May 21, 2024
IMF Executive Board Concludes 2023 Article IV Consultation and Second Review Under the Extended Credit Facility Arrangement with Cabo Verde
– By Godswill Odiong

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The IMF Executive Board completed the second review under the 36-month Extended Credit Facility with Cabo Verde, providing the country with access to SDR 4.50 million (about US$ 6.00 million); Cabo Verde’s performance under the program is strong. The economy rebounded strongly in 2022 growing 17.7 percent; Cabo Verde remains vulnerable to external shocks and climate related disruptions and the significant gains achieved so far need to be sustained over the medium-term to safeguard economic stability, build resilience, and promote inclusive growth.

The Executive Board of the International Monetary Fund (IMF) completed the 2023 Article IV Consultation and Second 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 4.50 million (about US$ 6.00 million). This brings the total IMF financial support disbursements under the arrangement to SDR 27.02 million (about US$36.23 million).

Cabo Verde’s performance under the program is strong. The economy rebounded strongly in 2022 growing 17.7 percent, the primary deficit narrowed to 1.9 percent of GDP, the debt-to-GDP ratio declined significantly, the current account improved, and international reserves remained adequate to protect the currency peg. Real GDP growth is projected to moderate to 4.4 percent in 2023 as export growth normalizes. Inflation is projected at 5.2 percent in 2023, as fuel and food prices decline. The current account deficit is expected to widen in 2023 as exports of goods and services, tourism and remittances grow more slowly than imports.

The 2023 budget is aligned with the ECF-supported program. The Banco de Cabo Verde (BCV) has started to tighten monetary policy to narrow the interest rate differential with the European Central Bank (ECB) with a view to protecting the peg.

Following the Executive Board’s discussion, Ms. Antoinette Sayeh, Deputy Managing Director and acting Chair, issued the following statement:

“Cabo Verde’s performance under the ECF-supported program has been strong. The Cabo Verde economy rebounded strongly in 2022 and the near-term outlook is favorable despite some downside risks. Inflation increased due to the ripple effects of Russia’s war against Ukraine on food, fuel, and transportation costs. Risks to the outlook remain significant, including from potential lower external demand from major tourism markets, weak public enterprises reform implementation, and climate change shocks.

“Fiscal policy aims at ensuring an appropriate balance between credible growth-friendly fiscal consolidation, preserving debt sustainability, protecting the vulnerable, and investing in future growth. It will be important to keep progress in domestic revenue mobilization, streamlining tax exemptions, increasing the effectiveness of public investment projects, and continue improving debt management. Reform of the public enterprises is also critical to reduce fiscal risks.

“The monetary policy stance has been appropriate and should remain data dependent and focused on safeguarding the peg. The financial sector remains stable, banks’ profitability has increased, and NPLs are on a decreasing trend. Measures to improve the autonomy, governance, and accountability framework of the central bank and to strengthen the AML/CFT framework and its effectiveness remain crucial.

“The authorities are encouraged to continue with their ambitious structural reform agenda to adapt to the challenges posed by climate change, reduce the cost of doing business, strengthen social safety nets, and accelerate public enterprise reforms.”

