## The Cape Verde authorities’ second Growth and Poverty Reduction Strategy

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---

### Overview and preparation
- GPRSP-II completed in May 2008 and covers the period 2008-11.
- Maintains the thrust of GPRSP-I (presented to the Boards of IDA and IMF in January 2005).
- Prepared by the Technical Secretariat for Development Assistance, Ministry of Finance and Public Administration, in close collaboration with line ministries.
- Inclusive consultations held with municipalities, civil society, and the private sector in Santiago, São Vicente and Sal Islands.
- Strategy based on the same five pillars as GPRSP-I:
  - (i) good governance, effectiveness and equity;
  - (ii) human capital;
  - (iii) competitiveness for private-sector-led growth;
  - (iv) infrastructure and land use management; and
  - (v) social cohesion.
- Staffs’ implementation recommendations:
  - Further link objectives to actions articulated around outcome indicators as part of GPRSP-II implementation.
  - Ensure effective involvement of all actors in the implementation stage.
  - Specify major issues raised during the participatory process and indicate whether earlier drafts were amended to reflect them.

### Poverty trends and diagnosis
- Key observed outcomes and targets:
  - Cape Verde reported to be on track to meet the MDG of halving extreme poverty by 2015 if the annual growth rate is at least 5 percent on average.
  - Real per capita GDP grew by 5 percent during the implementation of GPRSP-I (2004–7).
  - Unemployment fell by 6 percentage points to 18 percent in 2005-06.
  - The share of the population in poverty declined by around 9 percentage points (from 37 percent to 28 percent) between 2001-02 and 2006 (based on the value-of-possessions criterion; results computed by staffs based on the 2006 QUIBB).
- Staffs’ diagnostic points and recommendations:
  - Rural poverty remains high and the gap between urban and rural income growth is wide; efforts needed to raise rural incomes and improve design of social inclusion programs.
  - Enhance monitoring of income inequality: strategy lacks information on income concentration and income distribution across islands.
  - Completion and release of the 2007 household survey (QUIBB) results expected by end-June 2008; an in-depth analysis is recommended to assess poverty pockets.

### Macroeconomic performance and framework
- Observed macroeconomic performance:
  - Real per capita GDP has increased on average by over 7 percent a year since 2001.
  - In 2006, real GDP growth reached double digits, boosted by tourism, telecommunications, and construction.
  - Staffs estimate that GDP grew by about 7 percent in 2007.
  - During December 2007–March 2008, twelve month inflation averaged about 3½ percent, broadly in line with inflation in the Euro area.
- Policy assessment and recommendations:
  - Exchange rate peg supported GPRSP-I goals; fiscal policy and monetary management promoting external stability.
  - Future projection exercises should make explicit linkages among exports, growth, rising investment, and the external current account.
  - Regularly consider alternative macroeconomic scenarios (including for externally-funded public investments) and discuss them in future Annual Progress Reports (APRs).
  - Projections should account for risks to the macroeconomic outlook, including the ongoing global slowdown given Cape Verde’s highly open economy.
  - Preserve macroeconomic stability and debt sustainability; fiscal policy is critical for stability.
  - Recommendation to reduce domestic debt to below 20 percent of GDP in line with the Joint Bank-Fund Debt Sustainability Analysis conducted in 2007 (IMF Country Report 08/37).
  - Future APRs could address in detail developments in financial soundness, given the importance of nonresident deposits for financial stability.
  - Staffs note risks in the strategy:
    - Projected double-digit growth rates in the outer years are more optimistic than staffs’ projections; a double digit growth rate occurred only in 2006 largely due to one-off events.
    - Urge continued prudence in fiscal policy and assessment of the implications of a large public investment program for the underlying fiscal position.
    - Conduct mid-year reviews of fiscal developments and implement fiscal policy based on a medium-term fiscal framework.
    - Use regularly updated and detailed macroeconomic and sectoral tables to assess consistency of the macroeconomic framework with strategic goals.

