The World Bank in Sao Tome and Principe

Sao Tome and Principe has been a multiparty, semi-presidential, democratic system since its independence, and it has been a model for the democratic transition of power in Central Africa. The Independent Democratic Action (ADI) party, which holds 30 out of 55 parliamentary seats, has been mandated to govern from 2022 to 2026.

Economy
Sao Tome and Principe (STP) is a small, two-island, lower-middle-income country of approximately 960 square km. Despite its size and remote location, it has a significant untapped natural wealth, including pristine rainforests with a rich and unique biodiversity, which is favorable for nature-based tourism.

The country faces structural challenges typical of small, remote countries. Its small size and low population limit the development of large-scale economic activities, resulting in a small and undiversified productive base. Its remoteness and insularity increase trade costs and make it more vulnerable to terms-of-trade and climate shocks. Despite a GDP per capita of about $2,949, the country faces significant socio-economic vulnerability due to elevated poverty, income inequality (Gini index of 40.7), and a lack of employment opportunities, which in turn has been contributing to rising emigrations levels. Up to 45% of the population was living on less than $3.65 per day (2017 PPP), the international poverty line for lower-middle income countries like STP. This includes the 15.7% of the population living on less than $2.15 per day.

The business environment is hampered by weak infrastructure, particularly costly, unreliable electricity, fragile institutions, limited connectivity, and high vulnerability to climate shocks. Public finances are strained by the high cost of providing public services due to a lack of scale in the provision of public goods, compounded by low domestic revenue mobilization and declining external financing.

The country's development has been driven by externally financed public expenditure, but this growth model has become unsustainable due to the structural decline and volatility of grants. To grow sustainably, STP needs to promote a private sector-led growth model focused on improving human capital, infrastructure, and the business environment to unleash its potential.

Recent developments and outlook
Real GDP growth is projected at 1.1% in 2024 and projected to reach nearly 3.6% by 2026, driven by stronger agricultural exports, tourism growth, the expansion of infrastructure development projects, and energy reforms.

The fiscal balance remains in deficit, projected at -2.0% of GDP in 2024, but it is projected to improve in the medium-term with the resumption of external grant disbursements, the full impact of the VAT implementation, and anticipated fiscal consolidation. Inflationary pressures eased from Q2 2024 and inflation is projected at 16.1% in 2024 as the Central Bank of STP (BCSTP) tightens liquidity conditions. It is projected to decline to 7.5% by 2026.

The current account deficit (CAD) is estimated to remain large in 2024 but projected to slowly improve in the medium-term as the trade deficit narrows, supported by the implementation of expected energy reforms and subsequent decline in fuel imports, tourist arrivals, and agricultural exports growth. 

International reserves continued to decline in 2024 to finance energy imports, putting at risk the country’s fragile macroeconomic situation and its capacity to import. International reserves are projected to improve in the medium-term with the resumption of external financing and the implementation of energy reforms.

However, the economic outlook is subject to considerable uncertainty and downside risks. Delays in the implementation of urgent reforms could further undermine the government's fiscal position and foreign exchange reserves. The reduced availability of external financing, continued disruption of global supply chains, and climate-related events could weaken STP's prospects for growth and further impede poverty reduction.

Last Updated: Oct 09, 2024

World Bank Group engagement in the country is defined under the latest Sao Tome and Principe Country Partnership Framework (CPF) – FY2024-2029, endorsed by the World Bank Group Board in January 2024. The strategy has five pillars of engagement: 1) Improve access to more affordable and greener electricity; 2) Strengthen public financial management; 3) Improve access to education and skills; 4) Strengthen road and digital connectivity; and 5) Increase the climate resilience of coastal communities.

Through a highly selective and sequenced set of engagements focusing on the energy, digital, road transport, and education sectors, the Word Bank Group aims to address critical constraints to sustainable and inclusive growth and development in STP.

The current portfolio, funded by the International Development Association (IDA), has 12 projects with a total net commitment of $246.6 million.

