Staff completes first review mission of extended virtual credit facility for São Tomé and Príncipe
June 30, 2020
End-of-mission press releases include statements from IMF staff teams conveying preliminary findings after a virtual visit to a country. The views expressed in this statement are those of the staff of the IMF and do not necessarily represent those of the Executive Board of the IMF. Based on the preliminary findings of this mission, staff will prepare a report which, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.
- The COVID-19 pandemic is expected to cause a strong actual economic contraction of 6.5% in 2020 and increase significant health and social needs.
- Program performance under the Extended Credit Facility (ECF) got off to a good start, but progress was hampered by the pandemic and some pre-crisis political slippages.
- The IMF mission reached agreement at the staff level on the measures needed to alleviate the crisis this year, support a rapid recovery, and maintain macroeconomic and financial stability over the medium term.
A team from the International Monetary Fund (IMF), led by Xiangming Li, held a virtual mission from June 15 to 30, 2020 for the first review of São Tomé and Príncipe’s economic program supported by the IMF’s ECF agreement.  At the end of the mission, Ms. Li made the following statement:
“The IMF team and the authorities of São Tomé and Príncipe have reached a staff level agreement on measures for the completion of the first review under the ECF agreement and the increase of the program subject to the IMF Executive Board approval. The IMF Executive Board is tentatively scheduled to review this first ECF review at the end of July 2020.
“The authorities of São Tomé and Príncipe have drawn up an appropriate plan to deal with the COVID-19 crisis. They worked with international development partners to contain the local epidemic and provided assistance to vulnerable households, laid-off workers and businesses. A small solidarity contribution was collected from workers who were relatively unaffected to help finance costs.
“This program review focused on meeting the country’s immediate needs and discussed measures to facilitate early recovery. In this context, the budget deficit target for 2020 has been revised to take into account higher health spending and provide social support to the vulnerable population, laid-off workers and hard-hit businesses in the tourism sector. This disbursement is also increased to a total of approximately US $ 4.5 million to meet immediate needs.
“To lay the foundation for the recovery, the structural reform program focused on continuing to reform the utility company, EMAE, to improve the country’s energy security and reduce debt vulnerability. . To support essential social and investment spending, the mission advised the authorities to complete preparations for the transition to a VAT in 2021. To support the recovery of the tourism sector, the mission advised the authorities to develop a plan to remove the country from the EU aviation safety list of banned operators.
“The COVID-19 pandemic is expected to cause the economy to contract sharply by 6.5% this year. This is after the growth rate fell to 1.3% in 2019 due to delays in externally funded projects. The tourism sector is expected to partially recover in 2021, when GDP is expected to increase by 3%. The uncertain outlook for the pandemic means that there are significant risks in the short term.
“The performance of the program got off to a good start, with the performance criteria at the end of December 2019 being met. However, further progress has been hampered by the pandemic and some political slippages.
“The mission commended the authorities’ commitment to fiscal consolidation and post-crisis structural reforms, which are essential to reduce balance of payments pressures and debt vulnerability. The recent publication of signed public contracts and monthly expenses related to COVID is welcome. Authorities should ensure that all COVID contracts and monthly expenses are published on time and in their entirety, including schedules.
“Banking supervision needs to be strengthened and continued efforts to reduce the large stock of non-performing loans will be essential for banks to provide the necessary financing to support economic recovery. In this context, it is encouraging to note that the arbitration tribunals for these loans should be operational by the end of 2020.
“The mission also welcomed the authorities’ plans to improve the business environment, promote gender equality and adapt to climate change. These reforms could accelerate the recovery and promote sustainable and inclusive growth over the medium term. ”
During the virtual mission, the IMF team met the Minister of Planning, Finance and Blue Economy Osvaldo Vaz; Minister of Foreign Affairs Elsa Pinto; Minister of Public Works and Infrastructure Osvaldo Abreu; Minister of Labor, Solidarity, Family and Vocational Training Adlander de Matos; Minister of Health Edgar Neves; Minister of Justice Ivete Correia; Minister of Agriculture Francisco Ramos; Governor of the Central Bank Américo Soares De Barros; senior government officials, representatives of the private sector, including banks, and the international donor community. The team thanks the authorities and all the participants for their support and cooperation.
 The ECF is a loan agreement that offers a sustained medium to long term commitment in the event of prolonged balance of payments problems.