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Democratic Republic of São Tomé and Príncipe - 2016 Article IV Consultation, First Review under the Extended Credit Facility, and Request for Waiver for Nonobservance of Performance Criterion and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Exective Director for the Democratic Republic of São Tomé and Príncipe
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Democratic Republic of São Tomé and Príncipe: Staff Report for the 2016 Article IV Consultation, First Review Under the Extended Credit Facility and Request for Waiver for Nonobservance of Performance Criterion and Modification of Performance Criteria—Debt Sustainability Analysis Update

Author(s):
International Monetary Fund. African Dept.
Published Date:
June 2016
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Risk of external debt distress:HIGH
Augmented by significant risks stemming from domestic public and/or private external debt?NO

The update of analysis based on the joint IMF-World Bank debt sustainability framework (DSF) for low income countries shows that São Tomé and Príncipe is at a high risk of debt distress. The assessment of high risk of debt distress is unchanged from the previous Debt Sustainability Analysis (DSA). This update reflects US$14 million of planned new borrowing in 2016, recent economic data and forecasts, including a slightly lower than originally projected end-2015 debt stock out-turns. Debt ratios are projected to follow roughly the same trajectories as in the previous DSA. The risks continue manageable over the medium term if the authorities are able to move forward with a planned fiscal adjustment of 1.5 percent of GDP over 2016–18, and they stay committed to mainly grants and concessional borrowing to fund the public investment program from 2016 onwards.

A. Underlying Assumptions

1. The basic macroeconomic assumptions have changed little from those in the previous DSA. The long-term forecasts for growth, inflation and the primary deficit are essentially unchanged. Exports and imports growths are also unchanged belittling decline in their levels in 2015 with forward rippled effects. Moreover, there is a marked improvement in the long term current account deficit on account of lower commodities prices and slightly lower FDI.

Macroeconomic Assumptions (Averages)
2015 DSA12016 DSA
2015–352015–352016–36
Real GDP Growth (%)5.565.485.55
Inflation (average)3.233.173.07
Domestic Primary Deficit (% of GDP)−1.30−1.33−1.24
Grants (% of GDP)2.511.791.79
New Borrowing (% of GDP)1.531.861.37
FDI (% of GDP)9.728.558.75
US$ Export growth (%)7.166.657.43
US$ Import Growth (%)6.004.906.01
Current Account Balance, excluding grants (% of GDP)−24.99−20.18−19.43
Current Account Balance, including grants (% of GDP)−12.66−8.57−8.02

IMF Country Report No. 15/196, Supplement 2.

IMF Country Report No. 15/196, Supplement 2.

2. The 2016 DSA starts with a lower stock of external debt in comparison to the previous DSA because actual borrowing and disbursements in 2015 were lower than projected. Staff had projected US$35 million in new concessional borrowing in 2015. The actual new borrowing and disbursement of new loan in 2015 ended up US$5 million and US$20 million lower respectively. This resulted in a lower PV of debt-to-GDP ratio in 2015 under the current DSA. The HIPC initiative legacy arrears which were included in the historical stock of external debt but excluded from PV calculations in the previous DSAs on the assumption of expected forgiveness have been completely excluded in this DSA. Their exclusion does not impact debt trajectory.

B. External DSA

3. Like the previous DSA, the three solvency-based indicators remain significantly above their relevant indicative thresholds over the next few years (Figures 1 and 3). However, the PV of PPG external debt- to-exports and to-revenue ratios deteriorate slightly, prolonging periods of the breach of the thresholds by one year relative to the previous DSA. This is due mainly to the level effects of lower 2015 revenue and exports on their projected values. The PV of public and publicly guaranteed (PPG) external debt-to-GDP ratio follows broadly similar trajectory as in the previous DSA, breaching the thresholds until 2022 and remain below thereafter. All indicators of debt service remain below their respective thresholds while showing a modest improvement in the early years of projection relative to the previous DSA due to lower actual disbursements in 2015. Historical scenarios (Figure 1, red dashed lines) for all debt indicators present a generally more deteriorated picture than the previous DSA because of both lower growth and higher primary deficit in 2015. Large residuals in 2016–19 which are in line with recent history are mainly explained by net private financial inflows2, drawdown from the National Oil account and price changes.

