The Executive Board of the International Monetary Fund (IMF) completed the fourth review of Cabo Verde's performance under the 36-month Extended Credit Facility (ECF) arrangement that was approved on June 15, 2022. The completion of the review allows the authorities to draw the equivalent of SDR 4.5 million (19 percent of quota or about US$5.94 million), bringing total disbursement to SDR 36.02 million (152 percent of quota or about US$ 48.17 million). The Executive Board also completed the first review under the 18-month Resilience and Sustainability Facility (RSF) arrangement that was approved on December 11, 2023. The completion of the review allows the authorities to draw the equivalent of SDR 5.264 million (22.22 percent of quota or about US$6.94 million). The Executive Board's decision was taken on a lapse-of-time basis[1].
In completing the fourth review under the ECF arrangement, the Executive Board approved the authorities' request for modification of the end-June and end-December 2024 performance criteria. The Executive Board approved the authorities' request to rephase the availability dates under the RSF arrangement.
Cabo Verde continues to recover well from recent shocks. The authorities have successfully maintained macroeconomic and financial stability and remain committed to the program objectives. Macroeconomic performance was strong in 2023, with real GDP growth of 5.1 percent, low inflation, and a prudent level of international reserves to protect the peg. The public debt-to-GDP ratio continues on a downward path, reflecting high growth and a record 2023 primary fiscal surplus.
Performance under the ECF arrangement was strong. All quantitative performance criteria (QPCs) for end-December 2023 were met, as well as the non-quantitative continuous PCs. The indicative targets (ITs) for end-September 2023 were met, while the indicative target on social spending for end-December 2023 was missed because of a weaker-than-expected spending growth in health and education programs and delays in external grants. The Structural Benchmarks (SB) for end-December 2023 were met, and the Reform Measures (RMs) for the first review under the RSF arrangement were completed on time.
Cabo Verde's near-term economic outlook remains favorable but has moderated from recent highs. Real GDP growth is projected at 4.7 percent in 2024 as export growth (especially services) normalizes following the return to the pre-pandemic levels of visitor arrivals. The economy is projected to converge to potential growth of 4.5 percent by 2028. Inflation is forecast at 2 percent in 2024 and over the medium-term, broadly in line with Euro area inflation.
The authorities are improving the monetary and financial policy frameworks. The current monetary tightening is appropriate for narrowing the differential with the ECB policy rate--an important measure to protect the peg. Data for end-December 2023 suggests that the financial system is liquid, profitable, and well capitalized.
Reforms to foster productivity and diversification underpin the authorities' growth and climate resilience strategy. The RSF arrangement supports strong reforms in the energy-water nexus with the aim of facilitating private sector development, building the appropriate infrastructure, reducing costs, and managing the energy transition. Targeted social policies and spending are geared towards poverty reduction and compensating the most vulnerable for the costs of transition. SOE reforms are critical to improve financial performance and reduce fiscal risks. Finally, improving the inter-island connectivity is crucial for competitiveness.
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[1] The Executive Board takes decisions under its lapse-of-time procedure when a proposal can be considered without convening formal discussions.
