Press release from the Budget Support Group 20 - 27 November 2023

The Government and BSG Partners discussed topics related to macroeconomic stability, fiscal situation, public finance management, employment and employability, poverty reduction and social protection, energy transition, security, health, blue economy, climate action and connectivity. The mission also visited the Port of Praia and had the opportunity to meet with the General Directorate of Customs and ENAPOR to acknowledge more about the sector's progress and challenges.

The BSG expresses its gratitude to the Government of Cabo Verde, especially the Ministry of Finance and Business Development, representatives of line ministries, the Bank of Cabo Verde, the Court of Accounts and the Specialized Committee on Finance and Budget of the National Assembly for their participation and involvement in this exercise.

The BSG notes the economic growth projection for 2023 of 5,7% according to government estimates, reflective of developments in the tourism sector and private consumption. While this represents a downward adjustment from the initial projection of 6.8%, nevertheless the economy is still operating above its growth potential, reflecting the post-pandemic upturn in economic activity. The pace of economic growth is expected to slow in 2024. Uncertainties remain, with downside risks relating, inter alia, the conflict in the Middle East and the impacts of Russia's invasion of Ukraine, which could reverse the current easing in inflationary pressures, result in a sharper-than-expected slowdown in the global economy and lead to a further tightening of monetary conditions. The BSG reiterates the need to accelerate the process of diversifying the economy, including the tourism offer, making it more resilient to external shocks. Partners encourage the authorities to pursue structural reforms towards an attractive, prosperous and dynamic business environment, to boost investment, contributing to job creation and for a sustainable and inclusive growth.

The BSG recognizes the progress made on the fiscal consolidation agenda in 2023, with higher-than-expected increase in revenue collection contributing to improvements in fiscal balances and reducing the need for domestic borrowing. Partners encourage the authorities to continue employing efforts to improve revenue mobilization, while also scaling-up measures to rationalize tax incentives.

The BSG welcomes the updated State-owned Enterprise (SOE) reform agenda, including progress in the restructuring processes of the main SOE companies. However, concerns remain about the fiscal risks of the SOE, especially with regard to possible guarantees and capitalizations to support the investment plans of less profitable companies. The BSG reiterates the importance of accelerating efforts to improve the performance of SOE companies, which could contribute to create a more business enabling environment in the country and boosting the development of the private sector.

Partners congratulate Public Procurement Regulatory Authority (ARAP) on the progress made in preparing the Methodology for Assessing Procurement Systems (MAPS II) evaluation and in the e-Procurement process. In the meantime, the updating of legislation to include municipalities in the scope of e-procurement is encouraged. The BSG partners note with some concern the persistence use of direct award contracts on the basis of imperative urgency, which can compromise the quality/price ratio of public acquisitions. As far as internal auditing is concerned, the General Inspectorate of Finance (IGF) risk-based audits extension is welcomed, but there are still challenges in terms of their frequency and the availability of human resources. On the other hand, the BSG notes with concern the increase of non-timely submission of accounts by the institutions and autonomous entities. The authorities are encouraged to begin the procedures for the Public Expenditure and Financial Accountability (PEFA) exercise in 2024, in view to assess public finance management performance in 2022, 2023 and 2024 fiscal years.

The BSG recognizes the initiatives developed as part of the implementation of the National Extreme Poverty Eradication Strategy (ENEPE). It underlines the need to accelerate the actions agreed for 2023 and 2024 with a view to achieve the ambitious goal of eradicating extreme poverty by 2026. The multidimensional nature of poverty and social protection was once more highlighted, confirming the need of a strong inter-sectoral coordination and articulation, with the firm involvement of municipalities and the appropriate resources allocation.

In addition, high food and energy prices continue to weigh heavily on families, affecting the level of food insecurity which remains high, especially among the most vulnerable.

Partners note positively the operationalisation of the Fundo Mais, welcoming the substantial increase in the allocation provided for this Fund in the 2024 State budget draft, allowing Social Inclusion Income (RSI) extension to more than 9,000 households, consolidating this Fund as one of the instruments for financing poverty eradication. To mitigate cyclical risks, it will be important to continue efforts to diversify Fundo Mais funding sources.

The National Social Security Institute (INPS) presented its Investment Strategy and highlighted the current challenges in managing the asset portfolio. Given the current inflationary environment, the BSG will continue to monitor developments in the management of this important portfolio.

 Partners commend the progress in the National Strategy for the Promotion of Decent Employment (ENPED) and on the strengthening of sectoral coordination. The BSG emphasizes the need for specific approaches to vulnerable groups welcoming and further encouraging the consolidation of financing in order to ensure access to vocational training. Partners urge the Government to continue reforms, with strategies and projections aligned with labor market needs and ongoing optimization of measures supporting employment and entrepreneurship.

With regard to digital connectivity, the BSG took note of the government's vision of transforming Cabo Verde into a digital hub. This objective will require, among other factors, strengthening of technical skills and the adoption of a private sector-oriented business model to ensure the sustainability of the Technological Parks.

The BSG recognizes the positive impact of the justice sector reform, welcoming the coordination between the different players in the justice system, the results already achieved in the operation of the National Institute of Forensic Medicine and Forensic Sciences (INMLCF), the measures to promote a more human prison system and social reintegration policies, as well as the implementation of the National Strategy to prevent and Combat Money Laundering and Terrorist Financing and Proliferation of Weapons of Mass Destruction (ENCAVE). Nevertheless, it notes the importance of speeding up the implementation of reforms in the sector, contributing to more effective justice and an improved and dynamic business environment.

Regarding the security sector, the BSG partners recognize the effort that has been made to control crime rates and guarantee public safety, encouraging the government to strengthen measures to increase institutional and operational capacity to prevent and combat crime.

Partners encourage the Government to continue the work of strengthening the Security and Defence Pillar of the EU/CV Special Partnership by seeking new forms of cooperation and developing equipment, training and capacity-building programs, which could be financed through the European Peace Facility, in order to strengthen the country's surveillance capacity in its territorial waters. The GAO welcomes the work already done and encourages the government to finalize the operationalization of the Multinational Maritime Coordination Centre for Zone G, as defined in the Yaoundé Code of Conduct. Partners also welcome the implementation of the Sectoral Action Plan for the integration of the Gender Perspective in the area of National Defense and encourage the continued implementation of the measures recommended in this Action Plan.

The BSG commends the finalization of the Health Human Resources Development Plan for 2022-2026 and welcomes the Government's commitment to integrate new healthcare professionals into the public service in 2023 and 2024. However, it emphasizes that mobilizing human and financial resources for both operation and investment entails significant short-term challenges and mid-term sustainability concerns, considering national ambitions to increase the quality of Universal Health Coverage.

The BSG compliments the Government on its progress and particularly for formulating the "National Sea Strategy - 2023-2033", which unifies, under a single structure, the vision, the strategic objectives, the priorities and the various actors in the Blue Economy sector. Being this sector crucial for the country's sustainable development, it is essential to strengthen capacities to achieve the commitments of the Blue Economy Policy Charter, of the National Sea Strategy and its action plan. The BSG is looking forward to the investments announced for the coming years.

BSG partners positively acknowledge government's continuous commitment in advancing country's energy transition process. In this regard, is considered important a timely implementation of critical projects regarding production and storage of renewable energy, as well as updating the master plan in order to reflect recent and planned developments in the sector.

The BSG considers that the electricity sector imminent reform, along with the creation of a risk reduction mechanism for investors, could improve the sector sustainability, reduce the cost of energy and accelerate the energy transition. In this regard, it will also be necessary to continue to combat grid electricity losses, to have a greater involvement of the Multisectoral Regulatory Agency for the Economy (ARME) in this process and a communication plan for the ongoing reforms.

The BSG commends the multidimensional progress in the area of climate action, essential for a sustainable and resilient development. In this regard is noteworthy the ongoing definition of climate budget indicators, the climate resource mobilizing strategy, as well as the commitment to establish an inter-sectoral and inclusive governance structure. The latter is considered instrumental for enabling national coordination, increase transparency in the implementation of climate actions and better structure the instruments for applying climate resources, such as the Climate and Environment Fund (FCA), encouraging the Government to finalize the process of its creation.

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