Financial Crime World

Growth to Slow, Inflation to Soar in 2022 for São Tomé and Príncipe

The Democratic Republic of São Tomé and Príncipe is preparing for a challenging year ahead, with growth expected to decline and inflation on the rise. According to the International Monetary Fund (IMF), the country’s real GDP growth is forecasted to slow down to 1.4 percent in 2022, while headline inflation is projected to reach around 17 percent by the end of the year.

Macroeconomic Outlook

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 as international travel recovers. However, this will not be enough to stem the widening deficit, which is forecasted to reach around 14 percent of GDP.

  • The country’s gross international reserves, excluding the NOA account and commercial banks’ deposits, are expected to stand at US$61.7 million, equivalent to around 3 months of projected imports.
  • Despite these challenges, the medium-term economic outlook remains positive, with real GDP growth projected to reach 4 percent by 2026, supported by better infrastructure and a stronger potential for tourism. Inflation is also expected to decline as global prices stabilize.

Risks and Uncertainties

However, the macroeconomic outlook is subject to significant uncertainty and downside risks. New COVID-19 variants pose risks to livelihoods and challenges to growth, while inward spillovers from increasing international food and fuel prices may hinder the recovery and worsen power outages and inflation.

Public Debt and Fiscal Consolidation

Public debt is deemed sustainable, but the country remains in debt distress due to prolonged unsettled external arrears. The authorities have committed to continue fiscal consolidation, implement planned energy sector reforms, and borrow externally only on concessional terms and at a measured pace.

  • The IMF has projected that public debt-to-GDP ratio will decrease to 71 percent by 2027, with the general SDR allocation and the final extension for the DSSI providing some additional temporary relief.
  • The recovery of exports is expected to help lower liquidity risks of external debt and reduce breaches in debt thresholds.

Conclusion

While the outlook may seem bleak, São Tomé and Príncipe’s authorities are committed to implementing reforms and consolidating fiscal space to ensure a sustainable economic future for the country.