Cabo Verde: Selected Economic Indicators, 2020-28
2020 2021 2022 2023 2024 2025 2026 2027 2028
SR ECF 1st review Act. SR ECF 1st review Proj. Proj. Proj. Proj. Proj. Proj.
(Annual percent change)
National accounts and prices 1/
Real GDP -19.3 6.8 10.5 17.7 4.4 4.4 4.5 4.6 4.6 4.7 4.7
GDP deflator 0.9 0.5 7.0 6.4 4.5 4.5 2.0 2.0 2.0 2.0 2.0
Consumer price index (annual average) 0.6 1.9 8.0 7.9 4.5 5.2 2.0 2.0 2.0 2.0 2.0
Consumer price index (end of period) -0.9 5.4 8.0 7.6 4.5 5.2 2.0 2.0 2.0 2.0 2.0
External sector
Exports of goods and services -58.7 -7.5 37.5 120.6 11.4 3.7 8.4 9.3 9.3 9.1 9.1
Of which: tourism -69.1 -16.4 47.1 225.4 15.6 7.7 9.9 8.5 9.3 9.4 9.3
Imports of goods and services -23.2 0.8 19.5 33.7 7.9 7.8 7.0 7.5 6.4 5.9 7.5
(Change in percent of broad money, 12 months earlier)
Money and credit
Net foreign assets -6.6 2.9 1.3 1.2 -0.4 3.4 1.7 2.7 2.7 2.3 2.6
Net domestic assets 10.3 0.1 8.2 4.6 7.0 4.9 4.5 3.9 4.0 4.4 3.4
Net claims on the central government -1.3 2.4 0.9 3.1 0.9 0.8 1.6 0.2 0.3 -0.4 -1.0
Credit to the economy 2.9 4.2 3.3 3.9 2.6 3.9 2.7 3.6 3.5 4.7 4.3
Broad money (M2) 3.8 3.0 9.6 5.8 6.6 8.3 6.2 6.6 6.6 6.6 6.0
(Percent of GDP, unless otherwise indicated)
Savings and investment
Domestic savings 15.8 38.5 35.1 41.7 32.1 18.7 18.5 19.2 20.7 21.6 22.9
Government -7.4 -5.1 -2.0 -0.4 0.5 0.5 0.9 2.2 2.6 2.9 3.5
Private 23.2 43.6 37.1 42.1 31.6 18.2 17.6 17.0 18.1 18.7 19.4
National investment 30.7 50.2 42.8 45.3 38.9 24.3 23.1 23.6 25.1 25.4 26.6
Government 3.3 2.2 1.9 1.9 4.4 4.2 3.3 3.8 4.2 3.4 3.4
Private 27.5 47.9 40.9 43.4 34.5 20.0 19.8 19.8 20.9 22.0 23.3
Savings-investment balance -14.9 -11.6 -7.8 -3.6 -6.8 -5.6 -4.6 -4.4 -4.4 -3.7 -3.8
Government -10.7 -7.3 -4.0 -2.2 -3.9 -3.8 -2.4 -1.6 -1.5 -0.5 0.1
Private -4.3 -4.4 -3.8 -1.3 -3.0 -1.8 -2.1 -2.8 -2.8 -3.2 -3.9
External sector
External current account (including official transfers) -14.9 -11.6 -7.8 -3.6 -6.8 -5.6 -4.6 -4.4 -4.4 -3.7 -3.8
External current account (excluding official transfers) -17.5 -14.0 -9.6 -4.9 -8.5 -5.9 -5.5 -5.2 -5.0 -4.3 -4.3
Overall balance of payments -4.6 0.6 1.8 1.1 -0.3 3.0 1.6 2.5 2.4 2.0 2.4
Gross international reserves (months of prospective imports of 7.8 6.0 6.0 5.9 5.5 6.1 6.0 6.2 6.3 6.3 6.4
goods and services)
Government finance
Revenue 24.6 22.8 23.7 21.6 25.6 24.6 24.4 25.2 25.5 25.6 25.7
Tax and nontax revenue 21.3 20.8 22.0 20.7 23.6 22.7 23.1 24.1 24.4 24.6 24.7
Grants 3.2 2.0 1.7 0.9 2.1 1.9 1.2 1.2 1.1 1.0 1.0
Expenditure 33.6 30.2 28.2 25.7 30.4 29.0 27.7 27.6 28.0 26.2 26.2
Primary balance -6.4 -5.2 -2.0 -1.9 -2.5 -2.2 -1.0 0.0 0.0 1.0 1.0
Overall balance (incl. grants) -9.0 -7.4 -4.4 -4.1 -4.8 -4.4 -3.3 -2.4 -2.5 -0.6 -0.6
Net other liabilities (incl. onlending) -1.2 0.9 -0.6 -0.1 0.8 0.7 -0.8 -0.2 -0.2 0.0 0.0
Total financing (incl. onlending and capitalization) 9.6 6.5 5.0 4.2 4.0 3.7 4.1 2.6 2.7 0.6 0.6
Net domestic credit 3.0 1.6 1.7 2.3 1.6 1.4 2.9 0.5 0.9 -0.7 -1.1
Net external financing 6.5 4.9 3.3 1.9 2.4 2.3 1.2 2.1 1.8 1.3 1.7
Public debt stock and service
Total nominal government debt 138.5 144.6 128.1 121.2 122.4 112.6 109.3 105.6 101.6 96.4 91.3
External government debt 102.1 102.8 90.5 84.0 85.2 79.8 76.4 73.9 71.3 68.7 66.7
Domestic government debt 36.5 41.8 37.6 37.1 37.2 32.8 33.0 31.7 30.2 27.7 24.7
External debt service (percent of exports of goods and

services)

14.8 20.2 15.1 11.5 15.0 12.4 12.8 11.0 10.7 10.0 9.3
Present value of PPG external debt
Percent of GDP (risk threshold: 55%) 70.3 57.2 51.3 53.5 50.2 50.9 49.3 48.1 46.8 45.3 44.4
Percent of exports (risk threshold: 240%) 335.9 197.4 152.4 159.1 146.1 156.6 149.1 142.1 134.9 127.8 122.5
Present value of total debt
Percent of GDP (benchmark: 70%) 92.4 102.9 90.7 91.3 87.4 84.0 82.4 79.9 77.1 73.3 69.3
Memorandum items:
Nominal GDP (billions of Cabo Verde escudos) 181.6 195.0 232.7 244.3 253.9 266.6 284.2 303.3 323.6 345.6 369.2
Gross international reserves (€ millions, end of period) 582.4 595.3 629.7 626.1 621.8 699.0 740.4 807.8 877.8 942.0 1020.7
Sources: Cabo Verdean authorities; and IMF staff estimates and projections.
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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