Like many countries around the globe, Cabo Verde’s economy is significantly affected by the COVID-19 pandemic; to address the urgent balance of payment needs, the IMF Executive Board has approved financial assistance for Cabo Verde in the amount of US$32 million under the Rapid Credit Facility; the authorities have taken mitigating measures in fiscal, monetary and social areas. However, increased support is needed from Cabo Verde’s development partners to scale-up health and social programs while preserving debt sustainability.
The Executive Board of the International Monetary Fund (IMF) today approved a disbursement of SDR 23.70 million (about US$32.3 million, 100 percent of quota) to Cabo Verde under the Rapid Credit Facility (RCF) . It will help the country to meet urgent balance of payment needs generated by the economic impact of the COVID-19 pandemic.
The pandemic is severely affecting Cabo Verde’s economy, which is heavily dependent on tourism, that is significantly hit by the global economic downturn, and travel restrictions. The impact of COVID-19 is also compounded by measures put in place by the authorities to prevent an extensive local spread. In the short run, the shocks generated by the pandemic are expected to result in a contraction of growth, increased external and fiscal financing needs and social hardship.
Mitigating measures taken by the authorities are aimed at preventing an extensive spread of the pandemic, and helping the private sector, households and vulnerable groups mitigate the fallouts of the pandemic. However, important challenges remain in view of the existing uncovered financing gaps and uncertainties on the duration of the pandemic, calling for financial support from Cabo Verde’s development partners. IMF financing under the RCF will provide additional foreign exchange and much-needed budget support.
While addressing the impact of the COVID-19 pandemic, the authorities should stand ready to resume reforms and policies needed to return the economy to its pre-pandemic medium-term trajectory, anchored in sustained growth, stronger external and fiscal positions, and declining ratio of public debt to GDP.
Following the Executive Board’s discussion, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, issued the following statement:
“Cabo Verde has been severely hit by the COVID‑19 pandemic. As a small tourist dependent island economy, the global economic downturn, travel restrictions, and the lock down have led to social hardship and is likely to result in a significant output loss and increased fiscal and external financing gaps. The authorities have acted swiftly to stem the local transmission of the virus and taken pro-active measures to help mitigate the economic and social impact of the pandemic.
“Addressing the impact of these shocks requires a combination of policy actions from the authorities with support from Cabo Verde’s development partners. There is a need to further scale‑up health and social protection programs, which will put public finances under additional strain. Grants and concessional loans from Cabo Verde’s development partners are critically needed to help the authorities respond timely and effectively to the crisis while preserving debt sustainability.
“Beyond the crisis, the medium‑term outlook remains broadly favorable, under the assumption of a recovery of the global economy, resumption of tourism and capital inflows, and the growth‑enhancing reforms envisaged under the authorities’ Plan for Sustainable Development (PEDS). Therefore, it will be critical that after the pandemic, policies and reforms remain focused on achieving medium‑term objectives in the authorities’ development program supported by the IMF’s Policy Coordination Instrument (PCI).”
Distributed by APO Group on behalf of International Monetary Fund (IMF).