### Sectoral policies

- A. Public sector governance
  - Implementation and reforms:
    - Action Plan set out in the Prime Minister’s Resolution of December 2007; implementation has started to streamline the administrative structure.
    - Civil service reform underway with a new career and salary system.
    - Budget software SIGOF expanded to line ministries, public agencies and some municipalities; decentralization of some phases of budget execution.
    - Sectoral medium-term expenditure frameworks (MTEFs) prepared in close coordination with GPRSP-II.
  - Staffs’ recommendations:
    - Carefully analyze fiscal impact of the new wage structure.
    - Reinforce state regulatory capacity and strengthen oversight.
    - Place high priority on strengthening audit functions; finalize approval of the new Court of Auditors (TdC) Law and its implementation decrees.
    - Strengthen human and financial resources of the internal audit department (IGF) and enhance its risk-based methodology.
    - Fully staff the new procurement regulatory agency to reduce costs of goods and services and support disciplined fiscal policy.
    - Urgency to approve the new Budget Framework Law to legally require the annual update of the MTEF.
    - Ensure the MTEF is a top-down instrument to allocate resources, rather than a bottom-up procedure that simply adds sectoral budgets.

- B. Human capital
  - Education:
    - Overall education performance is good; virtually achieved universal primary education.
    - Policy focus shifting to improving quality and efficiency, expanding access to secondary education, restructuring and developing technical and vocational training, and developing tertiary education.
    - Staffs recommend implementing student learning assessment to track learning achievements at primary and secondary levels and undertaking efforts to gradually decrease repetition rates.
    - Proposed repetition rate targets in the strategy: 10 percent for primary education and 18 percent for secondary education; staffs note these targets remain high and more ambitious targets would benefit efficiency and quality.
  - Health:
    - Strategy’s pillar II does not include a detailed strategy for the health sector; staffs recommend more detailed quantitative sectoral goals.
    - Child health priorities: strengthen immunization system by expanding coverage, introducing cost/effective new antigens, and renewing the 10-year old cold chain.
    - Emphasize improving access to Emergency Obstetric Care to reach health MDGs.
    - Noted shortage of nurses despite improvements in availability of general practitioners and specialists.
    - Staffs recommend expansion of health infrastructure, particularly in remote rural areas; training and deploying health personnel to these areas; prioritizing financing and provision of services for diseases with most impact on the poor.
    - Enhance financial support for access to health care by vulnerable groups.

- C. Infrastructure
  - Energy sector and infrastructure priorities:
    - Energy sector critical for growth and poverty reduction; objective to develop a modern and efficient sector.
    - Recent measures to improve the regulatory framework for energy pricing are welcome; accelerate implementation of comprehensive energy sector reform.
    - Timely adjustment of tariffs and further financial assistance to the water and electricity company (Electra) necessary to implement its investment program, restore creditworthiness with oil suppliers, and clear arrears with spare-part suppliers.
    - Tariff adjustments would avoid contingent liabilities for the State.
  - Recommendations for infrastructure investment and management:
    - Better management of existing assets as more public resources are deployed.
    - Clarify directions to improve service provision at competitive and efficient rates, particularly in transportation and energy sectors, including through:
      - (i) planning of new infrastructure investments framed in the context of a MTEF;
      - (ii) cost-benefit analysis and consistency with debt sustainability;
      - (iii) feasibility assessment (market prospects) of expanding infrastructure;
      - (iv) partnering with the private sector to reduce fiscal risks and free-up public resources;
      - (v) provision in the budget for the recurrent costs that emerge from new investments.
    - Strengthening the regulatory framework for PPPs would help mobilize resources and reduce fiscal risk.
    - Need to upgrade infrastructure while safeguarding the environment.
    - Address limited progress in the policy framework for environmentally sustainable tourism development; conduct careful environmental analysis during implementation.
    - Enhance transparency in pricing, allocation and management of State lands to safeguard the environment and fiscal assets.
  - Key infrastructure sectors identified: water and sanitation, energy, and transports (ports, airports, and roads).

- D. Competitiveness and private sector development
  - Strategy emphasis and measures:
    - Emphasis on private sector-led growth to reduce poverty.
    - Policy environment measures include comprehensive energy sector reform, modernized state, improved competitiveness, and enhanced human capital.
    - Measures to improve business climate: reforms to reduce cost of doing business, improve labor market flexibility, and strengthen regulatory frameworks in energy and telecommunications.
    - Opening of the Citizen House expected to reduce time to start a business from 52 days to 1 (not yet reflected in 2008 investment climate indicators).
  - Staffs’ recommendations:
    - Address rigidities that encourage informality and other cost-of-doing-business issues.
    - Modernize and increase competition in the financial sector; strengthen supervision and regulation of banks.
    - Diversify the export base beyond tourism to enhance resilience to shocks; forthcoming tax reforms should take diversification needs into account.
    - Draw on the Diagnostic Trade Integration Study (DTIS) for diversification policy options.
    - Reassess fisheries sector potential using recent studies (including the 2007 World Bank Fisheries report) since recent studies indicate resources are in most cases fully or over exploited and potential may be limited.

- E. Social services and social cohesion
  - Staffs’ recommendations:
    - Further decentralization and rationalization in delivery of social services; little progress pending approval of the new Organic Law on decentralization.
    - Urge approval and implementation of revised protocols of agreement for decentralized social services in all municipalities once the Organic Law is approved.
    - Develop human resource and financial management capacities in municipalities.
    - Monitor progress via an M&E system.

### Food security, prices, and social protection
- Observations:
  - "The recent increase in international food prices has not yet had an impact on domestic prices, as indicated in the strategy, owing to the large stocks of cereals."
  - As cereal stocks are reduced, "prices may increase, but this is not likely to threaten fiscal or external stability in the short term given the fiscal space and comfortable level of international reserves."
  - The increase could however affect "vulnerable groups and poor areas of the country, especially because of the expected increase in transportation costs due to high oil prices."
- Measures envisaged in the strategy to mitigate possible future increases:
  - "the elimination of international trade taxes and VAT on cereals"
  - "improvements in importation efficiency"
  - potential "direct cash transfers could be increased and the eligibility rule for transfers relaxed."
- Staffs recommend:
  - "the use of direct cash transfers instead of policies that distort market prices."
  - scaling up or adapting existing programs, "including by conditioning the direct cash transfers in the participation on health and education programs."
  - conducting "a comprehensive analysis of the poverty impact of future possible increases in food prices across different groups to identify the neediest and better target the cash transfers."

### Implementation, Monitoring and Evaluation (M&E)
- Assessment:
  - The strategy "is elaborated on a results based framework," but "the strategy is not explicitly linked to the achievement of these goals."
- Critical needs identified:
  - "Establishing a link between the sectoral strategies and the definition of clear and measurable indicators" for monitoring and evaluation.
  - Ensure "alignment between indicators of the GPRSP-II, the Transformation Agenda, and the General Joint Matrix for Budget Support."
- On the pilot M&E system: "presents a wide range of output and outcome indicators that could benefit from some streamlining."
- Implementation could be strengthened by:
  - "increasingly focusing on monitoring outcome indicators and incrementally adjusting the M&E system."
  - producing "APRs be produced timely and possibly incorporate an analysis of poverty reduction expenditures allocated in the annual budget."
- Staffs recommend that future updates:
  - (i) identify realistic and measurable targets, and
  - (ii) improve the evaluation mechanism vis-à-vis the benchmarks set out in GPRSP-II.

### Implementation risks
- Major sources of risk identified:
  - "Given the specialization in tourism, the global slowdown combined with the narrow export base can have knock-on effects on Cape Verde’s external demand (including tourism) and FDI flows;"
  - "Given the reliance of the financial sector on nonresident deposits and the unclear degree of the interest-rate sensitivity of these deposits, they may be a potential capital account-based source of vulnerability;"
  - "Although improvements have been made on energy pricing regulation, implementing the broader energy sector reform is likely to be a challenge. There is a need to press on to reduce fiscal risks and contribute to create fiscal space for infrastructure development."
  - "A sharp increase in food and fuel prices could delay further poverty reduction, especially in rural areas, given that most of the food and all oil has to be imported."

