## 1cpvea2019001 - 4.6 percent of GDP in 2015 to 2.8 percent of GDP in 2018 and is projected at 2.2 percent of GDP

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### Macroeconomic outlook and recent developments
- Real GDP growth:
  - 1 (2015); 4.7 (2016); 4.0 (2017); 5.5 (2018); projected 5.0 (2019); projected 5.0 (2020–2024).
- Inflation / prices:
  - Consumer price index (annual average): 0.1 (2015); -1.4 (2016); 0.8 (2017); 1.3 (2018); 1.2 (2019); 1.6 (2020); 1.6 (2021); 1.8 (2022–2024).
  - Headline inflation spike in 2018 attributed to higher food and fuel prices.
- External current account:
  - Current account (including official transfers): -4.2 percent of GDP (2019 projection).
  - Current account (excluding official transfers): -7.5 percent of GDP (2019 projection).
- External buffers:
  - Gross international reserves (months of prospective imports): 6.0 (2015); 6.1 (2016); 5.5 (2017); 5.1 (2018); 5.3 (2019); 5.3 (2020–2022); 5.4 (2023–2024).
  - Gross international reserves (end-period, € millions): 453.3 (2015); 536.2 (2016); 522.7 (2017); 531.1 (2018); 596.6 (2019); projected 645.8, 704.1, 767.2, 838.7, 911.3 (2020–2024).

### Fiscal developments and public finances
- Overall fiscal deficit (including grants):
  - -4.6 percent of GDP (2015); -3.0 (2016); -3.0 (2017); -2.8 (2018); projected -2.2 (2019); projected -1.5, -1.2, -1.0, -0.9, -0.8 (2020–2024).
- Revenue and expenditure (percent of GDP, 2019 projections and selected series):
  - Revenue: 31.7 (2019); 30.4 (2020); 28.9 (2021); 28.8 (2022–2024).
  - Grants: 2.8 (2019); 1.9 (2020); 0.9 (2021); 0.8 (2022–2024).
  - Expenditure: 33.9 (2019); 31.8 (2020); 30.1 (2021); 29.8 (2022); 29.7 (2023); 29.6 (2024).
  - Primary balance: 0.7 percent of GDP (2019 projection); projected 1.0, 1.2, 1.2, 1.2, 1.2 (2020–2024).
- Financing needs and policy:
  - Financing needs (percent of GDP): 7.8 (2015); 6.5 (2016); 3.3 (2017); 3.8 (2018); 6.5 (2019); projected 3.7, 2.1, 1.3, 1.1, 1.0 (2020–2024).
  - 2019 budget measures estimated impact: 3.6 percent of GDP (Permanent measures: 1.6 percent of GDP; One-off measures: 2 percent of GDP).
  - 2019 primary surplus target: 0.7 percent of GDP.

### Debt profile and risk assessment
- Total nominal government debt (percent of GDP):
  - 126.6 (2015); 128.4 (2016); 127.0 (2017); 123.9 (2018); 121.4 (2019); 116.8 (2020); 111.0 (2021); 104.6 (2022); 98.5 (2023); 92.7 (2024).
- Present value indicators:
  - Present value of PPG external debt (percent of GDP): 61.9 (2016); 64.0 (2017); 62.4 (2018); 60.1 (2019); 56.8 (2020); 54.0 (2021); 51.0 (2022).
  - Present value of total debt (percent of GDP, benchmark: 70%): 97.2 (2016); 95.8 (2017); 92.7 (2018); 88.8 (2019); 84.3 (2020); 79.7 (2021); 75.4 (2022).
- Debt distress assessment:
  - Cabo Verde’s risk of external and overall debt distress: “high” (unchanged from the 2018 IMF–World Bank DSA).
- External debt service (percent of exports of goods and services):
  - 5.8 (2018); 7.6 (2019); 6.8 (2020); 7.4 (2021); 7.9 (2022); 7.4 (2023); 6.8 (2024).
- Public debt composition and features:
  - External debt highly concessional; average maturity of external debt about 30.5 years; average interest on external debt below 1 percent.
  - Domestic debt: Treasury bonds represent 97 percent of domestic debt; average maturity about 7 years; average interest rate about 5 percent.
  - Publicly-guaranteed debt (end-2018): CVE 13,753 million (7.4 percent of GDP).

### Policy Coordination Instrument (PCI) and program design
- Purpose and scope:
  - PCI aims to bolster macroeconomic stability through fiscal consolidation and growth-enhancing reforms to support medium-term fiscal and debt sustainability.
  - The PCI does not involve the use of IMF financial resources.
  - The program is fully financed for the next 12 months, with reasonable financing assurances for the second year.
- Program features:
  - Semi-annual fixed-schedule program reviews (first review by March 1, 2020; second by September 2, 2020; third by January 15, 2021).
  - Quantitative targets and continuous targets, including a zero ceiling on new non-concessional external debt.
  - Key quantitative targets (selected program table, cumulative flows from end-Dec 2018, Millions of CVE): Primary balance (456; 841; 1,315; 644; 419; 1,388; 2,093); Tax revenue floor (19,965; 31,362; 43,126; 10,471; 21,961; 33,648; 46,298); Net other liabilities ceiling (3,575; 6,345; 8,511; 872; 2,344; 3,611; 4,674); Net international reserves floor (526; 528; 597; 572; 542; 566; 646).
- Signaling role:
  - Successful completion of program reviews is intended to signal Cabo Verde’s commitment to continued strong macroeconomic policies and structural reforms.

### Executive Board assessment and main recommendations
- Directors’ view:
  - Commended authorities for reform agenda and sound policies underpinning higher growth, continued low inflation, and improved fiscal and external positions.
  - Agreed the PCI would enhance macroeconomic stability and help sustain inclusive growth.
- Key recommendations and priorities:
  - Continue sustained fiscal consolidation given high debt and high risk of debt distress.
  - Strengthen revenue mobilization: combat tax evasion, broaden tax base, streamline exemptions.
  - Maintain expenditure restraint to preserve gains and create fiscal space for priority spending.
  - Decisive progress in public enterprise reform: eliminate budget transfers to SOEs over time and enhance monitoring of SOEs’ financial situation and performance.
  - Rely on concessional borrowing and pursue growth-enhancing reforms.
- Monetary policy and financial sector recommendations:
  - Monetary stance appropriate and consistent with protecting the exchange rate peg and price stability.
  - Banco de Cabo Verde (BCV) should improve monetary policy transmission, increase communication on policy direction (release minutes), strengthen banking supervision, and act to reduce non-performing loans.
  - Encourage preparation of a credit information system, recovery of collaterals (particularly legacy loans), and improvements to the AML/CFT framework.
- Structural reforms to support private sector-led growth:
  - Improve business environment, facilitate access to finance (including setting up a central registry for mobile collateral), increase financial literacy, and expand access to vocational schools.

### Tourism sector — background, constraints, and policy links (Box 4)
- Sector importance and facts:
  - Tourism-related activities: about 25 percent of GDP.
  - Tourism share of exports: some 50 percent of exports of goods and services.
  - Accommodation capacity: about 12,000 rooms.
  - Average tourist stay: about a week.
  - Share of tourists from the United Kingdom: 25 percent.
  - Share of tourism travel organized by two tour operators in Europe: about 70 percent.
- Constraints:
  - High concentration in Sal and Boa Vista; dependence on European source markets; limited product diversification (“sun, sea, and sand”).
- Growth potential and measures:
  - Pipeline of FDI; TACV privatization expected to boost activity; plans for cruise terminal in São Vicente; waiver of visa requirements for EU travelers up to 30 days.
- Fiscal linkages:
  - Tourism main beneficiary of tax exemptions; caution urged when revamping exemptions.
  - Selected 2019 permanent revenue measures (percent of GDP): Airport security fee 1.0; Maritime security fee 0.2; Contribution from operators to the Innovation Fund 0.1; Registration and notary fees 0.2; Special consumption excise tax 0.1.
  - Selected 2019 one-off measures (percent of GDP): Sale of non-financial assets 0.8; Arrears collection 1.2.

### Public Enterprises Sector (SOEs) — issues and reforms (Box 5)
- SOE stock and fiscal risks:
  - 23 SOEs in operation across sectors.
  - SOEs’ stock of debt at end-2018: CVE 98.7 billion (53.2 percent of GDP).
  - Government guaranteed debt: CVE 13.2 billion (7 percent of GDP).
  - SOEs’ domestic liabilities: 49 percent of GDP.
  - Over 2014-17, cumulative budget support to SOEs: CVE 108.2 billion (62.4 percent of GDP).
  - Budget support to SOEs in 2018: about CVE 4 billion (2.1 percent of GDP).
- Key reform actions and timeline:
  - TACV privatized in March 2019 (51 percent sold to a subsidiary of Icelandair); remaining 49 percent planned for sale by end-2019.
  - ELECTRA restructuring and planned privatization (slated for 2020).
  - IFH social housing program restructured at end-2018.
  - Reform program accelerated in 2017 to eliminate budget support to loss-making SOEs over time.
  - World Bank support: Development Policy Credit of US$40 million under First SOE Reform and Fiscal Management DPF approved June 5, 2019.
- Program targets related to SOEs:
  - Fiscal adjustment targeted of 1.3 percent of GDP during first year of program.
  - Ceiling on net other liabilities (NOL) to cover onlending and capitalization operations.
  - Targets for enhanced monitoring: quarterly monitoring of 6 key SOEs starting end-December 2019; compile cash flow information for the 6 largest SOEs for FY2019 (target end-July 2019).

### Monetary and financial sector developments and reforms
- Monetary policy and BCV actions:
  - Central bank prime rate: 1.5 percent (unchanged for two years through 2018).
  - June 2019: BCV reduced overnight lending facility rate from 4.5 percent to 3.0 percent and reduced corridor to 150 basis points.
  - Reform targets: release minutes of Monetary Policy Committee meetings starting end-July 2019; reduce overnight corridor to a maximum of 150-200 basis points.
  - BCV intended net international reserves target: cover 30 percent of broad money.
- Financial sector indicators:
  - Credit to the economy: 1.8 (2015); 2.4 (2016); 4.4 (2017); 1.9 (2018); 3.0 (2019); projected 3.3–3.6 (2020–2024).
  - Broad money (M2 annual percent change): 6.2 (2015); 8.4 (2016); 6.5 (2017); 1.4 (2018); 7.0 (2019); projected 6.3, 6.0, 6.4, 6.4, 6.4 (2020–2024).
  - Banking soundness (end-2018): Regulatory capital to risk-weighted assets 18.0; Nonperforming loans to total loans 12.8; Return on assets 1.0; Liquid assets to total assets 21.4.
  - NPLs: 18.7 percent (end-December 2014); 14.5 percent (end-2017); 12.8 percent of total loans (end-December 2018). Legacy loans account for roughly 60 percent of NPL stock; corporate sector about 70 percent of stock.
  - Write-offs of all legacy loans would reduce capital adequacy ratio by 1.1 percentage points to around 15.1 percent.
- Financial sector reform agenda and targets:
  - Revamp credit information system by end-December 2020.
  - Create functional central registry of mobile collateral by end-December 2020.
  - Strengthen banking supervision, AML/CFT framework, and recovery of collaterals.
  - Improve access to finance for SMEs and implement Action Plan for Development of the Financial System (December 2019 target).

### Expenditure framework, public investment management, and PAYLOG
- Expenditure ceilings and composition (2020–24):
  - Reduce expenditure on goods and services to about 4.5 percent of GDP compared with 2019 for period 2020-24.
  - Keep capital expenditure at about 4 percent of GDP on average for 2020-24.
  - Contain wage bill at about 10.5 percent of GDP.
- Public investment management reforms:
  - Adopt standardized criteria and procedure manuals for project selection; implement National Investment System (SNI); incorporate IT tools for project monitoring and evaluation.
- Expenditure control measures:
  - Develop IT system for monitoring tendering and execution; rationalize agencies; limit recruitment; implement e-Procurement and Annual Plan for Purchasing/Contracting.
- PAYLOG:
  - Implement PAYLOG to enhance expenditure execution and avoid domestic payment arrears; ensure suppliers are paid within a maximum period of 45 days.
- SOE support:
  - Budget support to SOEs (capitalization) to be kept down; support expected to be eliminated by 2022 with SOE restructuring scheduled to be completed by 2021.
- Debt management:
  - Maintain net domestic financing below annual limit of 3 percent of GDP; project net domestic financing decline from 1.4 percent of GDP (2018) to 0.4 percent of GDP (2024).
  - Zero limit on new non-concessional borrowing under PCI.

### External stability assessment (Annex I)
- Current account and REER assessments:
  - Current account deficit narrowed to -4.5 percent of GDP (2018); cyclically-adjusted current account balance (2018): -6.4 percent of GDP; multilaterally consistent cyclically-adjusted CA norm: -9.0 percent of GDP; implied CA gap: 2.6 percent of GDP.
  - EBA-lite REER model suggests an REER undervaluation of about 19 percent; CA model implies undervaluation about 6 percent; external sustainability approach suggests REER overvaluation of about 17 percent.
- Reserves adequacy and NIIP:
  - Gross international reserves: €531 million (end-2018), equivalent to 5.1 months of prospective imports.
  - LIC/MIC framework optimal reserves: 3.6 months; staff recommends around five months given vulnerabilities.
  - NIIP (excluding short-term migrants’ deposits): improved from -150 percent of GDP (2017) to -131 percent of GDP (2018).
- Policy recommendations from external assessment:
  - Sustained fiscal consolidation to reduce external liabilities and support medium-term external sustainability.
  - Continued structural reforms to reduce transaction costs, increase productivity, and support private sector development.
  - Build strong external buffers despite current adequacy per LIC/MIC estimates.

### Program monitoring, TMU, and reform targets
- Monitoring instruments and timetable:
  - Quantitative targets, continuous targets, and reform targets defined in the Technical Memorandum of Understanding (TMU).
  - Review timetable: First review by March 1, 2020; Second by September 2, 2020; Third by January 15, 2021.
- Selected TMU definitions and reporting:
  - Primary balance: cumulative flow, measured on cash basis; reporting monthly by DNP with lag no more than four weeks.
  - Net other liabilities definition includes onlending, capitalization; reporting monthly by DNP.
  - Net international reserves (NIR) floor: BCV to transmit weekly with maximum delay of two weeks.
  - Zero ceiling on new non-concessional external debt (continuous).
- Reform targets for 2019–20 (selected):
  - Complete review report on exemptions (Target date: End-December 2019).
  - Streamline exemptions on VAT, import duties, and excises (Target date: End-June 2020).
  - Submit 2020 budget consistent with PCI (Target date: End-October 2019).
  - Implement quarterly monitoring of 6 key SOEs (start end-December 2019); compile FY2019 cash flow information for 6 largest SOEs (Target date: End-July 2019).
  - Release MPC minutes starting end-July 2019 (continuous).
  - Reduce overnight interest rate corridor to maximum of 150-200 basis points (Target date: End-December 2019; implemented in June 2019).
  - Create central registry of mobile collateral and revamp credit information system (Target date: End-December 2020).

### Risks, sensitivities, and stress-test findings
- Key downside risks (from Risk Assessment Matrix):
  - Weaker-than-expected global growth (High likelihood; Medium/High impact).
  - Rising protectionism and retreat from multilateralism (High likelihood; Medium impact).
  - Large swings in energy prices (Medium likelihood; Medium/High impact).
  - Flickering fiscal consolidation and SOE restructuring (Medium/High likelihood; High impact).
  - Weather-related shocks (Medium likelihood; Medium/High impact).
  - Sharp tightening of global financial conditions (Low/Medium likelihood; Medium impact).
- DSA stress-test outcomes:
  - PV of total public debt-to-GDP ratio exceeds 70 percent benchmark through 2025 under baseline; breach ends in 2026 under baseline projections.
  - One-time depreciation shock and contingent liabilities from SOEs are the most severe shocks.
  - Under baseline, PV of PPG external debt-to-GDP breaches threshold in 2019-22; projected to fall below 55 percent from 2023 onward.
  - Country could graduate to “moderate” distress ratings by 2023 (external) and 2026 (overall) if assumptions materialize.

