PRAIA, March 21, 2025 - The Government of Cabo Verde (GoCV) is undertaking a series of reforms to strengthen fiscal sustainability and accelerate inclusive economic growth. According to the new Public Finance Review (PFR) released today by the World Bank, securing these reforms requires a more efficient fiscal policy that enhances domestic revenue mobilization and improves the quality of public spending.
The report, titled "Enhancing Fiscal Sustainability in the Face of Shocks," analyzes the performance of public finances between 2019 and 2023, within a context of successive external shocks and ongoing economic recovery. It provides concrete policy options to help the GoCV create additional fiscal space - estimated at between 3.65% and 4.15% of GDP - through revenue and expenditure reforms and by reducing fiscal risks, especially those stemming from state-owned enterprises (SOEs).
"The finalization of the PFR - a core World Bank Group diagnostic - reaffirms our commitment to supporting Cabo Verde with timely and in-depth analytical work to inform strategic fiscal decisions. This report offers concrete, actionable recommendations to support ongoing efforts for a more sustainable fiscal path that promotes growth and protects the most vulnerable," said Indira Campos, World Bank Group Resident Representative for Cabo Verde.
The PFR outlines several priority measures to expand fiscal space. On the revenue side, the report highlights the importance of reducing the tax gap - currently at about 10 pp of GDP. Measures to address this include reassessing tax incentives that have led to significant foregone revenue, including revisiting VAT exemptions, improving direct taxation, and exploring the untapped potential of health and environment taxes.
On the expenditure side, the report emphasizes the importance of improving the efficiency of goods and services spending, reviewing subsidies, and ensuring the sustainability of recent social protection reforms. Strengthening public investment management and modernizing public procurement systems are also areas with high potential for fiscal savings and improved development outcomes.
The report places a particular focus on SOEs, whose liabilities and government support continue to pose considerable fiscal risks. Strengthening governance, transparency, and financial discipline in SOEs - as well as accelerating the restructuring of loss-making entities - is seen as critical to reducing fiscal pressures and reallocating resources toward more productive investments.
The PFR shows that well-designed fiscal policy can serve as an anchor of macroeconomic stability, supporting a credible national budget, a sustainable debt path, and better prospects for inclusive growth, job creation, and long-term development in Cabo Verde.