Figure 1.São Tomé and Príncipe: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2016–36 1/

Sources: São Tomé and Príncipe authorities’ data; and IMF staff estimates.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2026. In figure b. it corresponds to a One-time depreciation shock; in c. to a Exports shock; in d. to a One-time depreciation shock; in e. to a Exports shock and in figure f. to a One-time depreciation shock

Figure 2.São Tomé and Príncipe: Indicators of Public Debt Under Alternative Scenarios, 2016–36 1/

Sources: São Tomé and Príncipe authorities’ data; and IMF staff estimates.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2026.

2/ Revenues are defined inclusive of grants.

4. Stress tests show the highest vulnerability of debt sustainability extends the period of breach of thresholds for a few additional years beyond those observed in the baseline (Figure 1, solid black lines).3 The export based indicators are most sensitive to exports shocks while the remaining indicators are most sensitive to a one-time depreciation shock.

C. Public DSA

5. There is essentially no difference between the external and public sector DSAs4. The debt indicators continue to rise throughout the projection period when real GDP growth and the primary balance are at historical averages (Figure 2, grey dashed line) or when the primary balance is unchanged from 2016 (Figure 2, red dashed line). These shocks highlight the importance of continued fiscal prudence to ensure debt sustainability and structural reforms to improve the business environment and thus support private sector led growth. Public debt-to-GDP is most sensitive to a worsening primary balance while the public debt and debt service-to-revenue ratios are most sensitive to worsening primary balance and a one-time 30 percent depreciation of the dobra.

D. Conclusion

6. São Tomé and Príncipe remains at a high risk of external debt distress. However, the country is able to service its current obligations and while some external debt indicators are projected to remain above their respective thresholds they show a clear downward trend in the long term. In this context, to mitigate risks, the DSA underlines the need for the authorities to:

  • Maintain an adequate level of international reserves to reinforce the peg and boost confidence in the wake of reduced oil prospects;
  • Maintain fiscal prudence, particularly in the run-up to the 2016 presidential elections;
  • Accelerate reforms to improve policy and institutional performance to enhance the growth potential of the country;
  • Ensure favorable financing terms in the form of grants or concessional borrowing; and
  • Develop and implement a comprehensive strategy to reduce the cost of doing business and attract private investment that can broaden the export base.

7. The biggest risks to external debt sustainability come from exchange rate shocks and shocks to export growth. Debt sustainability could also deteriorate in the event of sharp increase in the international prices of fuel and other commodities, raising the import bill and putting pressure on the current account. The risks appear manageable over the medium term if the authorities are able to move forward with the planned fiscal adjustment in the coming years and build international reserves buffer. The development of sound public debt management, anchored in a medium-term debt management strategy and medium-term fiscal framework, will be essential to guide prioritization of the future public investments and their financing.

Table 1.São Tomé and Príncipe: External Debt Sustainability Framework, Baseline Scenario, 2012–36 1/(Percent of GDP, unless otherwise indicated)
ActualHistorical 6/

