management and have started publishing large public procurement contracts and monthly reports on COVID-19-related spending.

“The 2021 budget rightly focuses on addressing immediate social and economic needs, supporting the incipient economic recovery, and starting the gradual fiscal consolidation that is needed to preserve debt sustainability and external buffers.

In this context, it will be crucial to carry out the authorities’ commitment to introduce a VAT in 2021 and contain spending dynamics going forward, particularly on personnel expenses.

Accelerating reforms of the energy sector would also contribute to reducing debt and exchange rate pressures over time, strengthening energy security, and supporting long-term growth.

“Monetary policy should continue to support the exchange rate peg and the incipient recovery, including by actively managing liquidity.

It is also important to continue financial sector reforms, such as enhancing the central bank’s capacity to monitor and manage vulnerabilities and risks in the banking sector, addressing legacy NPLs, and implementing the recommendations of the safeguards assessment.

“Promoting more resilient and inclusive growth is essential to advance the country’s development.

IMF makes available $50 billion to help address Coronavirus

There is a pressing need to implement broad-based structural reforms that facilitate private investment and develop the tourism sector, such as further upgrading the national payments system, taking action to remove the country from the EU Air Safety List, and implementing planned infrastructure and climate adaptation projects.”

IMF Completes Second Review of ECF Arrangement for São Tomé