IMF Staff Completes Review Mission to Cabo Verde

IMF News, December 16, 2019

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An IMF staff team led by Malangu Kabedi-Mbuyi visited Praia and Boa Vista during December 3–16, 2019 to hold discussions on the first review under Cabo Verde’s program supported by the Policy Coordination Instrument (PCI).
The IMF team reached staff-level agreement with the authorities on the first PCI review, subject to approval by IMF management and Executive Board.
Program performance at end-September 2019: all reform targets were achieved and all quantitative targets, but one, were met.
The IMF Executive Board meeting on the first PCI review is tentatively scheduled for late February 2020.

Real Gross Domestic Product (GDP) growth is estimated at 5.7 percent in the first half of 2019 and projected at 5.2 percent for the year.
Inflation declined to 0.7 percent in October 2019 and is projected at 1 percent at the end of the year.
Current account deficit projections: 2.5 percent of GDP in 2019 (5.3 percent of GDP in 2018).
International reserves projected to be above 5 months of prospective imports of goods and services.
Drivers of stronger external position: robust activity in industry, construction and tourism sectors; improved performance in the transport sector; recovery in agriculture output after two years of drought; strong exports of goods and services, notably tourism; and increased remittances coupled with deceleration in imports.

The 2020 draft budget aims to further improve the fiscal position in support of public debt reduction within a medium-term fiscal framework.
Revenue collection improved compared with last year but was slightly below projections due mainly to import deceleration affecting taxes on international trade and slow disbursement of grants.
Slow execution of capital outlays kept total expenditures below projections, resulting in a much higher primary surplus than anticipated.
Revised projections for 2019 indicate the overall deficit would decline from 2.8 percent of GDP in 2018 to about 2 percent of GDP in 2019.
For 2020, the overall deficit is budgeted at 1.7 percent of GDP.
Fiscal consolidation combined with progress in public enterprises reforms is expected to bring the stock of public debt to some 119 percent of GDP at end-2020.
Measures underpinning the fiscal path: broadening the tax base, increasing tax compliance, improving efficiency in revenue collection agencies, and strengthening capital expenditure management.

The central bank (BCV) kept the policy rate unchanged at 1.5 percent, supported by low inflationary pressures and an adequate level of international reserves.
In June 2019, the BCV reduced the overnight interest rate corridor by 150 basis points to enhance the monetary policy transmission mechanism.
Financial sector indicators improved in 2019, but banks’ asset quality remains weakened by a persistently high level of non-performing loans (NPLs), which reached 12.1 percent of total loans at end-September 2019.
The resolution of legacy loans that account for the largest share of NPLs remains a key priority.

Priority structural reforms to improve the medium-term outlook and support fiscal and debt sustainability:
- Public enterprises sector reforms to eliminate fiscal risks.
- Enhancing access to financing for small and medium-sized enterprises.
- Expanding vocational training, especially to address youth unemployment.
Continued implementation of structural reforms focused on domestic revenue mobilization, public enterprises reforms, and strengthening of the financial sector.

Staff will prepare a report based on the mission's preliminary findings that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.
The IMF team thanked the authorities for their hospitality and close cooperation.

Source: Press Release No. 19/463, December 16, 2019.