IMF Wraps Up 2025 Cabo Verde Economic Review

Washington, DC: The Executive Board of the IMF completed the 2025 Article IV consultation ^[1] , the seventh review under the Extended Credit Facility (ECF) arrangement that was approved on June 15, 2022, and the third review under the Resilience and Sustainability Facility (RSF) arrangement that was approved on December 11, 2023. The authorities have consented to the publication of the Staff Report prepared for this consultation. ^[2] Access under the ECF arrangement is equal to 220 percent of quota (SDR 52.14 million, approximately US$ 71.28 million) and access under the RSF arrangement is equal to 100 percent of quota (SDR 23.69 million, approximately US$ 32.39 million). The completion of the seventh ECF arrangement review allows for the disbursement of SDR 2.37 million (approximately US$ 3.25 million), while the completion of the third RSF arrangement review allows for the disbursement of up to SDR 5.264 million (approximately US$ 7.23 million).

Cabo Verde's economy continues to perform well, underpinned by tourism, robust export performance and private consumption growth. Economic growth is estimated at 5.2 percent in 2025, following 7.2 percent in 2024. Inflation remains stable around the 2 percent target, following 1.0 percent on average in 2024. The current account recorded a surplus in 2024 and is projected to post another surplus in 2025 due to resilient tourism revenues, robust remittances and continued weakness in capital goods imports. International reserves reached €1.06 billion in December 2025, comfortably above the target of 5.5 months. Monetary policy remains flexible to safeguard price stability and preserve external buffers. The financial system is liquid, profitable, and well capitalized. Fiscal performance remained strong in 2025 and met program targets, driven by strong revenue momentum and tight control of current spending, while the execution of capital spending remains low. The public debt-to-GDP ratio remains on a downward path.

Performance under the ECF arrangement continues to be strong. All end-June 2025 quantitative performance criteria (PCs), continuous PCs and Indicative Targets (ITs) were met, except the September 2025 IT on social spending. While no Structural Benchmarks (SBs) were due for this review, the structural reform agenda is progressing, including the passing of amendments to the Banco de Cabo Verde Organic Law, an important governance reform. Two out of the three Reform Measures (RMs) under the third RSF arrangement review were completed.

Cabo Verde's near-term economic outlook remains favorable but is exposed to external and fiscal risks. Growth is estimated to have reached 5.2 percent in 2025 and to converge to potential growth in the medium term, with inflation remaining around 2 percent. The primary surplus is projected at 1.3 percent of GDP in 2026 and to stabilize at around 1.2 percent of GDP over the medium term, supported by tax reforms that reduce tax expenditures and by rationalization of current spending. The current account surplus in 2025 is projected to move to a moderate deficit over 2026-30 from higher climate spending and increased imports due to robust domestic demand. Main risks stem from a global growth slowdown, trade tensions, financing pressures, and climate shocks. State-owned enterprises (SOEs) remain a significant fiscal risk and delays in SOE reforms and rising debt may impact fiscal stability. The high level of debt is a source of vulnerability, and concessional financing to limit debt servicing cost remains important. On the upside, stronger tourism growth could lead to higher overall economic activity.

Following the Executive Board discussion, Mr. Li, Deputy Managing Director and Acting Chair, issued the following statement:

"Economic activity in Cabo Verde remained strong in 2025, reflecting prudent macroeconomic management and continued reform momentum. While program performance remains strong and the outlook is positive, risks persist from external shocks, SOE related fiscal pressures, and the electoral cycle. Continued prudent macroeconomic policies and reforms to boost productivity, foster inclusive growth, and strengthen resilience are important safeguards.

"Fiscal policy is anchored in continued debt reduction. The authorities have delivered primary surpluses and maintained tight control over current spending while prioritizing growth-enhancing investment. Tax reforms, including VAT modernization and reduced exemptions, are necessary to broaden the revenue base and improve compliance. The government is committed to channeling any revenue overperformance or expenditure savings toward further strengthening the primary balance and accelerating the decline in the debt-to-GDP ratio. Measures to reduce fiscal risks from state-owned enterprises, particularly in the transport and energy sectors, are important.

