IMF Executive Board Completes Third Review Under Policy Coordination Instrument for Cabo Verde

  • The economic impact of the COVID-19 shock has been significant, with an estimated output contraction of 14 percent in 2020, and lingering effects in 2021. Therefore, addressing the health crisis will remain a priority while policy actions will also aim to support the projected recovery.
  • Execution of the 2021 budget will seek to strike a balance between accommodating pressing health and development needs and supporting medium-term debt sustainability as Cabo Verde remains at a high risk of debt distress.
  • Cabo Verde’s Policy Coordination Instrument (PCI) will expire soon, with important gains for the authorities’ broad reform agenda. Despite challenges generated by the pandemic, program performance for the third review was satisfactory.
  • Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the third and final review under the Policy Coordination Instrument for Cabo Verde (PCI).[1]The Executive Board’s decision was taken without a formal meeting.[2]

    The PCI for Cabo Verde was approved by the Executive Board on July 15, 2019 (Press Release No. 19/278). Its implementation supported the authorities’ medium-term objectives for fiscal and debt sustainability and for broader growth-enhancing reforms under their Strategic Plan for Sustainable Development (PEDS). Policies and reforms in recent years, through the beginning of the pandemic, helped deliver higher growth, maintain low inflation, improve fiscal and external positions, and put the ratio of public-debt-to GDP on a declining trend.

    Performance under the PCI has remained satisfactory throughout the program period despite challenges generated by the COVID-19 pandemic. All quantitative targets for end-September 2020 and non-quantitative continuous targets were met. All, but two reform targets (RT) set under the PCI were observed, most of them ahead of the program schedule. There has been important progress on the two remaining RTs, expected to be completed this year.

    The Cabo Verdean economy has been hit hard by the COVID-19 pandemic. Economic activity is estimated to have contracted by 14 percent in 2020 due to the global economic downturn, travel restrictions and domestic containment measures that significantly reduced activities in the major sectors of the economy. Policy and social protection measures taken by the authorities are supporting the economy and helping the most vulnerable groups address the impact of the pandemic.

    The authorities’ COVID-19 response plan received financial support from Cabo Verde’s development partners, including the IMF through the Rapid Credit Facility (Press Release No. 20/184) totaling SDR 23.70 million (about US$32.3 million, 100 percent of quota).

    The fiscal framework underpinning the 2021 budget addresses the lingering effects of the pandemic while setting the stage for the resumption of a declining path for public debt, after the surge caused by the economic impact of the pandemic.

    The economic outlook remains challenging and uncertain. Real GDP growth is projected to rebound to 5.8 percent in 2021 and to average around 6 percent in the medium term. However, there are significant downside risks, most notably the evolution of the pandemic and its global ramifications.

    In addition, economic prospects depend on key factors, including: a firm global economic rebound, the resumption and increase of tourism and capital flows to Cabo Verde; the execution of large externally-financed infrastructure projects delayed by the pandemic, decisive implementation of structural reforms, notably to restructure State-Owned enterprises and to facilitate access to finance particularly for small and medium-sized enterprises, and policies to support macroeconomic stability.

    Table 1. Cabo Verde: Selected Economic Indicators, 2018–26

    2018

    2019

    2020

    2021

    2022

    2023

    2024

    2025

    2026

    CR 20/297

    Est.

    CR 20/297

    Proj.

    Proj.

    National accounts and prices 1/

    (Annual percent change)

    Real GDP

    4.5

    5.7

    -6.8

    -14.0

    4.5

    5.8

    6.0

    6.1

    6.1

    6.2

    6.2

    GDP deflator

    1.5

    0.6

    1.1

    0.9

    1.2

    1.2

    1.4

    1.5

    1.6

    1.8

    1.9

    Consumer price index (annual average)

    1.3

    1.1

    1.0

    0.6

    1.2

    1.2

    1.4

    1.5

    1.6

    1.7

    1.7

    Consumer price index (end of period)