### Authorities’ views and commitments
- Authorities request Executive Board approval of an 18-month PCI; no IMF financing needed.
- Authorities commit to:
  - Refrain from contracting non-concessional debt.
  - Reduce public debt via revenue administration improvements, expenditure containment, privatizations, and selling government properties.
  - Continue reserve accumulation and protect the peg to the euro (peg rate CVE 110.265 per euro since January 4, 1999).
  - Advance SOE restructuring and privatizations (TACV privatized March 2019, ELECTRA planned 2020, IFH restructured end-2018).

*Source: IMF staff report for the 2019 Article IV Consultation and Request for an Eighteen-Month Policy Coordination Instrument (selected excerpts).*

### 4.6 percent of GDP in 2015 to 2.8 percent of GDP in 2018 and is projected at 2.2 percent of GDP

### 1cpvea2019001 - 4.6 percent of GDP in 2015 to 2.8 percent of GDP in 2018 and is projected at 2.2 percent of GDP

### Macroeconomic outlook and recent developments
- Real GDP growth rose from 1 percent in 2015 to above 5 percent in 2018 and is projected at 5 percent for 2019.
- Inflation has been subdued despite a spike in 2018 due to higher food and fuel prices.
- External current account developments:
  - External current account (including official transfers) projected at -4.2 percent of GDP in 2019.
  - External current account (excluding official transfers) projected at -7.5 percent of GDP in 2019.
- External buffers:
  - Gross international reserves remain above 5 months of prospective imports of goods and services (projected 5.3 months for 2019).

### Fiscal developments and public finances
- Fiscal deficit evolution:
  - Overall fiscal deficit (including grants) declined from 4.6 percent of GDP in 2015 to 2.8 percent of GDP in 2018 and is projected at 2.2 percent of GDP for 2019.
- Revenue and expenditure (percent of GDP, 2019 projections):
  - Revenue: 31.7 percent of GDP.
  - Expenditure: 33.9 percent of GDP.
  - Primary balance: 0.7 percent of GDP (2019 projection).
- Fiscal risks and State-Owned Enterprises (SOEs):
  - Fiscal risks generated by loss-making SOEs are expected to subside, reflecting reforms in 2018 and early 2019, notably the privatization of the national airline company, and additional SOE restructuring measures planned for 2019-20.
  - The fiscal program under the PCI will be anchored by improvement in the primary balance and the elimination, over time, of budget support to loss-making SOEs as sector reforms advance.

### Debt profile and risk assessment
- Public debt and vulnerability:
  - Total nominal government debt: 123.9 percent of GDP (2018).
  - Total nominal government debt projections: 121.4 (2019), 116.8 (2020), 111.0 (2021), 104.6 (2022), 98.5 (2023), 92.7 (2024).
  - Present value of PPG external debt (percent of GDP): 61.9 (2016), 64.0 (2017), 62.4 (2018), 60.1 (2019), 56.8 (2020), 54.0 (2021), 51.0 (2022).
  - Present value of total debt (Percent of GDP, benchmark: 70%): 97.2 (2016), 95.8 (2017), 92.7 (2018), 88.8 (2019), 84.3 (2020), 79.7 (2021), 75.4 (2022).
- Debt distress assessment:
  - Cabo Verde’s risk of external and overall debt distress is assessed as high, unchanged compared with the 2018 Debt Sustainability Analysis carried out by the staffs of the IMF and the World Bank.
- External debt service:
  - External debt service (percent of exports of goods and services): 5.8 (2018), 7.6 (2019), 6.8 (2020), 7.4 (2021), 7.9 (2022), 7.4 (2023), 6.8 (2024).

### Policy Coordination Instrument (PCI) and program design
- Purpose and scope:
  - The PCI aims at bolstering macroeconomic stability through fiscal consolidation and growth-enhancing reforms to support medium-term fiscal and debt sustainability.
  - The PCI does not involve the use of IMF financial resources.
  - The program is fully financed for the next 12 months, with reasonable financing assurances for the second year.
- Program features:
  - Program reviews will take place on a semi-annual fixed schedule.
  - Reforms and quantitative targets under the PCI focus on strengthening fiscal and debt sustainability, enhancing the monetary policy framework, fostering the financial system stability, and increasing inclusive growth.
- Signaling role:
  - Successful completion of program reviews is intended to signal Cabo Verde’s commitment to continued strong macroeconomic policies and structural reforms.

### Executive Board assessment and main recommendations
- Executive Directors’ view:
  - Directors commended authorities for the economic reform agenda and sound policies that underpinned higher growth, continued low inflation, and improved fiscal and external positions.
  - Directors agreed that the PCI would enhance macroeconomic stability and help sustain inclusive growth.
- Key recommendations and priorities:
  - Continue sustained fiscal consolidation efforts given the high level of debt and high risk of debt distress.
  - Strengthen revenue mobilization by combating tax evasion, broadening the tax base, and streamlining exemptions.
  - Maintain expenditure restraint to preserve gains and create fiscal space for priority spending.
  - Decisive progress in public enterprise reform, including elimination of budget transfers to SOEs and enhanced monitoring of SOEs’ financial situation and performance.
  - Rely on concessional borrowing and pursue growth-enhancing reforms.
  - Monetary policy and financial sector:
    - The monetary policy stance is appropriate and consistent with protecting the exchange rate peg and price stability.
    - Banco de Cabo Verde (BCV) should continue efforts to improve the monetary policy transmission mechanism, increase communication on policy direction, strengthen banking supervision, and take appropriate actions to reduce non-performing loans.
    - Encourage preparation of a credit information system, recovery of collaterals (particularly legacy loans), and further improvements to the AML/CFT framework.
  - Structural reforms to support private sector-led growth:
    - Improve business environment, facilitate access to finance (including setting up a central registry for mobile collateral), increase financial literacy, and expand access to vocational schools.

### Key statistics and projections (selected exact figures)
- Real GDP growth: 1 (2015), 4.7 (2016), 4.0 (2017), 5.5 (2018), 5.0 (2019), 5.0 (2020–2024 projections).
- Consumer price index (annual average): 0.1 (2015), -1.4 (2016), 0.8 (2017), 1.3 (2018), 1.2 (2019), 1.6 (2020), 1.6 (2021), 1.8 (2022–2024).
- Exports of goods and services (annual percent change): -11.6 (2015), 9.5 (2016), 11.5 (2017), 13.3 (2018), 8.9 (2019), 10.0 (2020), 11.2 (2021–2024).
- Tourism exports (annual percent change): 2.0 (2015), 6.9 (2016), 14.5 (2017), 3.5 (2018), 8.1 (2019), 9.8 (2020), 11.2 (2021–2024).
- Imports of goods and services (annual percent change): -12.3 (2015), 10.3 (2016), 17.2 (2017), 8.0 (2018), 8.7 (2019–2024).
- Gross international reserves (months of prospective imports): 6.0 (2015), 6.1 (2016), 5.5 (2017), 5.1 (2018), 5.3 (2019), 5.3 (2020–2022), 5.4 (2023–2024).
- Overall balance of payments (percent of GDP): 2.2 (2015), 5.5 (2016), -0.9 (2017), 0.5 (2018), 3.6 (2019), 2.6 (2020), 2.8 (2021), 2.9 (2022), 3.1 (2023), 2.9 (2024).
- Government finance (percent of GDP, selected):
  - Revenue: 26.9 (2015), 26.6 (2016), 28.6 (2017), 28.1 (2018), 31.7 (2019), 30.4 (2020), 28.9 (2021–2024 at 28.8).
  - Grants: 2.5 (2015), 2.7 (2016), 3.7 (2017), 1.4 (2018), 2.8 (2019), 1.9 (2020), 0.9 (2021–2024 at 0.8).
  - Expenditure: 31.4 (2015), 29.6 (2016), 31.5 (2017), 30.9 (2018), 33.9 (2019), 31.8 (2020), 30.1 (2021), 29.8 (2022), 29.7 (2023), 29.6 (2024).

*Source: IMF staff report for the 2019 Article IV Consultation and Request for an Eighteen-Month Policy Coordination Instrument (selected excerpts).*

### 1.      Cabo Verde made impressive strides in macroeconomic stability through 2008, when

### 1cpvea2019001 - 1.      Cabo Verde made impressive strides in macroeconomic stability through 2008, when

### Overview and recent macroeconomic developments
- Real GDP growth averaged 6.2 percent between 1990-2000 and close to 6.8 percent during 2001-2008.
- Growth slowed in 2009-15, with real GDP growth averaging 1.1 percent.
- Real GDP expanded from 4 percent in 2017 to 5.5 percent in 2018.
- Inflation rose from 0.3 percent at end-December 2017 to 1 percent at end-December 2018 (y/y).
- Key constraints to high and inclusive growth: lack of diversification, low connectivity between the islands, high transaction costs, limited economies of scale, vulnerability to natural disasters and other exogenous shocks, and limited access to finance.
- Weak financial situation in key State-Owned Enterprises (SOEs) has led to a build-up of liabilities, weighing heavily on budgetary resources and public debt.

### Fiscal position, public debt, and SOE support
- Budget financing needs rose from 1.6 percent of GDP in 2008 to 7.8 percent of GDP in 2015.
- Public debt more than doubled, exceeding 120 percent of GDP in 2015.
- The overall budget deficit declined from 3 percent of GDP in 2017 to 2.8 percent of GDP in 2018.
- Revenue (excluding grants) rose by almost 2 percentage points of GDP, to 26.7 percent of GDP in 2018.
- Expenditures stood at 30.9 percent of GDP in 2018.
- Support from the budget to SOEs rose to 2.1 percent of GDP in 2018 (0.7 percent of GDP in 2017), reflecting increased transfers to TACV for restructuring and privatization.
- TACV privatized in March 2019 when 51 percent of TACV’s shares was sold to a private investor.
- At end-2018, public debt stood at 123.9 percent of GDP.
- The joint IMF/World Bank debt sustainability analysis (DSA) assesses Cabo Verde’s risk of external and overall debt distress as “high”.

### External position and reserves
- The current account deficit narrowed to 4.5 percent of GDP in 2018 (6.6 percent of GDP in 2017).
- Contributors to improvement: increased export receipts in tourism and fishery sectors; higher remittances; deceleration in imports demand.
- Gross international reserves rose to €531 million at end-2018, equivalent to 5.1 months of prospective imports of goods and services.
- Fund LIC/MIC framework suggests an optimal level of reserves of 3.6 months of prospective imports of goods and services; actual and prospective levels slightly higher than 5 months.
- Staff’s external stability assessment: external position strengthened in 2018 but remained weaker than suggested by medium-term fundamentals and desirable policy settings given the large negative NIIP; alternative approaches give mixed signals (overvaluation vs. undervaluation).

### Financial sector performance and Non-Performing Loans (NPLs)
- Credit to the economy grew by 3.1 percent in 2018 (7 percent y/y in 2017).
- Central bank prime rate remained unchanged at 1.5 percent for the second consecutive year; banks’ lending rates rose, deposit rates declined by less than 50 basis points.
- In June 2019, BCV reduced overnight lending facility rate from 4.5 percent to 3 percent; in June 2019 BCV reduced the corridor to 150 basis points.
- NPLs: 18.7 percent at end-December 2014; 14.5 percent at end-2017; 12.8 percent of total loans at end-December 2018 (Box 2 reports 12.8 percent; later text reports 12.2 percent at end-December 2018).
- Legacy loans related to real estate development projects during 2006-08 account for roughly 60 percent of NPL stock; corporate sector accounts for about 70 percent of the stock.
- Write-offs of all legacy loans would reduce the capital adequacy ratio of the banking system by 1.1 percentage points, to around 15.1 percent.
- Banking system indicators: adequately capitalized; profitability (return on equity) improved; provisioning and capital adequacy ratio are high.

### Progress on past IMF recommendations and structural reforms
- Fiscal policy and debt sustainability:
  - VAT increase from 15 percent to 17 percent recommended; authorities focused on tax administration measures and expenditure restraint.
  - Law on public debt adopted in November 2018 requires parliamentary approval for issuance of loan guarantees.
- Monetary policy:
  - Recommendation to narrow overnight interest rate corridor to a maximum of 150-200 basis points and establish a symmetrical corridor. In June 2019 BCV reduced the corridor to 150 basis points.
  - Tighten monetary policy if reserves come under pressure; monetary stance remained unchanged in 2018 as price pressures were low and reserves assessed as adequate.
- Financial sector:
  - Priority given to resolution of legacy NPLs; creation of a central registry for movable collateral is a PCI reform target.
  - AML/CFT framework improvements, implementation of FATCA and tax good governance standards; authorities increased the corporate tax rate on off-shore banks.
- SOEs restructuring:
  - Restructure TACV, IFH, and Electra; integrate SOEs into budget preparation and strengthen monitoring.
  - IFH social housing program restructured at end-2018; TACV privatized in March 2019; ELECTRA slated for privatization in 2020.
  - Authorities plan measures in 2019-20 to strengthen monitoring of SOEs’ financial situation; enhanced monitoring is part of PCI reform targets.

### Outlook and projections
- Real GDP growth projected at 5 percent in 2019 and over the medium term.
- Growth drivers: sustained tourism and industry growth, increased transportation activity from TACV privatization and maritime concession, private investment, planned infrastructure projects (notably construction of the Maio island port), and implementation of structural reforms.
- Inflation projected at 1 percent for 2019, and below 2 percent in the medium term, consistent with the average in the Euro area.
- Current account deficit projected to decline from 4.5 percent of GDP in 2018 to 3.6 percent of GDP by 2024.
- Gross international reserves projected to average 5.3 months of prospective imports of goods and services during 2019-24.

### Risks and policy responses (summarized from Risk Assessment Matrix)
- High-likelihood risks and impacts:
  - Weaker-than-expected global growth (High likelihood; Medium/High impact): would depress tourism, remittances, and FDI; policy response: accelerate structural reforms to increase productivity and improve business environment.
  - Rising protectionism and retreat from multilateralism (High likelihood; Medium impact): financial market volatility and deterred investment; policy response: accelerate structural reforms to increase productivity and improve business environment.
- Medium/High and Medium risks:
  - Large swings in energy prices (Medium likelihood; Medium/High impact): higher oil prices harm growth and contribute to higher inflation; policy response: implement credible fiscal consolidation plan and accelerate structural reforms.
  - Flickering fiscal consolidation and SOE restructuring efforts (Medium/High likelihood; High impact): undermines macro stability and confidence; policy response: reduce current spending, postpone or cancel non-priority infrastructure projects, reinvigorate SOE reform plans.
  - Delays in productivity-enhancing measures (Medium likelihood; Medium impact): hinder competitiveness and potential GDP growth; policy response: accelerate structural reforms.
  - Weather-related shocks (Medium likelihood; Medium/High impact): droughts/hurricanes affect agriculture and tourism; policy response: diversify the economy and accelerate structural reforms.
- Low/Medium risk:
  - Sharp tightening of global financial conditions (Low/Medium likelihood; Medium impact): higher debt service and refinancing risks; policy response: stand ready to tighten monetary policy and accelerate reforms.

### Key statistics and exact figures cited
- Real GDP growth averages: 6.2 percent (1990-2000); close to 6.8 percent (2001-2008); 1.1 percent (2009-15 average).
- Real GDP growth: 4 percent (2017); 5.5 percent (2018).
- Inflation: 0.3 percent (end-December 2017); 1 percent (end-December 2018).
- Budget financing needs: 1.6 percent of GDP (2008); 7.8 percent of GDP (2015).
- Overall budget deficit: 3 percent of GDP (2017); 2.8 percent of GDP (2018).
- Revenue (excluding grants): 26.7 percent of GDP (2018).
- Expenditures: 30.9 percent of GDP (2018).
- SOE support from budget: 0.7 percent of GDP (2017); 2.1 percent of GDP (2018).
- TACV privatization: 51 percent of shares sold in March 2019.
- Gross international reserves: €531 million at end-2018; 5.1 months of prospective imports of goods and services at end-2018.
- Optimal reserves per LIC/MIC framework: 3.6 months of prospective imports of goods and services.
- Current account deficit: 6.6 percent of GDP (2017); 4.5 percent of GDP (2018); projected 3.6 percent of GDP by 2024.
- Public debt: exceeded 120 percent of GDP in 2015; 123.9 percent of GDP at end-2018.
- Credit growth: 7 percent y/y (2017); 3.1 percent (2018).
- Central bank prime rate: 1.5 percent (unchanged two years through 2018).
- BCV overnight lending facility rate: reduced from 4.5 percent to 3 percent in June 2019.
- Interest rate corridor: reduced to 150 basis points in June 2019.
- NPLs: 18.7 percent (end-December 2014); 14.5 percent (end-2017); 12.8 percent of total loans (end-December 2018). Another mention: 12.2 percent of total loans at end-December 2018.
- Legacy NPL write-offs reduce capital adequacy ratio by 1.1 percentage points to around 15.1 percent.
- Projected gross international reserves average during 2019-24: 5.3 months of prospective imports of goods and services.
- Real GDP growth projection: 5 percent in 2019 and over the medium term.
- Inflation projection: 1 percent for 2019; below 2 percent in the medium term.

_ Source: Cabo Verdean authorities. _

### Box 4. The Tourism Sector – Background and Growth Prospects

### Box 4. The Tourism Sector – Background and Growth Prospects

### Background
- Cabo Verde is a tourism-based economy that has experienced "impressive and sustained growth" for more than a decade.
- Between 2000 and 2017, the number of tourist arrivals grew, on average, by 11 percent a year.
- The market is dominated by tourists from Europe and was negatively affected by the 2008 financial crisis; it has since recovered and performed better than most peers.
- Accommodation capacity is about 12,000 rooms.
- The average stay per tourist is about a week.

### Economic impact
- Tourism-related activities are estimated to account for about 25 percent of GDP.
- Tourism accounts for some 50 percent of exports of goods and services.
- The direct contribution of the tourism industry to employment is concentrated in the hotel sector because of the “All-inclusive” model.
- Spillovers and linkages:
  - Spillovers on services typically associated with tourism (travel, restaurants, transportation) with local content, and linkages with non-tourism activities, have remained limited.

### Constraints to growth and diversification
- The tourism sector is highly undiversified and vulnerable to exogenous shocks.
- Key impediments:
  - (i) Dependence on big hotel chains.
  - (ii) Concentration: tourism activities are concentrated in Sal and Boa Vista despite potential across all ten islands.
  - (iii) Lack of source-market diversification: most tourists are from Europe — and 25 percent from the United Kingdom.
  - (iv) About 70 percent of tourism activities, in terms of travel, are organized by two Tour operators in Europe.
  - (v) Cabo Verde predominantly offers a single tourism product (“sun, sea, and sand”), which may impact attractiveness.

### Growth potential and upside risks
- Demand is higher than supply for existing accommodations.
- There is an important pipeline of FDI in the sector.
- Recent and planned developments:
  - The recent privatization of TACV is expected to boost tourism activities as the new company will be operating out of a hub in Sal island.
  - Authorities plan to develop the cruise ship market with a terminal in São Vicente island.
  - Decision to waive visa requirements for travelers from the EU staying in Cabo Verde for up to 30 days.
  - Expected improvement in inter-island connections.
- These measures are identified as important upside risks for the outlook in the tourism industry.

### Policy linkages with macro-fiscal and structural agenda
- Fiscal implications and authorities’ concerns:
  - The tourism sector is the main beneficiary of tax exemptions; authorities called for caution in revamping exemptions because of potential impact on tourism activity.
- Fiscal framework and tourism:
  - The 2019 budget and medium-term fiscal framework aim to create fiscal space for spending and SOE restructuring costs while restoring debt sustainability.
  - Revised 2019 budget projections target a primary surplus of 0.7 percent of GDP.
  - The expected revenue performance in 2019 includes measures with an estimated impact of 3.6 percent of GDP (permanent measures: 1.6 percent of GDP; one-off measures: 2 percent of GDP).
  - Over the medium term, tax and nontax revenue are projected to stabilize around 28 percent of GDP.
- SOEs and tourism linkages:
  - TACV restructuring and privatization (privatized in March 2019 with plans to sell remaining 49 percent by end-2019) are expected to reduce fiscal risks and support tourism growth.

### Selected quantitative findings and projections relevant to tourism and macro framework
- Tourism sector statistics:
  - Accommodation capacity: about 12,000 rooms.
  - Average tourist stay: about a week.
  - Tourism-related activities: about 25 percent of GDP.
  - Tourism share of exports: some 50 percent of exports of goods and services.
  - Share of tourists from the United Kingdom: 25 percent.
  - Share of tourism travel organized by two tour operators in Europe: about 70 percent.
- Fiscal and macro indicators (medium-term context in which tourism policy operates):
  - 2019 primary surplus target: 0.7 percent of GDP.
  - 2019 budget revenue measures estimated impact: 3.6 percent of GDP (Permanent measures: 1.6 percent of GDP; One-off measures: 2 percent of GDP).
  - Specific 2019 permanent revenue measures:
    - Airport security fee: 1.0 (Percent of GDP)
    - Maritime security fee: 0.2 (Percent of GDP)
    - Contribution from operators to the Innovation Fund: 0.1 (Percent of GDP)
    - Registration fees and notary fees: 0.2 (Percent of GDP)
    - Special consumption excise tax: 0.1 (Percent of GDP)
  - Specific 2019 one-off measures:
    - Sale of non-financial assets: 0.8 (Percent of GDP)
    - Arrears collection: 1.2 (Percent of GDP)
  - Medium-term revenue projection: stabilize around 28.8 percent of GDP (table entries show Total revenue 2019: 31.7, 2020: 30.4, 2021: 28.9, 2022: 28.8, 2023: 28.8, 2024: 28.8).
  - Public debt path (selected years): 2018: 123.9, 2019: 121.4, 2020: 116.8, 2021: 111.0, 2022: 104.6, 2023: 98.5, 2024: 92.7 (Percent of GDP).
  - Financing needs: 2018: 3.8, 2019: 6.5, 2020: 3.7, 2021: 2.1, 2022: 1.3, 2023: 1.1, 2024: 1.0 (Percent of GDP).

### Policy recommendations and reforms relevant to tourism-related resilience and diversification
- On fiscal policy and revenue:
  - Implement and effectively administer the 2019 revenue measures and strengthen tax administration to improve compliance and broaden the tax base.
  - Review and revamp exemptions on VAT, customs duties, and excises (reform target noted), recognizing the need for caution because exemptions primarily benefit tourism.
- On structural reforms to support diversification and resilience:
  - Reduce dependence on concentrated markets and intermediaries (diversify source markets beyond Europe and reduce reliance on two European tour operators).
  - Promote diversification of tourism products beyond “sun, sea, and sand” and develop potential across all ten islands (notably planned hub in Sal, cruise terminal in São Vicente).
  - Leverage privatization and SOE restructuring (including TACV) to improve inter-island connectivity and reduce fiscal risks.
- On complementary financial and monetary measures that support tourism-sector stability:
  - Continue fiscal consolidation to restore public debt sustainability and create fiscal space for priority spending that can support tourism development.
  - Maintain appropriate monetary policy stance to safeguard the peg to the euro and build foreign reserves; continue reserve accumulation to preserve external buffers.
  - Strengthen financial regulation and supervision, accelerate Credit Information System and a central registry of mobile collateral to improve access to finance for tourism-related businesses.

*Source: Box 4. The Tourism Sector – Background and Growth Prospects, IMF staff (Cabo Verde).*

### Box 5. Public Enterprises Sector – Issues and Reforms

### Box 5. Public Enterprises Sector – Issues and Reforms

### Background
- Cabo Verde has 23 State-Owned Enterprises (SOEs) in operation in various areas, including transportation (air and maritime), utilities, housing and pharmaceutical.
- Many SOEs have been facing important performance challenges over many years, and budget support to their operations has been a major contributor to the rapid accumulation of public and publicly-guaranteed debt.
- Through 2018, fiscal risks were concentrated in the airline (TACV), the real estate and housing (IFH), and the electricity and water (ELECTRA) companies, which account for the largest share of SOEs’ total liabilities.
- Support from the budget covered onlending, notably for investment projects, capitalization for the airline company, and various subsidies and transfers.

### Structural reforms undertaken and planned
- A reform program covering 23 companies was accelerated in 2017 with the objective to eliminate support from the budget to loss-making SOEs over time.
- Key steps included:
  - Sale of majority shares in TACV to a strategic partner; concluded in March 2019 with the sale of 51 percent of the company’s shares to a subsidiary of Icelandair, with costs for the government budget in terms of equity (1.3 percent of GDP), and debt service obligations.
  - Introduction of greater private sector participation in maritime inter-island transportation.
  - Restructuring of ELECTRA to reduce high commercial losses and prepare the company for privatization.
  - Restructuring of the housing program managed by IFH to minimize losses and increase transparency; this operation was completed at end-2018.
- The World Bank is supporting SOEs reforms with a Development Policy Credit of US$40 million under the First State-Owned Enterprises Reform and Fiscal Management Development Policy Financing Operation approved by the World Bank Executive Board on June 5, 2019.

### Authorities’ views on SOE reforms
- The authorities indicated they will continue to give high priority to eliminating fiscal risks generated by loss-making SOEs.
- They plan acceleration of restructuring and privatization during 2019-21 to help achieve this objective, but cautioned reforms are complex and dependent on market conditions and might take longer than expected.
- While agreeing with the objective that capitalization funding to loss-making SOEs be eliminated by 2022, the authorities stressed this might prove overly ambitious.
- The authorities agreed that PCI reviews and collaboration with the World Bank will provide opportunities to assess progress and make needed adjustments.

### Program objectives, monitoring, and financing related to SOE reforms
- The eighteen-month PCI program seeks to enhance macroeconomic stability; fiscal consolidation combined with decisive SOEs reforms will support medium-term fiscal and debt sustainability and a stronger external position.
- Program targets and modalities:
  - Fiscal adjustment targeted of 1.3 percent of GDP during the first year.
  - A ceiling on net other liabilities (NOL) that cover onlending and capitalization operations.
  - Targeted stock of net international reserves of €566 million at end-September 2020.
  - Programmed reform targets focused on enhancing revenue mobilization and expenditure management, improving monitoring of SOEs performance to secure elimination of financial support from the budget over the medium term, enhancing monetary policy transmission mechanism, and improving access to finance.
- Monitoring and safeguards:
  - Program monitored through semi-annual reviews with quantitative targets on tax revenue, the primary balance of the central government, net other liabilities of the central government, non-accumulation of domestic payments arrears (continuous), non-accumulation of external arrears (continuous), new concessional external debt of the central government, zero ceiling on new non-concessional external debt, and net international reserves; and non-quantitative continuous targets.
- Financing assurances:
  - The program is fully financed for the first year through government securities and net external financing from the World Bank and the African Development Bank; reasonable financing assurances for the second year.
  - Financial support from the World Bank and the African Development Bank is projected at US$240 million for 2019-2024.
- External borrowing (Millions of Cabo Verde Escudos):
  - Multilateral: 10,878 (2019) and 8,039 (2020)
    - World Bank: 7,124 (2019) and 3,463 (2020)
    - African Development Bank: 3,754 (2019) and 3,514 (2020)
    - Other: 1,062 (2020)
  - Bilateral: 4,257 (2019) and 4,241 (2020)
    - Paris Club: 3,916 (2019) and 3,097 (2020)
    - Non-Paris Club: 341 (2019) and 1,144 (2020)
  - Total: 15,135 (2019) and 12,280 (2020)

### Staff appraisal — findings, risks, and recommendations
- Recent macroeconomic performance and risks:
  - Growth increased from 1 percent in 2015 to an average of 4.7 percent during 2016–18.
  - The recovery benefited from continued good performance in tourism-related activities, strong growth in the industry sector, and private investment.
  - Inflation has remained benign despite an increase in 2018.
  - Gross international reserves remain comfortably above 5 months of prospective imports of goods and services; reserve buffers exceed the optimal level of 3.6 months of prospective imports of goods and services.
  - Key downside risks include economic slowdown in the Euro area, Brexit, potential weather-related shocks, weakening in fiscal consolidation efforts and delays in structural reforms.
- Fiscal and debt concerns:
  - Fiscal position has strengthened but vulnerabilities linger.
  - Continued expenditure restraint is necessary; further revenue mobilization through measures to combat tax evasion, broaden the tax base, enhance audits to contain accumulation of tax arrears, and streamline exemptions (notably on the VAT, customs duties and excises) is essential.
  - A sustained reduction, and elimination over time, of transfers from the budget to loss-making SOEs is needed to reduce financing needs and support medium-term fiscal and debt sustainability.
  - The risk of external and overall debt distress is assessed as high, unchanged compared with the 2018 DSA, though the medium-to-long-term outlook has improved.
  - Staff encourages the authorities to sustain fiscal consolidation to achieve reduction in the debt-to-GDP ratio below 100 percent by 2023 and to rely on concessional financing and enhanced debt management strategy.
- Financial sector and institutions:
  - Financial sector indicators improved; banks’ profitability increased, although asset quality remains weak and NPLs are high.
  - Staff encourages the BCV to enhance banking supervision, advance preparation of a credit information system, and work with banks on recovery of collaterals, particularly for legacy loans.
  - Monetary policy stance is appropriate; Staff encourages vigilance and improved communication on policy direction (publication of minutes of the Monetary Policy Committee).
- SOE-specific recommendations:
  - Advance reforms in the public enterprises sector, particularly in energy and transportation, to reduce transaction costs and improve the business environment.
  - Enhanced monitoring of the financial situation of key SOEs through compilation of information on their cash flow and quarterly review of their performance.
  - Support SME development by facilitating access to finance (set up a central registry for mobile collateral), increase financial literacy through training, and expand access to vocational schools as targeted under the PEDS.
- Program endorsement:
  - Staff supports the authorities’ request for a PCI as the appropriate instrument for IMF support; good performance under the PCI would signal commitment to sound policies and help anchor confidence.

*Source: Box 5. Public Enterprises Sector – Issues and Reforms (excerpt).*

### 44.      Staff proposes that the next Article IV consultation be held on a 24-month cycle.

### 1cpvea2019001 - 44.      Staff proposes that the next Article IV consultation be held on a 24-month cycle.

### Article IV consultation timing
- Staff proposes that the next Article IV consultation be held on a 24-month cycle.

### Recent economic developments and headline indicators
- Real GDP (annual percent change): 2015: 1.0; 2016: 4.7; 2017: 4.0; 2018: 5.5; 2019: 5.0; 2020–2024 (proj.): 5.0, 5.0, 5.0, 5.0, 5.0.
- Consumer price index (annual average): 2015: 0.1; 2016: -1.4; 2017: 0.8; 2018: 1.3; 2019: 1.2; 2020–2024 (proj.): 1.6, 1.6, 1.8, 1.8, 1.8.
- Headline inflation increased mainly due to higher food and fuel prices (figure note).
- Tourism performance: tourism arrivals increasing from 2008–2018 (figure note); tourism exports as percent of GDP (Table 1 tourism component) 2015: 2.0; 2016: 6.9; 2017: 14.5; 2018: 3.5; 2019: 8.1; 2020–2024 (proj.): 9.8, 11.2, 11.4, 11.4, 11.4.

### External sector developments
- Current account (including official transfers, percent of GDP): 2015: -3.2; 2016: -3.9; 2017: -6.6; 2018: -4.5; 2019: -4.2; 2020–2024 (proj.): -4.1, -4.1, -3.9, -3.6, -3.6.
- Current account (excluding official transfers, percent of GDP): 2015: -6.6; 2016: -6.6; 2017: -10.3; 2018: -7.2; 2019: -7.5; 2020–2024 (proj.): -7.1, -6.0, -5.6, -5.2, -5.1.
- Gross international reserves (months of prospective imports of goods and services): 2015: 6.0; 2016: 6.1; 2017: 5.5; 2018: 5.1; 2019: 5.3; 2020–2024 (proj.): 5.3, 5.3, 5.3, 5.4, 5.4.
- Balance of payments overall balance (percent of GDP): 2015: 2.2; 2016: 5.5; 2017: -0.9; 2018: 0.5; 2019: 3.6; 2020–2024 (proj.): 2.6, 2.8, 2.9, 3.1, 2.9.
- Table 2 (selected levels, Millions of Euros): Exports, f.o.b. 2015: 135; 2016: 141; 2017: 167; 2018: 232; 2019: 253; 2020–2024 (proj.): 276, 301, 328, 358, 391. Imports, f.o.b. 2015: 561; 2016: 622; 2017: 750; 2018: 814; 2019: 889; 2020–2024 (proj.): 972, 1,062, 1,160, 1,267, 1,383.
- Foreign direct investment (Table 2, Financial account): 2015: -101; 2016: -107; 2017: -87; 2018: -68; 2019: -72; 2020–2024 (proj.): -105, -136, -147, -156, -173.
- Reserves declined slightly after reaching an all-time high due partly to a decline in FDI (figure note).

### Fiscal sector and public finances
- Revenue (percent of GDP): 2015: 26.9; 2016: 26.6; 2017: 28.6; 2018: 28.1; 2019: 31.7; 2020–2024 (proj.): 30.4, 28.9, 28.8, 28.8, 28.8.
- Expenditure (percent of GDP): 2015: 31.4; 2016: 29.6; 2017: 31.5; 2018: 30.9; 2019: 33.9; 2020–2024 (proj.): 31.8, 30.1, 29.8, 29.7, 29.6.
- Primary balance (percent of GDP): 2015: -2.0; 2016: -0.5; 2017: -0.4; 2018: -0.3; 2019: 0.7; 2020–2024 (proj.): 1.0, 1.2, 1.2, 1.2, 1.2.
- Overall balance (including grants, percent of GDP): 2015: -4.6; 2016: -3.0; 2017: -3.0; 2018: -2.8; 2019: -2.2; 2020–2024 (proj.): -1.5, -1.2, -1.0, -0.9, -0.8.
- Financing needs (percent of GDP): 2015: 7.8; 2016: 6.5; 2017: 3.3; 2018: 3.8; 2019: 6.5; 2020–2024 (proj.): 3.7, 2.1, 1.3, 1.1, 1.0.
- Total nominal government debt (percent of GDP): 2015: 126.6; 2016: 128.4; 2017: 127.0; 2018: 123.9; 2019: 121.4; 2020–2024 (proj.): 116.8, 111.0, 104.6, 98.5, 92.7.
- External government debt (percent of GDP): 2015: 97.7; 2016: 96.7; 2017: 94.9; 2018: 91.0; 2019: 89.3; 2020–2024 (proj.): 86.3, 82.1, 77.0, 72.7, 68.2.
- Present value of PPG external debt (percent of GDP; risk threshold: 55%): historical/projection entries include 61.9, 64.0, 62.4, 60.1, 56.8, 54.0, 51.0 (table note sequence).
- Present value of total debt (percent of GDP; benchmark: 70%): entries include 97.2, 95.8, 92.7, 88.8, 84.3, 79.7, 75.4 (table note sequence).

### Monetary and banking sector developments
- Broad money (M2 annual percent change): 2015: 6.2; 2016: 8.4; 2017: 6.5; 2018: 1.4; 2019: 7.0; 2020–2024 (proj.): 6.3, 6.0, 6.4, 6.4, 6.4.
- Net foreign assets (percent change): 2015: 4.0; 2016: 6.1; 2017: 1.3; 2018: -2.1; 2019: 2.0; 2020–2024 (proj.): 2.8, 2.4, 2.6, 3.3, 3.1.
- Credit to the economy (percent change): 2015: 1.8; 2016: 2.4; 2017: 4.4; 2018: 1.9; 2019: 3.0; 2020–2024 (proj.): 3.3, 3.4, 3.5, 3.6, 3.6.
- Gross international reserves (end-period, € millions, Table 1 memorandum): 2015: 453.3; 2016: 536.2; 2017: 522.7; 2018: 531.1; 2019: 596.6; 2020–2024 (proj.): 645.8, 704.1, 767.2, 838.7, 911.3.
- Monetary survey (levels, Millions of CVE): Net foreign assets 2015: 48,463; 2016: 58,018; 2017: 60,227; 2018: 56,396; 2019: 60,076; 2020–2024 (proj.): 65,536, 70,530, 76,203, 83,950, 91,806.
- Banking sector financial soundness indicators (selected, end-year): Regulatory capital to risk-weighted assets 2018: 18.0; Nonperforming loans to total loans 2018: 12.8; Return on assets 2018: 1.0; Liquid assets to total assets 2018: 21.4.

### Fiscal operations and central government cash flows (selected levels)
- Central government revenue (Millions of CVE): 2015: 42,678; 2016: 44,107; 2017: 49,505; 2018: 52,097; 2019: 62,650; 2020–2024 (proj.): 64,133, 65,122, 69,325, 74,050, 79,275.
- Central government expenditure (Millions of CVE): 2015: 49,907; 2016: 49,139; 2017: 54,650; 2018: 57,301; 2019: 66,972; 2020–2024 (proj.): 67,197, 67,770, 71,849, 76,388, 81,502.
- Net acquisition of nonfinancial assets (Millions of CVE): 2015: 8,839; 2016: 5,572; 2017: 9,890; 2018: 8,140; 2019: 10,098; 2020–2024 (proj.): 9,114, 7,743, 9,031, 10,116, 11,006.
- Financing: total financing (Millions of CVE) 2015: 12,451; 2016: 9,224; 2017: 7,197; 2018: 5,239; 2019: 12,833; 2020–2024 (proj.): 7,738, 4,785, 3,024, 2,768, 2,701.

### Policy-relevant observations and reform priorities (from figures and tables)
- Fiscal performance has continuously improved in recent years, driven by strong tax revenue that compensated for a decline in grants, and by a decline in capital expenditure (figure notes).
- Current expenditure has been broadly stable with the wage bill being the largest component (figure notes).
- Support from the budget to SOEs has been trending downward, contributing to a reduction in financing needs (figure notes).
- Headline inflation has increased mainly due to higher food and fuel prices (figure notes).
- Banking sector: indicators show strengthened capital adequacy (regulatory capital to risk-weighted assets 2018: 18.0) and mixed asset quality (nonperforming loans to total loans 2018: 12.8).
- External vulnerability: sizeable current account deficits excluding official transfers (2019: -7.5 percent of GDP) and reliance on FDI and tourism receipts for financing the external position.

*Source: Cabo Verdean authorities; and IMF staff estimates and projections (from 1cpvea2019001).*

### Annex I. External Stability Assessment

### Annex I. External Stability Assessment

### Current Account
- Background:
  - The current account deficit narrowed to 4.5 percent of GDP in 2018, after averaging 9.4 percent of GDP in 2003-17.
  - Narrowing mostly reflected strong export performance, increased remittances, and a deceleration in imports demand.
  - Financial inflows remained important, covering the largest share of the current account deficit.
  - Projections: current account deficit narrows to 4.2 percent of GDP in 2019, and 3.6 percent of GDP over the medium term.
- Assessment (EBA-lite CA model):
  - Cyclically-adjusted current account balance (2018): -6.4 percent of GDP.
  - Multilaterally consistent cyclically-adjusted current account norm: -9.0 percent of GDP.
  - Implied current account gap: 2.6 percent of GDP.
  - Using estimated current account elasticities implies an undervaluation of the Real Effective Exchange Rate (REER) of about 6 percent.
  - Caveat: The CA model has limitations for tourism-based economies and does not fully capture Cabo Verde’s need to save externally to guard against exposure to natural disasters; Staff finds the EBA-lite CA norm assumes a wider CA deficit than appropriate.

### Real Effective Exchange Rate (REER)
- Background:
  - REER has been relatively stable over the past decade.
  - In 2018, REER appreciated by about 0.9 percent relative to 2017 while remaining broadly in line with the average for the past five years.
- Assessment (EBA-lite REER model):
  - The REER model suggests an undervaluation of about 19 percent, which is much higher than suggested by the CA model-based assessment.

### Capital and Financial Flows
- Background:
  - Capital flows declined in 2018 but remain high, driven by foreign direct investment (FDI).
  - Net capital and financial account balance: 5.2 percent of GDP in 2018 (6.2 percent of GDP in 2017; 2.5 percent of GDP in 2016).
- Assessment:
  - Net capital and financial flows are expected to be sustained over the medium term.
  - Combined with the projected improvement in the external current account, sustained overall balance of payments surpluses are projected.

### Reserve Adequacy
- Background:
  - Gross international reserves: increased by €8 million in 2018, bringing the stock to €531 million at end-December 2018.
  - Reserves equivalent to 5.1 months of prospective imports of goods and services (end-2018).
- Assessment:
  - LIC/MIC framework suggests an optimal level of reserves of 3.6 months of prospective imports of goods and services.
  - Due to fragilities from small size, lack of export diversification, and vulnerability to exogenous shocks, Staff recommends a higher level of reserves of about five months of imports in line with medium-term projections.

### External Balance Sheet
- Background:
  - Net international investment position (NIIP, excluding short-term migrants’ deposits): improved from -150 percent of GDP in 2017 to -131 percent of GDP in 2018.
  - Gross foreign assets: 71 percent of GDP in 2018.
  - Gross foreign liabilities: 201 percent of GDP in 2018.
  - The large negative NIIP is an important source of external vulnerability.
- Assessment (External Sustainability approach):
  - ES approach calculates REER adjustment required to satisfy the inter-temporal budget constraint to restore external sustainability.
  - ES approach suggests the projected current account is weaker than needed to stabilize the NIIP at its end-2018 level, implying a REER overvaluation of about 17 percent.
  - Drivers: large stock of liabilities and a smaller rate of return on assets compared to the cost of liabilities, leading to a net drain of income via the primary income balance.

### Non-Price Competitiveness
- Background:
  - World Economic Forum (WEF) Global Competitiveness Index overall score (2018): Cabo Verde 50.2 versus SSA SMICs average 52.8.
  - Strengths: ICT adoption and health.
  - Weaknesses: macroeconomic stability, business dynamism, and innovation capacity.
  - World Bank Doing Business Indicators (2019): Cabo Verde scores better than SSA and SSA SMICs averages in starting a business, dealing with construction permits, registering property, and enforcing contracts; lags in other areas.
  - Tourism: Cabo Verde is a top performer in sub-Saharan Africa on travel and tourism competitiveness.
- Assessment:
  - Decisive structural reforms remain critical to improve the business environment and attract private investors.
  - Key areas in need of improvement: power supply, access to finance, protecting minority investors, paying taxes, and trading across borders.
  - Tourism competitiveness strengths noted; needs improvement in cultural and business travel, international openness, and ground and transport infrastructure.
  - Privatization of the airline company (March 2019) expected to enhance growth prospects in tourism.

### Text Table 1 (EBA-lite Assessment — selected values)
- CA Approach:
  - CA-Actual: -4.5%
  - Cyclical Contributions (from model): 1.9%
  - Cyclically adjusted CA: -6.4%
  - CA-Norm: -7.6%
  - Cyclically adjusted CA Norm: -9.6%
  - Multilaterally Consistent Cyclically adjusted CA Norm: -9.0%
  - CA-Gap: 2.6%
  - of/which Policy gap: -2.3%
  - Elasticity: -0.4
  - REER Gap (from CA approach): -6.4%
  - CA-Fitted: -9.9%
  - Residual: 0.1
  - Natural Disasters and Conflicts: 0.0%
- REER Approach:
  - Ln(REER) Actual: 4.58
  - Ln(REER) Fitted: 4.80
  - Ln(REER) Norm: 4.77
  - Residual: -0.22
  - REER Gap: -18.8%
  - Policy Gap: 3.6%
  - Natural Disasters and Conflicts: -0.1%

### Overall Assessment and Recommendations
- Mixed assessment:
  - External sustainability approach: points to an overvaluation of about 17 percent to stabilize the NIIP at its end-2018 level.
  - EBA-lite CA model and REER model point to an undervaluation of the REER in the range of 6 to 19 percent.
  - Given large external liabilities, Staff bases policy recommendations on results from the external sustainability approach.
- Policy recommendations:
  - Sustained fiscal consolidation to reduce external liabilities and support medium-term external sustainability (as envisioned under the PCI).
  - Continued implementation of structural reforms to reduce transaction costs, increase labor market flexibility, boost productivity, and support private sector development.
  - Build strong external buffers despite current adequacy per LIC/MIC estimates, given vulnerabilities and the need to protect the peg.

*Source: Annex I. External Stability Assessment (Cabo Verde), IMF Country Report content.*

### Appendix II. Program Statement for the Period July 2019–January

### Appendix II. Program Statement for the Period July 2019–January 2021

### Background
- Real GDP growth history:
  - "about 6 percent on average during 1990–2000"
  - "close to 4.2 percent during the period 2001-2015"
  - "4.7 percent on average" during 2016-2018
- Growth drivers cited: significant increase in tourism activities; scaling-up of public investment to address infrastructure gaps; high private investment financed with Foreign Direct Investment (FDI); structural reforms to increase private sector role.
- Structural constraints identified: lack of diversification and regional equity; weak business environment; poor inter-island connectivity; lack of skilled labor; high transaction costs; limited access to finance.
- Fiscal vulnerabilities: narrow tax base; financial support to loss-making State-Owned Enterprises (SOEs); low efficiency in capital expenditure management.
- Public debt trajectory:
  - "57 percent of GDP in 2008"
  - "128.4 percent of GDP at end-2016"
  - "123.9 percent at end-2018"
  - IMF–World Bank staff debt sustainability analysis: "Cabo Verde is at high risk of external and overall debt distress."

### Recent Economic Developments and Outlook (2018–medium term)
- 2018 performance:
  - Real GDP growth "estimated at 5.5 percent" (up from "4 percent in 2017")
  - Q4 2018 GDP growth: "7.6 percent" year-on-year
  - Inflation: "1 percent at end-December 2018" ("0.3 percent at end-2017")
- Monetary and financial sector (2018):
  - Credit to the economy grew by "3.1 percent in 2018"
  - Migrant deposits: "36.7 percent of total deposits", "equivalent to 35 percent of GDP"
  - Prime rate: BCV maintained at "1.5 percent" after a "200-basis points reduction in 2017"
  - Deposit rates: "1.6 percent at end-December" (was "1.9 percent at end-2017")
  - Lending rates: increased from "9.3 percent in 2017" to "9.6 percent in 2018"
  - June 2019: BCV reduced overnight lending facility rate to "3.0 percent from 4.5 percent"
- Fiscal outturn and composition (2018):
  - Tax and non-tax revenue: "26.7 percent of GDP" (up from "24.9 percent of GDP in 2017")
  - Wages and salaries increased by "4.4 percent"
  - Spending on goods and services rose by "6.5 percent"
  - Transfers and subsidies increased by "4.7 percent and 23.4 percent, respectively"
  - Primary deficit moved from "CVE 0.6 billion (0.4 percent of GDP)" to "CVE 0.48 billion (0.3 percent of GDP)"
  - Net other liabilities (including onlending and capitalization to public enterprises) rose from "CVE 0.6 billion in 2017 (0.4 percent of GDP)" to "CVE 1.9 billion (1 percent of GDP)"
  - Financing needs: "CVE 7.1 billion (3.8 percent of GDP)" financed with domestic and external borrowing in about equal proportion
- SOE support (2018):
  - Total budget support to loss-making SOEs: "about CVE 4 billion", "equivalent to 2.1 percent of GDP"
- External sector (2018):
  - Current account deficit improved from "6.6 percent of GDP in 2017" to "4.5 percent of GDP in 2018"
  - Gross international reserves: "€523 million in 2017 (5.5 months of next year’s imports of goods and services)" to "€531 million in 2018 (5.1 months of next year’s imports)"

### Structural Reforms and Planned Actions (2019–21)
- Reforms enacted or advanced in 2018 (selected):
  - "Introduction of corporate income tax rate of 2.5 percent for off-shore banks (January)"
  - "Enactment of the law on the liberalization of capital flows (July)"
  - "Preparation of a report to reform the insurance sector (May)"
  - "Enactment of three legislative instruments on the legal regime of the new payment system, payment institutions, and electronic currency (November)"
- Medium-term macroeconomic projections and assumptions:
  - Real GDP growth projected to move from "an average of 3.8 percent during 2015-18" to "about 5 percent on average in the medium term"
  - Inflation projected at "1.7 percent on average"
  - External current account deficit projected to improve to "4.2 percent in 2019" and "3.9 percent on average over the medium term"
  - Gross international reserves forecast to average "about 5.3 months of prospective imports over the medium-term"
  - Financing of external current account assumed to continue mainly with FDI
- Risks to outlook:
  - Downside: worse external conditions (weak global growth, sharp tightening of global financial conditions, potential impact of Brexit), natural disasters (notably drought)
  - Upside: stronger tourism, successful structural reforms, increased FDI-driven investments, successful restructuring of the domestic airline and interisland maritime transport

### Box 1 — Key Reforms Planned by the Government, 2019–21 (selected)
- Budgetary reform milestones (dates preserved):
  - "Roll out the tax arbitration center (2nd half of 2019)"
  - "Introduce electronic billing (June 2020)"
  - "Introduce the SAF-T (Standard Audit File for Tax Purposes) ... (December 2020)"
  - "Set up a One-Stop Facility for foreign trade (December 2021)"
  - "Expand the Integrated System for Tax Security and Efficiency ... (2nd half of 2019)"
  - "Introduce a VAT monitoring plan (2nd half of 2019)"
  - "Submission of fiscal policy reform agenda and action plan to combat tax avoidance and evasion (December 2019)"
  - "Approval of the new customs tariff by the government (December 2020)"
  - "Introduction and launch of PAYLOG System (December 2019)"
  - "Approval of law on budget principles (2nd half of 2019)"
  - "Creation of national council on government finance (December 2019)"
  - "Creation of enterprise to manage State real estate holdings (December 2019)"
- SOE reforms and privatization timeline (selected):
  - Design and implement monitoring platform for public enterprise sector (December 2020)
  - Privatization and concession targets (selected):
    - TACV – "completion of the sale of 49 percent shares by end-2019"
    - Privatization of Electra (March 2020)
    - Privatization of EMPROFAC (December 2019)
    - Sale of INPHARMA (December 2019)
    - Licensing of port services (May 2020)
    - Establishment of concession arrangement for airport services (December 2019)
    - Privatization of CV Handling (December 2019)
  - "Creation of PARPública – Enterprise for the Management of State Investments (December 2019)"
- Monetary and financial sector reforms:
  - "Promote effective regulation and supervision of financial transactions with the rest of the world ... (continuous)"
  - "Action Plan for Development of the Financial System (December 2019)"
  - "Approval of the BCV Organic Law (December 2019)"
- Business climate and diversification:
  - "Approval of agenda for promoting MSMEs and diversifying the economy (December 2019)"
  - "Publication of the agenda for improving the business climate (continuous)"

### Fiscal Policy and Reforms (2019–24)
- 2019 budget projections and measures:
  - Total revenue expected: "CVE 62.7 billion (31.7 percent of GDP)", up from "CVE 52 billion in 2018 (28.1 percent of GDP)"
  - Revenue drivers include stronger growth, collection of tax arrears, administrative efficiency gains, airport security fee, maritime security fee, Innovation Fund fee, registration and notary services fees, special consumption excise tax, increase in corporate income tax rate for off-shore banks from "2.5 percent to 10 percent", and sale of nonfinancial assets
  - Wages and salaries projected to increase by "17.6 percent compared with 2018"
  - Non-interest current expenditures budgeted to increase by "15.3 percent"
  - Expenditure contingency measures totaling "CVE 3.6 billion"
  - Primary balance projected to move from "deficit of CVE 0.48 billion in 2018" to "surplus of CVE 1.3 billion in 2019"
  - Budgeted transfers to SOEs and municipalities amounting to "CVE 8.5 billion for onlending and capitalization"
  - Financing needs projected at "CVE 12.8 billion, equivalent to 6.5 percent of GDP", of which "5 ½ percent would be financed externally"
  - Midyear contingent rule: if outturn shortfall, reduce "expenditure on non-financial assets" by "20 percent"
- Medium-term fiscal consolidation targets:
  - Primary balance projected to improve from "a deficit of 0.3 percent of GDP in 2018" to "a surplus of 1.2 percent of GDP in 2024"
  - Financing needs projected to decline from "3.8 percent of GDP in 2018" to "1 percent of GDP in 2024"
  - Nominal public debt projected to decline from "123.9 percent of GDP in 2018" to "92.7 percent of GDP in 2024"
  - Policy focus: enhance budget financing capacity and improve expenditure management

### Revenue Mobilization (reform measures and targets)
- Objectives: broaden tax base; enhance tax administration efficiency
- Specific measures and reform targets:
  - Streamline exemptions on VAT, import duties, and excises by "end-June 2020"
  - Complete "review report of exemptions" by "end-December 2019" (Reform Target)
  - Strengthen collection of tax arrears via automation of administrative processes for collection, tax credit management, and enforced collection
  - Consolidate and broaden the integrated system for fiscal management (SISEF) to include other taxes; bring automated supervision of contributors’ account onstream
  - Additional measures for 2020–21:
    - Clarify fiscal rules; review and simplify reporting templates for accounting and tax-related report forms
    - Promote early review of accounts, and timely refunding of VAT credit
    - "Roll out the Tax Arbitration Center" to speed dispute resolution
    - Expand the network of the Double Taxation Convention
    - Strengthen environmental and health-related taxation
    - Reform and computerization of customs services and taxes and duties, introduction of electronic billing, restructuring and upgrade of the revenue administration

*Source: Appendix II. Program Statement for the Period July 2019–January 2021*

### 18.      On the expenditure side, priority will be given to increasing efficiency in capital

### 1cpvea2019001 - 18.      On the expenditure side, priority will be given to increasing efficiency in capital

### Expenditure framework and fiscal targets (2020-24)
- Reduce expenditure on goods and services to about 4.5 percent of GDP compared with 2019 for the period 2020-24.
- Keep capital expenditure at about 4 percent of GDP on average for 2020-24.
- Contain the wage bill at about 10.5 percent of GDP.
- Expenditure appropriations will continue to take into account risks related to resources mobilization and identify contingent expenditure.

### Public investment management reforms
- Adopt standardized criteria for the evaluation and use of procedure manuals for key sectors to benchmark capital projects and guide ex-ante selection and programming of public investment expenditures.
- Incorporate Information Technology (IT) tools to monitor and evaluate investments throughout the project cycle.
- Achieve progress through effective and permanent implementation of the National Investment System (SNI) to improve the quality of public investment.

### Expenditure control and public administration measures
- Develop an IT system to facilitate monitoring and control of public expenditure at execution and tendering stages.
- Re-evaluate autonomous government agencies with a view to proposing mergers, closings, or downsizing.
- Rationalize the fleet of government vehicles.
- Effectively limit recruitment in the central public administration.
- Implement the Annual Plan for Purchasing/Contracting and E-Procurement.
- After settling outstanding items with specialized career streams in the civil service, focus wage bill policy on containment, limiting recruitment and salary adjustments.
- Reform actions to focus on resizing, reforming, and restructuring the civil service to achieve a competitive and skilled public administration.
- Restructure the integrated system of budget and financial management (SIGOF) to enhance transparency, security, interoperability, and controls.
- Computerize and modernize services provided by embassies and Consular posts.

### Support to State-Owned Enterprises (SOEs)
- Budget support to SOEs (capitalization) will be kept down due to public sector reforms and privatization underway.
- Support is expected to be eliminated by 2022, with SOE restructuring scheduled to be completed by 2021.

### Expenditure execution and PAYLOG
- Implement the PAYLOG system to enhance expenditure execution and avoid domestic payment arrears accumulation.
- PAYLOG will help ensure compliance with the requirement that suppliers are paid within a maximum period of 45 days and improve business confidence.

### Financing and debt management
- Maintain net domestic financing below the annual limit of 3 percent of GDP.
- Net domestic financing projected to decline from 1.4 percent of GDP in 2018 to 0.4 percent of GDP in 2024.
- Adhere to a zero limit of non-concessional borrowing under the PCI program to cover the budget’s financing needs.
- Continue to lengthen the maturity of securities.
- Debt management objectives:
  - Set the annual limit as well as the type of debt to be contracted.
  - Identify and analyse debt limits and debt sustainability indicators to guide borrowing policies.
  - Minimize the cost of the portfolio as well as of new loans to be contracted.
  - Minimize the portfolio risk associated with public debt.
  - Establish rules to govern the contracting of new loans.
  - Establish institutional coordination mechanisms for the management of public debt.
  - Harmonize debt management procedures and mechanisms.

### Monetary policy stance and objectives
- Monetary policy will support price stability and protect the peg.
- Current projections indicate inflationary pressures will be low in 2019, and international reserves will remain at an adequate level.
- BCV intends to maintain the current monetary policy stance while remaining vigilant to domestic and Euro area developments.
- BCV will target a level of net international reserves that would cover 30 percent of broad money.

### Monetary policy operations and reforms
- Continue to enhance liquidity management and improve the monetary policy transmission mechanism.
- Continue implementing measures introduced in late 2017, including linking the Monetary Regularization Securities (TRM) rate to the policy rate by issuing TRMs through fixed rate tenders.
- In June 2019, BCV reduced the overnight interest rate corridor to a maximum of 150 basis points.
- Additional actions:
  - Release the minutes of the Monetary Policy Committee Meetings at least one month after each meeting, starting at end-July 2019 (Reform Target).
  - Improve monetary policy analysis through new economic indicators, such as a composite index of economic activity, and enhance near-term forecasting capacity.
  - Establish a symmetric interest rate corridor with overnight rates linked directly to the policy rate.

### Central bank independence and payment system modernization
- Draft new BCV organic law to strengthen operational independence of the central bank; government intends to submit the draft law to parliament in December 2019.
- Emphasize development and modernization of the payment system, including technological innovation, regulation, best practices, and supervision.
- In November 2018, three legal regimes were adopted to provide the basis for the functioning of the payment system covering electronic currency and payment system frameworks:
  - (i) legal framework of the Cabo Verdean payment system;
  - (ii) legal framework of the payment system and electronic currency issue;
  - (iii) framework for payment and electronic currency institutions.
- Additional actions in 2019-2020 to ensure full modernization of the payment system.

### Financial sector soundness and NPLs
- Financial system is sound, adequately capitalized, and banks are profitable, but high NPLs remain a concern.
- NPLs declined to 12.8 percent of total loans at end-year 2018, down from 14.5 percent at end-2017.
- Legacy loans account for about 60 percent of NPLs; efforts to address them will be intensified.

### Financial sector reform agenda (2019-20)
- Accelerate reforms to deepen financial intermediation, support financial inclusion, and enhance banking supervision.
- Implement recommendations from the 2013 and 2015 asset quality review and pending recommendations from the 2009 FSAP.
- Specific actions and Reform Targets:
  - Revamp the credit information system by end-December 2020 (Reform Target), including procurement completion and software development.
  - Create a functional central registry of mobile collateral by end-December 2020 (Reform Target).
  - Strengthen banks’ lending standards and risk management through enhanced supervision.
  - Adopt centralized official balance sheets to support risk-based supervision.
  - Improve the AML/CFT framework and bring it in line with FATCA standards to limit further loss of correspondent banking relationships.
  - Ensure proper functioning of the Financial Stability Committee, including appointments, operating regulation, and quarterly meetings.
  - Ensure the functioning of the National Commission for Development of the Financial System through appointments, periodic meetings, operating regulations, and adoption of the Action Plan for development of the financial system.
  - Implement main recommendations of the report on access to financing for SMEs (dated February 2015), including strengthening public credit information systems and continued training to increase staffing and capacity of banking supervision.
  - Strengthen BCV’s capacity by hiring additional staff with relevant expertise.
  - Continue negotiations to secure new correspondent banks.
  - Implement EU-specified measures to keep the country off the gray list, including: becoming a member of the Global Forum and/or obtaining a satisfactory rating; signing and ratifying the OECD Multilateral Convention on Mutual Administrative Assistance (MAC) or establishing a network of agreements covering all EU Member States; amending or abolishing harmful tax regimes; becoming a member of the Inclusive Framework or implementing the OECD/G20 Inclusive Framework on BEPS minimum standard.
  - Establish a national commission as recommended by the National Plan for Evaluation of AML/CFT Risk.
  - Implement recommendations from the EU assessment in the Global Action on Cybercrime Extended regarding combating cybercrimes.

### Public enterprise (SOE) sector: stock, support, and past reform
- There are 23 SOEs operating in air and maritime transportation, energy and water, real estate, pharmaceutical and management of ports and airports.
- At end-2018:
  - SOEs’ stock of debt stood at CVE 98.7 billion, equivalent to 53.2 percent of GDP.
  - Government guaranteed debt totaled CVE 13.2 billion (7 percent of GDP).
  - SOEs’ domestic liabilities amounted to 49 percent of GDP.
- Over 2014-17, cumulative budget support to SOEs (transfers, on-lending, capitalization, and subsidies) amounted to CVE 108.2 billion, equivalent to 62.4 percent of GDP; over half related to the loan contracted by the government and on-lent to IFH for social housing.

- Recent SOE measures:
  - TACV: domestic routes transferred to Binter Cabo Verde (30 percent State participation) in August 2017; one-year management contract with Icelandair for international routes in October 2017; privatized in March 2019 with sale of 51 percent of TACV capital to a subsidiary of Icelandair and creation of Cabo Verde Airline (CVA).
  - IFH (housing): 2011 loan-funded social housing program restructured in 2017 into class A (transferred to municipal/central governments) and class B/C units sold at market price; sales improved in 2018.
  - Electra (power and water): Board mandated to improve efficiency and prepare for privatization; revenue protection program to reduce commercial losses; distribution and transmission losses recorded at 27 percent of GDP in 2016 (down from 29 percent in 2015); unbundling of water and energy operations initiated; financial situation improved in 2017/18 eliminating budget risk.

