IMF Executive Board Completes Fifth Review Under the Extended Credit Facility Arrangement and Second Review Under the Resilience and Sustainability Facility Arrangement for Cabo Verde
IMF News, January 18, 2025
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- Published: January 18, 2025
Program reviews and disbursements
- Executive Board completed:
- fifth review of the 36-month Extended Credit Facility (ECF) arrangement (approved June 15, 2022).
- second review of the 18-month Resilience and Sustainability Facility (RSF) arrangement (approved December 11, 2023).
- Disbursements enabled by reviews:
- completion of the fifth ECF review allows the authorities to draw the equivalent of SDR 4.5 million (approximately US$ 5.87 million).
- completion of the second RSF review allows disbursement of SDR 2.632 million (approximately US$ 3.43 million).
- Board actions:
- approved authorities’ request for modification of the end-December 2024 performance criteria under the ECF.
- supported delayed implementation of three RSF reform measures to the next review.
Performance against program targets
- ECF program objectives: strengthen public finances and put debt on a downward path, reduce fiscal risks from public enterprises, modernize the monetary policy framework, and raise growth potential.
- RSF objective: support macro-critical climate reforms and catalyze private climate finance.
- Quantitative and structural outcomes through September 2024:
- All ECF performance criteria (PCs) met except the gross international reserves (GIR) quantitative performance criterion (QPC).
- All indicative targets (ITs) through September 2024 were met, except for GIR.
- Structural benchmarks (SBs) through September 2024: one SB due end-June 2024 and two SBs due end-September 2024 were met; the SB due end-July 2024 was implemented with a short-delay in September.
- Under the RSF: one reform measure (RM) completed at end-November 2024; three RMs delayed to the next review.
- GIR and central bank actions:
- GIR still cover the minimum 5-months of imports target followed by Banco de Cabo Verde (BCV).
- BCV corrective actions include two policy rate increases totaling a cumulative 75 basis points in November and December 2024 and forward guidance to indicate intent of closing the differential with the ECB policy rate.
- Continuous PCs and end-June 2024 QPCs: all met except the QPC on GIR.
Macroeconomic outcomes and projections
- 2024 performance:
- Real GDP growth projected at 6 percent in 2024.
- Low inflation in 2024 (described as low and expected to remain moderate).
- Small current account deficit in 2024.
- Public debt-to-GDP ratio continues a downward path reflecting continued high growth and an improved primary balance.
- Medium-term projections:
- Growth projected to gradually converge to potential of about 4.8 percent by 2029.
- Inflation forecast at 2 percent over the medium-term, broadly in line with euro area inflation.
- Current account deficit estimated to have narrowed in 2024 and then stabilize at around 2.5 percent over the medium-term.
- Debt projected to continue declining as the primary balance moves to a surplus in 2025 and thereafter improves to over 1 percent of GDP.
- Macroeconomic stability:
- Adequate level of international reserves to protect the peg.
- Financial sector described as stable, capitalized, profitable, and liquid, albeit with rising non-performing loans that require close monitoring.
Risks, vulnerabilities, and reform priorities
- Downside risks highlighted:
- Vulnerability to external and internal shocks.
- Weakened demand in major tourism markets.
- External price shocks.
- Effects of climate change—droughts, sea level rise, and natural disasters—affecting long-term outlook via damage to coastal infrastructure and tourism.
- High level of debt is a source of vulnerability; concessional financing to limit debt servicing cost remains important.
- Fiscal and financial sector risks from incomplete State-Owned Enterprise (SOE) reforms.
- Upside potential:
- Stronger tourism growth could lead to higher overall economic activity.
- Policy priorities recommended:
- Domestic revenue mobilization and steadfast progress on fiscal structural reforms while protecting social spending and enhancing public investment execution.
- Steady progress on reform of state-owned enterprises to limit fiscal risks and improve services.
- Central Bank of Cabo Verde should continue to tighten rates to reduce the interest rate differential with the European Central Bank’s policy rate and protect external buffers.
- Close monitoring of rising non-performing loans in the financial sector.
- Continued implementation of RSF reform measures to catalyze broader financial and technical support for building climate resilience.
Statement by Acting Chair and Deputy Managing Director Bo Li
- Summary points from the statement:
- Economic activity was strong in 2024; near-term outlook favorable.
- Inflation was low and expected to remain moderate in the medium term.
- Downside risks include potential lower external demand from major tourism sources, fiscal risks if SOE reforms stall, and climate change shocks.
- Program performance under the ECF was generally strong; all performance criteria met except GIR target, and authorities have taken appropriate corrective actions.
- Progress under the RSF is steady though slower than foreseen, reflecting complexity and interconnectedness of reform measures.
- Fiscal position estimated to have been tighter than budgeted in 2024; debt-to-GDP ratio continues to decline.
- Emphasized need for revenue mobilization, fiscal structural reforms, protection of social spending, improved public investment execution, SOE reform, monetary tightening to protect the peg, and continued RSF implementation to catalyze climate finance and resilience.
Press Release No. 25/008, January 17, 2025, IMF Communications Department.
