IMF Executive Board Completes Sixth Review Under the Policy Support Instrument for Cape VerdePress Release No. 09/222
June 19, 2009
The Executive Board of the International Monetary Fund (IMF) has completed the sixth review under a three-year Policy Support Instrument (PSI) for Cape Verde following a mission by Fund staff to Praia in April 2009. The Executive Board has also approved, at the authorities’ request, to extend the current arrangement by one year as a bridge to a new three-year PSI. The Executive Board’s decision was taken on a lapse of time basis. 1
Cape Verde is coping with the global economic crisis from a position of strength. The main program objectives were achieved ahead of schedule: domestic public debt was reduced sharply, foreign reserves accumulated substantially, and external debt was kept stable. In recent years, the economy has been boosted by buoyant tourism, foreign direct investment in real estate, and remittances. However, near-term growth prospects have moderated significantly because of the recession in the euro area. In this context, the authorities’ decision to use fiscal policy to buffer the impact of the global shocks is appropriate, especially to protect social spending.
Cape Verde’s PSI was approved on July 31, 2006 (see Press Release No. 06/172). The program is designed to enhance the sustainability of growth and development by maintaining a stable macroeconomic environment and moving forward with structural reforms. Specific attention is given to reducing fiscal risks and giving Cape Verde a margin of safety to protect the economy against exogenous shocks.
The IMF's framework for PSIs is designed for low-income countries (and small island states) that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners. This is intended to ensure that PSI-supported programs are consistent with a comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty. Members' performance under a PSI is reviewed semi-annually, irrespective of the status of the program (see Public Information Notice No. 05/145).
1 The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.