Press Release No. 23/05

IMF Executive Board Completes First Review Under the Extended Credit Facility for Cabo Verde

January 17, 2023

• The IMF Executive Board completed the first review under the 36-month Extended Credit Facility with Cabo Verde, providing the country with access to SDR 11.26 million (about US$15.19 million).
• The strong and broad-based recovery of the Cabo Verde economy continued in 2022. The economy has now recorded five consecutive quarters of positive growth, supported by a rebound in the tourism sector. This helped improve the fiscal position and place the debt-to-GDP ratio on a downward path. International reserves are adequate, and the financial sector remains resilient.
• It is important to continue efforts to preserve fiscal and debt sustainability and accelerate economic reforms while aiding the vulnerable and supporting the economic recovery.

Washington, DC : The Executive Board of the International Monetary Fund (IMF) completed the first review of Cabo Verde’s performance under the
36-month Extended Credit Facility (ECF) that was approved on June 15, 2022. The completion of the review allows the authorities to draw the equivalent of SDR 11.26 million (47.50 percent of quota or about US$ 15.19 million), bringing total disbursement to
SDR 22.52 million (95 percent of quota or about US$ 30.18 million). The Executive Board’s decision was taken on a lapse-of-time basis. [1]

The economic rebound is well entrenched, driven by the faster than expected recovery in the tourism sector. Real GDP growth is currently estimated at 10.5 percent in 2022 and is projected to moderate to 4.4 percent in 2023. Inflation remains relatively high (8.5 percent year-on-year at end October 2022), with rising global food and energy prices exerting upward pressure on the cost of food and fuel in Cabo Verde. In response, the authorities stepped up support to the vulnerable through well targeted subsidies on basic food items and electricity, which are expected to continue through the first half of 2023. Inflation is forecast to decline in 2023 but remain above its recent five-year historical average.

Economic growth also contributed to a reduction in the debt-to-GDP ratio and the authorities’ decision to save the projected revenue overperformance in 2022 contributes to further advancing the program’s fiscal consolidation and debt reduction objectives. The debt burden is estimated to have declined to 128.1 percent of GDP by end-2022. The 2023 fiscal plan would result in a slightly improved primary fiscal balance compared to the program and includes prudent contingencies to safeguard against revenue shortfalls. Over the medium-term, fiscal consolidation will be aided by continued revenue mobilization and spending measures; the primary fiscal balance is expected to shift into surplus by 2026.

Program performance was strong. All end-June 2022 Performance Criteria (PCs) and Indicative Targets (ITs) were met. The Structural Benchmarks (SBs) for end-June 2022 and end-September 2022 were also met. All end-September 2022 ITs were met.

The economic outlook is positive but subject to risks, including from softening of economic prospects in key tourist markets, persistently elevated rates of inflation and its impact on the most vulnerable, resurgence of COVID-19 and lockdowns, and fiscal risks from SOEs. Climate-related shocks continue to present medium- and long-term risks.

The authorities are focused on preserving fiscal and debt sustainability, providing support to the vulnerable, and supporting the economic recovery. Over the medium-term, fiscal consolidation would be supported by advances in revenue mobilization particularly through the digitalization of services, and reforms to reduce fiscal risks from SOEs. Monetary and financial policy remains focused on protecting the peg and safeguarding financial sector stability. In addition, the authorities intend to accelerate implementation of climate-change mitigation and adaptation measures.