IMF Executive Board Concludes the Third Review of the Extended Credit Facility Arrangement and Approves US$31.45 Million under the Resilience and Sustainability Facility for Cabo Verde
IMF News, December 12, 2023
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- Published: December 12, 2023
IMF decisions and financing approved
- The Executive Board completed the Third Review of Cabo Verde’s performance under the 36-month Extended Credit Facility (ECF) arrangement approved on June 15, 2022.
- Completion of the review allows the authorities to draw the equivalent of SDR 4.5 million (about US$6 million).
- The Board approved an 18-month arrangement under the Resilience and Sustainability Facility (RSF) in the amount of 100 percent of quota (SDR 23.69 million, approximately US$31.45 million).
- In completing the third review, the Executive Board approved the authorities’ request for modification of the end-December 2023 and end-June 2024 performance criteria.
Macroeconomic performance and outlook
- 2022 real GDP growth: 17.1 percent (rebound driven by tourism).
- 2023 projected real GDP growth: 4.5 percent (as export growth normalizes).
- Inflation projected at 3 percent by end 2023 as fuel and food prices decline.
- The current account deficit is expected to widen in 2023 as exports of goods and services, tourism and remittances grow more slowly than imports.
- The 2024 budget is aligned with the ECF-supported program.
- The Banco de Cabo Verde (BCV) tightened monetary policy further to narrow the interest rate differential with the European Central Bank (ECB) to protect the peg.
RSF objectives and supported reform areas
- The RSF will support the government’s effort to implement macro-critical climate reforms and catalyze private finance for climate adaptation and transition.
- The program will support reform measures in five areas:
- (i) strengthening climate change policy governance;
- (ii) improving physical and fiscal resilience;
- (iii) strengthening mitigation and resilience through promoting energy efficiency and transition to renewables;
- (iv) promoting adaptation by ensuring ecological and economic sustainability of water resources and planning for long-run climate impacts;
- (v) strengthening financial sector resilience to climate change.
Risks and vulnerabilities
- Downside risks:
- 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 climate change (recent years of drought).
- Debt vulnerability:
- The country’s high risk of overall debt distress is a source of vulnerability; concessional financing to limit debt servicing cost is important.
- Upside scenario:
- Stronger tourism growth could lead to higher overall economic activity.
Policy advice and IMF assessment (statement by Mr. Bo Li, Deputy Managing Director and Acting Chair)
- Program performance and ownership has been strong: all performance criteria were met, and all program-supported structural reforms were met.
- Fiscal policy: anchor fiscal consolidation to put debt on a downward path while protecting the vulnerable and investing in key priority projects for future growth.
- Medium-term fiscal objectives depend on:
- Progress in domestic revenue mobilization.
- Streamlining tax exemptions.
- Increasing effectiveness of public investment projects.
- Improving debt management.
- SOE reforms: steady progress remains critical for reducing fiscal risks and improving services.
- Monetary policy: appropriately focused on safeguarding the peg.
- Financial sector: stable from a medium-term perspective; banks’ profitability positive and NPLs maintained the downward trend since 2016; authorities advised to continue working with banks to facilitate resolution of NPLs.
- Institutional reforms recommended:
- Improve autonomy, governance and accountability framework of the central bank.
- Strengthen the AML/CFT framework and its effectiveness.
- Structural reforms encouraged:
- Continue ambitious structural reform agenda to adapt to climate change, reduce the cost of doing business and accelerate public enterprise reforms.
- Pursue RSF reform measures and leverage synergies with other official financing to catalyze further public and private financing for climate mitigation and adaptation.
Selected economic indicators (highlights from Cabo Verde: Selected Economic Indicators, 2020-28)
- Real GDP (annual percent change):
- 2020: -20.8
- 2021: 5.6
- 2022: 17.7 (Act.)
- 2023: 17.1 (Proj. in table) / 4.5 (text projection for 2023) — note both figures appear in source.
