- IMF staff reached staff-level agreement with Cabo Verde on the Fourth Review of the Extended Credit Facility (ECF) and the First Review of the Resilience and Sustainability Facility (RSF).
- The ECF-supported program aims to: strengthen public finances and put debt on a downward path; reduce fiscal risks from public enterprises and improve their financial management; modernize the monetary policy framework and improve resilience of the financial system; and raise the growth potential. The RSF supports the government efforts to implement macro-critical climate reforms and catalyze private finance for climate adaptation and transition.
- Performance under the program has been strong, with all performance criteria, non-quantitative continuous performance criteria, indicative targets and structural benchmarks met. Reform Measures 1 and 3 under the RSF arrangement have been completed.
Praia, Cabo Verde: An International Monetary Fund (IMF) team led by Mr. Justin Tyson, IMF mission chief for Cabo Verde, visited Praia from May 2 to May 10, 2024, to hold discussion with the authorities on the fourth review of Cabo's Verde economic program supported by the IMF and the first review under the Resilience and Sustainability Financing (RSF). The SDR 45.03 million (about $63.3 million), 36-month Extended Credit Facility was approved by the Board on June 15, 2022. The 18-month, SDR 23.69 million (about $31.69 million) Resilience and Sustainability Facility was approved by the Board on December 11, 2023.
At the conclusion of the mission, Mr. Tyson issued the following statement:
"I am pleased to announce that the IMF team and the Cabo Verdean authorities have reached staff-level agreement on the policies needed to complete the Fourth Review under the ECF-supported program and the First Review of the RSF arrangement. Subject to approval by the IMF Executive Board in the coming weeks. Cabo Verde will receive a disbursement of SDR 4.50 million (approximately US$ 5.94 million) and SDR 5.264 million (approximately US$ 6.95 million), respectively."
"Cabo Verde continues to recover well from recent shocks. The authorities have successfully maintained macroeconomic and financial stability and remain committed to the program objectives. Macroeconomic performance was strong in 2023 with growth at 5.1 percent, low inflation, and a prudent level of international reserves to protect the peg. The public debt-to-GDP ratio continues on a downward path, reflecting high growth and a record 2023 fiscal primary surplus.
"Performance under the ECF was strong. All quantitative performance criteria (QPCs) for end-December 2023 were met, as well as the non-quantitative continuous PCs. The indicative targets (IT) for end-September and end-December 2023 were met and the structural benchmarks (SBs) for end-December 2023 were met. The Reform Measures 1 and 3 under the RSF arrangement have been completed.
"Cabo Verde's near-term economic outlook remains favorable but has moderated from recent highs. Real GDP growth is projected at 4.7 percent in 2024 as export growth (especially services) normalizes following the return to the pre-pandemic levels of visitor arrivals. The economy is projected to converge to potential growth of 4.5 percent by 2028. Inflation is forecast at 2 percent in 2024 and over the medium-term, broadly in line with Euro area inflation.
"The fiscal position improved significantly in 2023 driven in part by under execution of investment and higher revenues. Economic activity and policy measures supported an increase in tax revenues. Overall revenues expanded due to collection of the one-off airport concession fee. The underperformance of capital spending and slower growth in the wage bill and acquisition of goods and services, helped contain the overall primary expenditure growth rate. As a result, the primary balance registered a 20-year high surplus of 2 percent of GDP in 2023.
"The mission welcomed the Monetary Policy Committee (MPC) decision to raise the policy rate by a further 25 basis points on 9 May 2024 and narrow the differential with the ECB policy rate – the mission agrees this is an important measure to protect reserves. Data for end-December 2023 suggests that the financial system is liquid, profitable, and well capitalized.
"The outlook is subject to downside risks as Cabo Verde is highly vulnerable to external shocks (geopolitical and climate). An abrupt global slowdown or recession would negatively impact on tourism due to weakened demand in major tourism markets. Significant fiscal risks could also stem from the failure to advance State-Owned Enterprise reforms. The country's high level of debt is a source of vulnerability. Continued reliance on concessional financing to limit debt servicing cost is necessary. Financial stability risks may arise from large sovereign exposures, high non-performing loans for some banks, and high credit and deposits concentration for most banks. The effects of climate change—droughts, sea level rise, and natural disasters—will affect the country's long-term outlook via damage to coastal infrastructure and tourism. On the upside, stronger tourism growth could lead to higher overall economic activity.
"The IMF team is grateful to the Cabo Verdean authorities and other counterparts for the productive discussions, hospitality, openness and candid discussions and congratulates them for these achievements and reaching a staff-level agreement under the ECF and the RSF arrangements."