Average
Standard 6/

Deviation
Projections
20122013201420152016201720182019202020212016–2021

Average
202620362022–2036

Average
External debt (nominal) 1/47.344.250.059.058.561.863.060.857.153.334.714.2
of which: public and publicly guaranteed (PPG)47.344.250.059.058.561.863.060.857.153.334.714.2
Change in external debt4.1−3.15.89.0−0.53.31.2−2.2−3.7−3.7−3.2−1.2
Identified net debt-creating flows11.95.011.813.68.47.15.41.7−3.3−4.3−4.3−6.1
Non-interest current account deficit20.912.921.316.423.26.111.612.111.99.98.67.67.25.16.5
Deficit in balance of goods and services−65.2−76.7−94.1−84.9−85.9−86.5−86.0−83.0−82.9−81.5−73.0−69.1
Exports12.717.826.225.325.125.325.325.325.425.324.824.9
Imports−52.5−58.9−67.9−59.6−60.7−61.1−60.7−57.7−57.5−56.2−48.3−44.2
Net current transfers (negative = inflow)−20.3−27.0−18.1−17.6−19.53.6−23.1−22.8−22.5−21.6−22.6−22.4−15.6−13.8−15.5
of which: official−18.4−18.4−10.6−11.4−17.3−17.0−16.7−15.8−16.8−16.6−9.6−7.1
Other current account flows (negative = net inflow)106.4116.6133.5118.9120.5121.3120.4114.4114.0111.495.988.0
Net FDI (negative = inflow)−8.3−1.5−5.6−6.3−15.012.0−1.2−2.7−4.0−5.6−9.2−9.4−9.9−10.6−10.1
Endogenous debt dynamics 2/−0.6−6.4−4.03.5−2.1−2.4−2.5−2.5−2.6−2.5−1.6−0.6
Contribution from nominal interest rate0.40.40.60.30.60.70.70.70.70.60.40.2
Contribution from real GDP growth−1.9−1.6−1.8−2.1−2.7−3.0−3.2−3.2−3.3−3.2−1.9−0.8
Contribution from price and exchange rate changes0.9−5.1−2.85.2
Residual (3-4) 3/−7.8−8.1−5.9−4.7−8.8−3.8−4.2−3.9−0.40.51.14.9
of which: exceptional financing0.00.00.00.00.00.00.00.00.00.00.00.0
PV of external debt 4/35.736.038.139.238.236.134.123.19.1
In percent of exports141.4143.4150.4155.1150.9142.1134.893.136.6
PV of PPG external debt35.736.038.139.238.236.134.123.19.1
In percent of exports141.4143.4150.4155.1150.9142.1134.893.136.6
In percent of government revenues257.4236.8254.3251.5229.1216.6203.6136.552.2
Debt service-to-exports ratio (in percent)7.35.13.23.24.94.84.87.57.77.37.34.5
PPG debt service-to-exports ratio (in percent)7.35.13.23.24.94.84.87.57.77.37.34.5
PPG debt service-to-revenue ratio (in percent)6.24.95.75.88.08.17.711.511.711.010.76.4
Total gross financing need (Billions of U.S. dollars)0.00.00.10.00.00.00.00.00.00.00.0−0.1
Non-interest current account deficit that stabilizes debt ratio16.816.015.57.512.18.810.712.112.311.410.46.3
Key macroeconomic assumptions
Real GDP growth (in percent)4.54.04.54.04.82.35.05.55.55.56.06.05.65.55.55.5
GDP deflator in US dollar terms (change in percent)−2.012.26.8−9.54.79.44.50.81.12.63.02.12.41.9−0.21.7
Effective interest rate (percent) 5/0.90.91.50.60.90.31.21.21.21.21.21.21.21.01.21.1
Growth of exports of G&S (US dollar terms, in percent)12.563.164.3−9.220.227.09.27.26.58.29.67.88.17.17.27.2
Growth of imports of G&S (US dollar terms, in percent)−7.330.828.6−17.414.322.011.87.05.82.98.85.77.05.05.85.6
Grant element of new public sector borrowing (in percent)42.748.947.747.350.351.048.055.051.853.9
Government revenues (excluding grants, in percent of GDP)15.018.314.913.915.215.015.616.716.716.716.917.417.1
Aid flows (in Billions of US dollars) 7/0.10.10.10.10.10.10.10.10.10.10.10.1
of which: Grants0.00.00.00.00.10.10.10.10.10.10.10.1
of which: Concessional loans0.00.00.00.00.00.00.00.00.00.00.00.0
Grant-equivalent financing (in percent of GDP) 8/19.119.618.717.017.416.910.17.49.7
Grant-equivalent financing (in percent of external financing) 8/83.984.586.289.193.595.596.296.696.4
Memorandum items:
Nominal GDP (Billions of US dollars)0.30.30.30.30.30.40.40.40.50.50.71.5
Nominal dollar GDP growth2.416.611.6−5.99.86.36.78.39.28.28.17.55.37.3
PV of PPG external debt (in Billions of US dollars)0.10.10.10.20.20.20.20.20.1
(PVt-PVt-1)/GDPt-1 (in percent)4.54.43.82.11.10.72.8−0.3−0.4−0.3
Gross workers’ remittances (Billions of US dollars)0.00.00.00.00.00.00.00.00.00.00.00.1
PV of PPG external debt (in percent of GDP + remittances)33.634.136.037.136.134.232.221.88.5
PV of PPG external debt (in percent of exports + remittances)113.7116.5122.5126.3123.0116.1109.974.928.8
Debt service of PPG external debt (in percent of exports + remittances)2.63.93.93.96.26.35.95.93.5
Sources: São Tomé and Príncipe authorities’ data; and IMF staff estimates.

