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- GDP (PPP):
- $0.6 billion
- 4.0% growth
- 4.2% 5-year compound annual growth
- $3,072 per capita
- Inflation (CPI):
- FDI Inflow:
São Tomé and Príncipe’s economic freedom score is 53.6, making its economy the 137th freest in the 2018 Index. Its overall score has decreased by 1.8 points, with a steep drop in fiscal health and declines in the tax burden and investment freedom indicators overwhelming a significant improvement in judicial effectiveness. São Tomé and Príncipe is ranked 26th among 47 countries in the Sub-Saharan Africa region, and its overall score is below the regional and world averages.
Problems confronting São Tomé and Príncipe’s small, poor island economy include inflation, fiscal indiscipline, unsustainable subsidies, and a lack of foreign direct investment. Although some positive steps have been taken to improve the business climate and corporate taxes have been cut, a lack of commitment to open-market policies impedes growth in trade and investment, and institutional weaknesses constrain overall economic freedom. Widespread corruption and a weak judicial system undermine long-term economic development.
This former Portuguese colony’s sugar-based economy gave way to coffee and cocoa in the 19th century. Independence was achieved in 1975, but democratic reforms were not instituted until the late 1980s. Evaristo Carvalho won the presidency in 2016 in a runoff election marred by accusations of irregularities and a boycott by incumbent President Manuel Pinto da Costa, who was finishing a second, nonconsecutive five-year term. Carvalho ally Patrice Trovoada is prime minister. Cocoa production, an economic mainstay, has declined in recent years because of drought and mismanagement, but there is potential for tourism. The country is developing oil fields in the Gulf of Guinea jointly with Nigeria, but whether the project will prove commercially viable is unclear.
The legal framework covers all types of private property ownership, but protection of property rights is not effective, and enforcement of contracts is anemic. The judicial system, based on the Portuguese model, is nominally independent, but it is also weak and susceptible to political influence. Enforcement of anticorruption laws is reportedly ineffective, and many citizens believe that some officials are corrupt, especially the police.
The top personal income tax rate is 20 percent, and the corporate tax rate is a flat 25 percent. Other taxes include sales and dividend taxes. The overall tax burden equals 27.8 percent of total domestic income. Over the past three years, government spending has amounted to 31.9 percent of total output (GDP), and budget deficits have averaged 4.8 percent of GDP. Public debt is equivalent to 92.8 percent of GDP.
The government has taken steps to facilitate investment and improve the business environment in recent years. São Tomé and Príncipe adopted a minimum wage for the private sector in 2016, but the extent of its impact on employment is not yet clear. An automatic fuel pricing mechanism was introduced in late 2016, but whether there is sufficient political will to implement it fully is likewise not yet clear.
São Tomé and Príncipe’s average applied tariff rate is 9.1 percent. Nontariff barriers impede some trade. Government openness to foreign investment is above average. The financial sector is underdeveloped and does not provide much access to banking services for a large portion of the population.