Last Updated: Oct 09, 2024

To support STP’s digital transformation agenda, the Digital Sao Tome and Principe Project financed the revision of the country’s legal and regulatory framework for telecommunications, developed and began implementing the National Cybersecurity Strategy and Action Plan, built the capacity of the National Agency for the Protection of Personal Data (including digitalization of its information management and processes), upgraded the national data center, and strengthened the Ministry of Justice’s civil registry and ID management systems. Critically, the project has defined the technical specifications of the future submarine cable to Principe and is currently working on defining the financing and transactional design of the infrastructure. It is also working on implementing an interoperability platform for the government, digitalizing high-impact public services, introducing a digital ID and authentication layer, and establishing a CERT to help defend the country against cyber-attacks.

To support financial stability and strengthen tax administration, the Institutional Capacity Building Project financed an asset quality review of the banks in STP and financed the development of the value-added tax (VAT) system. As of December 2023, all four commercial banks licensed by the central bank were in compliance with capital and provisioning requirements, having corrected the deficiencies identified in the asset quality review. The aggregate non-performing loan ratio of the banking sector substantially reduced, following write-offs of impaired loans. The project has also financed necessary investments in a new IT system and in building the capacity of the tax authorities to manage the VAT system introduced in mid-2023: VAT collection in 2023 represented about 1% of GDP and more than 1,300 VAT taxpayers have been registered in the system.

Increasing reliable access to electricity - Sustainable power generation has been one of the chief challenges of STP. Through $28 million in financing from IDA, the STP Power Sector Recovery Project aims to increase the generation of renewable energy and improve the reliability of the electricity supply.

The preparatory phases of the project related to the rehabilitation of the Contador Hydroelectric Plant and network and metering improvements are nearing completion. Several major studies have now been concluded, including the design study of the Contador Hydropower Plant’s rehabilitation, which looked at innovative solutions to increase the capacity and availability of electricity services, as well as a Least Cost Power Development Plan (LCPDP). Studies have shown the need for additional financing to make the plant more sustainable and keep it in line with STP’s current and future needs for electricity.  

Helping coastal communities fight climate change - On average, around 30,000 people—13% of the population—are affected by flooding each year in STP. A wide range of adaptation options, which include protection, accommodation, and relocation, were implemented to reduce exposure to flooding in 12 coastal communities. The West Africa Coastal Areas Resilience Investment Project (WACA) benefits STP and six other countries in the region. Since the completion of construction in most of those communities, households that used to be affected by floods during heavy rains or storms report that their houses and property (including animals, canoes, and stocks of wood) are now protected, with flooding making less impact and floods lasting for a shorter time. Learn more about WACA beneficiaries in STP.

The STP Coastal Areas Resilience and Sustainable Tourism Project or WACA+  aims to enhance the resilience of coastal communities and boost sustainable tourism. With a total cost of 20 million ($14.4m from IDA and $4m from the PROBLUE Trust Fund), the project was approved in June 2024, and will be implemented until June 2029. It focuses on mitigating climate change impacts and leveraging tourism for economic growth. The project focuses on enhancing coastal community resilience to climate change through infrastructure improvements like sea walls and mangrove restoration, boosting sustainable tourism by developing eco-friendly infrastructure and promoting community-based initiatives to create economic opportunities while preserving the environment. It will also aim to build local institutional capacity through training, technical assistance, and regulatory framework development to ensure effective and sustainable project implementation.

Since 2020, the Girls Empowerment and Quality Education for All (PEREQT) Project has supported Sao Tome and Principe’s efforts to equip girls with life skills and improve student learning outcomes for all. As of July 2024, results achieved in the following areas comprise:

• 1,316 students participated in one of the 75 adolescent clubs established in 15 secondary schools, created to promote the acquisition of life skills and strengthen sexual and reproductive health education
• Rehabilitation of WASH facilities has started in seven out of the fifteen selected schools
• The country conducted its first international learning assessment. Students in grades 2 and 6 were assessed, with results published and disseminated.

