Financial Crime World

São Tomé and Príncipe Faces Uncertain Economic Outlook in 2022

The Democratic Republic of São Tomé and Príncipe is bracing for a challenging economic year ahead, with growth expected to decline and inflation set to surge.

Economic Projections

According to the International Monetary Fund (IMF), the country’s real GDP growth is projected to slow down to 1.4% in 2022, while headline inflation is forecasted to reach 17% by the end of the year.

  • The negative impact of higher global food and fuel prices on the current account is expected to be partially offset by a gradual increase in tourism receipts with a recovery in international travel.
  • Gross international reserves, excluding the NOA account and commercial banks’ deposits, would reach $61.7 million (3.0 months of projected imports).

Medium-Term Outlook

The medium-term economic outlook remains positive, with real GDP growth projected to reach 4% in 2026, supported by better infrastructure and a stronger potential for tourism.

  • Inflation is expected to decline with global prices stabilizing.
  • Public debt remains a concern, with the country still in debt distress due to prolonged unsettled external arrears.

Challenges and Risks

However, the country’s macroeconomic outlook is subject to significant uncertainty and downside risks.

  • New COVID-19 variants pose risks to livelihoods and challenges to growth.
  • Inward spillovers from increasing international food and fuel prices may hinder the recovery, worsen power outages and inflation, and adversely impact revenues and implicit subsidies.
  • Public debt remains a concern, with some public debt indicators breaching the thresholds under the baseline scenario.

Debt Management

The authorities continue to actively engage with Angola, Brazil, and Equatorial Guinea to regularize their public debt and arrears.

  • The IMF has projected that the public debt-to-GDP ratio will decrease to 71% in 2027.
  • The general SDR allocation and the final extension for the DSSI provided some additional temporary relief.
  • The recovery of exports will help to lower liquidity risks of external debt with smaller debt threshold breaches.

Conclusion

Overall, while there are some positive signs on the horizon, São Tomé and Príncipe faces a challenging economic outlook in 2022, with growth expected to decline and inflation set to surge. The country must navigate these challenges carefully to ensure a sustainable and stable recovery.