Press Release No. 05/124

Press Release: IMF Executive Board Completes Sixth and Final Review Under Cape Verde's PRGF Arrangement and Approves US$1.9 Million Disbursement

May 26, 2005

The Executive Board of the International Monetary Fund (IMF) has completed the sixth and final review of Cape Verde's economic performance under an SDR 8.64 million (about US$12.8 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 02/18). The completion of this review makes available the final disbursement of SDR 1.26 million (about US$1.9 million).

The Executive Board also granted Cape Verde's request for a waiver for nonobservance of an end-December 2004 structural performance criterion related to the publication of an automatic mechanism to adjust electricity and water tariffs, as the authorities have taken corrective actions to address this.  

Following the Executive Board's discussion of Cape Verde, on May 25, 2005, Mr. Agustín Carstens, Deputy Managing Director and Acting Chair, stated:

"Cape Verde's economic performance under the PRGF-supported program has been commendable. Real GDP growth has been strong, supported by private and public investment in tourism and infrastructure, and inflation has been consistently low. The authorities have appropriately focused on maintaining macroeconomic stability, consolidating the fiscal position, and strengthening the credibility of the exchange rate peg to the euro.

"The fiscal deficit in 2004 was substantially smaller than expected, reflecting the positive performance of the new value added tax and effective restraint of overall public spending. The authorities will need to ensure that expenditure is kept within budgeted levels in 2005, especially in the lead-up to elections in early 2006. Looking ahead, effective prioritization of public spending according to the objectives set out in the Poverty Reduction Strategy Paper, and improved revenue performance through measures to strengthen tax administration and rationalize tax exemptions, will further strengthen the macroeconomic framework.

"The authorities have achieved substantial progress with structural reforms in recent years. It is important that this momentum be maintained, including through the restructuring and privatization of the remaining companies on the reform agenda and through accompanying measures to strengthen the underlying regulatory framework. The implementation of an automatic mechanism to adjust electricity and water tariffs in response to changes in input costs will help reduce fiscal risks, restore the electricity and water company to financial health, and ensure a more efficient supply of utility services. Other key reforms being pursued by the authorities include development of the financial sector to increase competition and efficiency; implementation of a more liberal trade regime; and measures to improve the functioning of the labor market and the business environment.

"The authorities are taking important steps to tackle poverty and achieve the Millennium Development Goals. To this end, a National Council for Poverty Reduction will be created, and a poverty reduction strategy paper has been approved after consultation with key stakeholders," Mr. Carstens said.