SÃO TOMÉ ANDPRÍNCIPE
Table 1

2023

Population, million

0.2GDP, current US$ billion

0.6

GDP per capita, current US$2651.6

International poverty rate ($2.15)

a15.7
a45.0

a79.7

Lower middle-income poverty rate ($3.65)
Upper middle-income poverty rate ($6.85)
Gini index

Key conditions andchallenges

a40.7

School enrollment, primary (% gross)b109.6b67.6

Total GHG emissions (mtCO2e)

0.4Life expectancy at birth, years

Source: WDI, Macro Poverty Outlook, and official data.
a/ Most recent value (2017), 2017 PPPs.
b/ Most recent WDI value (2021).

Crisis in the electricity sector and uncertainty in external concessional financing
pushed the economy into recession. GDP isestimated to have contracted by 0.5 percent.
Poverty rate is estimated at 15.8 percent.
GDP growth is projected to recover in themedium term, supported by tourism, agriculture, infrastructure, and renewed external financing. Risks result from delays inconcluding IMF program discussions,slow energy reforms, weather-related
shocks, and global geopolitical tensions.

São Tomé and Príncipe (STP) is a remoteand small island nation with untapped
natural wealth. STP is home to pristine
rainforests, a rich and unique biodiversity, and a humid tropical climate withabundant rainfall. Given its vast natural
wealth, agriculture, fisheries, and tourism
have significant potential to accelerate
growth in STP. However, STP's economic
and social development has been constrained by its small productive base,weak private sector, institutional fragility,and high vulnerability to climate shocks,
coupled with underdeveloped infrastructure, such as an unreliable power sector
and limited connectivity.
In the past, growth in STP was supported
by large inflows of external concessional
financing and grants, which have fueleda public investment-led growth model.
However, this growth model has become
unsustainable due to the structural decline and volatility of grants. As a result,
growth has slowed in recent years, further undermined by recurrent energy
crises, climate shocks, and surging commodity prices due to escalating global
geopolitical tensions.
Consequently, slow growth has hindered
progress in poverty reduction by restricting job opportunities and exacerbating
the vulnerability of the poorest. Moreover, excessive reliance on external concessional financing, low domestic revenue

mobilization, and high expenditure rigidity limited spending on human capital.
Thus, with limited access to basic services
and social protection, the poorest bear thebrunt of economic and climate shocks, facing increased difficulty in meeting their
daily needs given the rising living costs.
Nonetheless, the new government has
committed to implementing the needed
structural reforms to restore macroeconomic stability and promote growth,particularly energy reforms. Fiscal reforms have been initiated, including theintroduction of the value-added tax(VAT). The reform agenda is expected to
be backed by a forthcoming IMF program, which should also help mobilize
further concessional financing.

Recent developments
Real GDP is estimated to have contracted
by 0.5 percent in 2023 due to the aggravated energy crisis and fuel shortage that halted economic activity for two weeks, anddelays in external financing disbursements, partly explained by the longerthan-expected discussions on the upcoming IMF program. However, the recession
was mitigated by a strong recovery intourism: tourist arrivals peaked at 35,817
in 2023, above pre-pandemic levels.
The current account deficit is estimated tohave remained around 15.4 percent ofGDP in 2023, due to a due to higher imports bill and wider trade deficit.
Inflationary pressures eased despite theintroduction of VAT, as the Central BankFIGURE 1 São Tomé and Príncipe / Real GDP growth andcontributions to real GDP growth

FIGURE 2 São Tomé and Príncipe / Actual and projected
poverty rates and real GDP per capita

Percent (y/y)
86420-2-4-6-8-10-12-14
2019

Poverty rate (%)

2020

Agriculture
Services

2021

2022

2023f

2024f

2025f

19000

90

18500

80

18000

70

17500

60

17000

50

16500

40

16000

30

15500

2015000

1014500

02026f

14000
2010 2012 2014 2016 2018 2020 2022 2024 2026

Industry
Real GDP growth rate

Sources: São Tomé and Príncipe authorities' data, IMF and World Bank staff estimates.

MPO

Real GDP per capita (constant LCU)

100

International poverty rate

Lower middle-income pov. rate

Upper middle-income pov. rate

Real GDP pc

Source: World Bank. Notes: see Table 2.