Includes both public and private sector external debt.

Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Sources: São Tomé and Príncipe authorities’ data; and IMF staff estimates.

Includes both public and private sector external debt.

Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Table 2a.São Tomé and Príncipe: Sensitivity Analysis of Key Indicators of Public and Publicly Guaranteed External Debt, 2016–36 1/(Percent)
Projections
20162017201820192020202120262036
PV of debt-to GDP ratio
Baseline363839383634239
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/3636373740425272
A2. New public sector loans on less favorable terms in 2016-2036 2/3640424241392815
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-2018363942413836249
B2. Export value growth at historical average minus one standard deviation in 2017-2018 3/3640444340382610
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017-20183640444340382610
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/3641464543402811
B5. Combination of B1-B4 using one-half standard deviation shocks3639424138362510
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/3654565551483313
PV of debt-to-exports ratio
Baseline1431501551511421359337
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/143144146148157167211289
A2. New public sector loans on less favorable terms in 2016-2036 2/14315716716716015311560
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-20181431501551511421349336
B2. Export value growth at historical average minus one standard deviation in 2017-2018 3/14318122922320919814055
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017-20181431501551511421349336
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/14316418317816815911445
B5. Combination of B1-B4 using one-half standard deviation shocks1431501581541441369437
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/1431501551511421349336
PV of debt-to-revenue ratio
Baseline23725425222921720413652
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/237243236225239252310412
A2. New public sector loans on less favorable terms in 2016-2036 223726627225424423116985
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-201823726226724422921514454
B2. Export value growth at historical average minus one standard deviation in 2017-2018 3/23726628225724222715760
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017-201823726928225824222715258
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/23727629727125524016764
B5. Combination of B1-B4 using one-half standard deviation shocks23725926924523121614555
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/23736235932730828919373
Sources: São Tomé and Príncipe authorities’ data; and IMF staff estimates.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Sources: São Tomé and Príncipe authorities’ data; and IMF staff estimates.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Table 2b.São Tomé and Príncipe: Sensitivity Analysis of Key Indicators of Public and Publicly Guaranteed External Debt, 2016–36 1/(Percent)
Projections
20162017201820192020202120262036
Debt service-to-exports ratio
Baseline55588774
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/554777811
A2. New public sector loans on less favorable terms in 2016-2036 2/55588885
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-201855588774
B2. Export value growth at historical average minus one standard deviation in 2017-2018 3/556101110107
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017-201855588774
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/55588885
B5. Combination of B1-B4 using one-half standard deviation shocks55588775
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/55588774
Debt service-to-revenue ratio
Baseline888111211116
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016-2036 1/8871111111216
A2. New public sector loans on less favorable terms in 2016-2036 2/888121312127
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017-2018888121212117
B2. Export value growth at historical average minus one standard deviation in 2017-2018 3/888121212117
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017-2018899131312127
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017-2018 4/888121212118
B5. Combination of B1-B4 using one-half standard deviation shocks888121212117
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/81111161716159
Memorandum item:
Grant element assumed on residual financing (i.e., financing required above baseline) 6/4949494949494949
Sources: São Tomé and Príncipe authorities’ data; and IMF staff estimates.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Sources: São Tomé and Príncipe authorities’ data; and IMF staff estimates.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Table 3.São Tomé and Príncipe: Public Sector Debt Sustainability Framework, Baseline Scenario, 2013–36(Percent of GDP, unless otherwise indicated)
ActualEstimateProjections
201320142015Average 5/Standard 5/

