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São Tomé and Príncipe Economic Update Summary

Core Content

This report provides a comprehensive analysis of São Tomé and Príncipe's economic performance, challenges, and prospects, with a focus on the role of state-owned enterprises (SOEs) in driving private sector-led growth and job creation.

Main Messages

Economic Recovery and Outlook

• In 2024, São Tomé and Príncipe's economy showed signs of recovery from the severe energy crisis that limited growth in 2023.
• Real GDP growth is estimated at 1.1% in 2024.
• Economic growth is projected to accelerate in the coming years, reaching 2.9% in 2025 and averaging 3.8% over 2025–2027.
• Inflation is expected to ease, with annual inflation averaging 14.5% in 2024, down from 21.4% in 2023.
• The current account deficit decreased from 12.3% of GDP in 2023 to 1.9% in 2024.
• The government aims to achieve a domestic primary surplus of 3.4% of GDP by 2027.

Structural Challenges

• The economy is fragile and faces challenges typical of small island developing states (SIDS).
• Growth is externally driven, relying heavily on official development assistance (ODA), which has declined.
• The labor market is small and weak, pushing many young people to seek opportunities abroad.
• Unemployment and underemployment are high, with nearly half of the youth neither working nor studying.
• Infrastructure limitations, including poor physical and digital connectivity, hinder economic development and job creation.

SOEs' Role and Performance

• SOEs play a crucial role in providing essential services and driving economic growth.
• The SOE sector consists of 10 companies where the state owns more than 10%.
• EMAE (Electricity and Water Company) is the largest SOE and a major contributor to fiscal risks due to its financial and operational inefficiencies.
• In 2023, 64% of SOEs reported losses, with EMAE being the main cause.
• EMAE's debt to ENCO is estimated at 23% of GDP in 2024, reflecting a financial burden on the government.
• The energy crisis and unreliable electricity supply have slowed economic progress and increased fiscal stress.

Key Views

Economic Activity

• From 2004–08, GDP growth averaged 6.3%.
• The global financial crisis (2009–2018) reduced growth to 3.5%.
• 2019–2024 saw a decline to 1.3% due to multiple shocks, including the energy crisis, COVID-19, geopolitical turmoil, and natural disasters.
• Tourism and improved electricity supply contributed to the 1.1% growth in 2024.
• The lack of foreign currency and government spending cuts continued to constrain economic activity.

Labor Market

• The employment rate for people aged 15 and above was 21.4% in 2024, much lower than the SSA average of 65.9%.
• Most workers are in low-productivity sectors like agriculture and small-scale retail.
• The private sector is unable to absorb the growing number of young workers, leading to high emigration rates.
• Poverty remains high, with 15.8% of the population estimated to be living in poverty in 2023, unchanged from a decade ago.

Prices and Inflation

• Inflation declined in 2024 but was still high, starting from a high base due to multiple shocks since 2020.
• Inflation averaged 21.4% in 2023 and 14.5% in 2024, with a sharp drop from April to October due to improved foreign currency availability and declining international food prices.
• After October 2024, inflation stagnated due to rising imported food prices.
• Food inflation is a major contributor to overall inflation.

External Sector

• The current account deficit decreased significantly in 2024, from 12.3% to 1.9% of GDP.
• Cocoa prices and tourism exports increased, while fuel imports decreased, reducing the deficit.
• The trade-in-goods deficit averaged 35% of GDP from 2010 to 2023, mostly covered by ODA.
• Services exports have become a key source of growth, with tourism accounting for 65% of total services exports in the first three quarters of 2024.
• Fuel imports remain a major cost and fiscal burden, with fuel import costs increasing by US$13 million in 2023.

Monetary Policy and Financial Sector

• The currency peg to the euro has helped stabilize inflation, which fell from 17.4% in 2011 to 3.5% in 2017.
• The exchange rate system has provided economic stability and certainty, especially for agricultural exports.
• Inflationary pressures since end-2021 have weakened the currency peg, increasing import costs and trade deficits.
• The central bank implemented measures to reduce excess liquidity, including issuing Certificates of Deposits (CDs).
• Credit to the economy (excluding central government) recovered in 2025, growing in real terms for the first time since late 2019.

Fiscal Policy

• The fiscal deficit in 2023 was driven by reduced external grants despite consolidation efforts.
• Reforms and tighter expenditure controls helped achieve a fiscal surplus in 2024.
• Contingent liabilities from SOEs continue to pressure public finances.
• Fiscal sustainability is challenged by the financial instability of EMAE and other SOEs.

Key Information

SOE Landscape

• São Tomé and Príncipe has 10 SOEs, with 4 sole proprietorships in key services.
• EMAE is the main SOE, responsible for electricity and water supply.
• EMAE's financial situation is critical, with high debt and operational inefficiencies.

Financial Performance

• In 2023, 64% of SOEs reported losses, with EMAE being the main contributor.
• EMAE's debt to ENCO reached 23% of GDP in 2024.
• Fiscal risks from SOEs are significant, with contingent liabilities and loss-making SOEs continuing to strain public finances.

Reform Efforts

• Reforms are necessary to improve SOE efficiency and reduce fiscal burdens.
• The report highlights the importance of performance management and corporate governance.
• Policy recommendations include improving transparency, enhancing financial discipline, and strengthening the legal and regulatory framework.

Risks

• Slow energy reforms could hinder growth.
• Fluctuating donor support poses a threat to the growth model.
• Natural disasters and external shocks continue to affect economic stability.

Conclusion

• Urgent and in-depth reforms within the SOE sector are essential for improving efficiency, reducing fiscal risks, and enhancing economic stability.
• These reforms are crucial for attracting foreign investment, reducing corruption, and supporting private sector growth and job creation.
• The government must address structural constraints and improve governance to achieve higher and more inclusive growth.