Recent Developments & Prospects
Economic Cooperation, Regional Integration & Trade
Economic & Political Governance
Public Sector Management, Institutions & Reform
Natural Resource Management & Environment
Thematic analysis: Structural transformation and natural resources
Authors: Adalbert Nshimyumuremyi, Anthony Simpasa
- With real GDP growth of 2% recorded in 2014, the economic recovery remains subdued due to weaknesses in the global and domestic economies, but tourism, tourismrelated foreign investment and construction remain engines of growth for the Cabo Verdean economy.
- Cabo Verde’s fiscal situation has improved slightly in a context of the phase-out of a public investment programme in a pre-electoral year, but it is still vulnerable.
- Although Cabo Verde has made economic progress in recent years, there are pockets of spatial exclusion as evidenced by strong emigration from underdeveloped islands.
Exposed to a difficult external environment, economic growth in the Cabo Verdean economy decelerated from 4.0% in 2011 to 0.7% in 2013. In the latter year, the country was particularly affected by a decline in remittances and Foreign Direct Investment (FDI) from Europe, as well as in Official Development Assistance (ODA). In 2014, GDP growth modestly picked up to 2.0%, led by the construction sector, whereas tourism had a negative contribution. Economic growth is expected to improve in 2015/16 to above 3%. This will be driven by good performance in the tourism sector, resumption of private credit growth, product diversification into areas like agriculture and fisheries, an increase in productivity and a modest economic recovery in the euro area.
The government has been winding down its ambitious Public Investment Programme (PIP) to ensure debt sustainability. During the last few years, the combination of weaker revenue performance and higher capital expenditure has driven up public debt to 107% of GDP at end-2014 – a rise of 50 percentage points since 2008. Even though debt financing has been highly concessional, there are risks to debt sustainability if progress on fiscal consolidation stalls. In the face of the country’s reduced capacity to borrow, it has become critical to bolster domestic revenue mobilisation in order to ensure macroeconomic stability. A broad set of reforms has already been implemented to streamline and rationalise tax policies in line with international best practices, and efforts are underway to increase the efficiency of tax administration. As monetary conditions have eased and Non-Performing Loans (NPL) are gradually being resolved, banks are in a better position to increase credit to the private sector.
Cabo Verde’s nearly half a million people are concentrated on the two islands of São Vicente and Sal and Praia, the capital city, where economic opportunities are more favourable. People have migrated from underdeveloped islands, particularly Brava and São Nicolau, where pockets of spatial exclusion persist. The rising demographic pressure induced by migration has accordingly imposed a burden on infrastructure and environmental conditions, with attendant social and economic problems, including crime. Addressing these challenges requires concerted efforts at all levels of government. Cabo Verde’s development strategy therefore represents a national vision aimed at fostering more equitable development on the different islands, especially those with widespread poverty and spatial exclusion. To this end, the authorities have devised policies and strategies and undertaken investments programmes to mitigate against these problems. The related measures are yielding results, as is shown by the increase in the share of population with access to basic water and sanitation and the reduction in rates of the poverty headcount.
Table 1: Macroeconomic indicators
|Real GDP growth||0.7||2||3.1||3.6|
|Real GDP per capita growth||-0.2||1.1||2.1||2.7|
|Budget balance % GDP||-9||-8||-7.1||-6.2|
|Current account balance % GDP||-3.5||-9||-8.6||-7.9|
Source: Data from domestic authorities; estimates (e) and projections (p) based on authors’ calculations.