Press Release: IMF Executive Board Completes Fifth Review Under Cape Verde's PRGF Arrangement and Approves US$1.9 Million Disbursement
February 1, 2005
The Executive Board of the International Monetary Fund (IMF) has completed the fifth review of Cape Verde's economic performance under an SDR 8.64 million (about US$13.1 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 02/18). The completion of this review enables the release of a further SDR 1.23 million (about US$1.9 million), which would bring the total amount drawn under the arrangement to SDR 7.38 (about US$11.2 million).
In completing the fifth review, the Executive Board granted Cape Verde's request to extend the arrangement to end-July 2005. Cape Verde's three-year PRGF arrangement was approved on April 10, 2002.
Following the Executive Board's discussion of Cape Verde, on January 31, 2005, Agustín Carstens, Deputy Managing Director and Acting Chair, stated:
"Cape Verde continues to demonstrate strong economic performance, supported by the authorities' adherence to prudent macroeconomic policies and their commitment to structural reform. Although growth appears to have slowed modestly during 2004 owing to short-term difficulties in the agricultural sector and public investment program, it is expected to pick up again in 2005. Furthermore, fiscal performance in 2004 was better than expected, external balances improved, international reserves accumulation was higher than had been targeted, and inflation remained very low.
"The authorities' proposed policy stance for 2005 is appropriately focused on maintaining macroeconomic stability, ensuring the credibility of the exchange rate peg to the euro, and pushing ahead with needed reforms, including through the implementation of the Poverty Reduction Strategy Paper (PRSP). Going forward, the authorities will need to maintain expenditure restraint, including on wages, in the lead-up to the elections in January 2006, and continue to improve revenue performance by further strengthening tax administration and reining in tax exemptions. The monetary stance must also remain consistent with low inflation, the growth of real activity, and the targeted increase in reserves.
"It will be important for the authorities to move ahead with the determined implementation of key structural reforms, including the completion of the privatization agenda by early 2006, and steps to enhance the business environment. They should also make every effort to regularize the government's financial relations with the electricity and water utility, Electra, to reduce fiscal risks. Furthermore, the Economic Regulatory Agency should rapidly implement the automatic mechanism for setting electricity and water tariffs, and ensure that the adjustment mechanism for retail fuel prices is applied systematically. Adequate social safety nets to cushion the impact of these measures on the poor will need to be considered.
"The recently completed PRSP provides an appropriate framework for addressing Cape Verde's development challenges. Looking forward, the authorities should continue to seek external grants and concessional financing for the envisioned reforms, improve domestic resource mobilization, and strengthen prioritization among the PRSP's objectives," Mr. Carstens said.
The PRGF is the IMF's concessional facility for low-income countries. PRGF loans carry an annual interest rate of 0.5 percent, and are payable over 10 years with a 5½-year grace period on principal payments.