- The IMF Executive Board completed the sixth review under the Extended Credit Facility (ECF) arrangement and approved a fifteen-month extension and an augmentation equivalent to thirty percent of quota under the ECF arrangement. The Executive Board also approved a fifteen-month extension of the Resilience and Sustainability Facility (RSF) arrangement and the rephasing of availability dates under the RSF arrangement.
- The ECF arrangement aims to strengthen public finances, ensure debt sustainability, minimize fiscal risks from public enterprises, modernize monetary policy, and raise potential growth. The RSF arrangement aims to support the government’s climate reforms and catalyze private climate finance.
- All end-December 2024 quantitative performance criteria (PCs), continuous PCs, and structural benchmarks (SBs) under the ECF arrangement were met. The indicative target (IT) on social spending at end-December 2024 was not met, albeit by a small margin. Implementation of reform measures (RMs) under the RSF arrangement has been slower than expected, reflecting the complexity and interconnectedness of the reforms and capacity constraints.
The Executive Board of the IMF completed the sixth review under the ECF arrangement, which was approved on June 15, 2022, and approved a fifteen-month extension and augmentation under the arrangement. The augmentation of 30 percent of quota (SDR 7.11 million) brings access under the ECF arrangement to SDR 52.14 million. The completion of the sixth ECF review allows the disbursement of SDR 4.51 million (approximately US$6.18 million). The Executive Board also approved the authorities’ request for a fifteen-month extension under the RSF arrangement, rephasing of the availability dates for delayed reform measures (RMs), and the modification of one RM.
Cabo Verde’s economy continues to perform well, underpinned by tourism, robust export performance, and private consumption growth. Economic growth in 2024 was strong at 7.3 percent, with 5.2 percent growth expected in 2025. Inflation is projected to stay near 2 percent, and the current account is expected to return to a small deficit in 2025. Continued data-driven adjustments in monetary policy may be needed to protect the exchange rate peg and appropriate reserves buffers. The financial system is liquid, profitable, and well capitalized. The 2024 fiscal balance exceeded program targets, driven by lower primary expenditures and strong tax revenue growth. The public debt-to-GDP ratio continues to decline.
Performance under the ECF arrangement continues to be strong. All end-December 2024 quantitative performance criteria (PCs), continuous PCs, and structural benchmarks (SB) for end-December 2024 were met. Implementation of RMs under the RSF has been weaker than expected despite efforts and ongoing CD support.
Cabo Verde’s medium-term economic outlook remains favorable. Growth is expected to gradually converge to 4.8 percent by 2028, with inflation remaining around 2 percent, broadly in line with euro area inflation. The current account is expected to remain in deficit in the medium term as temporary factors dissipate due to increased capital expenditure on climate and infrastructure, while tourism-related growth moderates. The 2025 budget is aligned with the program and a continued decline in the public debt-to-GDP ratio to 104.9 percent by end-2025, below pre-pandemic levels.
The macroeconomic outlook remains favorable but is subject to downside risks. Risks stem from global uncertainty, uncertainties in global trade frameworks, and external financing challenges, while rising spending on climate and infrastructure, as well as slower tourism growth, could contribute further to imbalances. Delays in SOE reforms may impact fiscal stability. The high level of debt is a source of vulnerability, and concessional financing to limit debt servicing costs remains important. On the upside, continued strength in tourist arrivals could lift growth.
Following the Executive Board discussion on Cabo Verde, Acting Chair and Deputy Managing Director Bo Li issued the following statement:
Economic activity in Cabo Verde in 2024 was strong, growth in 2025 is projected to remain above potential, and the near-term outlook is favorable despite downside risks. Inflation has been low and is expected to remain at moderate levels in the medium term. Risks to the outlook include lower external demand in major tourism source countries; uncertainties related to global trade frameworks; and climate-related shocks.
“Program performance under the ECF was strong. All performance criteria were met. All program-supported structural reforms were also implemented. Progress under the RSF arrangement has been weaker than expected, reflecting the complexity and interconnectedness of the reforms and domestic capacity constraints.
“The fiscal position in 2024 exceeded program targets, and the debt-to-GDP ratio has continued to decline. The execution of public capital spending improved relative to 2023. Over the medium-term, domestic revenue mobilization and steadfast progress on fiscal structural reforms will continue while protecting social spending and prioritizing high-quality public investments. Steady progress on state-owned enterprise (SOE) reforms remains critical for limiting fiscal risks and improving services.
“The monetary policy framework is focused on safeguarding the peg. The BCV has continued to normalize monetary policy: interest differentials with the ECB have turned positive which will help protect external buffers. The financial sector remains stable, well-capitalized, profitable and liquid, although non-performing loans require continued monitoring.
“The authorities should continue implementing their ambitious structural reform agenda. This includes the implementation of the reform measures under the RSF arrangement to help catalyze broader financial and technical support for building climate resilience. To improve reform implementation capacity under the RSF, more resources need to be invested in planning and management. Other important actions include accelerating reforms to improve the business environment.”
Distributed by APO Group on behalf of International Monetary Fund (IMF).
