Cabo Verde: Government to ask IMF for support on external debt relief

The Cape Verdean government intends to ask the International Monetary Fund (IMF) for a new technical support programme for external debt relief of 1.68 billion euros, to free up financial resources for post-pandemic economic recovery.

“The government intends to continue to rely on the IMF for a new PCI [Policy Coordination Instrument, with no financial envelope] to support policies and reforms aimed at public debt relief, particularly external debt,” reads the Government Programme for the new legislature (2021-2026), which will be discussed on Monday in parliament and which requires a vote of confidence in the executive.

The “public debt relief is a fundamental emergency initiative to put the country on the path of sustainable development,” it further states. 

In the document, the government led by Ulisses Correia e Silva, said it “intends to use the resources freed up by the debt service to fund multi-year programmes with an impact on structural changes that make the country more resilient and with a more diversified economy.

The Government Programme points out that the investment priorities after this external debt relief process “focus on the development of human capital, energy transition, water strategy for agriculture, digital transition, blue economy and a more sustainable and safe tourism.”

“These are priorities framed within the Cabo Verde Ambition 2030 Agenda and aimed at achieving sustainable development goals”.

In July 2019, the government signed an initial PCI with the IMF to support medium-term objectives for fiscal and debt sustainability and reforms to strengthen economic growth, which ended this year, with a positive assessment from the IMF.

According to previous data from the Finance Ministry, Cabo Verde’s public debt stock rose in March to more than PTE 264,477 million (2.393 billion euros), equivalent to 146.4 percent of projected gross domestic product (GDP) in 2021. 

In March 2020, even before the effects of the Covid-19 pandemic on Cabo Verde’s public finances, the public debt stock totalled almost 244,370 million escudos (2.211 billion euros), equivalent to around 116% of that year’s GDP (following the revision of projections in the light of the economic consequences of the pandemic).

By March of this year, the public debt contracted internally was worth the equivalent of 43.5% of Cape Verde’s GDP (31.8% in March 2020), increasing to more than PTE 78 583 million (711 million euros), while the external debt was worth 102.9% (84% in 2020), increasing to more than PTE 185 894 million (1.682 billion euros).

The Government Programme assumes the “commitment to public debt sustainability” and that in this regard “prudent debt policies will be developed, with a high degree of concessionality” in order to “in the medium term reduce the public debt/GDP ratio to less than 100%”.

Cabo Verde is experiencing a deep economic crisis due to the almost total absence of tourism since March 2020, due to restrictions imposed by the pandemic, a sector that accounts for 25% of the archipelago’s GDP.