### Capacity constraints
- Administrative capacity risks:
  - Need "to increase the resources allocated to the debt management office at the Ministry of Finance, to enhance its ability to monitor public debt, conduct regular debt sustainability analysis, and advise on debt management strategy."
  - Need to "strengthen M&E capacity" to ensure adequate monitoring of GPRSP-II implementation.
- Although external technical assistance is available, staffs recommend:
  - "building appropriate mechanisms to secure transfer of knowledge and retention of experienced and competent staff to carry forward the agenda in the GPRSP-II."

### Conclusions and issues for discussion
- Progress and strategic framing:
  - "Cape Verde has made major strides in the last several years in achieving the key objectives set out in the GPRSP-I and in improving the well being of its citizens."
  - "The GPRSP-II sets out Cape Verde’s medium-term goals and provides a comprehensive and integrated strategy for achieving those goals."
- Key challenges to address (as highlighted by staffs):
  - "Maintaining an appropriate macroeconomic framework that takes into account the country’s macroeconomic and fiscal risks; the importance of this cannot be overemphasized given Cape Verde’s exchange rate peg and a small open economy that remains vulnerable to external shocks;"
  - "Translating the key priorities identified in GPRSP-II into concrete and adequately costed expenditure plans that balance development needs and macroeconomic risks;"
  - "Improving access to social services in line with the general expectations of an expansion of public service delivery. Their sustainability will need to be supported by improved targeting and enhanced cost recovery."
- Staffs "look forward to Annual Progress Reports in the near future."
- For Executive Directors: "views are sought on whether they agree with the main areas identified by staffs as priorities for strengthening the strategy and its implementation, and areas identified as key implementation risks."

*Source: IMF staff discussion of the Cape Verde authorities’ second Growth and Poverty Reduction Strategy (GPRSP-II).*

### 1.      The Cape Verde authorities’ second Growth and Poverty Reduction Strategy

### The Cape Verde authorities’ second Growth and Poverty Reduction Strategy

### Overview and preparation
- GPRSP-II completed in May 2008 and covers the period 2008-11.
- Maintains the thrust of GPRSP-I (presented to the Boards of IDA and IMF in January 2005).
- Prepared by the Technical Secretariat for Development Assistance, Ministry of Finance and Public Administration, in close collaboration with line ministries.
- Inclusive consultations held with municipalities, civil society, and the private sector in Santiago, São Vicente and Sal Islands.
- Strategy based broadly on the same five pillars as GPRSP-I: (i) good governance, effectiveness and equity; (ii) human capital; (iii) competitiveness for private-sector-led growth; (iv) infrastructure and land use management; and (v) social cohesion.
- Staffs’ implementation recommendations:
  - Further link objectives to actions articulated around outcome indicators as part of GPRSP-II implementation.
  - Ensure effective involvement of all actors in the implementation stage.
  - Specify major issues raised during the participatory process and indicate whether earlier drafts were amended to reflect them.

### Poverty trends and diagnosis
- Key observed outcomes and targets:
  - Cape Verde reported to be on track to meet the MDG of halving extreme poverty by 2015 if the annual growth rate is at least 5 percent on average.
  - Real per capita GDP grew by 5 percent during the implementation of GPRSP-I (2004–7).
  - Unemployment fell by 6 percentage points to 18 percent in 2005-06.
  - The share of the population in poverty declined by around 9 percentage points (from 37 percent to 28 percent) between 2001-02 and 2006 (based on the value-of-possessions criterion; results computed by staffs based on the 2006 QUIBB).
- Staffs’ diagnostic points and recommendations:
  - Rural poverty remains high and the gap between urban and rural income growth is wide; efforts needed to raise rural incomes and improve design of social inclusion programs.
  - Enhance monitoring of income inequality: strategy lacks information on income concentration and income distribution across islands.
  - Completion and release of the 2007 household survey (QUIBB) results expected by end-June 2008; an in-depth analysis is recommended to assess poverty pockets.

### Macroeconomic performance and framework
- Observed macroeconomic performance:
  - Real per capita GDP has increased on average by over 7 percent a year since 2001.
  - In 2006, real GDP growth reached double digits, boosted by tourism, telecommunications, and construction.
  - Staffs estimate that GDP grew by about 7 percent in 2007.
  - During December 2007–March 2008, twelve month inflation averaged about 3½ percent, broadly in line with inflation in the Euro area.
- Policy assessment and recommendations:
  - Exchange rate peg supported GPRSP-I goals; fiscal policy and monetary management promoting external stability.
  - Future projection exercises should make explicit linkages among exports, growth, rising investment, and the external current account.
  - Regularly consider alternative macroeconomic scenarios (including for externally-funded public investments) and discuss them in future Annual Progress Reports (APRs).
  - Projections should account for risks to the macroeconomic outlook, including the ongoing global slowdown given Cape Verde’s highly open economy.
  - Preserve macroeconomic stability and debt sustainability; fiscal policy is critical for stability.
  - Recommendation to reduce domestic debt to below 20 percent of GDP in line with the Joint Bank-Fund Debt Sustainability Analysis conducted in 2007 (IMF Country Report 08/37).
  - Future APRs could address in detail developments in financial soundness, given the importance of nonresident deposits for financial stability.
  - Staffs note risks in the strategy:
    - Projected double-digit growth rates in the outer years are more optimistic than staffs’ projections; a double digit growth rate occurred only in 2006 largely due to one-off events.
    - Urge continued prudence in fiscal policy and assessment of the implications of a large public investment program for the underlying fiscal position.
    - Conduct mid-year reviews of fiscal developments and implement fiscal policy based on a medium-term fiscal framework.
    - Use regularly updated and detailed macroeconomic and sectoral tables to assess consistency of the macroeconomic framework with strategic goals.

### Sectoral policies

#### A. Public sector governance
- Implementation and reforms:
  - Action Plan set out in the Prime Minister’s Resolution of December 2007; implementation has started to streamline the administrative structure.
  - Civil service reform underway with a new career and salary system.
  - Budget software SIGOF expanded to line ministries, public agencies and some municipalities; decentralization of some phases of budget execution.
  - Sectoral medium-term expenditure frameworks (MTEFs) prepared in close coordination with GPRSP-II.
- Staffs’ recommendations:
  - Carefully analyze fiscal impact of the new wage structure.
  - Reinforce state regulatory capacity and strengthen oversight.
  - Place high priority on strengthening audit functions; finalize approval of the new Court of Auditors (TdC) Law and its implementation decrees.
  - Strengthen human and financial resources of the internal audit department (IGF) and enhance its risk-based methodology.
  - Fully staff the new procurement regulatory agency to reduce costs of goods and services and support disciplined fiscal policy.
  - Urgency to approve the new Budget Framework Law to legally require the annual update of the MTEF.
  - Ensure the MTEF is a top-down instrument to allocate resources, rather than a bottom-up procedure that simply adds sectoral budgets.

#### B. Human capital
- Education:
  - Overall education performance is good; virtually achieved universal primary education.
  - Policy focus shifting to improving quality and efficiency, expanding access to secondary education, restructuring and developing technical and vocational training, and developing tertiary education.
  - Staffs recommend implementing student learning assessment to track learning achievements at primary and secondary levels and undertaking efforts to gradually decrease repetition rates.
  - Proposed repetition rate targets in the strategy: 10 percent for primary education and 18 percent for secondary education; staffs note these targets remain high and more ambitious targets would benefit efficiency and quality.
- Health:
  - Strategy’s pillar II does not include a detailed strategy for the health sector; staffs recommend more detailed quantitative sectoral goals.
  - Child health priorities: strengthen immunization system by expanding coverage, introducing cost/effective new antigens, and renewing the 10-year old cold chain.
  - Emphasize improving access to Emergency Obstetric Care to reach health MDGs.
  - Noted shortage of nurses despite improvements in availability of general practitioners and specialists.
  - Staffs recommend expansion of health infrastructure, particularly in remote rural areas; training and deploying health personnel to these areas; prioritizing financing and provision of services for diseases with most impact on the poor.
  - Enhance financial support for access to health care by vulnerable groups.

