Statement by IMF Staff Visit to Cape Verde

Press Release No. 06/99
CORRECTED: May 16, 2006

The following statement was issued today in Praia, Cape Verde, by an International Monetary Fund (IMF) staff mission:

"An IMF staff team has concluded a mission to Praia to assess Cape Verde's economic and policy performance, and to discuss with the authorities a new program between Cape Verde and the IMF under the Policy Support Instrument (PSI). The PSI has been developed for countries such as Cape Verde that have made significant progress toward economic stability; do not need or want financial support from the Fund; but would like to seek ongoing IMF advice, monitoring and endorsement of their economic policies.

"In the mission's view, Cape Verde's economic and policy performance remains sound. Growth is estimated to have strengthened to nearly 6 percent in 2005, driven in part by substantial private investment in construction, especially for the tourism sector, and public investment in infrastructure. Fiscal performance has remained prudent, supporting a further increase in international reserves. Increased inflows of official assistance and private foreign investment, together with a large increase in the rate of investment project approvals, reflect the results of Cape Verde's efforts to strengthen governance and economic policies.

"Contributing to economic stability and progress, the PSI program would aim to provide a coherent policy framework to underpin growth, development, and reductions in unemployment and poverty. Important macroeconomic policy dimensions of the PSI would include a medium-term reduction in domestic debt (as a share of GDP), and a further buildup of international reserves. The government is also committed to moving forward with a range of structural reforms. These include measures that would support further improvements in budget management; reduce fiscal risks, including in the energy sector and among public enterprises; rationalize the current fragmented system of tax incentives and tax exemptions; and help ensure that financial sector development takes place under institutional and regulatory conditions that are consistent with international best practice.

"The mission team believes that these reform efforts reflect the government's firm commitment to maintain sound economic policies. Such a commitment is also important for the international community, including private investors and official donors who provide crucial financial support for the development of Cape Verde.

"Finally, the IMF team thanks the authorities for the constructive and cooperative climate of the discussion."



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