Cape Verde: Staff Report for the 2008 Article IV Consultation and Fourth Review Under the Policy Support Instrument—Informational Annex

Over the last several years, Cape Verde has achieved a major economic transformation that is a tribute to its sound homegrown economic reform program. This 2008 Article IV Consultation highlights that real per capita GDP in Cape Verde has increased on average by more than 7 percent a year since 2001, faster than most small island economies and the average for sub-Saharan Africa. Policy implementation under the Policy Support Instrument (PSI) is also strong. All PSI quantitative assessment criteria for end-December 2007 were met with wide margins.


Over the last several years, Cape Verde has achieved a major economic transformation that is a tribute to its sound homegrown economic reform program. This 2008 Article IV Consultation highlights that real per capita GDP in Cape Verde has increased on average by more than 7 percent a year since 2001, faster than most small island economies and the average for sub-Saharan Africa. Policy implementation under the Policy Support Instrument (PSI) is also strong. All PSI quantitative assessment criteria for end-December 2007 were met with wide margins.

Cape Verde—Fund Relations

(As of March 31, 2008)

I. Membership Status: Joined: November 20,

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Latest Financial Arrangements:

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VI. Projected Payments to Fund 1

(SDR Million; based on existing use of resources and present holdings of SDRs):

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When a member has overdue financial obligations outstanding for more than three months, the amount of arrears will be shown in this section.

VII. Implementation of HIPC Initiative: Not Applicable

VIII. Implementation of Multilateral Debt Relief Initiative (MDRI): Not Applicable

IX. Safeguards Assessments

Under the Fund’s safeguards assessment policy, the Bank of Cape Verde (BCV) is subject to a voluntary assessment with respect to the Policy Support Instrument (PSI) approved on July 31, 2006. The necessary documentation has been received from the authorities and the assessment is underway.

The previous BCV safeguards assessment was completed in December 2002 for the PRGF arrangement approved on April 10, 2002. The assessment concluded that substantial risks may have existed at the time in the bank’s financial reporting framework, internal audit mechanism, and system of internal controls. While all recommendations but one have been confirmed as implemented by the BCV authorities, the audit opinion of external auditors on the 2005 and 2006 financial statements and the 2004 management letter indicates that further steps need to be taken.

X. Exchange Arrangements

The de facto and de jure exchange rate arrangement of Cape Verde is a conventional fixed peg. The escudo has been pegged to the euro at a rate of CVE 110.3 per €1 since January 4, 1999. Cape Verde accepted the obligations of Article VIII of the Articles of Agreement effective July 1, 2004. It maintains an exchange system that is free of restrictions on the making of payments and transfers for current international transactions.

XI. Previous Article IV Consultation and PSI Reviews

Discussions for the 2006 Article IV consultation and on a medium–term economic program that could be supported by a three–year PSI were held in Praia April 28-May 16, 2006. The Executive Board concluded the Article IV consultation and approved the request for a PSI on July 31, 2006 (Country Report No. 06/334); the first PSI review on January 19, 2007 (Country Report No. 07/44); the second PSI review on May 7, 2007 (Country Report No. 07/223); and the third PSI review on December 21, 2007 (Country Report 08/37) (see

XII. Technical Assistance

Since 1985 the Fund has provided technical assistance to the BCV, the Ministry of Finance, and more recently the National Institute of Statistics in several areas: (i) MCM provided technical assistance to the BCV on organization and methods, management of external debt, monetary and banking statistics, accounting, credit, foreign exchange operations, management of public debt, and the separation of the functions of the Bank, as well as on the choice of exchange rate regime. BCV has also received technical assistance from STA on monetary and balance of payments statistics. (ii) The Ministry of Finance has received technical assistance from FAD on organization and budgetary procedures, budgeting, tax policy, and tax administration; from STA on fiscal accounting; and from LEG on tax legislation. (iii) The National Institute of Statistics has received technical assistance in national accounts and price statistics. Cape Verde is a participant in STA’s GDDS Regional Project for Lusophone Africa, and its metadata were posted on the DSBB in February 2004. It is now receiving technical assistance to implement the GDDS plan for improvement.

