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IMF Mission praises Cabo Verde's economic growth, identifies risks in latest review
IMF Mission praises Cabo Verde's economic growth, identifies risks in latest review
By: Nii Ammui Fio | 3 mins read
An International Monetary Fund (IMF) mission, led by Mr. Justin Tyson, concluded its meetings with Cabo Verdean authorities between November 18 and 26, 2024.
The discussions centered around the fifth review of the Extended Credit Facility (ECF) program and the second review under the Resilience and Sustainability Financing (RSF) arrangement.
The IMF has approved access under the current ECF program of 190% of the country’s quota, amounting to approximately US$63.3 million, while the RSF arrangement grants 100% of Cabo Verde’s quota, totaling US$31.69 million.
At the end of the mission, Mr. Tyson issued a statement confirming that the IMF team and the Cabo Verdean authorities reached a staff-level agreement on the policies required to complete both reviews.
“Upon approval by the IMF's Executive Board, the completion of the fifth ECF review will allow a disbursement of SDR 4.50 million (approximately US$5.88 million), while the second RSF review will allow SDR 2.632 million (approximately US$3.44 million),” he said.
The mission report highlighted Cabo Verde's continued economic resilience, marked by strong growth driven by tourism, export performance, and private consumption. “Cabo Verde’s economy continues to grow strongly,” the statement reads, with growth expected at 6% in 2024. Despite this, investment growth remains slow due to delays in government capital budget execution.
The country has also succeeded in maintaining macro-financial stability, with a decreasing public debt-to-GDP ratio and a fiscal primary surplus.
According to the IMF, all quantitative performance criteria for the end of June 2024 were met, except for the target on gross international reserves (GIR). However, GIR still meets the minimum requirement of covering five months of imports as set by the Banco de Cabo Verde (BCV).
Looking ahead, the IMF forecasts Cabo Verde’s economic growth will gradually converge to around 4.8% by 2029. Inflation is expected to remain below 2% in 2024, in line with trends in the euro area, while the current account deficit is expected to narrow.
The IMF commended the BCV for its decision to raise the policy rate by 25 basis points in November 2024, with a focus on closing the gap with the European Central Bank’s policy rate. The BCV’s decision is seen as vital for protecting the country’s foreign reserves.
While the short-term outlook remains positive, the IMF warned of external risks, such as a global economic slowdown, which could negatively affect tourism, inflation, and overall growth.
Other threats include climate change impacts, such as droughts and sea-level rise, which could damage coastal infrastructure and tourism, as well as financial stability risks arising from high levels of sovereign debt and non-performing loans in the banking sector.
Despite these challenges, the IMF remains optimistic about the future, noting that “stronger tourism growth could lead to higher overall economic activity.” The mission also acknowledged the government’s progress in economic reforms and thanked the Cabo Verdean authorities for their productive engagement and hospitality during the review process.
As the IMF team prepares for continued support of Cabo Verde’s reforms, the outlook remains cautiously optimistic, with an emphasis on managing risks effectively while leveraging growth opportunities.
