Overview

Country Overview

The Republic of Sao Tome and Principe is a lower middle income, developing small island state with a fragile economy. It is highly vulnerable to exogenous shocks. An archipelago comprising of two main islands and four islets, the country is located in the Gulf of Guinea, 350 km off the west coast of Africa. With a surface area of 1,001 sq. km, this Portuguese-speaking country has a population of 197,900 people and a Gross National Income (GNI) per capita of $1,670 in 2014.

Political Context

Sao Tome and Principe is a multiparty, semi-presidential, democratic system since its independence. The Independent Democratic Action Party (ADI) won an absolute parliamentary majority following the 2014 elections. This presents the first opportunity in over a decade for political stability in the country since the government can have a full four-year term in office. The ruling party currently occupies 148 out of 180 seats in the National Assembly.

Presidential elections were held July 2016, with Evaristo do Espirito Santo Carvalho, a member of ADI, won 50.1% of the votes but fell slightly short of a majority. A run-off election was held, however, incumbent president Manuel Pinto da Costa withdrew. Carvalho took office September 2, 2016.

Social Context

In the 2012-13 Second Poverty Reduction Strategy (PRSP-II) implementation review report, the government acknowledged that the reduction of poverty rates since 2000 has been marginal. Currently it is estimated that 62% of the population is impoverished. Urban poverty is high compared to rural poverty due to limited employment opportunities, notably for youth.

Sao Tome and Principe performs higher than the Sub-Saharan Africa average on the UNDP Human Development index, and has made good progress in improving other social indicators. It has a gross primary school enrollment of 110%, a life expectancy of 66 years, a mortality rate of children under five years old of 51 per 1,000 live births, access to an improved water source for 97% of the population, and access to electricity for 60% of the population.

Sao Tome and Principe met the Millennium Development Goals (MDGs) on universal primary education, promoting gender equality and empowering women, improving maternal health, and combating HIV/AIDS, TB, malaria and other diseases.

Economic Overview

Sao Tome and Principe is a small island economy with no single economic activity that serves as a driver of growth. Historically, agriculture has been a strongly performing sector, with exports of cocoa, coffee, and palm oil increasing in recent years. However, it hasn’t compensated for the growth of imports. Tourism is an important and growing activity, but it isn’t able to support growth on an economy-wide basis. Gross domestic product (GDP) growth has averaged over 4%per year since 2012, faster than many small island states. Inflation also fell sharply from 28%to about 4%, the lowest in the past two decades.

The country experiences structural and recurrent current account deficits, mostly due to a large share of domestic spending on imports, and a small export base. Despite the challenges of dealing with a structurally uneven balance of payments, net international reserves have been kept stable at a comfortable level.

Most goods consumed in Sao Tome and Principe are imported links domestic price fluctuations to those of international prices, oil prices being the most notable exception since fuel prices are fixed. Risks to inflation from the monetary side were greatly reduced after the country pegged its currency to the Euro. In fact, domestic inflation has been converging to euro area levels.

Fiscal management has historically been an area of difficulty. Low domestic revenue mobilization coupled with weak capacity in public finance management, the importance of government expenditure and the volatility of donor aid has led the country to register budget deficits and payment arrears.

Development Challenges

In the foreseeable future, Sao Tome and Principe will continue to face significant challenges to overcome insularity, small market size, vulnerability to natural shocks and climate change, limited human capital, and scarce tradable resources to generate sustainable and inclusive growth and reduce poverty.

Sao Tome and Principe ranks 42th out of 175 countries in the 2015 Transparency International corruption perceptions index (place is shared with Montenegro). Sao Tome and Principe ranks 166rd out of 189 economies in the 2016 Doing Business report, down three spots from 2015.

Last Updated: Oct 17, 2016

World Bank Group Engagement in Sao Tome and Principe

The Bank’s Country Partnership Strategy (CPS) for Sao Tome and Principe covers the period FY 2014 - FY 2018 and is aligned with the country’s PRSP-II. The strategy has two pillars of engagement: (i) supporting macroeconomic stability and national competitiveness; and (ii) reducing vulnerability and strengthening human capacity. A Performance and Learning Review (PLR) for Sao Tome and Principe will be prepared in the second half of FY16. The exercise will be followed by the preparation of a Systematic Country Diagnostic (SCD) and a Country Partnership Framework (CPF) in FY17 and FY18 respectively.

The International Development Association’s (IDA) 2017 allocation for Sao Tome and Principe amounts to about $15 million. The World Bank portfolio currently stands at two projects with a total net commitment of $8.77 million, of which 57.1% is disbursed. There are also active Trust Funds that finance activities to improve power sector efficiency, the financial sector, the social protection system, the business climate, extractive industries transparency (EITI), and adaptation to climate change.

Last Updated: Oct 17, 2016

Providing Quality Education for All

The International Development Association (IDA) financed the Quality Education for All project, which supports the implementation of the government’s education and training plans. The project helps the government enhance the quality of education for all by improving the system of in-service teacher training, and by strengthening education human resource management.

The operation was approved by the World Bank Group Executive Board on December 20, 2013, for an amount of $900,000, and an additional financing of $3.5 million was approved on June 27, 2014. The project is co-financed by a multiple donor Trust Fund for an amount of $1.1 million. The project became effective in May 2014 and good progress is being made in the implementation of the planned activities.

Increasing the Adaptive Capacity of Vulnerable Coastal Communities

The Global Environment Facility (GEF) Least Developed Country Fund financed the Adaptation to Climate Change Project, which supports the implementation of the government’s National Adaptation Program of Action (NAPA) in vulnerable coastal communities. The operation was approved by the GEF on June 20, 2011, for a total amount of $4.1 million; an additional financing of $6 million has been included in the GEF pipeline for approval in late 2016/early 2017. The project is showing encouraging results: the number of fishermen lost at sea was reduced significantly after the introduction of the safety at sea program; the early warning system has been improved with SMS-based alerts, daily weather bulletins, a free weather line, and more regular communication via radio. A marine meteorological station - a first in Sao Tome and Principe - has been installed and four of the most vulnerable coastal communities (Santa Catarina, Ribeira Afonso, Malanza and Praia Burra) have benefited from flood protection works and improved drainage.

Last Updated: Oct 17, 2016

Sao Tome and Principe is highly aid-dependent but given its size and insularity it has a limited donor presence. International partners such as the World Bank, the African Development Bank, the European Commission, the International Monetary Fund, and the United Nations agencies have strengthened their coordination mechanisms in order to further the Paris Declaration and the Busan agenda in the country. Dialogue among the agencies has increased with the joint organization of a donor round table to foster private investment which was held in London in October 2015.

Last Updated: Oct 17, 2016


LENDING

Sao Tome and Principe: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments