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Press Release - Budget Support Group Mission 9-15 June 2022

Published Thursday June 16 2022

A mission of the Budget Support Group (BSG) took place in Cabo Verde from June 9th to 15th, 2022. The BSG aims at providing financing support and technical assistance to the national budget through grants and loans in support of Government’s national development priorities. The Government and BSG partners discussed topics related to macroeconomic stability, fiscal situation, public finance management, employment & employability, poverty reduction & social protection, energy transition, security, health, public administration reforms and blue economy. Particular attention was also given to the socio-economic and fiscal impacts of the war in Ukraine.

BSG partners welcomed Spain, a founding member in 2006, back in the BSG which is also composed by Luxembourg, Portugal, the European Union, the African Development Bank Group, and the World Bank Group. The BSG wishes to express its gratitude to the Government of Cabo Verde, especially the Ministry of Finance and Business Promotion, representatives from line ministries, the Central Bank, the National Statistical Institute, the Court of Auditors, and Parliament's Specialized Commission on Finance and Budget for their constructive contributions to this review.

At their last review early December 2021, BSG partners had collectively hoped for a strong post COVID-19 recovery. However, once more, the COVID-19 pandemic and the impact of the Ukraine war exposed the vulnerabilities of the Cabo Verdean economy to external shocks. The BSG commends the Government for its adequate policy response to the pandemic, including exceptional progress in the vaccination campaign. Economic activity expanded by 7.1 percent in 2021, magnified by base effects after a contraction of 14.8 percent in 2020. Growth in 2021 was supported by a slight recovery of tourism from the second quarter. Economic recovery was set to continue in 2022 underpinned by the continuing revival of the tourism sector, but the impact of the Ukraine war, through increase in fuel and food prices, reduced growth perspectives. Because the country imports 80 percent of its consumption products, the high transmission of international prices to domestic prices affects the poor disproportionally. Real GDP growth is projected to reach 4 percent in 2022.

Inflationary pressures in food and energy are increasing food insecurity, particularly amongst the most vulnerable. The annual inflation rate in April 2022 reached 7.6 percent, mostly driven by an increase in food and beverage prices amounting to 12.9 percent. The BSG partners welcome the authorities’ response to alleviate inflationary pressures. Going forward, they encourage the adoption of better-targeted mechanisms to support the most vulnerable households, while preserving fiscal and debt sustainability.

The authorities are committed to returning to a path of fiscal consolidation over the medium term and to putting the debt-to-GDP ratio back on a downward trend. However, the immediate response to the impact of the Ukraine crisis will increase fiscal financing needs around 4 percent of GDP in 2022, affecting the projected reduction in public debt. Partners took note of the  Government’s commitment  to continue using concessional external borrowing, grants, and domestic lending to finance the budget in 2022. BSG partners are supportive of Government’s efforts to mobilize resources to protect the most vulnerable from the impact of the Ukraine crisis.  In this regard, improving fiscal revenue mobilization through the streamlining of fiscal incentives remains critical. Partners remain committed to supporting Cabo Verde, through financial and technical assistance in a context of rising uncertainty.

The BSG partners learned with appreciation that the 2021 Census was subjected to a rigorous quality control. The current resident population accounts to 491,233 individuals, a reduction of 8,055 individuals compared to the last Census of 2010. The partners also commend INE for rebasing the national accounts, which brings the country closer to international standards. The BSG partners took note of the Governments’ intention to update the main socio-economic indicators using the latest Census to improve the quality of policymaking. The BSG partners also recommended prompt update of the data on poverty, for which the last survey was conducted in 2015, and the gender survey.

