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Economic Growth Expected to Decline in 2022, Inflation to Surge

The Democratic Republic of São Tomé and Príncipe is facing a challenging economic outlook in the coming year. According to a recent report by the International Monetary Fund (IMF), growth is expected to decline to 1.4 percent in 2022, while inflation is projected to soar to around 17 percent by the end of the year.

Factors Contributing to the Forecast

  • Sharp increases in the prices of imported commodities
  • Higher freight and maritime costs, weakening transportation and commercial services
  • Slowdown in fishing and agriculture activities
  • Widening current account deficit, expected to reach around 14 percent of GDP

These factors will lead to a decline in economic growth, while also causing inflation to surge.

Medium-Term Economic Outlook

Despite the challenging short-term outlook, the medium-term economic outlook remains positive. Real GDP growth is projected to reach 4 percent in 2026, supported by:

  • Better infrastructure
  • Stronger potential for tourism
  • Decline in inflation as global prices stabilize

Risks and Challenges

The report highlights several risks and challenges that could impact the country’s economy, including:

  • New COVID-19 variants
  • Inward spillovers from increasing international food and fuel prices
  • Extended global supply chain disruptions
  • Delayed revenue reforms
  • Lower-than-expected grant support
  • Prolonged power outages

Public Debt and Fiscal Consolidation

Public debt is deemed sustainable, although the country remains in debt distress due to prolonged unsettled external arrears. The authorities are committed to:

  • Continuing fiscal consolidation
  • Implementing planned energy sector reforms
  • Borrowing externally only on concessional terms and at a measured pace

Economic Recovery Delayed Until 2023

The report’s authors emphasized that the country’s economic recovery will be delayed until 2023, with growth expected to pick up pace in the medium term. However, the scaling up of grant-financed capital investments in 2022 reflects post-pandemic and flood-related reconstruction commitments by development partners.

Conclusion

While there are several downside risks, an accelerated reform agenda and key infrastructure projects could boost medium-term growth. The authorities will need to navigate these challenges carefully to ensure a sustainable economic recovery for the country.