- 2024: 4.4 (table)
- 2025: 4.5
- 2026: 4.7
- 2027: 4.6
- 2028: (no value listed in the displayed series)
- Consumer price index (end of period):
- 2020: -0.9
- 2021: 5.4
- 2022: 7.6
- 2023: 3.0
- Exports of goods and services (annual percent change):
- 2020: -58.7
- 2021: -7.5
- 2022: 120.6
- 2023: 3.7
- 2024: 3.2
- 2025: 8.7
- 2026: 9.5
- 2027: 9.4
- 2028: 8.1
- Tourism (component of exports, annual percent change):
- 2020: -69.1
- 2021: -16.4
- 2022: 225.4
- 2023: 6.5
- 2024: 10.1
- 2025: 8.8
- Imports of goods and services (annual percent change):
- 2020: -23.2
- 2021: 0.8
- 2022: 33.7
- 2023: 7.8
- 2024: 10.2
- Broad money (M2) (change in percent of broad money, 12 months earlier):
- 2022: 8.3
- 2023: 7.2
- 2024: 5.3
- Domestic savings (percent of GDP):
- 2020: 28.3
- 2021: 41.7
- 2022: 34.7
- 2023: 18.7
- 2024: 21.4
- National investment (percent of GDP):
- 2020: 24.1
- 2021: 40.5
- 2022: 45.3
- 2023: 38.4
- 2024: 24.3
- Savings-investment balance (percent of GDP) (selected years):
- 2020: -15.3
- 2021: -12.2
- 2022: -3.6
- 2023: -3.7
- 2024: -5.6
- External current account (excluding official transfers) (percent of GDP):
- 2020: -18.0
- 2021: -14.7
- 2022: -4.9
- 2023: -6.2
- 2024: -6.9
- Gross international reserves (months of prospective imports of goods and services):
- 2020: 5.9
- 2021: 5.7
- 2022: 6.1
- 2023: 6.2
- 2024: 5.5
- Government revenue (percent of GDP):
- 2020: 25.2
- 2021: 23.9
- 2022: 21.6
- 2023: 22.4
- 2024: 24.6
- 2025: 25.5
- Expenditure (percent of GDP):
- 2020: 34.5
- 2021: 31.6
- 2022: 25.7
- 2023: 26.7
- 2024: 29.0
- Primary balance (percent of GDP):
- 2020: -1.9
- 2021: -2.0
- 2022: 1.0
- Overall balance (incl. grants) (percent of GDP):
- 2020: -9.3
- 2021: -7.7
- 2022: -4.3
- 2023: -3.4
- 2024: -2.1
- Total nominal government debt (percent of GDP):
- 2020: 142.6
- 2021: 152.0
- 2022: 121.2
- 2023: 127.1
- 2024: 112.6
- 2025: 119.9
- 2026: 116.2
- 2027: 111.2
- 2028: 105.4
- External government debt (percent of GDP):
- 2020: 105.1
- 2021: 108.2
- 2022: 84.0
- 2023: 88.0
- 2024: 79.8
- External debt service (percent of exports of goods and services):
- 2020: 14.8
- 2021: 11.5
- 2022: 15.2
- 2023: 12.3
- Present value of PPG external debt (percent of GDP) (risk threshold: 55%):
- 2020: 70.3
- 2021: 57.2
- 2022: 53.5
- 2023: 50.9
- 2024: 54.2
- 2025: 53.3
- 2026: 52.0
- 2027: 49.5
- 2028: 47.4
- Present value of PPG external debt (percent of exports) (risk threshold: 240%):
- 2020: 335.9
- 2021: 197.4
- 2022: 159.1
- 2023: 163.8
- 2024: 156.6
- Present value of total debt (percent of GDP) (benchmark: 70%):
- 2020: 92.4
- 2021: 104.3
- 2022: 91.3
- 2023: 97.1
- 2024: 90.8
- 2025: 87.5
- 2026: 83.7
- 2027: 79.9
- 2028: 75.6
- Memorandum: Nominal GDP (billions of Cabo Verde escudos):
- 2020: 176.8
- 2021: 186.2
- 2022: 244.3
- 2023: 235.0
- 2024: 266.6
- 2025: 257.1
- 2026: 274.7
- 2027: 293.4
- 2028: 313.1
- 2029: 333.9
- 2030: 356.0
- Gross international reserves (€ millions, end of period):
- 2020: 582
- 2021: 595
- 2022: 626
- 2023: 699
- 2024: 728
- 2025: 794
- 2026: 819
- 2027: 823
- 2028: 827
- 2029: 875
Source: IMF Executive Board conclusions and Cabo Verde: Selected Economic Indicators, 2020-28 (IMF staff estimates and projections).