The Covid-19 pandemic continues to severely affect the Cabo Verde economy, with GDP projected to contract by 6.8 percent in 2020, and a recovery in 2021 faces “substantial risks”, according to the International Monetary Fund (IMF).
In a note issued at the conclusion of the IMF Executive Board´s second review under the Policy Coordination Instrument (PCI) for Cabo Verde, Tao Zhang, Deputy Managing Director and Acting Chair says the sharp contraction in travel and tourism flows, lower external demand, and domestic containment measures have “dealt a significant blow to the economy”.
“The near-term outlook is highly uncertain, and there are significant downside risks. Notwithstanding the difficult circumstances, the authorities have maintained fiscal discipline and reform implementation efforts. As a result, performance under the Policy Coordination Instrument has remained strong”, Zhang adds.
The IMF´s current forecast is for the economy to expand by 4.5 percent in 2021. Last year, the country´s economy grew 5.7 percent.
According to Zhang, “the authorities have taken swift and appropriate measures to address the economic and social impact of the pandemic”, by increasing testing capacity, enhancing health care services, expanding social protection programs, and implementing policy measures to support the corporate sector, while executing COVID-related spending in a “transparent manner”.
“The shock related to COVID-19 has significantly eroded progress made by the authorities in recent years to place public debt on a sustained downward trajectory. With Cabo Verde at high risk of debt distress, it would be important to refocus on the achievement of medium-term fiscal and debt sustainability through fiscal consolidation and continued prudent borrowing policies, relying on highly concessional loans, as the health crisis abates”, the IMF acting chair added.
To support economic recovery and enhance medium-term growth prospects, the IMF representative also recommends reforms aimed at increasing efficiency in the public enterprises sector, deepening financial intermediation, and improving the business environment
According to the IMF, performance under the PCI has remained positive, with all quantitative targets at end-March being met, except for the target on tax revenue which was narrowly missed because of the economic impact of Covid-19.
All reform targets under the PCI, which expires in January 2021, were observed at end-June, except for the streamlining of tax exemptions that was partially met.