### SOE reform agenda (2019-20)
- Aim to eliminate financial support from the budget to loss-making SOEs.
- Planned measures:
  - Complete concession for maritime transportation to private sector with 51 percent stake held by a foreign investor and 49 percent by domestic investors.
  - Sell remaining 49 percent of the State’s stake in CVA, mostly through the Stock Exchange.
  - Further privatization in pharmaceutical sector (Inpharma and Emprofac) and power and water (Electra).
  - Establish concession arrangements for ports sector (Enapor) and airports sector (ASA and CV Handling); maintain state control over management of air space (FIR Oceânica).
  - Further restructure the housing program managed by IFH.

### Other structural reforms to improve business environment
- Priorities to support growth, attract FDI, and reduce transaction costs include:
  - Increase efficiency in public administration via decentralization and cutting red tape.
  - Improve telecommunications and transport.
  - Reform the health sector and adapt education to labor market needs.
  - Reinvigorate the private sector and attract FDI to create jobs and income.

- Measures to improve the business climate and reduce transaction costs:
  - Facilitate access to finance, notably through sharing risks with the private sector.
  - Expedite procedures for setting up businesses, particularly digital entry and indexing in the Commercial Register.
  - Improve process for construction licenses and connections to electricity and water to reduce procedures and costs.
  - Protect minority investors via a new Code of Commercial Companies and supporting regulations.
  - Improve tax payment with rollout of the One-Stop Facility for Payment (online payment of taxes).
  - Expedite insolvency resolution through more effective practices.
  - Operationalize the Service Center Platform.
  - Upgrade the “Portal Di Nos Ilha” Platform and the “Participa” Platform.
  - Implement the One-Stop Shop in all municipalities.
  - Institutionalize the One-stop shop for government services.
  - Improve and modernize the quality of public services.

### Digital governance and dematerialization
- Implement an electronic procurement system to enhance transparency and reliability of the Domestic Public Contracting System.
- Equip the new system with legal and operating instruments and invest in personnel training.
- Rely on enhanced availability of procurement information from the Regulatory Authority for Public Procurement.
- Public e-Procurement System objectives:
  - Ensure proper management of public resources, ethical behavior, and sound market competition.
  - Prevent and combat corruption.
  - Execute procurement operations electronically, reducing costs and reinvigorating the local and national economy.
  - Integrate procurement needs of centralized and decentralized services to allow higher planning and control of budget execution.

*International Monetary Fund — Cabo Verde program chapter content (provided excerpt)*

### 37.      Program targets. Progress in the implementation of policies and reforms under the program

### Program targets. Progress in the implementation of policies and reforms under the program

### Overview and review schedule
- Program monitoring instruments: quantitative targets, standard continuous targets (Table 1), and reform targets (Table 2). Reform targets are defined in the Technical Memorandum of Understanding (TMU).
- Other structural reform measures planned by the government for 2019-21 are detailed in Box 1 (not reproduced here).
- Review timetable:
  - First review: to be completed by March 1, 2020.
  - Second review: to be completed by September 2, 2020.
  - Third and final review: to be completed by January 15, 2021.

### Key quantitative targets (Table 1)
- Reporting frequency and units: cumulative flows from end-Dec, 2018; amounts shown in Millions of Cabo Verde escudos (and some memorandum/program assumption items in Millions of U.S. dollars and Millions of euros as annotated in the table).

- Primary balance, cumulative (Proj. Quantitative targets Primary balance 2):
  - 456; 841; 1,315; 644; 419; 1,388; 2,093

- Tax revenue, floor:
  - 19,965; 31,362; 43,126; 10,471; 21,961; 33,648; 46,298

- Net other liabilities, ceiling 3:
  - 3,575; 6,345; 8,511; 872; 2,344; 3,611; 4,674

- Nonaccumulation of domestic arrears (continuous):
  - 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0

- Non-accumulation of external payment arrears (continuous):
  - 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0

- Nominal level of new concessional external debt of central government, ceiling:
  - 3,784; 9,563; 15,135; 1,122; 4,210; 8,330; 12,280

- Nominal level of new nonconcessional external debt of central government, ceiling (continuous):
  - 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0

- Net international reserves, floor:
  - 526; 528; 597; 572; 542; 566; 646

- Non-quantitative continuous targets (selected):
  - Non-imposition or intensification of restrictions on the making of payments and transfers for current international transactions.
  - Non-introduction or modification of multiple currency practices.
  - Not concluding bilateral payments agreement which are inconsistent with Article VIII.
  - Non-imposition or intensification of import restrictions for balance of payments reasons.

- Memorandum items:
  - Social spending: 5,550; 8,685; 14,423; 3,252; 6,534; 11,543; 15,391
  - Net onlending: 1,877; 3,647; 4,864; 672; 1,832; 2,638; 3,444
  - Capitalization: 1,698; 2,698; 3,667; 200; 512; 973; 1,229

- Program assumptions (as shown in the table):
  - Project and budget support grants: 1,326; 2,401; 5,479; 444; 985; 1,783; 4,07 0
  - External debt service: 3,765; 5,648; 6,459; 1,857; 3,714; 5,571; 7,428
  - Sales of assets: 2; 2; 996; 0; 0; 0; 952
  - Project and budget support loans: 2,591; 7,231; 12,143; 451; 2,883; 6,553; 10, ,128

- Notes in table:
  - 2 The ceiling or floor will be adjusted as specified in the TMU.
  - 3 Net other liabilities includes net onlending, capitalization, and other assets.
  - 4 Continuous. Cumulative Flows from end-Dec, 2018 (Millions of Cabo Verde escudos). (Foreign currency amounts will be converted at current exchange rates.) (Millions of U.S. dollars) (Millions of euros)

### Reform targets for 2019–20 (Table 2)
- Fiscal reforms:
  - Complete a review report on exemptions identifying their potential impact and streamlining actions.
    - Target date: End-December 2019.
    - Objective: Improve tax collection.
  - Streamline exemptions for: (i) the VAT; (ii) import duties; and (iii) excises.
    - Target date: End-June 2020.
    - Objective: Improve tax collection.
  - Submit to Parliament the budget for 2020 that is in line with commitments under the PCI.
    - Target date: End-October 2019.
    - Objective: Support fiscal and debt sustainability.

- SOEs reforms:
  - Implement quarterly monitoring of actual performance of 6 key SOEs against their approved budgets, starting at end-December 2019.
    - Timing: Continuous.
    - Objective: Improve fiscal reporting and reduce fiscal risk.
  - Compile financial information on cash flow performance of the 6 largest SOEs for FY2019.
    - Target date: End-July 2019.
    - Objective: Improve fiscal reporting and reduce fiscal risk.

- Monetary reforms:
  - Release the minutes of the Monetary Policy Committee meetings at least one month after each meeting, starting at end-July 2019.
    - Timing: Continuous.
    - Objective: Improve the communication of monetary policy.
  - Reduce the excessively wide overnight interest rate corridor to a maximum of 150-200 basis points.
    - Target date: End-December 2019; implemented in June 2019.
    - Objective: Improve monetary policy transmission mechanism.

- Financial sector reforms:
  - Create a functional central registry of mobile collateral.
    - Target date: End- December 2020.
    - Objective: Improve access to finance.
  - Revamp the credit information system by developing the relevant software system.
    - Target date: End-December 2020.
    - Objective: Improve access to finance.

### Attachment I. Technical Memorandum of Understanding — definitions and reporting requirements (selected)
- Scope of central government (Paragraph 2):
  - Includes all units of budgetary central government.
  - Excludes local government (municipalities), extra-budgetary units, social security funds and public corporations.

- Floor on the Primary Balance of the Central Government (Paragraphs 3–5):
  - Primary balance defined as total tax and non-tax revenues and grants minus primary expenditure; covers non-interest government activities as specified in the budget.
  - Measured as cumulative flow over the calendar year.
  - Revenues recorded when funds transferred to a government revenue account; tax revenues recorded net of tax refunds.
  - Primary expenditure recorded on a cash basis; covers recurrent and capital expenditure.
  - Floor will be adjusted upward (downward) by the surplus (shortfall) in disbursements of grants relative to the baseline projection.
  - Reporting: DNP (Ministry of Finance) provides data monthly with a lag of no more than four weeks from end-of-period.

- Cumulative Floor on Central Government Tax Revenue (Paragraphs 6–7):
  - Tax revenues exclude asset sales, grants, and non-tax revenues.
  - Revenue target calculated as cumulative flow from the beginning of the calendar year.
  - Reporting: DNP provides data monthly with lag no more than four weeks from end-of-period.

- Ceiling on Net Other Liabilities (Paragraphs 8–9):
  - Net Other Liabilities = central government deposits + loans to SOEs and municipalities (onlending) + capitalization + other assets.
  - Measured cumulatively over calendar year.
  - Definitions: deposits, onlending, net onlending (disbursements minus repayments by SOEs), capitalization, other assets.
  - Reporting: DNP provides data monthly with lag no more than four weeks from end-of-period.

- Non-accumulation of Domestic Payments Arrears (Paragraphs 10–11):
  - Government will not accumulate new domestic payments arrears.
  - A domestic payment obligation deemed in arrears if not paid within normal grace period of 60 days (30 days for government salaries and debt service) or other period specified by law/contract.
  - Reporting: DNP submits quarterly table of stock of domestic payments arrears within six weeks after end of quarter.

- Ceiling on Nominal Level of New Concessional External Debt (Paragraphs 12–15):
  - External public debt: debt to nonresidents contracted or guaranteed by central government; includes central government external debt and external debt of official sector entities and SOEs guaranteed by central government.
  - Debt definition follows Point 8(a) of Guidelines on Public Debt Conditionality (Executive Board Decision No. 15688-(14/107), adopted December 5, 2014).
  - Concessional debt: grant element of at least 35 percent. Grant element = (nominal value - PV) / nominal value, where PV calculated by discounting future debt-service payments using unified discount rate of 5 percent (Executive Board Decision No. 15248-(13/97)).
  - Debt rescheduling and reorganization excluded from concessional debt limits.
  - New concessional external debt excludes normal short-term (less than one year) import-related financing.
  - Reporting: government will consult Fund staff before assuming uncertain liabilities; details of all new external debt (including government guarantees) provided quarterly within six weeks of end of quarter.

- Non-Concessional External Debt (Paragraphs 16–17):
  - Ceilings on medium-/long-term and short-term non-concessional external debt are quantitative targets; zero ceiling is continuous.
  - Non-concessional defined as grant element < 35 percent; PV calculation and discount rate identical to concessional definition.
  - Portuguese government’s precautionary credit line excluded from definition of non-concessional external debt.
  - Reporting: government to consult Fund staff where uncertain; details of all new external debt provided quarterly within six weeks of end of quarter.

- Net International Reserves (NIR) of the Central Bank (Paragraphs 18–19):
  - Floor on NIR of BCV is a quantitative target. NIR = gross international reserves net of short-term external reserve liabilities, calculated at current exchange rates.
  - Gross reserves include gold, SDRs, reserve position at IMF, foreign exchange, traveler’s checks, demand/short-term deposits at foreign banks, liquid fixed-term deposits, and investment-grade securities.
  - Short-term external liabilities: original maturity < one year, net off-balance-sheet positions, arrears on principal and interest, purchases from the IMF.
  - NIR program floors adjusted downward by:
    - cumulative upward deviations in external debt service relative to program assumptions.
    - cumulative downward deviations in external financial assistance, and project and budget loans relative to program assumptions.
    - For adjusters, flows valued at current exchange rates.
  - Reporting: BCV to transmit NIR table on weekly basis, with maximum delay of two weeks.

- Non-accumulation of External Payments Arrears (Paragraphs 20–22):
  - Government will not accumulate new external payments arrears (continuous target).
  - External arrears defined as external debt service due and not paid within contractually agreed period, subject to grace period; includes contractual and late interests. Excludes arrears for which clearance framework or rescheduling agreement is sought.
  - Reporting: DNP transmits data on (i) debt-service payments; and (ii) external arrears accumulation and payments quarterly within six weeks of end of quarter. Government will inform Fund staff immediately of any accumulation of external arrears.

- Memorandum Item: Floor on Central Government Social Spending (Paragraphs 23–24):
  - Indicative floor applies to expenditures by central government on plans/programs intended to have positive impact on education, health, and social protection, excluding wages and salaries.
  - Reporting: measured cumulatively over fiscal year; reported quarterly by DNP with lag no more than six weeks from end-of-period.

- Other data requirements (Paragraph 25):
  - Exports and imports (volume and prices) compiled by Director of Customs and BCV: transmitted quarterly within five weeks after end of quarter.
  - Preliminary quarterly balance of payments, compiled by BCV: forwarded within six weeks after end of quarter.

*Source: Attachment I and Tables 1–2 of the Program Statement included in the Technical Memorandum of Understanding for the 18 months Policy Coordination Instrument.*

### 26.      The Statement of Other Economic Flows as defined in the IMF Manual GFSM2001 or

### 1cpvea2019001 - 26.      The Statement of Other Economic Flows as defined in the IMF Manual GFSM2001 or

### Reporting requirements and deadlines
- The Statement of Other Economic Flows relative to holding gains/losses of the previous year for ASA, CVA, Electra, EMPROFAC, ENAPOR, and IFH:
  - Will be transmitted on an annual basis within three months after the end of the following year (15 months after the closing date).
- The consolidated balance sheet of ASA, CVA, Electra, EMPROFAC, ENAPOR, and IFH relative to the previous year:
  - Will be transmitted on an annual basis within three months after the end of the following year (15 months after the closing date).

### Relations with the Fund — membership and financial arrangements (As of May 31, 2019)
- Membership Status:
  - Joined November 20, 1978, Article VIII.
- General Resources Account (SDR (million), Percent of Quota):
  - Quota: 23.70 100.00
  - Fund holdings of currency: 20.16 85.06
  - Reserve tranche position: 3.54 14.94
- SDR Department (SDR (million), Percent of Quota):
  - Net cumulative allocation: 9.17 100.00
  - Holdings: 0.09 0.94
- Outstanding Purchases and Loans:
  - None
- Latest Financial Arrangements (Type, Date of Arrangement, Date of Expiration, Amount Approved (SDR Million), Amount Drawn (SDR Million)):
  - ECF (Formerly PRGF): April 10, 2002 — July 31, 2005 — 8.64 — 8.64
  - Stand-By: February 20, 1998 — March 15, 2000 — 2.50 — 0.00
- Project Obligations to Fund (SDR Million: based on existing use of resources and present holdings of SDRs):
  - Forthcoming principal/charges not explicitly listed except:
  - Charges/interest: 0.05 0.10 0.10 0.10 0.10 (for 2019, 2020, 2021, 2022, 2023 respectively)
  - Total: 0.05 0.10 0.10 0.10 0.10 (for 2019–2023)

### Exchange rate arrangements
- De jure and de facto exchange rate arrangement:
  - Conventional fixed peg.
- Peg details:
  - The escudo has been pegged to the euro at a rate of CVE 110.265 per euro since January 4, 1999.
- Article VIII acceptance and restrictions:
  - Cabo Verde accepted the obligations of Article VIII, Sections 2, 3 and 4 effective July 1, 2004.
  - Maintains an exchange system free of multiple currency practices and restrictions on payments and transfers for current international transactions.

### Technical assistance (selected activities since 2016)
- FAD, MCM, STA, LEG involvement across multiple missions and purposes including:
  - Tax policy administration; customs post clearance audit; risk management action plan; MTFF and budget analysis; VAT enforcement; ASYCUDA review; developing taxpayer services; strengthening debt monitoring and management; TADAT assessment; FOREX reserves management; national accounts; CPI; balance of payments; payments system and electronic money.
- Specific mission timing highlights:
  - Examples include January–February 2017 (Module 8 - institutionalize strategic management), April 2018 (Balance of payments statistics), May 2019 (TADAT assessment of tax system), and multiple AW2 missions spanning 2016–2019.

