IMF Reaches Staff-Level Agreement with Cabo Verde on a Resilience and Sustainability Facility and the Third Review under the Extended Credit Facility Arrangement

IMF News, November 2, 2023

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Canonical URL: IMF Reaches Staff-Level Agreement with Cabo Verde on a Resilience and Sustainability Facility and the Third Review under the Extended Credit Facility Arrangement

Staff-level agreement reached on a request for access under the Resilience and Sustainability Trust (RSF) in the amount of 100 percent of quota (SDR 23.69 million, approximately US$ 31.69 million).
Completion of the third review under the 36-month Extended Credit Facility (ECF) Arrangement was agreed at staff level; access under the existing ECF is 190 percent of quota (SDR 45.03 million, approximately US$ 63.3 million).
Completion of the third review, subject to approval by the IMF Executive Board, will make available SDR 4.5 million (approximately US$ 6.3 million).

Cabo Verde’s economy rebounded strongly in 2021 and 2022 as tourism returned to the islands.
The economy is expected to grow 4.5 percent in 2023.
The near-term outlook is favorable despite some downside risks.
Macroeconomic indicators noted as improved:
- Fiscal deficit narrowed.
- Debt-to-GDP ratio declined in 2022, though it remains above pre-pandemic levels.
- Current account deficit narrowed.
- International reserves increased.
Inflation is decelerating.
Data for end-June 2023 suggests that the financial system is liquid, profitable, and well capitalized.

Cabo Verde remains vulnerable to economic and climate-related disruptions.
Climate change is a major threat; Cabo Verde is described as one of the most water-scarce countries in the world.
The outlook is uncertain and subject to downside risks, including:
- Weakened demand in major tourism markets.
- External price shocks.
- Fiscal risks from failure to advance State-Owned Enterprise (SOE) reforms or reduced fiscal consolidation efforts.
- Medium-term risk from effects of climate change, evidenced by recent years of drought.
The country’s high risk of overall debt distress is a source of vulnerability; concessional financing to limit debt servicing cost is important.
On the upside, stronger tourism growth could lead to higher overall economic activity.

Performance under the program has been strong; the fiscal targets under the program were met.
Authorities are on track to exceed their end-2023 tax revenue and primary balance targets.
For 2024, authorities are targeting a further reduction in the public debt-to-GDP ratio.
The Monetary Policy Committee (MPC) decision to raise the policy rate on 30 October 2023 was welcomed for narrowing the differential with the ECB policy rate and protecting reserves.

Over the medium-term, prioritize efforts to:
- Raise domestic revenue.
- Increase the efficiency of public investment.
- Advance SOE reforms to limit fiscal risks.
The RSF support objectives as described:
- Strengthen the governance of climate change policy.
- Improve physical and fiscal resilience.
- Strengthen adaptation and mitigation efforts in key sectors.
- Improve financial sector resilience to climate change.
- Provide additional concessional financing to help implement climate-related investments and reforms and catalyze financing for climate change mitigation and adaptation strategies.

Press Release No. 23/375 — IMF Press Center; IMF Communications Department; November 2, 2023.