The IMF and Cabo Verde authorities reached a staff-level agreement on a request for access under the newly established Resilience and Sustainability Trust (approximately US$ 31.69 million) and the completion of the third review under the 36-month Extended Credit Facility; The authorities are taking important steps to strengthen the economic reform program and protect the most vulnerable. Performance under the program has been strong. Post-Covid economic activity recovered rapidly as tourism returned to the islands. The fiscal deficit narrowed, the debt-to-GDP ratio declined in 2022, the current account deficit narrowed, and international reserves increased; Cabo Verde remains vulnerable to economic and climate-related disruptions, and the gains achieved need to be sustained beyond the medium-term horizon to safeguard economic stability, build resilience, and promote inclusive growth.

An International Monetary Fund (IMF) team led by Mr. Justin Tyson held meetings with the Cabo Verdean authorities during October 24 – November 2, 2023, for the third review under the Extended Credit Facility (ECF) Arrangement. Access under the existing ECF is 190 percent of quota (SDR 45.03 million, approximately US$ 63.3 million) and 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). The team also discussed the authorities’ request to access financial resources under the Resilience and Sustainability Facility (RSF) in the amount of 100 percent of quota (SDR 23.69 million, approximately US$ 31.69 million). At the conclusion of the mission, Mr. Tyson issued the following statement:

“The IMF team and the Cabo Verdean authorities reached staff-level agreement on the policies needed to complete the third review under the ECF-supported program as well as on the request to access financial resources from the RSF. The IMF’s Executive Board will discuss these requests in the coming weeks.

“Despite a challenging global environment, Cabo Verde’s economy rebounded strongly in 2021 and 2022, the economy is expected to grow 4.5 percent in 2023, and the near-term outlook is favorable despite some downside risks. Macroeconomic performance has been strong. However, Cabo Verde still faces substantial vulnerabilities. The public debt to GDP ratio, though declining, is still above pre-pandemic levels. Climate change poses a major threat, as Cabo Verde is one of the most water-scarce countries in the world. 

“The fiscal targets under the program were met and the authorities are on track to exceed their end-2023 tax revenue and primary balance targets. For 2024, they are targeting a further reduction in the public debt-to-GDP ratio. Over the medium-term, efforts to raise domestic revenue and increase the efficiency of public investment will be important.

“The mission welcomed the Monetary Policy Committee (MPC) decision to raise the policy rate on 30 October 2023 and narrow the differential with the ECB policy rate and protect reserves. Inflation is decelerating. Data for end-June 2023 suggests that the financial system is liquid, profitable, and well capitalized.

“The outlook is uncertain and subject to downside risks. Downside risks could emanate from weakened demand in major tourism markets and external price shocks. Fiscal risks could also stem from the failure to advance State-Owned Enterprise (SOE) reforms or reduced fiscal consolidation efforts. The effects of climate change—a key medium-term risk—are evidenced in the recent years of drought. The country’s high risk of overall debt distress is a source of vulnerability and thus concessional financing to limit debt servicing cost is important. On the upside, stronger tourism growth could lead to higher overall economic activity.

“The authorities have requested support under the RSF to help address climate vulnerabilities, risks, and challenges. The RSF will support Cabo Verde’s reforms to strengthen the governance of climate change policy, improve physical and fiscal resilience, strengthen adaptation and mitigation efforts in key sectors, and improve financial sector resilience to climate change. The RSF would provide additional concessional financing, which will help implementation over time of the authorities’ climate-related investments and reforms. These will help catalyze financing for climate change mitigation and adaptation strategies.

“The IMF team thanks the Cabo Verdean authorities and other counterparts for the productive discussions and congratulates them for these achievements and reaching a staff-level agreement on access under the Resilience and Sustainability Trust.”