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public accounts, with the approval of the framework law on government finance and a new budget classification.

The government forged ahead with other structural reforms to improve the business climate and strengthen governance. In that connection, the arbitration law was promulgated and an arbitration center set up. The anti-money laundering law was submitted to the National Assembly for approval along with the tax reform law, which seeks to reduce some tax rates and to simplify the procedures for making tax payments.

    • 2.2

      Economic Outlook for 2007

    • 1.

      The economic outlook for 2006 remains positive overall. The outlook is particularly good for external debt relief, which would fundamentally enhance the country’s external credibility.

  • 2.

    The current outlook for the Sãotomean economy points to moderate growth in economic activity for 2007. After an 8-percent growth in GDP in 2006, a rate of 7 percent is projected for 2007, which will be a reflection of the structural reforms initiated at end-2006.

  • 3.

    The goal of budgetary policy for 2007 will continue to be budget tightening, the ultimate goal being to reduce the primary deficit to 12 percent of GDP.

  • 4.

    Like budgetary policy, monetary policy for 2007 will continue to be restrictive, with a view to maintaining price stability by making more active use of monetary and exchange policy instruments.

  • 5.

    In 2007, contrary to previous years, the dynamics of the Sãotomean economy may be positively influenced by the possible removal of one of the imbalances that had accumulated in recent years and had largely hampered the country’s economic growth, namely the public debt. However, given the continued high level of inflation and, consequently, the current interest rate hikes, there will be an increase in the burden of debt service on household expenses and a reduction in the purchasing power of their income, which factors will determine the growth of private consumption. On the other hand, the imbalance in the budget and the resulting need to contain public sector spending will involve limited growth of consumption and public investment.

6. In addition, despite the high growth rate of the principal markets to which the country exports, two international phenomena may be particularly problematic for the Sãotomean economy: (i) the rise in oil prices accompanied by the economy’s heavy

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