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São Tomé and Príncipe Economic Outlook

Macroeconomic performance

Real GDP growth was an estimated 4.1% in 2018, up from 3.9% in 2017, bolstered by increased foreign direct investment supporting the construction sector in development projects.

The fiscal balance switched to an estimated surplus of 0.3% of GDP in 2018, from a deficit of 2.6% in 2017, driven by increasing revenue and declining total spending, particularly capital spending. Public debt (42.1% of which was foreign debt) was an estimated 51.7% of GDP in 2018. São Tomé and Príncipe was classified as being in debt distress in 2018 because of outstanding external arrears. To promote private credit growth, the central bank reduced the benchmark interest rate to 9% in 2017 and set the minimum reserve requirement at 18%. As a result, private credit increased by 2.2% in 2018 from 2017, to 139.4 million dobras. Inflation was an estimated 6.8% in 2018, up from 5.7% in 2017.

Overdependence on imports for private consumption continues to create imbalances. But the current account deficit narrowed to an estimated 6.7% of GDP in 2018 from 8.2% in 2017. Cocoa beans and coconut accounted for 90.8% of the country’s total exports in 2018, with the European Union being the main market. The Netherlands alone accounted for 45.3% of total exports in 2018. Angola is São Tomé and Príncipe’s main trading partner in Africa, accounting for about 4% of exports and 91.6% of imports as of June 2018.

Real GDP growth is projected to be 4.6% in 2019 and 5.0% in 2020, thanks to strong performance in the construction, services, and agriculture sectors. Increased public investment, supported mainly by external resources, will also boost growth. The medium-term outlook projects that inflation will decline to 5.5% in 2019 and 4.5% in 2020. The current account deficit is projected to stabilize at around 7% in 2019 and 2020.

Tailwinds and headwinds

Downside risks to the economic outlook include an economic slowdown in Europe, the country’s main export market. São Tomé and Príncipe’s high rate of nonperforming loans (25% of total loans in 2018) could further weaken the banking sector and curtail credit expansion. The 4.8% increase in wages and salaries granted in 2018 reduced fiscal space and could exacerbate debt vulnerabilities. As an archipelago state,

São Tomé and Príncipe is fragile and vulnerable to climate change. Building climate resilience will require additional resources and donor support. The high cost of energy, which is produced largely from fossil fuels, is a major constraint to private development. The government’s plans to invest in renewable energy could alleviate this constraint. São Tomé and Príncipe is a member of the Economic Community of Central African States (ECCAS) and the Community of Portuguese Speaking Countries and is part of the Central Africa configuration in the negotiations for an Economic Partnership Agreement with the European Union. It is currently seeking membership with the World Trade Organization and the Central African Economic and Monetary Community. Despite membership in regional economic communities, São Tomé and Príncipe continues to struggle to reap tangible benefits from effective regional economic integration because of its geographic remoteness from mainland Africa and global markets. The country’s limited variety of tradable goods and high transportation costs prevent it from achieving the same degree of competitiveness as its competitors. On the 2016 Africa Regional Integration Index, São Tomé and Príncipe ranked as a top performer in free movement of persons among ECCAS countries. This can be attributed to the removal of visa requirements for some African nationals.