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IMF staff completes review mission to Cabo Verde

Progress in structural reforms is critical to improve the medium-term economic outlook and support fiscal and debt sustainability. (Image source: Clara/Adobe Stock)

An International Monetary Fund (IMF) staff team led by Malangu Kabedi-Mbuyi visited Praia and Boa Vista from 3-16 December to hold discussions on the first review under Cabo Verde’s programme supported by the Policy Coordination Instrument (PCI)

At the end of the visit, Kabedi-Mbuyi stated, “Discussions were very constructive and the IMF team reached a staff-level agreement with the authorities on the first PCI review, subject to approval by IMF management and Executive Board. Programme 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 per cent in the first half of 2019 and projected at 5.2 per cent for the year. Inflation has remained low, declining to 0.7 per cent in October 2019.”

“It is projected at one per cent 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 a deceleration in imports. Projections for 2019 indicate that the current account deficit would narrow to 2.5 per cent of GDP in 2019 (5.3 per cent 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 per cent of GDP in 2018 to about two per cent of GDP in 2019. For 2020, the overall deficit is budgeted at 1.7 per cent 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.”

“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 per cent 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 major priority.”

“Progress in structural reforms is critical to improving 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.

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