An International Monetary Fund (IMF) team, led by Mr. Maxwell Opoku-Afari, IMF Mission Chief for São Tomé and Principe, visited São Tomé and Príncipe from September 23-29, 2015, to discuss recent economic developments and support the preparation of the 2016 budget. The IMF Executive Board approved approved a new three-year, SDR 4.44 million (about US$6.2 million) Extended Credit Facility (ECF) arrangement on July 13, 2015 (see Press Release No. 15/336), to support São Tomé and Príncipe’s medium-term economic program.
At the end of the mission, Mr. Opoku-Afari issued the following statement in São Tomé:
“The mission conducted an assessment of economic developments in the first half of 2015 and discussed the revenue and expenditure envelopes for the 2016 budget. Economic activity slowed down during the first half of the year, mainly due to the late approval of the 2015 budget which delayed implementation of key public investment projects. The mission estimates that GDP growth for 2015 could turn out lower than the projected 5 percent if current trends in private business activities and non-oil imports continue into the second half of the year, and planned implementation of public investment projects does not pick up. Inflation continued to decline, aided by weakened aggregate demand, despite increased depreciation of the dobra relative to the US dollar (reflecting developments between the euro, to which the currency is pegged, and the US dollar). Year-on-year inflation fell to 5 percent at the end of August from 6.4 percent at the end of December 2014. Central bank international reserves, currently estimated at 4.5 months of import cover, remain at comfortable levels. The slowdown in economic activity impacted negatively on tax collection in the first half of the year, and poses a risk to achieving the end-2015 overall domestic primary deficit target of 2.7 percent of GDP, should economic activity not pick up to boost tax revenue collection in the second half of 2015.
“The government recognizes the need to maintain fiscal discipline and stands ready to introduce additional measures to boost tax revenue collection and, where necessary, contain recurrent spending to meet the domestic primary deficit target for 2015. The mission further stressed the importance of ensuring that the 2016 budget remains consistent with the macroeconomic parameters agreed under the new ECF-supported program, and reiterated the urgent need for the government to push ahead and remain resolute in implementing the planned domestic revenue mobilization measures for 2016 identified in the ECF-supported program.
“The mission also re-emphasized the need for the government to continue to rely on grants and highly concessional financing, given the high risk of debt distress, as the government launches a new campaign to attract new private and public sector partners to support the public investment program.
“The mission met with key counterparts in the government, including Minister of Finance and Public Administration Américo Ramos, Central Bank Governor Maria do Carmo Silveira, leaders of political parties in the National Assembly, and other government officials. The mission also met with representatives of the country’s main donors and the private sector.
“The mission wishes to thank the authorities for their hospitality.”
The Extended Credit Facility (ECF) is the IMF’s main tool for medium-term financial support to low-income countries. It provides for a higher level of access to financing, more concessional terms, enhanced flexibility in program design, and more focused, streamlined conditionality. Financing under ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years.
Source: International Monetary Fund (IMF)