    1.0

    1.9

    1.0

    -0.9

    1.2

    1.2

    1.4

    1.5

    1.6

    1.7

    1.7

    External sector

    (Change in percent of broad money, 12 months earlier)

    Exports of goods and services

    15.9

    10.0

    -47.3

    -48.9

    25.9

    33.8

    18.6

    11.0

    11.8

    11.6

    9.1

    Of which: tourism

    10.0

    8.6

    -65.7

    -64.3

    32.5

    36.4

    28.1

    16.5

    17.4

    9.3

    9.9

    Imports of goods and services

    8.7

    2.0

    -21.5

    -23.7

    5.1

    11.2

    7.6

    5.5

    6.4

    9.4

    6.3

    Money and credit

    Net foreign assets

    -2.1

    7.8

    -5.7

    -5.1

    -1.5

    -0.6

    -0.6

    0.5

    1.5

    1.5

    1.6

    Net domestic assets

    3.5

    0.6

    0.5

    8.2

    6.0

    6.2

    5.1

    6.4

    5.1

    4.3

    4.3

    Net claims on the central government

    4.3

    -4.8

    1.2

    1.4

    1.2

    0.7

    0.4

    0.6

    0.3

    0.1

    0.1

    Credit to the economy

    1.9

    2.3

    0.9

    2.1

    3.7

    4.0

    3.9

    4.1

    4.2

    4.1

    4.1

    Broad money (M2)

    1.4

    8.4

    -5.2

    3.1

    4.5

    5.6

    4.5

    6.9

    6.5

    5.8

    5.9

    Savings and investment

    (Percent of GDP, unless otherwise indicated)

    Domestic savings

    31.3

    37.1

    28.0

    22.7

    33.0

    27.7

    33.8

    35.9

    37.7

    38.2

    36.0

    Government

    2.0

    0.1

    -7.7

    -6.6

    -3.2

    -2.5

    -0.1

    2.7

    3.7

    3.9

    4.2

    Private

    29.3

    37.0

    35.7

    29.3

    36.2

    30.2

    33.8

    33.2

    34.0

    34.3

    31.8

    National investment

    36.5

    37.5

    42.2

    36.5

    42.2

    38.2

    40.1

    40.6

    41.0

    41.0

    38.7

    Government

    4.4

    3.9

    3.8

    2.7

    5.0

    5.3

    4.0

    4.0

    4.0

    4.0

    4.0

    Private

    32.1

    33.6

    38.4

    33.9

    37.2

    32.9

    36.1

    36.6

    37.0

    37.0

    34.7

    Savings-investment balance

    -5.2

    -0.4

    -14.2

    -13.8

    -9.2

    -10.6

    -6.4

    -4.7

    -3.3

    -2.8

    -2.6

    Government

    -2.4

    -3.8

    -11.5

    -9.2

    -8.2

    -7.9

    -4.1

    -1.3

    -0.3

    -0.1

    0.2

    Private

    -2.8

    3.4

    -2.7

    -4.6

    -1.0

    -2.7

    -2.3

    -3.4

    -3.0

    -2.7

    -2.9

    External sector

    External current account (including official transfers)

    -5.2

    -0.4

    -14.2

    -13.8

    -9.2

    -10.6

    -6.4

    -4.7

    -3.3

    -2.8

    -2.6

    External current account (excluding official transfers)

    -8.0

    -3.4

    -18.6

    -17.4

    -13.6

    -13.1

    -9.7

    -7.1

    -5.3

    -4.7

    -3.7

    Overall balance of payments

    0.5

    7.4

    -5.4

    -5.1

    -0.7

    0.1

    0.0

    0.6

    1.6

    1.6

    1.6

    Gross international reserves (months of prospective imports of goods and services)

