Statement at the Conclusion of an IMF Mission to Cape VerdePress Release No. 09/341
An International Monetary Fund (IMF) mission, led by Mr. Nils Oeyvind Maehle, visited Cape Verde during September 23–October 1, 2009. The purpose of the visit was to conduct the seventh review under the Policy Support Instrument (PSI). The current PSI was approved by the IMF Executive Board in July 2006, originally for three years, and extended by one more year in June 2009. At the conclusion of the visit, Mr. Maehle made the following statement:
“The mission held extensive, open, and productive discussions with government officials, representatives of the private sector and the Finance Committee of the National Assembly, and would like to thank the authorities for their excellent collaboration. The seventh PSI review discussions focused on the impact on the Cape Verdean economy of the global crisis and the authorities’ policy response, 2010 budget and medium-term fiscal framework, and measures to strengthen public financial and debt management and the financial sector.
“Cape Verde’s economic and policy performance remains strong. It has been weathering the global economic crisis from a position of strength. Prudent macroeconomic policies in recent years created sizeable buffers in the form of increased international reserves and low domestic debt. Growth has weakened moderately, reflecting a slowdown in tourism and foreign direct investment, but there are early signs of recovery. Foreign direct investment has stabilized, and construction on several private investment projects has resumed. The recovery should continue in 2010, although only moderately as the global economy remains fragile. Inflation should remain low thanks to the outlook for a good harvest, and low food and energy import prices. International reserves have declined moderately in the first part of 2009, but it should remain solid owing in part to the recent SDR allocation by the IMF and expected new external loans.
“The government is using its policy space and the availability of external financing to accelerate its investment program and increase social spending, thereby providing a counter-cyclical response to the global shock. Protecting social spending is welcomed, as the global crisis is likely to hit hardest the poor and vulnerable segments of the population. The government public investment program is appropriately aimed at eliminating major infrastructure bottlenecks and so increasing the economy’s long-term potential growth. Monetary management aiming at stabilizing capital flows continues to be broadly appropriate. The exchange rate peg continues to serve Cape Verde well as an anchor for financial stability. Steady progress is also being made in the implementation of structural reforms in particular to improve public debt and financial management and strengthen the financial system.
“IMF staff will continue its close policy dialogue with the Cape Verde government with a view to completing the seventh review under the PSI.”