Democratic Republic of São Tomé and Príncipe: IMF Concludes First ECF Review Mission

A team from the International Monetary Fund (IMF), led by Mr. Ricardo Velloso, visited S o Tom and Pr ncipe during March 8-20, 2013, to conduct the first review of the Government’s economic and financial program supported by the IMF under a three-year Extended Credit Facility (ECF) arrangement in the amount of SDR 2.59 million (US$ 4.00 million).¹ This arrangement was approved by the IMF Executive Board on July 20, 2012, and its first review is tentatively scheduled to be discussed by the IMF Executive Board in May 2013 (see Press Release No. 12/272).

The IMF team held warm and fruitful discussions with Finance Minister H lio Almeida and Central Bank Governor Maria do Carmo Silveira as well as their respective senior staffs. The team also met with other senior government officials, and representatives of the donor community and the private sector.

At the conclusion of the first ECF review mission, Mr. Ricardo Velloso, the IMF Mission Chief for S o Tom and Pr ncipe, issued the following statement in S o Tom :

“Economic growth reached 4 percent in 2012, despite a very challenging international environment, particularly in Europe, and lower project implementation due to continued difficulties in securing external financing. Annual inflation has continued its declining trend since the adoption of the fixed exchange rate regime, falling to 10  percent at end-2012 (its lowest end-year level in 9 years). The Central Bank’s international reserves at end-2012 stood comfortably above the ECF-supported program’s floor of 3 months of imports.

“The near-term economic outlook is challenging. Economic growth for 2013 has been revised downward, from 5 to 4 percent, in light of lingering uncertainties in the world economy and relatively weak external financing prospects for both private and public sector investment projects. Inflation at end-2013 has been revised upward, from 6 percent to between 7 and 9 percent, reflecting a disinflation path more in line with the recent experience with the fixed exchange rate regime, including vulnerabilities to supply shocks. The Central Bank’s international reserves are projected to remain above the equivalent of three months of imports in 2013.

“Overall program implementation through end-December 2012 was good. All performance criteria under the ECF-supported program were observed, and there was good progress on structural reforms. Negotiations between the Government, the Water and Electricity Company, EMAE, and the National Fuels Company, ENCO, on a plan to clear over time EMAE’s arrears to ENCO and to avoid a recurrence of this problem in the future, are ongoing and are now expected to be completed by September 2013.

“The IMF mission reached staff-level agreement with the authorities of S o Tom and Pr ncipe on key policy issues for the remainder of 2013. Fiscal policy will continue to foster sustainable growth and support efforts to bring inflation to low single digits over the medium term, by ensuring that the domestic primary deficit is in line with available non-debt-creating financing. To create additional fiscal space for higher priority infrastructure and pro-poor spending, the mission encouraged the authorities’ ongoing efforts in revenue mobilization through improved tax and customs administration and a widening of the tax base.

“The IMF mission noted that in 2012 most commercial banks did not turn a profit, bank credit growth almost came to a halt, and non-performing loans increased. The mission advised the Central Bank to monitor the situation closely, including by carrying out planned on-site inspections, and require shareholders to quickly recapitalize banks, if needed.

“The IMF mission acknowledged the authorities’ strong commitment to address the deficiencies of S o Tom and Pr ncipe’s anti-money laundering framework. It encouraged the authorities to finalize the needed draft amendments to the anti-money laundering law and to send, as soon as possible, those draft amendments to the National Assembly for consideration and approval.”

¹ 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 5 years, and a final maturity of 10 years.