Washington, Oct. 21, 2024 (Lusa) - The International Monetary Fund (IMF) on Monday announced a technical agreement for financial assistance to Sao Tome and Principe to implement a new 40-month economic reform programme involving a "significant initial budgetary adjustment".
"The IMF team and the authorities of São Tomé and Príncipe have reached a technical agreement on economic policies and reforms that will be supported by a new 40-month programme under the Extended Credit Facility, updating the agreement reached last year," reads the statement sent to Lusa, which states that the programme has yet to be approved by the board.
In the statement, the IMF says that the programme "includes a significant initial budgetary adjustment, which at the same time protects the most vulnerable", and adds that the programme now agreed also includes "short-term reforms in the electricity sector and medium-term structural reforms to facilitate the transition to green energy and unlock the country's growth potential".
The Fund warns that "the initial and ambitious budget adjustment is crucial to lower public debt and rebalance the economy under a fixed exchange rate", but emphasises that "it is designed with care to protect the vulnerable".
Stressing that the programme, which is upgraded from US$20 million to US$25 million (€23 million), still has to be approved by the board, the IMF points out that "the authorities' ambitious reform programme aims to restore macroeconomic stability while extending the foundations for faster and more inclusive growth."
Among the conditions agreed with the IMF, the Portuguese-speaking archipelago "will make greater efforts to strengthen tax and customs administration and to rationalise budget spending, creating space to implement growth-accelerating programmes that will help put public debt on a downward path".
Advocating the importance of concessional financing so as not to worsen indebtedness, the IMF points out that the programme "will urgently implement short-term reforms to deal with the crisis in the electricity sector, which should relieve pressure on public debt and foreign currency reserves".
Among the ‘specifications’ presented to the government, the IMF also points out that, "to prevent illicit fuel subsidies and contain budgetary risks, the authorities will apply the fuel price adjustment mechanism on a truly automatic basis, every month".
Last year, São Tomé and Príncipe's real Gross Domestic Product (GDP) growth was 0.4 %, after growing by just 0.2 % in 2022.
In recent years, "the country has been hit by multiple shocks, whose impact on the economy continues to be felt," said the IMF mission chief to the archipelago, Slavi Slavov, quoted in the statement.
The IMF official warns that the programme will only go ahead if São Tomé and Príncipe "implements several reforms and confirms the necessary financing guarantees from the country's development partners".
Since taking office in December 2022, the São Toméan government has been negotiating a credit programme with the IMF, but the parties had not reached an understanding that would allow the Fund's staff to present a proposal to the board for approval.
On several occasions the São Toméan prime minister has said that the lack of an agreement with the IMF "has conditioned the execution of the public investment programme and continues to negatively impact net international reserves", the level of imports of goods and services and, "ultimately, economic activity" in the archipelago.
In June, after an IMF technical team finished a mission to São Tomé, Patrice Trovoada said that he would not accept the proposal to increase the price of fuel and electricity in exchange for a financial agreement, so as not to worsen the social situation in the archipelago.
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