#### C. Infrastructure
- Energy sector and infrastructure priorities:
  - Energy sector critical for growth and poverty reduction; objective to develop a modern and efficient sector.
  - Recent measures to improve the regulatory framework for energy pricing are welcome; accelerate implementation of comprehensive energy sector reform.
  - Timely adjustment of tariffs and further financial assistance to the water and electricity company (Electra) necessary to implement its investment program, restore creditworthiness with oil suppliers, and clear arrears with spare-part suppliers.
  - Tariff adjustments would avoid contingent liabilities for the State.
- Recommendations for infrastructure investment and management:
  - Better management of existing assets as more public resources are deployed.
  - Clarify directions to improve service provision at competitive and efficient rates, particularly in transportation and energy sectors, including through:
    - (i) planning of new infrastructure investments framed in the context of a MTEF;
    - (ii) cost-benefit analysis and consistency with debt sustainability;
    - (iii) feasibility assessment (market prospects) of expanding infrastructure;
    - (iv) partnering with the private sector to reduce fiscal risks and free-up public resources;
    - (v) provision in the budget for the recurrent costs that emerge from new investments.
  - Strengthening the regulatory framework for PPPs would help mobilize resources and reduce fiscal risk.
  - Need to upgrade infrastructure while safeguarding the environment.
  - Address limited progress in the policy framework for environmentally sustainable tourism development; conduct careful environmental analysis during implementation.
  - Enhance transparency in pricing, allocation and management of State lands to safeguard the environment and fiscal assets.
- Key infrastructure sectors identified: water and sanitation, energy, and transports (ports, airports, and roads).

#### D. Competitiveness and private sector development
- Strategy emphasis and measures:
  - Emphasis on private sector-led growth to reduce poverty.
  - Policy environment measures include comprehensive energy sector reform, modernized state, improved competitiveness, and enhanced human capital.
  - Measures to improve business climate: reforms to reduce cost of doing business, improve labor market flexibility, and strengthen regulatory frameworks in energy and telecommunications.
  - Opening of the Citizen House expected to reduce time to start a business from 52 days to 1 (not yet reflected in 2008 investment climate indicators).
- Staffs’ recommendations:
  - Address rigidities that encourage informality and other cost-of-doing-business issues.
  - Modernize and increase competition in the financial sector; strengthen supervision and regulation of banks.
  - Diversify the export base beyond tourism to enhance resilience to shocks; forthcoming tax reforms should take diversification needs into account.
  - Draw on the Diagnostic Trade Integration Study (DTIS) for diversification policy options.
  - Reassess fisheries sector potential using recent studies (including the 2007 World Bank Fisheries report) since recent studies indicate resources are in most cases fully or over exploited and potential may be limited.

#### E. Social services and social cohesion
- Staffs’ recommendations:
  - Further decentralization and rationalization in delivery of social services; little progress pending approval of the new Organic Law on decentralization.
  - Urge approval and implementation of revised protocols of agreement for decentralized social services in all municipalities once the Organic Law is approved.
  - Develop human resource and financial management capacities in municipalities.
  - Monitor progress via an M&E system.

*Source: IMF staff discussion of the Cape Verde authorities’ second Growth and Poverty Reduction Strategy (GPRSP-II).*

### 25.      The strategy correctly highlights the need for a food security plan. The recent

### _cr08244 - 25.      The strategy correctly highlights the need for a food security plan. The recent

### Food security, prices, and social protection
- The strategy notes that "The recent increase in international food prices has not yet had an impact on domestic prices, as indicated in the strategy, owing to the large stocks of cereals."
- As cereal stocks are reduced, "prices may increase, but this is not likely to threaten fiscal or external stability in the short term given the fiscal space and comfortable level of international reserves."
- The increase could however affect "vulnerable groups and poor areas of the country, especially because of the expected increase in transportation costs due to high oil prices."
- Measures envisaged in the strategy to mitigate possible future increases:
  - "the elimination of international trade taxes and VAT on cereals"
  - "improvements in importation efficiency"
  - potential "direct cash transfers could be increased and the eligibility rule for transfers relaxed."
- Staffs recommend:
  - "the use of direct cash transfers instead of policies that distort market prices."
  - scaling up or adapting existing programs, "including by conditioning the direct cash transfers in the participation on health and education programs."
  - conducting "a comprehensive analysis of the poverty impact of future possible increases in food prices across different groups to identify the neediest and better target the cash transfers."

