Statement at the Conclusion of an IMF mission to Cape VerdePress Release No. 10/360
September 28, 2010
An International Monetary Fund (IMF) mission led by Ms. Valerie Cerra visited Cape Verde during September 15–28, 2010 to conduct the 2010 Article IV Consultation and reach understandings on a policy framework for a new one-year Policy Support Instrument (PSI). The mission met with Finance Minister Cristina Duarte, Central Bank Governor Carlos Burgo, other government officials, labor unions, representatives of the business community, members of civil society, and development partners. At the conclusion of the visit, Ms. Cerra made the following statement:
“Cape Verde’s economy shows clear signs of recovering from the global crisis and is well positioned for strong growth over the medium term. A wide range of indicators, including business confidence indices, tax receipts, and import data, point to a broad-based rebound in economic activity, which is gathering steam through the year. The tourism sector stabilized in the first half of the year, and is poised for solid growth in the second half. Inflation has remained low and foreign exchange reserves continue to grow. This favorable economic performance is due in large measure to prudent macroeconomic management, including strong counter-cyclical policies.
“The mission supports the authorities’ strategy to temporarily accelerate its public investment program and its policies to protect the most vulnerable segments of the population from the negative impact of the global slowdown. The authorities are wisely using their window of opportunity for obtaining external loans on highly favorable terms and increasing investments to help alleviate constraints on electricity generation and water supply as well as provide much needed infrastructure in ports and airports, which will also benefit the tourism sector. Although the stock of debt has risen over the past two years, the loans have long maturities and grace periods, thus debt service ratios will remain low. The main challenge over the next few years will be to efficiently execute the public investment program while preserving debt sustainability. The authorities’ economic program that will be supported under the successor PSI will emphasize reforms to strengthen public debt management, further improve transparency and equal treatment in the tax system, enhance development of financial markets, and safeguard the financial system.
“The exchange rate peg to the euro has served the country well, keeping inflation low. The mission respects the Bank of Cape Verde’s cautious approach to monetary policy in light of continuing global uncertainty. Nonetheless, as foreign reserves and inflows of emigrant deposits continue to build, the mission sees room for a further gradual lowering of the policy rate. The mission also welcomes efforts underway to enhance coordination of monetary and fiscal policy.
“It is expected that the IMF's Executive Board will discuss the 2010 Article IV Consultation and the proposed policy program for a new PSI in November 2010. The mission wishes to thank the Cape Verdean authorities for the constructive and cooperative discussions that took place in Praia.”