IMF Executive Board Completes Third Review Under the Policy Coordination Instrument for Cabo Verde
March 26, 2021
- 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.
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Table 1. Cabo Verde: Selected Economic Indicators, 2018–26 |
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|
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
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|
CR 20/297 |
Est. |
CR 20/297 |
Proj. |
Proj. |
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|
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) |
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|
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) |
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|
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 |
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|
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 |
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|
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 |
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|
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 |
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|
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 |
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|
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: |
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|
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 |
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Sources: Cabo Verdean authorities; and IMF staff estimates and projections. |
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1/ The Cabo Verdean exchange rate has been pegged to the Euro since 1999, at a rate of 110.265 CVE/€. |
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[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. (see https://0-www-imf-org.library.svsu.edu/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
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