Press Release No. 24/439

IMF Reaches Staff-Level Agreement with Cabo Verde on the Fifth Review under the Extended Credit Facility (ECF) and the Second Review under the Resilience and Sustainability Facility (RSF) Arrangement

November 26, 2024

• IMF staff and Cabo Verdean authorities reached a staff-level agreement on the fifth review under the ECF and the second review under the RSF, approved in December 2023.
• The ECF-supported program aims to strengthen public finances and put debt on a downward path, reduce fiscal risks from public enterprises, modernize the monetary policy framework, and raise growth potential. The RSF supports government efforts to implement macro-critical climate reforms and catalyze private climate finance.
• All ECF performance criteria were met except the gross international reserves target, where the Bank of Cabo Verde has taken corrective actions. All indicative targets, except for GIR, and structural benchmarks through September 2024 were met. One RSF reform measure was completed, with three rephased to the next review.

Praia, Cabo Verde – November 26, 2024: An International Monetary Fund (IMF) team led by Mr. Justin Tyson held meetings with the Cabo Verdean authorities during November 18 – 26, 2024, for the fifth review under the Extended Credit Facility (ECF) supported program and the second review under the Resilience and Sustainability Financing (RSF) arrangement. Access under the existing ECF is 190 percent of quota (SDR 45.03 million, approximately US$ 63.3 million) and access under the RSF is 100 percent of quota (SDR 23.69 million, approximately US$ 31.69 million).

At the conclusion of the mission, Mr. Tyson issued the following statement:

“The IMF team and the Cabo Verdean authorities reached staff-level agreement on the policies needed to complete the fifth review under the ECF-supported program and the second review of the RSF arrangement. The IMF’s Executive Board will discuss these requests in the coming weeks. Upon approval by the IMF's Executive Board, completion of the fifth ECF review will allow disbursement of SDR 4.50 million (approximately US$ 5.88 million), while completion of the second RSF review will allow disbursement of SDR 2.632 million (approximately US$ 3.44 million).

“Cabo Verde’s economy continues to grow strongly, reflecting a rebound in tourism, robust export performance, as well as private consumption growth. Investment is a drag on growth, largely due to the slow execution of the government’s capital budget. The authorities have been successful in maintaining macro-financial stability and remain committed to the program’s objectives. Macroeconomic performance is expected to be strong in 2024, with growth projected at 6 percent, low inflation, a small current account deficit, and an adequate level of international reserves to protect the peg. The public debt-to-GDP ratio continues a downward path, reflecting continued high growth and a fiscal primary surplus.

“Performance under the ECF continues to be good. All quantitative performance criteria (QPCs) for end-June 2024 were met along with the continuous PCs, except for the QPC on gross international reserves (GIR). GIR still cover the minimum 5-months of imports target followed by Banco de Cabo Verde (BCV). All Indicative Targets (IT), except for GIR, and Structural Benchmarks (SBs) up to September 2024 were met. Under the RSF, one Reform Measure (RMs) was completed at end-November 2024 and three will be rephased to the next review.

“Cabo Verde’s near-term economic outlook remains favorable. Growth is projected to gradually converge to its potential rate of about 4.8 percent by 2029. Inflation is forecast below 2 percent in 2024 and over the medium-term, broadly in line with euro area inflation. The current account deficit is projected to narrow in 2024 and then stabilize at around 2.5 percent over the medium term.

“The fiscal position is forecast to be tighter than budgeted in 2024 driven in part by lower-than-planned current and capital expenditures, and higher revenues. Economic activity and policy measures supported an increase in tax revenues.

“The mission welcomed the BCV’s Monetary Policy Committee (MPC) decision to raise the policy rate by 25 basis points on 7 November 2024. The strong forward guidance in the MPC communiqué on the BCV’s intention to close the differential with the ECB policy rate in the near term to protect reserves is appropriate. Data for end-September 2024 suggest that the financial system is liquid, profitable, and well capitalized.

“The macroeconomic outlook remains favorable but is subject to downside risks as Cabo Verde is highly vulnerable to external shocks. An abrupt global slowdown or recession and supply chain disruptions would have a negative impact on tourism, inflation, and growth. A failure to advance State-Owned Enterprise (SOE) reforms would constitute a major source of fiscal risk. The country’s high level of debt is a source of vulnerability and concessional financing to limit debt servicing cost remains important. Financial stability risks come from large sovereign exposures, high non-performing loans, and credit risks for some banks (also linked to SOEs), and high credit and deposits concentration for most banks. The effects of climate change—droughts, sea level rise, and natural disasters—will affect the country’s long-term outlook via damage to coastal infrastructure and tourism. On the upside, stronger tourism growth could lead to higher overall economic activity.

“The IMF team is grateful to the Cabo Verdean authorities and other stakeholders for the productive discussions, hospitality, openness, and candid discussions. The IMF team congratulates them for these achievements and looks forward to continuing close engagement in support of Cabo Verde's economic reforms.”