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São Tomé and Príncipe’s Economy Expected to Decline in 2022, Inflation to Reach 17%

The Democratic Republic of São Tomé and Príncipe is bracing for a challenging economic year ahead. According to the International Monetary Fund (IMF), the country’s economy is expected to decline by 1.4 percent in 2022 due to sharp increases in imported commodity prices, higher freight and maritime costs.

Causes of the Economic Decline

  • Sharp increases in imported commodity prices
  • Higher freight and maritime costs
  • Negative impact of global food and fuel price hikes on the current account

Impact on the Current Account

  • Partially offset by a gradual increase in tourism receipts as international travel recovers
  • Projected to reach 14 percent of GDP, widening the deficit

Inflation Expectations

  • Expected to soar, reaching around 17 percent (year-on-year) by the end of December 2022
  • Pressure on consumers and businesses alike, making it difficult for them to operate in a sustainable manner

Gross International Reserves

  • Projected to reach $61.7 million, equivalent to three months of projected imports
  • May not be enough to cushion the impact of the economic downturn

Medium-Term Outlook

  • Real GDP growth expected to reach 4 percent by 2026
  • Recovery likely to be delayed until next year due to ongoing challenges

Downside Risks

  • New COVID-19 variants
  • Inward spillovers from increasing international food and fuel prices
  • Extended global supply chain disruptions
  • Delays in revenue reforms

Public Debt Concerns

  • Public debt-to-GDP ratio projected to decrease to 71 percent by 2027
  • Country remains in debt distress due to prolonged unsettled external arrears

Authorities’ Commitments

  • Continue fiscal consolidation
  • Implement planned energy sector reforms
  • Borrow externally only on concessional terms and at a measured pace

Recovery Prospects

  • Export recovery expected to help lower liquidity risks of external debt
  • Better infrastructure and stronger potential for tourism as key drivers of growth

Conclusion

Despite the challenges, the IMF has expressed optimism about the country’s medium-term prospects. However, policymakers must take swift action to address the current economic headwinds and navigate the road ahead.