An International Monetary Fund (IMF) staff team led by Malangu Kabedi-Mbuyi
visited Praia during March 10-25, 2019. The team’s discussions focused on
the 2019 Article IV consultation and on the authorities’ policy initiatives and reforms
for the medium term that could be supported by the IMF. Further discussions
on these reforms will take place in Washington D.C. in the coming weeks.
At the end of the visit, Mrs. Kabedi-Mbuyi issued the following statement:
“The recent momentum in economic growth continues. After an average growth
of about 1 percent during 2009–15, real gross domestic product (GDP)
expanded by 4 percent in 2017, and by an estimated 4.7 percent in 2018,
reflecting robust activity in the industry, fishery, commerce and tourism
sectors. For 2019 and the medium term, real GDP growth is forecasted in the
range of 4.8 to 5 percent. The abovementioned factors will remain important
contributors to real GDP. However, enhancing growth prospects to reach 5
percent will require sustained implementation of wide-reaching reforms to
address long-standing impediments to growth, improve the business
environment and attract foreign direct investment. In this context, the
recent privatization of the national airline company (TACV) is welcome.
“Cabo Verde’s external position strengthened in 2018 with the current
account deficit narrowing to 4.5 percent of GDP (6.6 percent of GDP in
2017) owing to strong export performance, increased remittances, and
deceleration in imports demand. The signing of an agreement between Cabo
Verde and the European Union for fish exports is a welcome development in
this context. Gross international reserves increased and reached 5.1 months
of prospective imports at end-December 2018.
“In the fiscal area, the overall deficit narrowed, mostly because of strong
revenue performance, consistent with sustained economic activity and
implementation of revenue administration measures. The overall deficit
declined from 3 percent of GDP in 2017 to an estimated 2.8 percent of GDP
in 2018. However, financing needs rose from 3.4 percent of GDP to 3.9
percent of GDP as budget support to financially-strained State-owned
enterprises (SOEs) increased. For 2019, current projections show that the
budgeted deficit of 3 percent of GDP is achievable through an effective
implementation of revenue measures contemplated in the budget and
expenditure restraint. The stock of public debt is estimated at 125 percent
of GDP at end-December 2018, down from 127 percent in 2017.
“Going forward, further improvement in the fiscal position is needed to
increase fiscal space for capital expenditure, build fiscal buffers and
reduce the risk of debt distress over the medium term. This will require
sustained implementation of reforms to broaden the tax base, increase
efficiency in tax administration, improve tax compliance, strengthen
capital expenditure management, and maintain a tight control on current
expenditure. Further progress in SOEs reforms is also critical for
medium-term fiscal and debt sustainability objectives.
“The monetary policy stance appears appropriate given low inflationary
pressures and the level of international reserves. However, continued
caution is needed. The central bank (BCV) needs to continue monitoring
developments in the Euro area closely and stand ready to change the
monetary policy stance as needed; and should continue to maintain a high
level of reserves to protect the peg and increase the economy’s resilience
to adverse shocks. To enhance the efficiency of monetary policy, further
actions are needed to strengthen the monetary policy transmission
mechanism.
“The BCV’s continued efforts to strengthen banking sector supervision are
welcome. In 2018, financial stability indicators improved, and banks’
profitability increased. Although non-performing loans (NPLs) declined in
2018, their high level (12.2 percent of total loans at end-December 2018)
remains a source of concern, and resolution of legacy loans linked to the
2008 financial crisis should be an important priority.
“Sustained progress in the implementation of structural reforms is critical
to enhance prospects for inclusive growth. In this context, priority should
be given to completing the reform agenda for SOEs. Progress in these
reforms will eliminate the drain of budgetary resources by SOEs facing
financial difficulties, and put public debt on a sustained downward trend,
thus helping reduce the risk of debt distress over the medium term. Other
priority areas include reforms aimed at improving the quality of education,
supporting vocational training, and increasing financial literacy for micro
as well as small-and-medium sized enterprises, and other measures to
improve financial inclusion.
“The team met with Prime Minister Ulisses Correia e Silva, Deputy Prime
Minister and Minister of Finance Olavo Correia, Minister of Industry, Trade
and Energy Alexandre Dias Monteiro, the Minister of Agriculture and
Environment Gilberto Silva, the Central Bank Governor João Serra, the
President of the Municipality of the Island of Sal Julio Lopes and other
government and State-owned enterprises’ senior officials. The team also met
with representatives of labor unions, non-government organizations,
development partners, and the private sector. The team thanks the
authorities for their hospitality and collaboration.”
The IMF Executive Board is expected to discuss the 2019 Article IV
consultation report in June 2019.
