The Executive Board of the International Monetary Fund (IMF) has completed its fourth review of Cape Verde’s economic performance under an SDR 8.64 million (about US$13 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 02/18). The completion of this review enables the release of a further SDR 1.23 million (about US$2 million), which would bring the total amount drawn under the arrangement to SDR 6.15 million (about US$9 million). Cape Verde’s three-year PRGF arrangement was approved on April 10, 2002.
After the Executive Board’s discussion on Cape Verde, on August 27, 2004, Agustín Carstens, Deputy Managing Director and Acting Chair, said:
“The Cape Verdean authorities have succeeded in putting macroeconomic policy back on track following some slippage in 2003. Economic outturns in 2003 were generally better than expected, with higher growth, lower inflation, and improved external balances. Going forward, continued commitment to sound macroeconomic policies and structural reforms directed at enhancing competitiveness will be essential for sustaining high growth and reducing poverty.
“The authorities’ proposed macroeconomic policy mix for 2004 strikes an appropriate balance between the desired increase in priority spending and the need to support growth in international reserves and credit to the private sector. Looking ahead, the authorities will need to ensure that the pace of implementing their poverty reduction strategy remains fully consistent with continued macroeconomic stability, especially in view of the rapid growth of recurrent expenditures over recent years and spending pressures that may arise in the run-up to the 2006 parliamentary elections. At the same time, every effort needs to be taken to limit nonconcessional borrowing so as to avoid jeopardizing medium-term debt sustainability.
“The authorities are determined to regain momentum in key areas of structural reform. In addition to ongoing reforms in the transport and utility sectors, it is important that an automatic and transparent mechanism be adopted for the adjustment of electricity and water tariffs in response to changes in costs. Moreover, to improve the environment for private sector development, the authorities should implement the privatization program with vigor and press ahead with regulatory reform.
“The authorities should finalize the PRSP as soon as possible while ensuring its high quality. The PRSP will provide a useful framework for setting clear and attainable social objectives, and for prioritizing and costing development programs that will contribute to stronger growth and poverty reduction,” Mr. Carstens said.
The PRGF is the IMF’s concessional facility for low income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.