    5.5

    9.0

    7.3

    7.2

    6.7

    6.7

    6.3

    6.1

    5.9

    5.8

    5.8

    Government finance

    Revenue

    28.2

    29.4

    29.2

    25.8

    29.2

    29.7

    30.9

    30.8

    31.0

    31.1

    31.4

    Tax and nontax revenue

    26.8

    26.2

    24.5

    22.8

    25.6

    27.5

    28.8

    29.6

    29.8

    29.9

    30.2

    Grants

    1.4

    3.2

    4.7

    3.1

    3.6

    2.2

    2.1

    1.2

    1.2

    1.2

    1.2

    Expenditure

    30.9

    31.2

    38.8

    34.7

    35.8

    37.6

    34.6

    32.5

    31.7

    31.4

    31.3

    Primary balance

    -0.1

    0.7

    -7.0

    -6.0

    -3.8

    -5.2

    -0.7

    1.0

    1.9

    2.2

    2.4

    Overall balance (incl. grants)

    -2.7

    -1.8

    -9.7

    -8.9

    -6.6

    -7.9

    -3.6

    -1.7

    -0.7

    -0.3

    0.1

    Net other liabilities (incl. onlending)

    -1.0

    -3.3

    -2.5

    -1.1

    0.2

    0.3

    -0.2

    -0.2

    -0.2

    -0.2

    -0.2

    Total financing (incl. onlending and capitalization)

    2.9

    5.1

    12.1

    9.1

    6.4

    7.6

    3.8

    2.0

    0.9

    0.5

    0.2

    Net domestic credit

    1.4

    1.4

    2.6

    3.0

    2.2

    1.5

    0.8

    1.3

    0.5

    0.2

    0.2

    Net external financing

    1.5

    3.6

    9.5

    6.1

    4.2

    6.1

    3.0

    0.6

    0.3

    0.3

    0.0

    Public debt stock and service

    Total nominal government debt

    124.7

    125.0

    137.5

    140.9

    134.8

    138.7

    132.0

    124.2

    115.8

    107.4

    98.9

    External government debt

    91.4

    91.4

    97.0

    97.6

    93.8

    97.3

    93.0

    86.8

    80.8

    75.1

    69.3

    Domestic government debt

    33.3

    33.5

    40.5

    43.4

    41.0

    41.4

    39.1

    37.4

    35.0

    32.3

    29.6

    External debt service (percent of exports of goods and services)

    5.9

    5.4

    12.5

    14.5

    13.4

    9.5

    13.4

    12.6

    11.5

    10.4

    10.2

    Present value of PPG external debt

    Percent of GDP (risk threshold: 55%)

    60.6

    60.8

    69.2

    74.2

    65.8

    70.8

    67.4

    63.3

    59.2

    55.5

    51.7

    Percent of exports (risk threshold: 240%)

    123.8

    119.9

    244.3

    249.2

    194.8

    193.3

    166.0

    150.7

    135.8

    123.4

    114.0

    Present value of total debt

    Percent of GDP (benchmark: 70%)

    96.0

    94.3

    107.7

    113.0

    106.5

    111.6

    106.4

    100.6

    94.2

    87.8

    81.3

    Memorandum items:

    Nominal GDP (billions of Cabo Verde escudos)

    183.7

    195.2

    183.9

    169.3

    194.4

    181.3

    194.7

    209.5

    225.9

    244.2

    264.3

    Gross international reserves (€ millions, end of period)

    531.9

    663.4

    573.2

    583.9

    561.0

    586.6

    587.1

    598.1

    631.6

    667.4

    706.8

    Sources: Cabo Verdean authorities; and IMF staff estimates and projections.

    1/ The Cabo Verdean exchange rate has been pegged to the Euro since 1999, at a rate of 110.265 CVE/€.


    [1]The PCI is available to all IMF members that do not need Fund financial resources at the time of approval. It is designed for countries seeking to demonstrate commitment to a reform agenda or to unlock and coordinate financing from other official creditors or private investors. (seehttps://www.imf.org/en/About/Factsheets/Sheets/2017/07/25/policy-coordination-instrument).

    [2]The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions

    /Public Release. This material comes from the originating organization and may be of a point-in-time nature, edited for clarity, style and length. View in full here.