The Social Protection and Skills Development  (PPSDC) Project, closing in December 2024, provided youth with market-relevant training in tourism and entrepreneurship, while also reaching women and safety net program beneficiaries. A hotel and tourism school has been established and has held training sessions since March 2023. Additionally, 43 secondary school teachers have been trained as entrepreneurship trainers, and 7,500 students have been trained in entrepreneurship. An agreement was established with the Instituto Superior de Educação e Comunicação (ISEC) to ensure the sustainability of the entrepreneurship training program.

Health  - The Social Protection COVID-19 Response and Recovery Project supported Sao Tome and Principe’s efforts to prevent, detect, and respond to the threat posed by COVID-19 and to strengthen national health systems for public health preparedness by providing support in the following areas:

• supporting the government’s goal to vaccinate 70% of the country’s population free of cost.
• Strengthening multi-sector, national institutions, platforms for policy development, and the coordination of prevention and preparedness, including the One Health approach.
• As of January 2023, the country had vaccinated 89.5% of its target population (from the age of 12) with at least one dose and 73.2% with two doses of the COVID-19 vaccines.

The Social Protection COVID-19 Response and Recovery Project focused on (i) strengthening the operational capabilities of the government to deliver social protection programs; (ii) supporting the Vulnerable Family Program (VFP)-COVID-19 for six months to mitigate the effects of COVID-19 (covering 16,000 households); and (iii) supporting the scale-up of the regular VFP. The VFP is a conditional cash transfer program targeting poor households, mainly those headed by women, that have at least one child below the age of 18 attending school. In 2023, the VFP expanded its coverage from 2,543 to 2,830 household beneficiaries, with 99% of these beneficiaries being female-headed households. Plans are underway to extend the VFP to 5,000 households in 2024, representing 30% of households in the bottom 40%.

Transport Sector Development and Coastal Protection - The Transport Development and Coastal Protection Project’s road rehabilitation component, linking Sao Tome to the City of Guadalupe, is complete. The work included upgrading the drainage system along the road length. The project also supported project affected people with training for women traders and the building of facilities for those working as car washers and clothing washers. The World Bank supports statistical capacity-building activities in STP through the components of three projects, worth a total of over $7.5 million: the STP Institutional Capacity Building Project (PRCI), approved in 2018 and closing in late 2024); the Digital Sao Tome and Principe Project (approved in 2022); and the Southern African Development Community Regional Statistical Project (SADC), (approved in 2023).

Key outputs from the PRCI project include: the 2018 household survey and resulting poverty and welfare measurements; the 2020 Enterprise Census; a renovation of the National Institute of Statistics’ headquarters and improvements in communication and information technologies; significant investments in staff capacity, including encouraging the acquisition of degrees in statistics and demography; and improvements to the national accounts’ methodology.

Statistical Capacity Building - The World Bank supports statistical capacity-building activities in STP through the components of three projects, worth a total of over $7.5 million: the STP Institutional Capacity Building Project (PRCI), approved in 2018 and closing in June 2025); the Digital Sao Tome and Principe Project (approved in 2022); and the Southern African Development Community Regional Statistical Project (SADC) (approved in 2023).

Key outputs from the PRCI project include: the 2018 household survey and resulting poverty and welfare measurements; the 2020 Enterprise Census; a renovation of the National Institute of Statistics’ headquarters and improvements in communication and information technologies; significant investments in staff capacity, including encouraging the acquisition of degrees in statistics and demography; and improvements to the national accounts’ methodology.

Last Updated: Oct 09, 2024

Sao Tome and Principe is highly aid-dependent but, given its size and insularity, has a limited donor presence. The World Bank, African Development Bank, European Commission, International Monetary Fund, and United Nations agencies work closely in the country and have strengthened their coordination mechanisms in support of the Paris Declaration and the Busan agenda in the country.

Last Updated: Oct 09, 2024