Press Release No. 11/444

Press Release: Statement at the Conclusion of an IMF Mission to Cape Verde

December 7, 2011

An International Monetary Fund (IMF) mission, led by Ms. Janet Stotsky, visited Cape Verde from November 15–29, 2011, to conduct discussions on the second and final review under the Policy Support Instrument (PSI), which was approved by the IMF Executive Board in November 2010. The mission met with the Prime Minister Jose Maria Neves, Minister of Finance and Planning Cristina Duarte, Central Bank Governor Carlos de Burgo, other government officials, and representatives of civil society, development partners, and the private sector. At the conclusion of the mission, Ms. Stotsky made the following statement:

“Cape Verde’s economy is expanding at a more moderate pace, supported by a resilient tourist sector and implementation of the public infrastructure program. However, risks to the outlook have grown in view of the continuing economic and financial turmoil in Europe. Inflation has picked up this year in response to the surge in fuel and food prices, though core inflation remains subdued. The budget is being executed in line with a scaled up public infrastructure spending program, financed mainly by highly concessional foreign loans. The exchange rate peg remains an appropriate monetary anchor. The authorities’ fiscal and monetary policy restraint towards the end of 2011 have helped to contain losses of reserves but the external current and financial account deficits have widened significantly compared to last year.

“The mission welcomed the authorities’ commitment to scale back the public deficit and adhere to credit restraint in 2012 to ride out the external shocks and agreed that the authorities will need to respond flexibly and in a timely way to economic and financial developments. The social safety net will need to remain adequate to support vulnerable households and capital spending will need to be of high quality, while in an environment of slower growth, adequate room will need to be made for private credit growth. The mission assessed that the public debt service ratios remain within moderate benchmarks but recommended that the authorities commit to a medium-term fiscal and monetary framework that reduces the external public debt to GDP ratio to below 50 percent and builds up reserve coverage. The authorities continue to make progress on structural reforms to improve the tax system, public financial management and transparency, and monetary policy implementation, all of which are essential to support economic growth and competitiveness. The mission welcomed the authorities’ efforts to strengthen the legislative framework for the financial sector and encouraged vigilance in the supervision of financial institutions, given rising domestic and global risks. There is scope to increase the pace of restructuring of loss-making state-owned enterprises and to integrate better the social security fund and local governments into fiscal policymaking and public financial management.

“The second review of the PSI is expected to be considered by the IMF Executive Board in late January, 2012. The mission would like to thank the authorities for their excellent cooperation and hospitality.”