"Monetary policy remains appropriately focused on safeguarding the exchange rate peg and supporting reserve accumulation. The Banco de Cabo Verde has maintained a positive interest rate differential relative to the ECB, which has helped to reverse capital outflows and bolster reserves. While inflation is stable, the central bank stands ready to respond to emerging price pressures and evolving capital flow dynamics. Efforts to enhance liquidity management and monetary policy transmission would support macroeconomic stability. Strengthening the communication framework, including through forward guidance, would help to better anchor expectations.

"Structural reforms are appropriately focused on improving the business environment, expanding social protection, and enhancing financial access. Under the RSF, Cabo Verde is integrating climate risks into fiscal planning, mobilizing climate finance, and implementing reforms in energy and water sectors. Progress on climate adaptation and green investment is essential to help Cabo Verde achieve its development and sustainability goals."

Executive Board Assessment ^[3]

Executive Directors agreed with the thrust of the staff appraisal. They welcomed the authorities' prudent macroeconomic management, strong program performance, and continued reform momentum. Directors considered that, while the outlook is positive, risks are to the downside, particularly from external shocks and fiscal vulnerabilities. Accordingly, they underscored the importance of maintaining prudent macroeconomic policies and advancing reforms to boost productivity, foster inclusive growth, and strengthen resilience.

Directors welcomed the authorities' prudent fiscal stance, underscoring the importance of fiscal consolidation to reduce debt, while safeguarding social and growth-enhancing spending. They advised continued commitment to saving any revenue overperformance or expenditure under-execution to accelerate debt reduction. Directors encouraged ongoing reforms to modernize the VAT and rationalize exemptions, strengthen revenue administration, contain current spending, and improve public investment management. Measures to reduce fiscal risks from state-owned enterprises, particularly in the transport and energy sectors, remain important.

Directors agreed that the monetary policy stance is appropriate to safeguard the exchange rate peg and support reserve accumulation. They welcomed the positive interest-rate differential relative to the ECB and urged continued vigilance to emerging price pressures. Strengthening the communication framework, including through forward guidance, would help to better anchor expectations.

Directors welcomed that the financial sector remained broadly stable and encouraged efforts to enhance supervision and macroprudential policy to safeguard financial stability. They encouraged measures to strengthen liquidity management and monetary policy transmission, restore reserve requirements, and advance Basel III reforms. They commended the authorities on the enactment of the amendments to the Banco de Cabo Verde Organic Law and called for further progress in strengthening the AML/CFT framework. Directors stressed the importance of close monitoring of non-performing loans and sovereign-bank nexus related risks.

Directors called for reforms to boost productivity, foster sustainable and inclusive growth, and strengthen resilience to shocks. They welcomed the focus on improving the business climate, expanding social protection, and enhancing financial access. Directors highlighted RSF-supported reforms, which aim to upgrade infrastructure, lower costs, and spur private investment in the energy and water sectors. Integrating climate risks into fiscal planning and mobilizing climate finance remain key.

It is expected that the next Article IV consultation with Cabo Verde will be held in accordance with the Executive Board decision on consultation cycles for members with Fund arrangements.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. Staff hold separate annual discussions with the regional institutions responsible for common policies in four currency unions—the Euro Area, the Eastern Caribbean Currency Union, the Central African Economic and Monetary Union, and the West African Economic and Monetary Union. For each of the currency unions, staff teams visit the regional institutions responsible for common policies in the currency union, collects economic and financial information, and discusses with officials the currency union's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis of discussion by the Executive Board. Both staff's discussions with the regional institutions and the Board discussion of the annual staff report will be considered an integral part of the Article IV consultation with each member.

[2] Under the IMF's Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on the https://www.imf.org/en/Countries/CPV page.

[3] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .