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São Tomé and Príncipe’s Economy Shows Resilience Amidst COVID-19 Challenges

Despite the ongoing pandemic, São Tomé and Príncipe’s economy has demonstrated remarkable resilience in 2020. The country’s GDP growth rate slowed down to -1.8 percent in 2019, but rebounded to a more moderate pace in 2020, supported by fiscal stimulus measures.

Fiscal Stimulus Measures

The Central Bank of São Tomé and Príncipe (BCSTP) played a crucial role in maintaining liquidity and the exchange rate peg. Initially, the bank implemented measures such as lowering reserve requirements and discount rates for its liquidity facility. However, these measures were reversed by year-end due to:

  • Persistently high excess liquidity
  • Non-performing loans eroding capital buffers
  • Deteriorating asset quality

Economic Performance

Credit growth to the private sector decelerated to -3 percent (year-on-year) in Q1 2021, indicating a slight slowdown in economic activity. However:

  • Total revenue increased by 69 percent of GDP, largely due to stronger-than-expected revenue performance and lower current spending

Structural Reforms

Progress on structural reforms has been slow but encouraging, including:

  • Publishing COVID-related expenditure reports and adjudication notices to increase transparency
  • Maintaining retail fuel prices, generating revenues to pay back longstanding arrears
  • Ongoing preparations for introducing Value-Added Tax (VAT), although delayed due to contract negotiations with the VAT system developers

Challenges

However, energy sector reforms and removing São Tomé and Príncipe from the EU air safety list have been slow to progress, mainly due to:

  • Weak capacity
  • COVID-related restrictions
  • Structural benchmarks on organic and financial institutions laws are also progressing, but at a slower pace than expected

International Monetary Fund (IMF) Assessment

The IMF has praised São Tomé and Príncipe’s efforts in meeting its program performance targets, including:

  • End-December 2020 Quarterly Performance Criteria (QPCs)
  • Inflation Targeting (ITs)

The IMF has also commended the authorities for their commitment to transparency and accountability.

Conclusion

Overall, São Tomé and Príncipe’s economy has shown remarkable resilience in the face of COVID-19 challenges. While there are still areas for improvement, the country is making progress towards achieving its development goals.