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Country Economic Memorandum for Sao Tome and Principe - Background Note 2 : Is it Sustainable for Sao Tome and Príncipe to Have a Large Current Account Deficit and a Fixed Exchange Rate?

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collection.link.76
https://openknowledge.worldbank.org/handle/10986/2184
collection.name.76
Country Economic Memorandum
dc.contributor.author
Arteta, Carlos
dc.contributor.author
Kirby, Patrick
dc.date.accessioned
2019-07-29T21:21:24Z
dc.date.available
2019-07-29T21:21:24Z
dc.date.issued
2019-06-26
dc.date.lastModified
2019-07-30T05:10:57Z
dc.description.abstract
Is it sustainable for São Tomé and Príncipe to have a large current account deficit and a fixed exchange rate peg? Sao Tomé and Príncipe (STP) pegs its currency, the dobra, to the euro and has both persistent current account deficits and a persistent inflation differential with the Euro Area. In other countries, these characteristics have proved to be unsustainable over time, as rising debt and a worsening trade imbalance leads to the abandonment of the peg. This note examines whether this might be the case in STP, and finds that, despite some vulnerabilities, there does not appear to be an immediate threat to the peg, as the country’s current account deficits seem to be determined not by its trade balance but by its capital balance, which is largely sustained by inflows of aid and remittances. This background note has four sections: the first examines the general theoretical conditions for the sustainability of exchange rate pegs, the second assesses whether these conditions exist or are relevant for STP, a small, open economy with a small financial sector, and the third provides analysis of the drivers of the country’s current account deficit. Policymakers could mitigate risks to the peg by broadening the country’s revenue base, developing a domestic debt market, and diversifying exports.
en
dc.identifier
http://documents.worldbank.org/curated/en/751241562907012780/Country-Economic-Memorandum-Background-Note-2-Economic-Growth-and-Volatility-Is-it-Sustainable-for-Sao-Tome-and-Príncipe-to-have-a-Large-Current-Account-Deficitand-a-Fixed-Exchange-Rate
dc.identifier.uri
http://hdl.handle.net/10986/32141
dc.language
English
dc.publisher
World Bank, Washington, DC
dc.rights
CC BY 3.0 IGO
dc.rights.holder
World Bank
dc.rights.uri
http://creativecommons.org/licenses/by/3.0/igo
dc.subject
CURRENT ACCOUNT DEFICIT
dc.subject
FIXED EXCHANGE RATE
dc.subject
TRADE BALANCE
dc.subject
CAPITAL INFLOWS
dc.title
Country Economic Memorandum for Sao Tome and Principe - Background Note 2
en
dc.title.subtitle
Is it Sustainable for Sao Tome and Príncipe to Have a Large Current Account Deficit and a Fixed Exchange Rate?
en
dc.type
Report
en
okr.date.disclosure
2019-07-12
okr.doctype
Economic & Sector Work :: Country Economic Memorandum
okr.doctype
Economic & Sector Work
okr.docurl
http://documents.worldbank.org/curated/en/751241562907012780/Country-Economic-Memorandum-Background-Note-2-Economic-Growth-and-Volatility-Is-it-Sustainable-for-Sao-Tome-and-Príncipe-to-have-a-Large-Current-Account-Deficitand-a-Fixed-Exchange-Rate
okr.googlescholar.linkpresent
yes
okr.identifier.externaldocumentum
090224b086e2ab71_1_0
okr.identifier.internaldocumentum
31202136
okr.identifier.report
139085
okr.imported
true
en
okr.language.supported
en
okr.pdfurl
http://documents.worldbank.org/curated/en/751241562907012780/pdf/Country-Economic-Memorandum-Background-Note-2-Economic-Growth-and-Volatility-Is-it-Sustainable-for-Sao-Tome-and-Príncipe-to-have-a-Large-Current-Account-Deficitand-a-Fixed-Exchange-Rate.pdf
en
okr.region.administrative
Africa
okr.region.country
Sao Tome and Principe
okr.topic
Finance and Financial Sector Development :: Capital Markets and Capital Flows
okr.topic
Finance and Financial Sector Development :: Currencies and Exchange Rates
okr.topic
Macroeconomics and Economic Growth :: Economic Conditions and Volatility
okr.topic
Macroeconomics and Economic Growth :: Macroeconomic Management
okr.unit
EFI - AFR2 - MTIC - 2 (EA2M2)

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