IMF Executive Board Completes Second and Final Review of Cape Verde's Performance under Policy Support InstrumentPress Release No.12/28
January 30, 2012
The Executive Board of the International Monetary Fund (IMF) today completed the second and final review of Cape Verde’s economic performance under the 15-month Policy Support Instrument1 (PSI) program approved on November 2010 (see Press Release No. 10/457). In completing the review, the Executive Board granted waivers of nonobservance of assessment criteria.
Following the Executive Board’s discussion of Cape Verde, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, made the following statement:
“The Cape Verde authorities tightened macroeconomic policies in the second half of 2011 in response to risks to macroeconomic stability arising from international commodity price increases and the European debt crisis. Given lingering global uncertainties, policy restraint will be needed in the coming months to safeguard the exchange rate peg and build buffers against shocks.
“The authorities plan to reduce the budget deficit and external debt over the medium term to strengthen the fiscal position and support private sector growth. They will need to increase domestic revenue, contain current spending, and proceed cautiously on capital spending while relying on concessional borrowing as much as possible.
“The recent increase in the Bank of Cape Verde’s policy rate and the reserve requirements for commercial banks will help contain inflation and bolster international reserves. Growing financial sector vulnerabilities call for further improving banking regulation and supervision. The recent establishment of a financial stability committee represents a welcome step in this direction.
“While progress has been made toward the Millennium Development Goals, unemployment remains high. This calls for reforms to enhance competitiveness, diversify the economy, and improve the functioning of the labor market. Faster progress in restructuring state-owned enterprises will also be important.”
1 The IMF's framework for PSIs is designed for low-income countries (and small island states) that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks. For more details see PSI Factsheet at http://www.imf.org/external/np/exr/facts/psi.htm.