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Economic Growth Expected to Decline in 2022 as Inflation Soars

The Democratic Republic of São Tomé and Príncipe is preparing for a challenging economic environment in 2022, with growth expected to slow down to 1.4 percent and inflation reaching a staggering 17 percent by the end of the year.

Impact of Global Price Increases

According to the International Monetary Fund (IMF), the negative impact of higher global food and fuel prices will:

  • Weaken transportation and commercial services
  • Slow fishing and agriculture activities
  • Widen the current account deficit to about 14 percent of GDP

Macroeconomic Outlook

The IMF has projected that gross international reserves, excluding the NOA account and commercial banks’ deposits, will reach $61.7 million by the end of 2022, equivalent to 3.0 months of projected imports.

However, despite the challenges, the medium-term economic outlook remains positive, with real GDP growth expected to recover in 2023 and reach 4 percent by 2026. The recovery is expected to be supported by:

  • Better infrastructure
  • A stronger potential for tourism

Short-Term Inflation Expectations

In the short term, inflation is expected to decline as global prices stabilize.

Debt Management

The strengthening of revenues, phasing out pandemic-related spending, and consolidating the Debt Payments Budget (DPB) will put public debt on a downward trajectory.

However, public debt remains sustainable, but the country remains in debt distress due to prolonged unsettled external arrears. The authorities continue to actively engage with Angola, Brazil, and Equatorial Guinea to regularize outstanding debts.

Debt Sustainability

Under the baseline scenario, public debt is expected to decrease to 71 percent of GDP by 2027. The recovery of exports is expected to help lower liquidity risks of external debt, and the present value of public and publicly guaranteed debt is expected to return to below the debt sustainability analysis thresholds associated with the country’s weak debt-carrying capacity.

Fiscal Consolidation and Reforms

The authorities are committed to:

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