The Republic of Sao Tome and Principe (STP) is a lower middle income, developing, small island state with a fragile economy. It is highly vulnerable to exogenous shocks. An archipelago divided into six districts and the Autonomous Region of Príncipe (Região Autónoma do Príncipe), it 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 more than 215,000 people, and a Gross National Income (GNI) per capita of $1,960 as of 2019.
The October 7, 2018 elections results reinforced the notion of Sao Tome and Principe being a model of democratic alternation in Central Africa. The Movement for the Liberation of Sao Tome and Principe – Social Democrat Party (MLSTP-PSD) now leads the government, thanks to a post-election agreement with the coalition PCD-MDFM-UDD, which gives them a majority in parliament.
The National Assembly is comprised of 55 seats, of which 25 are currently held by the Independent Democratic Action Party (ADI), 23 by the MLSTP-PSD, five by the coalition PCD-MDFM-UDD and two by the Sao Tome and Principe Independent Citizen Movement (MCISTP).
Despite methodological issues, there is a consensus that poverty incidence has not changed significantly between the last two household surveys (2000 and 2010). Recent World Bank estimates show that about one-third of the population lives on less than the international poverty line of $1.90 per day, and more than two-thirds of the population is poor, using the World Bank higher poverty line of $3.20 per day. Urban areas and southern districts such as Caué and Lembá have higher levels of poverty incidence.
STP performs higher than the Sub-Saharan Africa average on the UNDP Human Development index and has made progress 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.
STP faces challenges that are typical of small and insular states and affect its ability to deal with shocks and achieve a balanced budget. The limited number of people and workers in the country often prevent the efficient production of goods and services at the scale needed to meet the demand of both local and export markets. Its remoteness and insularity increase export costs, and the limited availability of land and small workforce prevent the country from diversifying its economy, making it more vulnerable to terms-of-trade shocks. The indivisibility in the production of public goods, and the difficulty of providing services to a scattered population imply a high cost of public goods and a high level of public expenditures.
STP has grown driven by agriculture, tourism, oil-fueled foreign direct investment, but mostly by government expenditure propelled by external aid and government borrowing.
Gross domestic product (GDP) grew at an average rate of 4.5% between 2010 to 2018 but has been decelerating since 2014. Economic growth was further hit in 2018 and 2019 by fuel and power shortages, government arrears to local suppliers, and crowding out of domestic financing. The negative shocks that started in 2018 continued to affect the performance of the economy in 2019. Real GDP growth rate is estimated to have slowed down to 2.4% in 2019 from 2.7% in 2018. Agriculture and fisheries have been affected by weather shocks, agricultural pests, and fuel and power shortages. STP is expected to suffer from a severe economic downturn as a result of the slump in tourism due to the COVID-19 (coronavirus) pandemic.
The pandemic has severely affected STP’s economy, primarily through losses in the tourism industry. STP’s economy was hit by a near-total drop in foreign tourist arrivals since early March. The tourism industry, which has been a driver of private sector growth in recent years and is responsible for a large share of formal employment, came to a stand-still, resulting in a loss of labor earnings, foreign exchange and fiscal revenues. While prior to the COVID-19 pandemic, growth in STP was expected to recover modestly in 2020, the disruptions caused by it are expected to result in a GDP contraction of 9.5% in 2020, which will be the first recession for STP since 1990. The Bank is supporting STP by providing quick financial assistance (including an already approved $2.5 million grant) and additional financing for social protection program. A new budget support operation around the third quart of 2020 would help to meet the government’s urgent financing need.
Last Updated: Jul 21, 2020