Deviation
2016201720182019202020212016–21

Average
202620362022–36

Average
Public sector debt 1/44.250.059.058.561.863.060.857.153.334.714.2
of which: foreign-currency denominated44.250.059.058.561.863.060.857.153.334.714.2
Change in public sector debt−3.15.89.0−0.53.31.2−2.2−3.7−3.7−3.2−1.2
Identified debt-creating flows−6.86.98.31.32.80.7−2.8−3.8−3.0−2.0−0.1
Primary deficit0.05.58.69.95.56.95.43.91.50.40.63.10.30.50.3
Revenue and grants31.225.225.331.631.231.631.832.932.826.524.5
of which: grants12.910.311.416.416.216.015.116.216.09.67.1
Primary (noninterest) expenditure31.230.833.938.536.635.533.333.233.326.825.0
Automatic debt dynamics−6.91.3−0.3−5.6−2.6−3.3−4.2−4.2−3.5−2.3−0.6
Contribution from interest rate/growth differential−2.1−1.9−2.1−2.9−3.4−3.8−3.9−4.0−3.7−2.4−0.9
of which: contribution from average real interest rate−0.30.0−0.2−0.1−0.3−0.5−0.6−0.5−0.5−0.4−0.1
of which: contribution from real GDP growth−1.8−1.9−1.9−2.8−3.1−3.2−3.3−3.4−3.2−2.0−0.8
Contribution from real exchange rate depreciation−4.73.31.8−2.70.80.5−0.4−0.20.2
Other identified debt-creating flows0.00.00.00.00.00.00.00.00.00.00.0
Privatization receipts (negative)0.00.00.00.00.00.00.00.00.00.00.0
Recognition of implicit or contingent liabilities0.00.00.00.00.00.00.00.00.00.00.0
Debt relief (HIPC and other)0.00.00.00.00.00.00.00.00.00.00.0
Other (specify, e.g. bank recapitalization)0.00.00.00.00.00.00.00.00.00.00.0
Residual, including asset changes3.8−1.10.6−1.70.50.60.50.1−0.8−1.2−1.1
Other Sustainability Indicators
PV of public sector debt35.736.038.139.238.236.134.123.19.1
of which: foreign-currency denominated35.736.038.139.238.236.134.123.19.1
of which: external35.736.038.139.238.236.134.123.19.1
PV of contingent liabilities (not included in public sector debt)
Gross financing need 2/0.96.49.48.16.65.13.42.32.42.11.6
PV of public sector debt-to-revenue and grants ratio (in percent)141.1114.0122.2124.3120.0109.8104.086.937.1
PV of public sector debt-to-revenue ratio (in percent)257.4236.8254.3251.5229.1216.6203.6136.552.2
of which: external 3/257.4236.8254.3251.5229.1216.6203.6136.552.2
Debt service-to-revenue and grants ratio (in percent) 4/2.93.43.23.93.93.86.05.95.66.84.5
Debt service-to-revenue ratio (in percent) 4/4.95.75.88.08.17.711.511.711.010.76.4
Primary deficit that stabilizes the debt-to-GDP ratio3.1−0.3−0.47.32.12.73.74.14.33.51.7
Key macroeconomic and fiscal assumptions
Real GDP growth (in percent)4.04.54.04.82.35.05.55.55.56.06.05.65.55.55.5
Average nominal interest rate on forex debt (in percent)0.91.50.60.90.31.21.21.21.21.21.21.21.01.21.1
Average real interest rate on domestic debt (in percent)
Real exchange rate depreciation (in percent, + indicates depreciation)−10.47.83.8−3.37.3
Inflation rate (GDP deflator, in percent)8.56.98.312.67.46.30.11.12.22.42.62.52.82.82.8
Growth of real primary spending (deflated by GDP deflator, in percent)−27.33.114.6−0.910.319.20.22.4−1.15.96.35.51.35.53.6
Grant element of new external borrowing (in percent)42.748.947.747.350.351.048.055.051.8
Sources: São Tomé and Príncipe authorities’ data; and IMF staff estimates.

The analysis covers gross debt of the central government.

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Sources: São Tomé and Príncipe authorities’ data; and IMF staff estimates.

The analysis covers gross debt of the central government.

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Table 4.São Tomé and Príncipe: Sensitivity Analysis of Key Indicators of Public Debt, 2016–36
Projections
20162017201820192020202120262036
PV of Debt-to-GDP Ratio
Baseline363839383634239
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages3641454851536381
A2. Primary balance is unchanged from 20163639414344454754
A3. Permanently lower GDP growth 1/3638403937352618
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2017-20183639424240382817
B2. Primary balance is at historical average minus one standard deviations in 2017-20183643504846433114
B3. Combination of B1-B2 using one half standard deviation shocks3642484745433217
B4. One-time 30 percent real depreciation in 20173652524946433013
B5. 10 percent of GDP increase in other debt-creating flows in 20173643444340382711
PV of Debt-to-Revenue Ratio 2/
Baseline1141221241201101048737
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages114130141150152159230317
A2. Primary balance is unchanged from 2016114125131135133136178222
A3. Permanently lower GDP growth 1/1141231251221121079770
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2017-201811412513012711811310568
B2. Primary balance is at historical average minus one standard deviations in 2017-201811413815815213913211656
B3. Combination of B1-B2 using one half standard deviation shocks11413515114613512911869
B4. One-time 30 percent real depreciation in 201711416716315414013211252
B5. 10 percent of GDP increase in other debt-creating flows in 201711413813913412311710046
Debt Service-to-Revenue Ratio 2/
Baseline44466675
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages4446771015
A2. Primary balance is unchanged from 2016444666811
A3. Permanently lower GDP growth 1/44466676
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2017-201844466676
B2. Primary balance is at historical average minus one standard deviations in 2017-201844477676
B3. Combination of B1-B2 using one half standard deviation shocks44477676
B4. One-time 30 percent real depreciation in 2017455998107
B5. 10 percent of GDP increase in other debt-creating flows in 201744466675
Sources: São Tomé and Príncipe authorities’ data; and IMF staff estimates.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

Sources: São Tomé and Príncipe authorities’ data; and IMF staff estimates.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

1The DSA update was prepared by IMF and World Bank staff in collaboration with the authorities of São Tomé and Príncipe. The analysis updates the previous Joint DSA dated June 24, 2015 (IMF Country Report No. 15/196, Supplement 2). The DSA follows the IMF and World Bank Staff Guidance Note on the Application of the Joint Fund-Bank Debt Sustainability Framework for Low-Income Countries (November 5, 2013). The DSA uses the unified discount rate of 5 percent set out in Decision No 15462 (October 11, 2013). São Tomé and Príncipe’s CPIA score of 3.05 classifies it as a weak performer. The corresponding indicative thresholds are: 30 percent for the NPV of debt-to-GDP ratio; 100 percent for the NPV of debt-to-export ratio; 200 percent for NPV of debt-to-revenue ratio; 15 percent for the debt service-to-exports ratio; and 18 percent for the debt service-to-revenue ratio.
2The stock of private sector external debt is not included in the DSA as there is no reliable data.
3In the previous DSA, the country’s debt stock indicators were most vulnerable to non-debt flows shocks while debt service indicators were most vulnerable to exports and one-time depreciation shocks.
4Fuel products supplier (ENCO)’s domestic claims on the central government were not included pending the conclusion of formal review to establish the definitive amount.

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