Press Release No. 15/90

Press Release: Statement at the Conclusion of an IMF Mission to Cabo Verde

March 4, 2015

An International Monetary Fund (IMF) mission, led by Mr. Ulrich Jacoby, visited Cabo Verde from February 19-March 4, 2015, to conduct discussions on the 2015 Article IV Consultation. The mission met with the Minister of Finance and Planning Cristina Duarte, Central Bank Governor Joao Serra, other government officials, parliamentarians, representatives of civil society, development partners, and the private sector. The mission thanks the authorities for their excellent cooperation and cordial hospitality.

At the conclusion of the mission, Mr. Jacoby issued the following statement:

"In 2014, Cabo Verde's economy navigated difficult waters again, and economic growth is estimated to have picked up only slightly. The recovery in Europe—on which Cabo Verde’s economy is highly dependent—remained weak. Tourism declined for the first time in many years as the Ebola outbreak on the West African mainland deterred tourists temporarily during the third quarter of 2014, even though Cabo Verde remains free of the disease. On the upside, exports of goods—mainly fish—grew strongly, remittances remained stable, and foreign direct investment resumed later in the year. With strong international reserves and price stability, monetary policy was appropriately accommodative in 2014. However, credit to the private sector stagnated as excess liquidity is weakening the transmission of monetary policy, and banks are burdened by high non-performing loans from the recent economic downturn.”

“For 2015, a more marked acceleration of growth is anticipated, reflecting the continued recovery in Europe, a rebound in tourism, rising foreign direct investment, and lower oil prices. There are also indications that bank lending to the private sector will resume as the economy is making progress in overcoming the debt overhang.”

“The mission commends the Banco de Cabo Verde for the further easing of monetary conditions in February and measures to facilitate the resolution of non-performing loans, supporting economic growth and a resumption of bank lending to the private sector. For 2015, the mission anticipates continued benign inflation and robust international reserves, leaving room for monetary policy to remain accommodative for some time. The exchange rate peg to the euro remains an appropriate monetary policy anchor.”

“External factors have clouded the outlook for public debt. Cabo Verde's public debt is highly concessional, and debt service indicators show that the country will remain in a comfortable position servicing its debt in the future. However, the debt stock relative to the size of the economy has risen more than planned due to lower growth in recent years combined with the recent depreciation of the euro, indicating an increase in debt risks. The mission commends the authorities for their determination to mitigate such risks without delay by containing current spending and delaying or reducing externally financed public investment over the next few years. With less room for public investment, it will be even more important to raise the efficiency of public investment through rigorous project appraisal and selection of those projects that will deliver the highest return on growth within the next few years.”

“The mission welcomes the continuing efforts to improve the performance of state-owned enterprises (SOEs) that deliver essential infrastructure services to the economy. The introduction of management contracts at the electricity and water company and the national airline has produced encouraging progress in improving their operational performance that remains critical to restoring their financial health and reducing contingent fiscal liabilities. The mission welcomes the extension of management contracts to the four remaining strategic SOEs in 2014.”

“In addition to raising public sector efficiency, Cabo Verde’s long-term growth depends on bolstering productivity. The mission encourages the authorities and other stakeholders to continue with reforms in that regard, in particular focusing on the business environment, labor market flexibility, access to financing, and education and training to further reduce the skill mismatch. This would support job creation and inclusive growth in tourism and related local businesses, and economic diversification. Cabo Verde’s public investment program has laid solid foundations for growth, but with reduced room for public investment the private sector increasingly will need to become the engine of growth and employment.”

“The Article IV consultation report of the mission is expected to be discussed by the IMF Executive Board in late May 2015.”