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Economic Update: São Tomé and Principe

Staff Report from the International Monetary Fund (IMF)

São Tomé and Principe, an island nation off the coast of West Africa, faces significant economic challenges. This staff report provides an overview of the country’s economic situation, including its debt, fiscal policy, and medium-term projections.

Key Economic Indicators

  • Public Debt: São Tomé and Principe has a significant public debt, which is deemed unsustainable due to prolonged unsettled external arrears. The public debt-to-GDP ratio is projected to decrease to 71% in 2027.
  • Fiscal Policy: 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.
  • Economic Growth: São Tomé and Principe’s economic growth is expected to decline in 2022 due to external shocks, but is projected to recover in the medium term, reaching 4% in 2026.
  • Inflation: Inflation is expected to increase in 2022, reaching 17% by end-December, before declining in the medium term.
  • External Account: The current account deficit is expected to widen in 2022 due to higher global food and fuel prices, but will be partially offset by a gradual increase in tourism receipts.
  • Reserves: Gross international reserves are projected to reach $120 million by end-2022, which is sufficient to cover about 4 months of imports.
  • Reforms: The authorities continue to engage with creditors to regularize external arrears and implement planned energy sector reforms.

Outlook and Recommendations

While São Tomé and Principe faces significant economic challenges, the government’s commitment to fiscal consolidation and structural reforms is expected to support a medium-term recovery. To achieve this goal, the authorities should:

  • Continue to implement planned energy sector reforms
  • Regularize external arrears with creditors
  • Borrow externally only on concessional terms and at a measured pace

By addressing these challenges and implementing effective policies, São Tomé and Principe can improve its economic prospects and promote sustainable growth.