Since the beginning of the COVID-19 outbreak, multilateral development banks have stepped up trade finance programs to support essential imports and key exports
The COVID-19 pandemic is expected to cause the economy to contract sharply by 6.5 percent this year
WASHINGTON D.C., United States of America, July 1, 2020/ -- The COVID-19 pandemic is expected to cause a sharp
real economic contraction of 6.5 percent in 2020 and raise large health
and social needs; Program performance under the Extended Credit Facility (ECF) had a good start, but progress has been hampered by the pandemic
and some policy slippages prior to the crisis; The IMF mission reached a staff-level agreement on measures needed to alleviate the crisis this
year, support a speedy recovery, and maintain macroeconomic and
financial stability over the medium term.
A staff team from the International Monetary Fund (IMF), led by
Xiangming Li, held a virtual mission during June 15 – June 30, 2020 for
the first review of São Tomé and Príncipe’s economic program supported
by the IMF ECF arrangement. [1] At the end of the mission, Ms. Li issued the following statement:
“The IMF team and the authorities of São Tomé and Príncipe reached a
staff level agreement on measures for the completion of the first review under the ECF arrangement and augmentation of the program subject to
approval by the IMF Executive Board. The IMF Executive Board is
tentatively scheduled to consider this first ECF review in late July
2020.
“The authorities of São Tomé and Príncipe have developed an appropriate
plan to address the COVID-19 crisis. They have worked with international development partners to contain the local outbreak and provided
assistance to vulnerable households, laid-off workers and businesses. A
small solidarity contribution was collected from workers who were
relatively unaffected to help finance the costs.
“This program review focused on meeting the country’s immediate needs
and discussed measures to facilitate quick recovery. In this context,
the fiscal deficit target for 2020 has been revised to accommodate
higher health spending and provide social support to the vulnerable
population, laid-off workers, and hard-hit enterprises in the tourism
sector. This disbursement is also increased to totaling about US$4.5
million to meet the immediate need.
“To lay the foundation for recovery, the structural reform agenda
focused on continued reform of the utility company, EMAE, to improve the country’s energy security and reduce debt vulnerability. To support
much needed social and investment spending, the mission advised the
authorities to complete the preparation for the transition to a VAT in
2021. To support the recovery of the tourism sector, the mission advised the authorities to develop a plan to remove the country from the EU Air Safety List of banned operators.
“The COVID-19 pandemic is expected to cause the economy to contract
sharply by 6.5 percent this year. This is after the growth rate declined to 1.3 percent in 2019 due to delays in externally-financed projects.
The tourism sector is expected to recover partially in 2021, when GDP is projected to grow by 3 percent. The uncertain outlook of the pandemic
means there are significant near-term risks.
“Program performance had a good start, as end-December 2019 performance
criteria were met. However, further progress has been hampered by the
pandemic and some policy slippages.
“The mission welcomed the authorities’ commitment to fiscal
consolidation and structural reforms after the crisis, which are
critical for reducing balance of payment pressures and debt
vulnerability. The recent publication of signed public contracts and
monthly COVID-related spending is welcome. The authorities should ensure that all contracts and monthly COVID spending be published in a timely
manner and in its entirety including annexes.
“Banking supervision needs to be strengthened and continued efforts to
reduce the large stock of nonperforming loans will be essential for
banks to provide much needed financing to support economic recovery. In
this context, it is encouraging that arbitration tribunals for these
loans are expected to be operational by the end of 2020.
“The mission also welcomed the authorities’ plans to improve the
business environment, promote gender equality, and adapt to climate
change. These reforms could expedite the recover and promote sustainable and inclusive growth over the medium term.”
During the virtual mission, the IMF team met with Minister of Planning,
Finance, and the Blue Economy Osvaldo Vaz; Minister of Foreign Affairs
Elsa Pinto; Minister of Public Works and Infrastructure Osvaldo Abreu;
Minister of Labor, Solidarity, Family, and Professional Training
Adlander de Matos; Minister of Health Edgar Neves; Minister of Justice
Ivete Correia; Minister of Agriculture Francisco Ramos; Governor of the
Central Bank Américo Soares De Barros; senior government officials,
representatives of the private sector, including banks, and the
international donor community. The team extends its appreciation to the
authorities and all participants for their support and cooperation.
[1] The ECF is a lending arrangement that provides sustained
engagement over the medium to long term in case of protracted balance of payments problems.
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