Most recently, technical assistance has been provided in the following areas:


  • June 2004 visit to help the authorities move to a VAT, rationalize the import tariff, and overhaul the domestic indirect tax system. Many visits and a two–year resident advisor have gone into this effort.

  • October 2004, mission to review tax administration, including VAT implementation, and a mission to help assess tax exemptions and incentives.

  • September 2005, mission to assess tax exemptions and incentives.


  • National accounts (November 2003 and January-February 2006), balance of payments statistics (February 2004), government finance statistics (March 2004, April 2006, February-March 2007), price statistics (June 2004, May-June 2006, October 2007), and monetary statistics and reporting (March 2007).


  • Accounting, financial sector regulation, monetary operations and liquidity management (April and May 2004); banking supervision, liquidity management, exchange regime and reserves management (November 2005, March-April 2006, June 2006, November 2006, July 2007).

  • Macro–prudential indicators (March 2008)


  • Tax legislation (several missions October 2006-March 2008).

  • AML/CFT initial assessment (March 2007), and legal drafting (March 2008).

XIII. Resident Representative: None.

Cape Verde—Joint IMF–World Bank Management Action Plan

Implementation Matrix

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Exact timing subject to confirmation.

Cape Verde—Statistics Issues

21. The quality of economic and financial data provided to the Fund is generally adequate for surveillance and program monitoring, although there is a need for substantial improvements in some areas. Economic data are available in official websites,, and Weaknesses in the fiscal data make it difficult to monitor some aspects of fiscal performance; they include large statistical discrepancies, noncompliance with best accounting practices, and shortcomings in institutional coverage and sectorization. Other shortcomings of concern are weaknesses in the national accounts, a lack of short–term activity indicators besides the confidence barometer, and gaps in the tracking of large external flows—notably FDI, emigrant deposits, and remittances. Cape Verde has participated in the GDDS since February 2004. The metadata of the monetary and financial sector were updated in August 2007.

22. The authorities are taking steps to strengthen statistics, but the statistical system still suffers from a shortage of financial and human resources. A comprehensive master plan has been developed under the direction of the National Statistical Institute (INE), which assesses the need for upgrading the agencies that constitute the statistical system and outlines steps to broaden and improve all areas of statistics. The plan envisages improvements in data on national accounts (annual and quarterly), business statistics (including a new business census), demographic and social statistics (including a household survey to update the poverty profile), trade statistics (retail and international trade) macroeconomic indicators; labor market and sectoral statistics, and update of the CPI basket every five years. Cape Verde’s development partners have already committed a substantial part of the estimated US$15 million required to implement the plan through 2010.

23. The country has benefited from STA technical assistance (TA) under the GDDS project for Lusophone Africa. The main purpose of this project was to help the government implement the GDDS plans for improvement, in particular the adoption of the Government Finance Statistics Manual 2001 (GFSM 2001). A first GFS mission visited the country in March 2004, with follow–up missions in April 2006 and March 2007. STA TA has also been provided in other areas, such as national accounts, consumer prices (with recent missions in May-June 2006 and October 2007 in preparation for the launch of the new CPI), monetary and financial statistics, and balance of payments statistics.

Real sector

24. Although some improvements have been made to the national accounts, significant weaknesses remain, including a lack of reliable demand–side GDP. The timeliness of the data has improved, with the INE releasing production and expenditure–based GDP data for 2002-03 in 2005 and providing production–based GDP estimates for 200406 to the mission in October 2007. However, the lag is still large by international standards. The base year for the constant price estimates, moreover, is outdated.

25. INE is currently working on a complete overhaul of the national accounts. It is updating the national accounts benchmark and base years from 1980 to 2002 and adopting the 1993 SNA. The objective is timely compilation of GDP by industry and expenditure categories at current and constant prices as well as institutional sector accounts.

