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International Monetary Fund. African Dept.

92780 • Washington, D.C. 20090 Telephone: (202) 623–7430 • Fax: (202) 623–7201 E-mail: Web: Price: $18.00 per printed copy International Monetary Fund Washington, D.C . © 2022 International Monetary Fund Title page DEMOCRATIC REPUBLIC OF SÃO TOMÉ AND PRÍNCIPE SELECTED ISSUES March 14, 2022 Approved By Vivek Arora Prepared By Koffie Nassar, Felipe Bardella, and Ke Wang Contents HUMAN CAPITAL AND INFRASTRUCTURE FINANCING GAP A. Introduction B. Stylized Facts C. Human Capital and

International Monetary Fund. African Dept.

Human Capital and Infrastructure Financing GAP 1 This Selected Issues Paper (SIP) uses the dynamic macroeconomic Sustainable Development Goals (SDGs) financing framework to estimate the infrastructure financing gap in São Tomé and Príncipe (STP). Human capital and infrastructure investments are key strategic priorities of STP’s National Development Plans. 2 We will: i) estimate STP’s human capital and infrastructure gap in 2030 based on the authorities’ current policies; ii) estimate how active policies—improved domestic revenue mobilization, enhanced

International Monetary Fund. Asia and Pacific Dept

infrastructure financing gaps of the country, the authorities raised the public debt threshold from 30 percent of GDP to 35 percent to allow borrowing for future capital investment needs. The authorities remain committed to ensure future borrowings are affordable and in line with the spirit of the debt management framework. Currently, public debt stands at 11 percent of GDP. Monetary and financial sector policies The Central Bank of Solomon Islands has announced it will continue its accommodative monetary policy in view of the low inflation environment, weak credit

Donald Kaberuka

and tight government revenue will be critical for a speedy recovery. Modern agriculture, services, and industry depend on infrastructure. Failing to fill the infrastructure financing gap will entrench Africa’s position as a competitive laggard when global economic activity recovers. Here again, the private sector has a key role. Over the past two decades, there has been a significant shift in both industrialized and developing countries toward more private sector provision and financing of infrastructure—but this has happened least of all in Africa. The AfDB will

International Monetary Fund. African Dept.

and infrastructure, and strengthening resilience to shocks. In this respect, the authorities welcome staff’s assessment in the Selected Issues Paper (SIP). They broadly agree that addressing the large human capital and infrastructure financing gap is essential to meet the SDGs by 2030. To this end, they see merit in implementing the VAT in 2022 to improve revenue mobilization, complemented by efforts to enhance spending efficiency and foster private investment, will be critical to help close the financing gap. Given the size of the latter, external support is also

International Monetary Fund. African Dept.

of economic activities; (ii) expediting the issuance of permits for small businesses; (iii) strengthening the legal framework for enforcement of contracts; (iv) increasing access to electricity, predominantly in rural areas; (v) upgrading the movable collateral registry; and (vi) improving credit access by SMEs. Further, they will advance efforts to bridge the infrastructure financing gap with a view to foster broad-based growth, accelerate the implementation of the Financial Deepening and Inclusion Strategy (2016–22), and revamp the implementation of the