1

Apr 24

of STP (BCSTP) tightened liquidity conditions and issued certificates of deposit
in May 2023, coupled with higher interest
rates on T-bills, and subdued domestic
demand. Inflation declined from 25.2 percent in 2022 to 21.2 percent in 2023, andthe monetary base (M0) contracted by
11.6 percent. However, delays in externalfinancing disbursements and high fuelrelated import demand depleted net international reserves, threatening the currency’s peg to the euro. The BCSTP responded by entering into a non-concessional foreign exchange swap agreementfor about US$30 million with Afreximbank to boost reserves, of which US$12million was disbursed. Although further
disbursement of grants supported net international reserves, the latter remain below one month of imports. The fiscal balance remained in deficit, estimated at -3.6
percent of GDP in 2023 primarily due toreduced grant disbursements, despite theintroduction of the VAT in June 2023 tosupport revenue mobilization.
As a result of these adverse macro-fiscal
conditions, the livelihoods of the poorest
deteriorated. The share of people thatwere living on less than US$2.15 per day(in 2017 PPP terms) is estimated to haveslightly increased to 15.8 percent in 2023,
from 15.6 percent in the previous year.

OutlookReal GDP growth is expected to recover
to 2.5 percent in 2024 and then 3.6 percent in 2026. Growth over the medium term is supported by a stronger
agricultural sector, including palm oiland cocoa exports, continued tourism
rebound, foreign investments, including
for increased electricity capacity and renewable energy projects, and resumption of externally funded infrastructure
projects, such as the rehabilitation of theMarginal Road.
The current account deficit is projected
to improve from 15.4 percent in 2023
to 12.6 percent in 2024 and 10.8 percent
in 2026 as the trade deficit narrows
with the drop in the cost of commodities (fuel and food), tourism continues to recover, and fiscal consolidation
weighs on the twin deficit of fiscal andexternal balances.

TABLE 2 São Tomé and Príncipe / Macro poverty outlook indicators

A tight monetary policy stance and lower
global commodity prices are expected toreduce inflation to 12.1 percent in 2024.
The resumption of externally financingdisbursements, an expected IMF-supported fiscal consolidation, and the full impact
of VAT implementation would improve
STP’s fiscal position in 2024. These measures are projected to contribute to an improvement in the domestic primary balance deficit from -2.7 percent in 2023 to 1.4
percent of GDP in 2024 and 1.6 percent ofGDP in 2026.
Risks to the outlook come from delaysin the new IMF program discussion, andrelatedly delayed external financing disbursements, slow implementation of energy reforms, and weather-related events.
Adverse developments in global commodity prices due to geopolitical tensions are also a risk factor. In addition,
the outlook for poverty alleviation in STP
remains uncertain and the share of people living in extreme poverty is projected to stagnate in the short term, with aslight decline in the medium-term. Whileeconomic recovery is projected in 2024,
the benefits may not reach the most vulnerable without concerted efforts.

(annual percent change unless indicated otherwise)

Real GDP growth, at constant market prices

2021
1.9

2022
0.1

2023e
-0.5

2024f
2.5

2025f
3.1

2026f
3.6Real GDP growth, at constant factor prices
Agriculture
Industry
Services

3.1
-0.3
-6.4
5.6

2.5
-13.6
6.4
3.1

-0.5
-12.4
-13.5
3.1

2.5
2.0
1.5
2.7

3.1
2.8
2.0
3.3

3.6
2.8
2.0
3.9

Inflation (consumer price index)

9.5

25.2

21.2

12.1

7.4

7.0

Current account balance (% of GDP)Net foreign direct investment inflow (% of GDP)

-19.2
3.5

-14.6
23.3

-14.1
3.5

-10.9
5.0

-9.6
5.7

-8.5
7.0

Fiscal balance (% of GDP)
Revenues (% of GDP)
Debt (% of GDP)
Primary balance (% of GDP)

-3.9
19.8
77.8
-3.7

-4.5
25.4
68.5
-4.0

-3.3
23.5
57.5
-2.4

-0.1
21.6
52.7
1.3

0.2
21.6
47.7
1.0

0.6
21.3
41.3
1.2

15.4
44.6
79.0

15.6
44.8
79.3

15.8
45.1
79.8

15.7
45.0
79.7

15.6
44.9
79.5

15.5
44.7
79.2

1.2
35.7

0.6
35.6

0.4
35.8

0.9
36.3

1.4
36.9

1.7
37.4

a,b

International poverty rate ($2.15 in 2017 PPP)a,b
Lower middle-income poverty rate ($3.65 in 2017 PPP)
a,bUpper middle-income poverty rate ($6.85 in 2017 PPP)
GHG emissions growth (mtCO2e)
Energy related GHG emissions (% of total)

Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD.
Notes: e = estimate, f = forecast.
a/ Projection using point to point elasticity at regional level with pass-through = 0.7 based on GDP per capita in constant LCU.
b/ Actual data: 2017. Nowcast: 2018-2023. Forecasts are from 2024 to 2026.

MPO2Apr 24