26. INE will also introduce Tourism Satellite Accounts. These accounts will measure upstream linkages between the tourism sector and the rest of the economy and the import content of tourism exports.

27. Full implementation of the 1993 SNA would require a substantial improvement in source data collection, for which capacity is currently lacking. The 2006 STA mission found a critical need to improve the timeliness and accuracy of national accounts source data, in particular the business survey. The capacity of INE staff working on national accounts was found to be overstretched; they assess in detail and correct individual source data entries—something not undertaken in most countries by national accounts compilers. The statistical master plan will address many of these challenges.

28. A new CPI series was released in February 2008. The previous official CPI was based on weights dating back to 1989, four years before imports were liberalized, which considerably changed consumption patterns. INE has had assistance from the National Statistics Institute of Portugal and benefited from STA CPI missions in May-June, 2006, October 2006, and October 2007, to support the introduction and dissemination of the revised CPI. The new index has new weights and an updated commodity basket, and uses new compilation software.

29. Labor market statistics are weak. Data on unemployment are compiled with long delays and there are no wage data.

Government finance

30. Fiscal data has been improved. Benefiting from TA support under the GDDS project for Lusophone Africa, the Government Finance Statistics (GFS) compilation system is being upgraded. Most deposits previously held with commercial banks have been consolidated at the central bank. SIGOF, the Integrated Online Budget Management System, has been expanded to cover all semi–autonomous institutes and most municipalities by the end of 2007. In addition, a new chart of government accounts (PNCP) will be implemented in 2009 that adopts accrual accounting and double–entry principles. GFS are not reported for publication in the GFS Yearbook and International Financial Statistics.

31. Quality is a serious concern. The fiscal accounts are subject to large statistical discrepancies, flows and stocks are not consistent, and recording of arrears accumulation and clearance operations is not in line with best practices. Significant delay in donor reporting of project financing also affects the accuracy of fiscal data. Despite the recent revision of external debt data, significant weaknesses affect preparation of debt sustainability analyses. Multilateral debt statistics regularly differ from data received by creditors, and debt service projections cannot be reconciled with the debt stock.

Money and banking

32. The quality of monetary and financial statistics is adequate, in terms of both accuracy and timeliness. A statistics mission undertaken in March 2007 helped BCV to finalized the standardized report forms (SRFs) for reporting monetary statistics to STA. SRFbased monetary data have been published in the IFS Supplement since June 2007. These data are fully aligned with the recommendations of the Monetary and Financial Statistics Manual. The mission also started building an integrated monetary database to meet STA, AFR, and BCV statistical needs. Currently, there are gaps in tracking the source and direction of changes in emigrant deposits, which cause difficulties in assessing the their interest sensitivity and gauging the appropriateness of the monetary policy stance.

Balance of Payments

33. With technical assistance from STA, the accuracy, periodicity, and timeliness of balance of payments statistics compiled by BCV have continued to improve. A greater use of surveys, combined with the International Transactions Reporting System implemented by the BCV, has permitted a significant expansion of data sources and statistical coverage, which to a large extent, follow the recommendations of the 5th edition of the Balance of Payments Manual. Dissemination of quarterly BOP data on the BCV website has been regular and in 2007 the BCV resumed regular and timely transmission of these data to STA for publication in International Financial Statistics and in the Balance of Payments Statistics Yearbook (BOPSY). However, the BCV does not compile an International Investment Position.

Cape Verde: Common Indicators Required for Surveillance

(As of April 30, 2008)

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Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market–based and officially–determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Daily (D), weekly (W), monthly (M), quarterly (Q), annually (A), irregular (I); and not available (NA)

Cape Verde: 2008 Article IV Consultation and Fourth Review Under the Policy Support Instrument-Staff Report; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for Cape Verde
Author: International Monetary Fund