The BSG partners noted the good progress in strengthening Human Resources (HR) systems. In further accelerating HR reforms, BSG partners urge Government to fast track the adoption of the Integrated Human Resources Management System to strengthen HR systems nationally. The BSG partners underscored the importance of continued commitment by the authorities to finalize the Open Data Policy by September 2022, and the E-governance Action Plan by November 2022. The approval of the Strategic Plan for Public Procurement Authority (ARAP) in December 2021, and the efforts to conclude the regulations on the public procurement platform are commendable. The BSG partners look forward to the outcomes of the Court of Account’s audit on the COVID-19 related spending in 2020. The authorities are encouraged to consider undertaking a new Public Expenditure and Financial Accountability (PEFA) evaluation to assess recent progress in PFM reforms. The last exercise was undertaken in 2016.  

The current crisis is an additional challenge for the attainment of Government’s national objective of eradicating extreme poverty in 2026. In this context, social protection measures should be enhanced and the plans to ensure coverage in 2022 and 2023 of the most vulnerable families currently in Group 1 of the CSU (25,000 families-131,000 people) should be updated. To this end, the BSG partners welcome the government’s plans to finalize its extreme poverty eradication strategy within 2022.

The BSG partners acknowledge that the unemployment rate in the country continues to be a challenge. They commend the Government for its ambition to prioritize the employability of youth not currently in employment, education, or training. To that end, improving the Technical and Vocational Training system and ensuring adequate financing, human resources and demand driven training will be key aspects of allowing this vital public service to better service real market needs. The BSG partners welcome Government’s plans to further encourage informal to formal economy transition, as highlighted in the proposed National Strategy for Decent Employment. This transition may ensure greater social protection of small business entrepreneurs and employees, which is especially meaningful in a context of economic uncertainty.

The BSG partners commend the Government of Cabo Verde for its successful COVID-19 response strategy and the progress achieved through improving of health infrastructures. This progress is evidenced by two functioning hemodialysis centers, a new intensive care unit and the medical equipment management and maintenance policy. Government’s priorities for the health sector are clear: they are aimed at strengthening national capacities to achieve a greater autonomy and quality of care of the public health care system, while pursuing the country’s Universal Health Coverage objectives. BSG partners caution Government to ensure that growing financing demands from a modernized and improved system are taken into account, as are the needs in terms of human resources, infrastructure and equipment management.

BSG partners acknowledge the commitment of Government to implement the measures foreseen in the National Plan for Prevention and Proximity Security, in the framework of the National Programme for Internal Security and Citizenship. They also welcome the efforts undertaken in preventing and combating crime, amid rising concerns on the evolution of crime indicators. They also recognise the progress achieved in the reform of justice, in particular the installation of the new Campus of Justice as well as the definition of the Plano de Redução de Pendências Judiciais to reduce the backlog of courts caseloads.  BSG partners also note the progress made in promoting a more humane and socially reintegrating prison system. Given that maritime safety is fundamental to Cabo Verde, the partners take note of the Government's efforts towards the operationalization of the Multinational Maritime Coordination Centre in Zone G, provided for by the Yaoundé Code of Conduct.

BSG members welcome the prioritization of the blue economy sector as a key element for the country's development. Going forward, the Government is encouraged to actively engage with all Ministries and public and private organisations in harnessing the blue economy to drive economic growth and ocean conservation. To this end, the creation of the steering committee of the Blue Economic Policy Charter is critical. BSG members invite the sector to present a clear funding strategy for the National Blue Economy Investment Plan and the National Blue Economy Promotion Programme, identifying funding needs. The importance of accelerating the process of creating the satellite account is also noted, given the need for data and statistics on the sector.

The continued ambition of Government to reach a target of 50 percent renewable energy by 2030 is today even more critical to lower energy costs, increase resilience to external shocks, and become a pull factor for economic green growth. Effective rollout of regulatory reforms of the micro-production and auto-production activities allowed a positive increase in renewable energy distribution. Progress in reducing non-technical losses was well noted. Socially-sensitive billing schemes provided by the effective implementation of the social tariff for electricity may allow to further reduce losses, while protecting the most vulnerable families contemplated by the Cadastro Social Unico.

BSG partners reiterate their continued support to the Government and people of Cabo Verde and thank the Government and other stakeholders for their commitment to a constructive and fruitful dialogue.