### Implementation, Monitoring and Evaluation (M&E)
- The strategy "is elaborated on a results based framework," but "the strategy is not explicitly linked to the achievement of these goals."
- Critical needs identified:
  - "Establishing a link between the sectoral strategies and the definition of clear and measurable indicators" for monitoring and evaluation.
  - Ensuring "alignment between indicators of the GPRSP-II, the Transformation Agenda, and the General Joint Matrix for Budget Support."
- On the pilot M&E system: "presents a wide range of output and outcome indicators that could benefit from some streamlining."
- Implementation could be strengthened by:
  - "increasingly focusing on monitoring outcome indicators and incrementally adjusting the M&E system."
  - producing "APRs be produced timely and possibly incorporate an analysis of poverty reduction expenditures allocated in the annual budget."
- Staffs recommend that future updates:
  - "(i) identify realistic and measurable targets, and (ii) improve the evaluation mechanism vis-à-vis the benchmarks set out in GPRSP-II."

### Implementation risks
- Major sources of risk identified:
  - "Given the specialization in tourism, the global slowdown combined with the narrow export base can have knock-on effects on Cape Verde’s external demand (including tourism) and FDI flows;"
  - "Given the reliance of the financial sector on nonresident deposits and the unclear degree of the interest-rate sensitivity of these deposits, they may be a potential capital account-based source of vulnerability;"
  - "Although improvements have been made on energy pricing regulation, implementing the broader energy sector reform is likely to be a challenge. There is a need to press on to reduce fiscal risks and contribute to create fiscal space for infrastructure development."
  - "A sharp increase in food and fuel prices could delay further poverty reduction, especially in rural areas, given that most of the food and all oil has to be imported."

### Capacity constraints
- Risks linked to administrative capacity:
  - Need "to increase the resources allocated to the debt management office at the Ministry of Finance, to enhance its ability to monitor public debt, conduct regular debt sustainability analysis, and advise on debt management strategy."
  - Need to "strengthen M&E capacity" to ensure adequate monitoring of GPRSP-II implementation.
- Although external technical assistance is available, staffs recommend:
  - "building appropriate mechanisms to secure transfer of knowledge and retention of experienced and competent staff to carry forward the agenda in the GPRSP-II."

### Conclusions and issues for discussion
- Progress and strategic framing:
  - "Cape Verde has made major strides in the last several years in achieving the key objectives set out in the GPRSP-I and in improving the well being of its citizens."
  - "The GPRSP-II sets out Cape Verde’s medium-term goals and provides a comprehensive and integrated strategy for achieving those goals."
- Key challenges to address (as highlighted by staffs):
  - "Maintaining an appropriate macroeconomic framework that takes into account the country’s macroeconomic and fiscal risks; the importance of this cannot be overemphasized given Cape Verde’s exchange rate peg and a small open economy that remains vulnerable to external shocks;"
  - "Translating the key priorities identified in GPRSP-II into concrete and adequately costed expenditure plans that balance development needs and macroeconomic risks;"
  - "Improving access to social services in line with the general expectations of an expansion of public service delivery. Their sustainability will need to be supported by improved targeting and enhanced cost recovery."
- Staffs "look forward to Annual Progress Reports in the near future."
- For Executive Directors: "views are sought on whether they agree with the main areas identified by staffs as priorities for strengthening the strategy and its implementation, and areas identified as key implementation risks."

*Source: _cr08244 - 25.      The strategy correctly highlights the need for a food security plan. The recent*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08244.pdf_