Democratic Republic of São Tomé and Príncipe: 2013 Article IV Consultation and Second Review Under the Extended Credit Facility Arrangement—Staff Report
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Summary:
EXECUTIVE SUMMARY
Context. The coalition government that came into office on December 12, 2012,
remains fully committed to the pursuit of sound policies that are helping to consolidate
macroeconomic stability, despite a challenging external environment and more
uncertain oil prospects.
Program performance. Overall, program performance has been satisfactory. All
continuous and end-June 2013 quantitative performance criteria were met, and one of
two end-June 2013 structural benchmarks was met while the other one will be met with
a delay. However, more time will be needed to devise a plan to clear cross-arrears (the
end-September 2013 structural benchmark was missed). The quantitative indicative
target on pro-poor spending was met, but the other two indicative targets were not.
Macroeconomic and key structural policies. The authorities’ macroeconomic policy
framework for 2014 and beyond reaffirms their commitment to fiscal prudence in
support of the exchange rate peg to the euro and debt sustainability, and to the pursuit
of sound financial policies. The authorities are committed to a 2014 domestic primary
deficit target of 3.0 percent of GDP, in line with projected non-debt-creating financing,
and to a further tightening of the fiscal stance by 2017, given more uncertain oil
prospects. To meet the fiscal targets and create additional space for priority
infrastructure and pro-poor spending, the authorities will strengthen revenue
collections, including by modernizing the tax and customs administrations and
broadening the tax base, and will contain non-priority spending. The central bank has
increased its vigilance over the financial sector through off- and on-site inspections of
commercial banks, and is reinforcing compliance with regulatory and prudential
requirements. It will work with commercial banks to enhance the banking system’s
efficiency, profitability, and resilience. The authorities are striving to strengthen external
competitiveness and reduce external vulnerabilities through improvements in the
business climate and various productivity-enhancing measures.
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