### World Bank and IMF collaboration
- Areas of cooperation:
  - Article IV Consultations coordination; Joint Managerial Action Plan; macroeconomic framework updates; cooperation on debt management, public financial management, SOE performance, and investment planning.
- Bank work program focus:
  - Poverty reduction, public sector efficiency, competitiveness and private sector development, education, social protection, transport, and SOE management.
- Recent Bank outputs referenced:
  - Country Economic Memorandum completed December 2013; A Systematic Country Diagnostic completed in 2018; public expenditure review on debt management and sector efficiency completed in 2019.
- Joint activity planning (as of April 30, 2019) — selected entries from Table 1:
  - Bank: Public Expenditure Review dissemination — Mission June 2019 — Expected delivery Spring 2019.
  - Bank: Fiscal Risk Management Operation — Mission January 2019 — Expected delivery Spring/Summer 2019.
  - IMF: Staff Visit — September 2019; First review mission — January 2020; Second review mission — June 2020.
- Mutual requests:
  - Fund request to Bank: Updates on SOE reforms and financial situation; updates on real sector developments (FY 2019/20).
  - Bank request to Fund: Macroeconomic framework updates (FY 2019/20).

### Statistical issues — assessment of data adequacy for surveillance (As of May 31, 2019)
- General assessment:
  - Data provision has some shortcomings but is broadly adequate for surveillance.
  - Improvements needed in national accounts, government finance, and external sector statistics.
  - Statistical system faces shortage of financial and human resources.
- National Accounts:
  - Significant improvements made with TA from IMF STA and AFRITAC West 2.
  - Most recent annual GDP data released are for 2018 (released in March 2019).
  - INE implemented estimation of GDP at chained prices per 1993 SNA and changed base year from 1980 to 2007.
  - Annual national accounts based on the new methodology presented first in July 2013 for 2011 and backward projections for 2002–10.
  - Quarterly national accounts by production approach published first in April 2015.
  - Future TA to focus on GDP rebasing with base year of 2015 and quarterly expenditure-side GDP component estimates.
  - Need for improved source data collection and prioritization; greater use of administrative and tax data recommended.
- Price Statistics:
  - A revamped CPI with new methodology launched in February 2008.
  - Revised CPI with new weights and updated commodity basket published in February 2019.
  - CPI statistics published monthly and in a timely manner.
  - A Producer Price Index is under development and should be released in the near future.
- Government Finance Statistics:
  - GFS compilation system being upgraded; recent TA helped compile GFS in line with GFSM 2001.
  - Authorities started reporting GFS for publication in the IFS and GFS Yearbook.
  - Quality concerns remain: statistical discrepancies, inconsistencies between flows and stocks, inadequate measurement of tax arrears and overdue tax credits/refunds.
  - Institutional coverage needs broadening to include SOEs and municipalities.
  - Significant delay in donor reporting of project financing affects fiscal accuracy.
  - Weaknesses persist regarding public and publicly guaranteed debt of SOEs despite recent external debt revision.
- Monetary and Financial Statistics:
  - Adequate; monetary survey quality improved.
  - SRFs finalized in March 2007; SRF-based monetary data published in International Financial Statistics since June 2007.
  - Integrated monetary database in place meeting STA, AFR, and BCV needs.
  - Cabo Verde reports some Financial Access Survey indicators including two SDG Target 8.10 indicators.
- Financial Sector Surveillance:
  - Cabo Verde does not report financial soundness indicators for dissemination on the IMF’s website.
- External statistics:
  - BCV reports quarterly balance of payments and international investment position data to STA following BPM6.
  - Reports inward Coordinated Direct Investment Survey data starting with 2012.
  - Enhancements include better use of financial sector source data and Ministry of Finance stock data for government external debt.
  - Further improvements needed in data sources given total liberalization of capital transactions.
  - Data coverage needs strengthening for foreign trade in goods, nonbank private sector, and direct investment; offshore banks data are not covered.
  - Authorities urged to set a roadmap for including offshore banks in external sector statistics in coordination with other statistical domains and IMF.
- Data Standards and Quality:
  - Cabo Verde participates in e-GDDS since 2004.
  - Has not implemented a National Summary Data Page centralizing key macroeconomic statistics.
  - Metadata last updated in 2003.

### Common Indicators Required for Surveillance — selected entries (As of May 31, 2019)
- Exchange rates:
  - Date of Latest Observation: 04/30/19
  - Date Received: 5/25/19
  - Frequency of Data/Reporting/Publication: D D D
- International reserve assets and reserve liabilities of the monetary authorities:
  - Date of Latest Observation: 04/30/19
  - Date Received: 5/25/19
  - Frequency: D W M
- Reserve/base money:
  - Date of Latest Observation: 04/30/19
  - Date Received: 5/25/19
  - Frequency: D W M
- Broad money:
  - Date of Latest Observation: 04/30/19
  - Date Received: 5/25/19
  - Frequency: M W M
- Central bank balance sheet:
  - Date of Latest Observation: 04/30/19
  - Date Received: 5/25/19
  - Frequency: D W M
- Consolidated balance sheet of the banking system:
  - Date of Latest Observation: 04/30/19
  - Date Received: 5/25/19
  - Frequency: M M M
- Interest rates:
  - Date of Latest Observation: 04/30/19
  - Date Received: 5/25/19
  - Frequency: M M M
- Consumer price index:
  - Date of Latest Observation: 04/30/19
  - Date Received: 5/25/19
  - Frequency: M M M
- Revenue, expenditure, balance, and composition of financing — central government:
  - Date of Latest Observation: 12/31/18
  - Date Received: 3/25/19
  - Frequency: M Q A
- Stocks of central government and central government-guaranteed debt:
  - Date of Latest Observation: 12/31/18
  - Date Received: 3/25/19
  - Frequency: A A A
- External current account balance:
  - Date of Latest Observation: 12/31/18
  - Date Received: 3/25/19
  - Frequency: Q Q Q
- Exports and imports of goods:
  - Date of Latest Observation: 12/31/18
  - Date Received: 3/25/19
  - Frequency: Q Q Q
- GDP/GNP:
  - Date of Latest Observation: 12/31/18
  - Date Received: 3/25/19
  - Frequency: Q Q Q
- Gross external debt:
  - Date of Latest Observation: 12/31/18
  - Date Received: 3/25/19
  - Frequency: Q A A
- International Investment Position:
  - Date of Latest Observation: 12/31/18
  - Date Received: 3/25/19
  - Frequency: Q Q Q

### Joint Bank-Fund Debt Sustainability Analysis — key findings (July 2, 2019)
- Risk ratings:
  - Cabo Verde’s risk of external and overall debt distress is rated “high” as in the previous DSA.
- Public and publicly-guaranteed (PPG) external debt:
  - The present value (PV) of PPG external debt-to-GDP ratio breaches its threshold in 2019-22 under the baseline and protractedly under stress test scenarios.
- Total public debt:
  - The PV of total public debt-to-GDP ratio is projected to recede below its threshold from 2026 under the baseline and breaches its prescribed limit under stress test scenarios.
- Assessment caveats and requirements:
  - The debt sustainability assessment is predicated on sustained fiscal consolidation and successful restructuring of State-Owned Enterprises (SOEs).
  - Prudent borrowing policies and a strengthened debt management strategy are critical to containing debt accumulation.
  - Given vulnerability to exogenous shocks, growth-enhancing structural reforms remain critical to bringing public debt to sustainable levels.
- Risk of external debt distress: High
- Overall risk of debt distress: High
- Granularity in the risk rating: No
- Application of judgment: High

*Prepared by the Staffs of the International Monetary Fund and the International Development Association — July 2, 2019*

### 1.      The coverage of the public sector is in line with the previous DSA (Text Table 1). Consistent

### 1cpvea2019001 - Coverage of the public sector and DSA design (Cabo Verde)

### Public-sector coverage and data gaps
- Social security funds and local governments are excluded from the DSA.
- Extra budgetary funds (EBFs) coverage is focused on government support to State-Owned Enterprises (SOEs) through onlending and capitalization.
- Government guarantees to SOEs’ external borrowing are included in the baseline stock of debt.
- Publicly-guaranteed domestic debt and non-guaranteed debt by SOEs are excluded from the baseline due to limited information on repayment schedules.
- External debt is defined on a residency basis.
- Efforts to broaden coverage of public sector debt are ongoing, including under a World Bank project focused on SOEs.

### Contingent liability tailored stress test design and calibrations
- Adjustments made to default shocks to account for coverage gaps:
  - Other general government elements not captured in baseline: default shock raised from 0 percent of GDP to 0.4 percent of GDP to account for publicly-guaranteed domestic debt of local governments.
  - SOEs’ debt: default shock raised from 2 percent of GDP to 23.4 percent of GDP to reflect:
    - publicly-guaranteed domestic borrowing amounting to CVE 11.4 billion (6.1 percent of GDP) at end-2018; and
    - non-guaranteed domestic debt of loss-making SOEs totaling CVE 32.1 billion (17.3 percent of GDP) at end-2018.
  - PPPs: default shock of 1.1 percent of GDP is maintained.
  - Financial market shock: default minimum value of 5 percent of GDP is kept unchanged because most banks are foreign-owned and well-capitalized.
- Note: Government-guaranteed domestic borrowing of municipalities from the banking system stood at CVE 682 million (0.4 percent of GDP) at end-December 2018.
- Note: Total stock of non-guaranteed domestic debt stood at CVE 79.2 billion at end-2018, of which CVE 32.1 billion represented borrowing by identified loss-making SOEs.

### Evolution and composition of public debt (stocks and service)
- Total public debt stock: 123.9 percent of GDP at end-2018 (down from 127 percent of GDP in 2017).
- External debt accounts for almost 75 percent of total public debt.
- Domestic debt rose slightly to 32.9 percent of GDP.
- Interest and principal payments on domestic debt accounted for 61 percent of total public debt service burden in 2018.

### External public debt profile (concessionality and currency)
- Public external debt is highly concessional.
- Main creditors: multilateral institutions (World Bank and African Development Bank) and Portugal as main bilateral creditor.
- Average maturity of external debt: about 30.5 years.
- Average interest on external debt: below 1 percent.
- More than two third of external debt portfolio is euro-denominated; exchange risk is low given CVE peg to the euro.
- Commercial loans: mainly debt owed to Caixa Geral de Depósitos (CGD) with average maturity of 20 years and average interest rate of 1.55 percent.

Text Table 2 (external debt profile, 2018)
- Multilateral: 46.2 percent of external debt; Average maturity 33.0; Average interest rate 0.94%
- Bilateral: 24.2 percent of external debt; Average maturity 18.9; Average interest rate 1.01%
- Commercial: 29.6 percent of external debt; Average maturity 20.0; Average interest rate 1.59%

### Domestic debt characteristics and holders
- Domestic debt mainly medium and long-term Treasury securities; at end-2018, domestic debt accounted for 33 percent of total public debt.
- Treasury bonds represent 97 percent of domestic debt.
- Average maturity of domestic securities: about 7 years.
- Average interest rate on domestic securities: about 5 percent.
- Securities holders: banking sector 62 percent, national social security fund 36 percent, households 2 percent.

### Publicly-guaranteed debt
- Publicly-guaranteed debt stock at end-2018: CVE 13.8 billion (7.4 percent of GDP).
- State guarantees mainly for SOEs’ domestic debt.
- 2018 publicly-guaranteed external debt covers TACV debt contracted with consortium of foreign banks.
- Guaranteed domestic debt primarily liabilities of ELECTRA, ENAPOR, IFH, TACV and CERMI to domestic banking system and stock exchange; borrowing by a few municipalities also included.
- Decree-Law 42 of June 29, 2018 regulates issuance and management of State guarantees and empowers the Ministry of Finance and Planning to authorize up to CVE 50 million of guarantees per project.
- Recently approved public debt law requires parliamentary approval for issuance of loan guarantees.

Text Table 3 (publicly-guaranteed debt, 2016-2018 highlights)
- Total Publicly-Guaranteed Debt (2018): CVE 13,753 million; 7.4 percent of GDP.
- External Debt (2018): CVE 1,674 million; 0.9 percent of GDP.
- Domestic Debt (2018): CVE 12,079 million; 6.5 percent of GDP.
- Domestic debt contracted by SOEs (2018): CVE 11,388 million; 6.1 percent of GDP.
- Domestic debt contracted by local governments (2018): CVE 682 million; 0.4 percent of GDP.

### Historical private external debt and statistics improvements
- Historical series indicate private external debt about 10 percent of GDP at end-2018.
- Central bank (BCV) compiles and publishes non-financial corporations’ private debt stock statistics.
- Recent ESS technical assistance mission noted significant improvements in external sector statistics, including migration to BPM6 and quarterly IIP reporting.

### Outlook and key macroeconomic assumptions (baseline)
- Real GDP growth: reached 5.5 percent in 2018; projected to stabilize at 5 percent from 2019 onward.
- Growth drivers: tourism, fishery, industry sectors; reforms to enhance business environment and inter-island connectivity; projects under PEDS 2017-21.
- Inflation: expected to remain below 2 percent in the medium term.
- Fiscal deficit: projected to fall from 2.8 percent of GDP in 2018 to 0.8 percent of GDP in 2024, before turning into a surplus in the long term.
- Total financing needs projected to decline to 1 percent of GDP by 2024 (3.8 percent of GDP in 2018).
- External financing and domestic borrowing assumptions:
  - Identified external sources and domestic borrowing up to authorities’ annual ceiling of 3 percent of GDP.
  - Multilateral sources: budget support from World Bank and African Development amounting to US$240 million during 2019-24.
  - Long-term shift assumed from concessional to less concessional and commercial borrowing from 2025 onward.
- Domestic debt portfolio assumption: bonds with maturities of at least 4 years to account for 97 percent of the stock in the medium term.
- Interest rate assumptions: average interest rate set to 1 percent for T-bills; 4 percent for short-term bonds; 5 percent for medium to longer-term bonds.

Extract from Text Table 4 (selected projections)
- Real GDP growth (Current DSA): 2018 5.5; 2019–2024 each 5.0
- GDP Deflator (Current DSA): 2018 1.4; 2019 1.5; 2020 1.6; 2021 1.6; 2022 1.8; 2023 1.8; 2024 1.8
- Fiscal balance (including grants, Current DSA): 2018 -2.8; 2019 -2.2; 2020 -1.5; 2021 -1.2; 2022 -1.0; 2023 -0.9; 2024 -0.8
- Overall financing needs (including onlending, Current DSA): 2018 -3.8; 2019 -6.5; 2020 -3.7; 2021 -2.1; 2022 -1.3; 2023 -1.1; 2024 -1.0
- Current account balance (including grants, Current DSA): 2018 -4.5; 2019 -4.2; 2020 -4.1; 2021 -4.1; 2022 -3.9; 2023 -3.6; 2024 -3.6
- Cv$/USD exchange rate (e-o-y, Current DSA): 2018 96.9; 2019 95.9; 2020 95.2; 2021 94.5; 2022 94.1; 2023 93.6; 2024 93.0

### Assessment of realism and drivers of debt dynamics
- Drivers of debt dynamics:
  - Contributions of past and projected debt-creating flows for PPG external debt remain broadly unchanged.
  - Prices and exchange rates expected to negatively contribute to PPG external debt accumulation relative to historical experience.
  - For total public debt, projected contribution of real GDP growth to debt reduction is higher than past five years due to upward revision of medium- and long-run growth.
  - “Other debt creating flows” (including government support to SOEs through onlending and capitalization) expected to increase public debt more than in the past, but fiscal consolidation and SOE restructuring should limit primary deficit contributions.
  - Unexpected changes in prices and exchange rates were main drivers of past forecast errors.
- Realism of planned fiscal adjustment:
  - Projected three-year fiscal adjustment in the primary balance is 1.5 percentage points of GDP between 2018 and 2021; lies beneath the top quartile of historical LIC adjustments distribution.
- Consistency between fiscal adjustment and growth:
  - Projected growth path for 2019 and 2020 aligns with multiplier-based projections.
  - Realism depends on authorities’ commitment to fiscal consolidation and SOE restructuring; supported by robust 5 percent real GDP growth and PEDS reforms.
- Consistency between public investment and growth:
  - Contribution of public investment to real GDP growth remains marginal; public investment expected to hover around 4 percent of GDP in the medium term.
  - Private investment projected to average 34 percent of GDP over 2020-24.

