Cape Verde: IMF Staff Completes Review Mission to Cabo Verde

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End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF's Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

An International Monetary Fund (IMF) staff team led by Malangu Kabedi-Mbuyi visited Praia and Boa Vista during December 3-16, 2019 to hold discussions on the first review under Cabo Verde's program supported by the Policy Coordination Instrument (PCI). At the end of the visit, Mrs. Kabedi-Mbuyi issued the following statement:

"Discussions were very constructive, and the IMF team reached staff-level agreement with the authorities on the first PCI review, subject to approval by IMF management and Executive Board. Program performance has been strong. At end-September 2019, all reform targets were achieved and all quantitative targets, but one, were met. The IMF Executive Board meeting on the first PCI review is tentatively scheduled for late February 2020.

"Recent economic and financial developments as well as short-term prospects are positive. Economic growth remains strong, supported by robust activity in the industry, construction and tourism sectors, improved performance in the transport sector, and recovery in agriculture output after two years of drought. Real Gross Domestic Product (GDP) growth is estimated at 5.7 percent in the first half of 2019 and projected at 5.2 percent for the year. Inflation has remained low, declining to 0.7 percent in October 2019.

It is projected at 1 percent at the end of the year. The external position strengthened further in 2019 reflecting strong performance in exports of goods and services, notably tourism, and increased remittances, as well as deceleration in imports. Projections for 2019 indicate that the current account deficit would narrow to 2.5 percent of GDP in 2019 (5.3 percent of GDP in 2018), while international reserves would be above 5 months of prospective imports of goods and services.

"The fiscal position is expected to strengthen further in 2019 and 2020. Revenue collection improved compared with last year, however, it was slightly below projections, mainly because of the adverse impact of import deceleration on taxes on international trade, and slow disbursement of grants. The slow execution of capital outlays kept total expenditures below projections, leading to a much higher primary surplus than anticipated.

Revised projections for the year show that the overall deficit would decline from 2.8 percent of GDP in 2018 to about 2 percent of GDP in 2019. For 2020, the overall deficit is budgeted at 1.7 percent of GDP, predicated on the expected continued strong economic growth and implementation of measures aimed at broadening the tax base, increasing tax compliance, improving efficiency in revenue collection agencies, and strengthening capital expenditure management. Fiscal consolidation efforts combined with progress in public enterprises reforms is expected to bring the stock of public debt to some 119 percent of GDP at end-2020.

"Low inflationary pressures and an adequate level of international reserves helped the central bank (BCV) keep the monetary policy stance unchanged, with the policy rate at 1.5 percent. This notwithstanding, the BCV remains vigilant and stands ready to take any corrective measures that may be called for by new developments in domestic or external macroeconomic conditions, notably in the Euro area. To enhance monetary policy transmission mechanism, in June 2019, the BCV reduced the overnight interest rate corridor by 150 basis points.

"Financial sector indicators improved in 2019, though banks' assets quality is weakened by the persistently high level of non-performing loans (NPLs), which reached 12.1 percent of total loans at end-September 2019. In this context, the resolution of legacy loans that accounts for the largest share of NPLs remains a key priority.

"Progress in structural reforms is critical to improve the medium-term economic outlook and support fiscal and debt sustainability. Priority areas remain the public enterprises sector to eliminate fiscal risks, access to financing for small and medium-sized enterprises, and vocational training, especially to address youth unemployment.

"The team thanks the authorities for their hospitality and close cooperation."

[1] The Policy Coordination Instrument (PCI) is available to all IMF members that do not need Fund financial resources at the time of approval. It is designed for countries seeking to demonstrate commitment to a reform agenda or to unlock and coordinate financing from other official creditors or private investors.

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