### Country classification, stress tests and DSA results
- Debt-carrying capacity assessment: "strong" (CI score 3.28, above cutoff 3.05).
- CI score components and contributions:
  - CPIA contribution: 44 percent.
  - International reserves contribution: 31 percent.
  - World growth contribution: 15 percent.
  - Remittances contribution: 6 percent.
  - Country real growth rate contribution: 3 percent.
- External debt burden thresholds under "strong" capacity:
  - PV of PPG external debt in % of Exports: Old DSA 200; New DSA 240
  - PV of PPG external debt in % of GDP: Old DSA 50; New DSA 55
  - PPG external debt service in % of Exports: Old DSA 25; New DSA 21
  - PPG external debt service in % of Revenue: Old DSA 22; New DSA 23
  - PV of total public debt in % of GDP benchmark: Old DSA 74; New DSA 70
- Stress tests applied: six standardized stress tests and the contingent liability stress test (tailored).
- None of the tailored stress tests is triggered for Cabo Verde.

Key DSA outcomes for external public debt
- Under baseline, PV of PPG external debt-to-GDP breaches applicable threshold in 2019-22, signaling a high risk of external debt distress.
- Other debt burden indicators remain comfortably below thresholds throughout DSA horizon.
- PV of PPG external debt ratios to GDP and exports expected to steadily decrease over time.
- Debt service-to-exports and debt service-to-revenue decline through 2020 (full amortization of TACV’s publicly-guaranteed external debt), pick up in 2021 (repayment of principal on CGD loans), then decrease gradually from 2022 onward.
- Under stress scenarios:
  - One-time 30 percent nominal depreciation shock: PV of PPG external debt rises to 88.2 percent in 2020, then gradually decreases and falls below 55 percent of GDP only from 2028.
  - PV of PPG external debt breaches threshold under other standardized bound tests and under tailored combined contingent liabilities test over 2019-28.
  - PV of PPG external debt-to-exports ratio remains below its threshold throughout projection period, though close to limit in 2021.
  - None of debt service-related indicators breaches respective thresholds under stress tests.
- Vulnerabilities highlighted: exposure to export growth shocks and one-time depreciation shock due to lack of export diversification.

*Source: 1cpvea2019001.*

### 16.      The PV of total public debt-to-GDP ratio exceeds the 70 percent benchmark through 2025

### 16.      The PV of total public debt-to-GDP ratio exceeds the 70 percent benchmark through 2025

### Baseline projection and shock tests
- The PV of total public debt-to-GDP ratio exceeds the 70 percent benchmark through 2025 under the baseline scenario.
- The prescribed benchmark is also breached throughout the projection period under:
  - the six standardized bound tests, and
  - the tailored combined contingent liabilities test.
- The one-time depreciation is identified as the most severe single shock among those tested.
- Contingent liabilities associated with SOEs’ debt emerge as the most extreme shock overall.
- The debt outlook is particularly vulnerable to:
  - depreciation shocks, and
  - contingent liabilities related to SOEs’ debt.

### Debt distress ratings and indicators
- Cabo Verde’s DSA finds a “high” risk of external and overall debt distress, with risks tilted to the downside.
- The PV of PPG external debt-to-GDP ratio breaches its threshold over the medium-term projection period under the baseline scenario, signaling a high risk of external debt distress.
- The PV of PPG external debt-to-GDP ratio is particularly sensitive to export and growth shocks.
- The PV of PPG external debt-to-GDP ratio is projected to gradually decline and fall below the 55 percent threshold from 2023 onward.
- The PV of PPG external debt-to-exports ratio exhibits a continuous downward trend over the projection period.
- Debt service indicators are projected to remain comfortably below their respective thresholds throughout the DSA projection horizon.
- The “high” risk of overall debt distress reflects:
  - the breach of the PV of PPG external debt-to-GDP ratio (which produced a “high” risk of external debt distress), combined with
  - the breach by the PV of total public debt-to-GDP ratio.
- Although the PV of total public debt-to-GDP ratio stays above the 70 percent benchmark, it is expected to gradually decline, with the breach ending in 2026.
- Based on these dynamics, external and public debt are deemed sustainable going forward.

### Scenarios for improvements and required policies
- Cabo Verde could graduate to “moderate” external and overall public debt distress ratings by:
  - 2023 for external debt, and
  - 2026 for overall public debt,
  if the assumptions built into the DSA materialize.
- Factors and policies cited as key to containing debt accumulation and achieving these improvements:
  - the projected fiscal adjustment, notably under the PCI,
  - successful implementation of SOEs reforms,
  - prudent borrowing policies, adhering to the zero limit on non-concessional borrowing,
  - strengthened debt management strategy,
  - implementation of growth-enhancing structural reforms focused on:
    - diversifying the productive base, and
    - addressing the infrastructure gap,
  - effective implementation of the PEDS could play an important role.

*CABO VERDE INTERNATIONAL MONETARY FUND*

### 19.      The authorities broadly agreed with the assumptions and results of the DSA and made a few

### 1cpvea2019001 - 19.      The authorities broadly agreed with the assumptions and results of the DSA and made a few

### Authorities’ observations and confirmations
- Agreed that the interest rate on the end-December 2018 stock of medium and long-term bonds averaged 5 percent.
- Emphasized more favorable terms on new issuances in 2018 and 2019, with an average interest rate below 4 percent.
- Ruled out any uncertainty about the repayment of TACV’s publicly-guaranteed external debt by highlighting that the largest share of the debt corresponds to a EUR 13.5 million loan to finance the workforce retrenchment cost, and that financing was already secured.
- Welcomed recently adopted legislation regulating the issuance and management of public debt and State guarantees.

### Borrowing strategy and fiscal policy commitments
- Authorities insisted they will refrain from contracting non-concessional debt.
- Reiterated commitment to reducing the stock of public debt through:
  - Enhancing revenue administration and spending quality.
  - Containing expenditures.
  - Increasing private sector participation through concessions and privatizations.
  - Selling government properties.
  - Supporting the development of domestic debt markets.

### Key DSA baseline assumptions and projections (selected)
- Real GDP growth (in percent): 5.0 (baseline projection for 2019–2029, with historical 2018 = 5.5; 2019 = 5.0).
- External debt (nominal, in percent of GDP): 101.3 (2018); 101.3 (2019); projected 98.8 (2020); 95.1 (2021); 90.3 (2022); 86.1 (2023); 81.8 (2024); 58.6 (2029); 29.3 (2039).
- Of which: public and publicly guaranteed (PPG) external debt (percent of GDP): 91.0 (2018); 89.3 (2019); projected 86.3 (2020); 82.1 (2021); 77.0 (2022); 72.7 (2023); 68.2 (2024); 48.1 (2029); 24.0 (2039).
- PV of PPG external debt-to-GDP ratio (selected values): 61.9; 64.0; 62.4; 60.1; 56.8; 54.0; 51.0; 37.6; 19.2 (series shown in the DSA).
- PV of PPG external debt-to-exports ratio (selected values): 126.6; 128.2; 121.4; 112.2; 101.9; 93.2; 84.6; 58.8; 26.5 (series shown in the DSA).
- PPG debt service-to-exports ratio (selected values): 6.5; 7.3; 6.8; 7.6; 6.8; 7.4; 7.9; 7.4; 6.8; 5.9; 3.4.
- PPG debt service-to-revenue ratio (selected values): 11.9; 13.6; 12.4; 13.2; 12.4; 14.2; 15.8; 15.4; 14.6; 13.4; 9.0.
- Gross external financing need (Million of U.S. dollars, selected): -16.8; 39.2; 37.4; 63.5; 65.0; 48.1; 30.5; 22.0; 19.6; -42.5; -265.9.
- Government revenues (excluding grants, in percent of GDP): 23.9 (2016); 24.9 (2017); 26.7 (2018); 28.9 (2019); projected 28.5 (2020); 28.0 (2021); 27.9 (2022); 28.0 (2023–2024); 28.2 (2029).
- Grant element of new public sector borrowing (in percent, selected): 37.2; 37.3; 37.1; 37.6; 37.9; 37.9; 33.6; 30.0 (series shown in the DSA).
- Nominal GDP (Million of US dollars, selected): 1,664; 1,776; 1,988; 2,052; 2,213; 2,375; 2,556; 2,743; 2,950; 4,163; 8,336 (series shown in the DSA).
- Effective interest rate (percent, selected): 2.7; 2.8; 2.3; 2.5; 2.5; 2.5; 2.6; 2.7; 2.8; 3.4; 2.9 (series shown in the DSA).

### Policy implications highlighted in the DSA context
- Containment of non-concessional borrowing is central to achieving projected declines in public and external debt ratios.
- Continued fiscal consolidation combined with improvements in revenue administration and spending quality are necessary to sustain debt reduction paths.
- Development of domestic debt markets and increased private sector participation (concessions and privatizations) are important elements of the authorities’ strategy to reduce public debt.
- Recent legal reforms on public debt issuance and State guarantees strengthen the institutional framework for debt management.

*Sources: Country authorities; and staff estimates and projections.*

### 1.    On behalf of the Cabo Verdean authorities, we thank the mission team for the report and

### 1cpvea2019001 - 1.    On behalf of the Cabo Verdean authorities, we thank the mission team for the report and

### Program request and political context
- Authorities request Executive Board approval of an 18-month Policy Coordination Instrument (PCI).
- Cabo Verde does not have present or prospective balance of payments needs and does not require IMF financing.
- PCI objectives: strengthen policy framework, signal commitment to prudent policies and structural reforms, and catalyze external financing from bilateral and multilateral development partners.
- Political and social outlook described as broadly positive; robust institutions, well-consolidated democratic representation and solid governance structures.
- Authorities caution that comparisons with “peer” countries may be misleading without clear selection criteria.

### Recent economic developments and outlook
- Real GDP expanded in 2018 at the highest rate since 2008.
- In Q1 2019, GDP grew by 5.2 percent year-on-year.
- Growth described as relatively broad-based, with exceptions in construction and agriculture.
- Tourism performance: visitors increased from around 150,000 in 2002 to 765,000 last year.
- Authorities expect Cabo Verde will receive more than 1 million tourists a year by 2020/2021.
- Staff’s medium-term growth projection revised upwards by 1 percentage point, to 5 percent; authorities consider this still conservative and view risks as broadly balanced (downside: external environment; upside: structural reforms, public company restructuring, increased foreign investment, stronger tourism).

### Fiscal policy and public debt
- Overall fiscal deficit lowered to 2.8 percent of GDP in 2018 from 3 percent of GDP in 2017.
- Historical context: average fiscal deficits above 8 percent of GDP in the period between 2010 to 2015.
- Public debt declined to 123.9 percent of GDP in 2018 from 127 percent in 2017; projected to decline further.
- Domestic revenue increased by nearly 2 percent of GDP in 2018 through administrative capacity strengthening, combating tax evasion and informality, and collecting tax arrears — achieved without increasing tax rates.
- 2019 program quantitative targets include:
  - Primary surplus target of around 0.7 percent of GDP.
  - Additional tax revenue mobilization (quantitative target) via combating tax evasion and recovering tax arrears.
- Complementary revenue measures: introduction of airport and maritime security fees and increase in corporate income tax for offshore banks.
- Budget discipline supported by legislation authorizing the Minister of Finance to cut certain approved spending to ensure fiscal targets are met.
- Public company reforms and privatizations:
  - National airline majority stake sold in March (new controller from Icelandair subsidiary); plan to sell remaining 49 percent to employees and domestic investors; new routes announced to Europe, Africa and Brazil.
  - Electra continued internal measures to minimize commercial losses, increase operational efficiency and prepare for privatization planned for 2020.
  - Housing company IFH had its social housing program restructured in 2018.
- Debt sustainability: authorities acknowledge risk of debt distress remains high per joint IMF-World Bank Debt Sustainability Analysis (DSA), while noting debt service is manageable given long maturity and highly concessional terms; authorities will continue to refrain from contracting non-concessional external debt.

### Monetary policy and external sector
- Inflation in the 12 months to May 2019: consumer prices rose 1.3 percent; core inflation stood at 0.8 percent.
- Current account deficit: 4.5 percent of GDP in 2018, down from 6.6 percent of GDP in 2017.
- Current account largely financed by stable foreign direct investment; international reserves described as comfortable under all metrics.
- Currency peg to the euro remains the anchor for price stability; Exchange Rate Cooperation Agreement between Cabo Verde and Portugal celebrated its 20th anniversary in September last year and includes a short-term credit facility from the Portuguese Treasury.
- Authorities committed to continue to buildup international reserves.
- Monetary policy in 2019 remained accommodative in absence of inflation or international reserves pressures.
- Banco de Cabo Verde (BCV) actions:
  - Reduced interest rate of the marginal lending facility from 4.5 percent to 3.0 percent in June 2019.
  - Maintained policy rate unchanged at 1.5 percent.
  - Narrowing of interest rate corridor was recommended by staff and incorporated as a reform target under the PCI.

### External stability assessment
- Staff assessed Cabo Verde’s external position in 2018 as “weaker than suggested by fundamentals and desired policy settings,” a deterioration in classification relative to prior consultations (March 2018: “moderately weaker”; November 2016: “broadly consistent with medium-term fundamentals and desirable policy settings”).
- Authorities express surprise at the apparent gradual worsening of the assessment given improvements in the external outlook and emphasize need for consistency in methodology.

### Financial sector
- Banking sector described as relatively well-capitalized and liquid, with improving profitability and declining non-performing loans (NPLs).
- Confidence supported by significant share of deposits of non-residents in total deposits.
- PCI reform targets aimed at facilitating financial intermediation:
  - Revamp of the credit information system.
  - Creation of a functional registry of mobile collateral.
- Authorities working to prevent withdrawals of correspondent banking relationships; AML/CFT framework described as comprehensive and rigorous; BCV cooperating with foreign supervisors and intergovernmental bodies.

### Structural reforms and resilience
- Authorities view structural reforms as fundamental to increase potential growth, create jobs, and improve living standards; private sector participation emphasized.
- Priority reforms: ease of doing business, better inter-island connectivity, improved education and vocational training, better access to financing, privatization of public companies.
- 2017-2021 Strategic Plan for Sustainable Development (PEDS) outlines medium-term growth vision: tourism as main driver and establishing Cabo Verde as a hub for air and maritime transportation and regional business center.
- Natural disasters and climate change pose permanent concerns; authorities committed to increase structural, financial, and post-disaster resilience and appreciate IMF work on incorporating these risks into macro frameworks.

### Conclusion and commitment
- Authorities reaffirm commitment to prudent economic policies and ownership of the economic transformation plan.
- Commitment to PCI targets and appreciation for a new non-financial program that offers slightly more flexibility in the review process after two successful Policy Support Instruments (PSI) in 2006-2012.
- Emphasis that more flexibility does not mean less commitment, but more realism given a small country with relatively limited capacity.

*On behalf of the Cabo Verdean authorities, we thank the mission team for the report and policy advice.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1cpvea2019001.pdf_