Joachim Arrey in Tunis
Cape Verde is one African country which many people across the globe hardly hear about. This country of ten islands is erroneously known as a poor low-income country. Cape Verde has, in recent years, been proving that resource-poor countries could be in the spotlight for the right reasons. The country’s government has made prudent financial management and accountability its hallmark. Hard work and good governance have become a culture and the people of these islands are already reaping the fruits of their labor.
Over the last decade, Cape Verde has maintained a commendable average growth rate of 5.8 percent with low inflation rates. The new public finance model currently under implementation will ensure that clearer priorities are set. It will also guarantee improvements in the public policy adoption process and accelerate decision-making procedures. It will also introduce enhancements to management methods based on objectives that are easily measurable and evaluated through impact and outcome indicators. Moreover, it will allow for greater information integration, more transparency, as well as participation and accountability mechanisms for public administrators. Further adjustments to policies and programs will also be possible based on the achieved outcomes.
The island’s economy suffers from a poor natural resource base, including serious water shortages exacerbated by cycles of long periods of drought. The economy is service-oriented, with trade, transport, tourism, and public services accounting for 66% of GDP. Although about 70% of the population lives in rural areas, agriculture accounts for only 12% of GDP. About 82% of the country’s food is imported. The fishing potential, mostly lobster and tuna, is not fully exploited. Cape Verde annually runs a high trade deficit, financed by foreign aid and remittances from emigrants. Remittances supplement the country’s GDP by more than 20%. Economic reforms, currently under way, are aimed at developing the private sector and attracting foreign investment with a view to diversifying the economy. This country’s greatest asset is the quality of its leaders. While Cape Verde remains a resource-poor country, its leaders are idea-rich. The successful privatization of state-owned corporations over the last years has helped to improve the management of these national assets.
Cape Verde’s growth performance since the late 1980s has raised it to the ranks of lower middle income countries, with a GNI per capita of US$2,040 in 2005. Recent economic growth of around 5.8 percent per capita has been sustained through public and private investments based on a high level of donor support, strong private capital flows and remittances. Thanks to this growth, poverty has declined by one-fourth over the last decade, while the human development index increased from 0.59 in 1990 to 0.67 in 2003. Adult literacy rates are high, standing above 75%. Life expectancy at birth stands at 69 years, making this country the third highest on the continent.
The government is focused on building state-of-the-art infrastructure across the country. New airports, largely financed by the African Development Bank Group, are making traveling from one island to the other a lot less challenging. In the area of road infrastructure, the different islands are well connected, with many of the roads built by the people themselves. The people of Cape Verde strongly believe that it is incumbent upon them to develop their country and together with their leaders, they have their noses to the grindstone with a view to turning things around for future generations.
Political openness has accompanied this economic and social progress. Following the adoption of a multi-party system in 1991, there have been four national elections and two orderly changes in government. A free press further supports the building of an open society. The last legislative and presidential elections were held in January and February 2006, respectively. President Pedro Pires was reelected for a five-year term. The reelected Prime Minister, José Maria Neves, and his appointed Council of Ministers took office in March 2006.
Since its political and economic liberalization in the early 1990s, Cape Verde has achieved significant progress in the area of democracy, good governance, macro-economic management and structural reforms with the support of its development partners, including the African Development Bank Group that started supporting the country’s development efforts shortly after its independence. These achievements, combined with the sizeable remittances by non-resident Cape Verdeans , have resulted in a steady growth in per capita income and an improvement in most social indicators.
Consequently, the United Nations adopted Resolution 59/209, in December 2004, upgrading Cape Verde from the group of the least developed countries (LDC) to that of middle income countries (MIC) starting from 2008. However, Cape Verde must still overcome numerous challenges such as the vulnerable situation of the economy, constraints related to its insular nature, as well as the alarming level of unemployment (24%) and poverty that affects 37% of the population. In the area of reforms, the Bank Group has co-financed three balance of payments support projects in the country in close coordination with Bretton Woods Institutions (BWIs).
These multi-donor-financed projects have been successfully implemented. Notable progress was made in macro-economic stabilization, structural reforms, development of policy instruments and strategic papers, especially in Public Expenditure Review (PER), Country Financial Accountability Assessment (CFAA) and the Country Procurement Assessment Report (CPAR). Furthermore, in September 2004, the country’s government adopted the GPRSP with a view to intensifying the fight against poverty. However, despite the adjustment efforts made by the government of this country, Cape Verde ’s budget deficit and the financing requirements have been exacerbated by the rise in oil prices and this will reach structurally high levels in the coming years, particularly in the context of the implementation of the GPRSP.
To address this challenge, donors support will be essential to consolidate reforms and intensify the fight against poverty. The GPRSP is backed by budgetary support from the World Bank, Netherlands and the EU which have set up the Budget Support Advisory Group (GCAB), under a memorandum of understanding signed in April 2005. The African Development Bank Group joined the GCAB in 2006. The International Monetary Fund (IMF), for its part, approved a 2006-2009 medium-term programme in August 2006 supported by its new non-financial instrument - the Policy Support Instrument (PSI). Other donor interventions, which are set within the framework of the GPRSP, are linked to its main components. Following a request from the country’s government and in keeping with the 2005-2007 Country Strategy Papers (CSP) orientations, the Bank Group has proposed to contribute to the implementation of the GPRSP reforms through the 2006-2007 PRSSP-I. The present operation is the Bank’s first budgetary support to Cape Verde .
Economic and policy performance in Cape Verde remains sound. Supported by strong public and private investment, together with a sharp pickup in tourist arrivals, GDP growth in 2006 was higher than expected—possibly around 6.5 percent. Growth in 2007 is expected to be close to 7 percent and, given the large investment projects in the pipeline, the economic outlook is promising. Inflation is expected to decline substantially in 2007 and reach low single-digit levels by the end of the year.
The fiscal outturn for 2006 was marked by expenditure restraint and better than expected growth of tax revenues. While domestic borrowing was higher than expected, mainly as a result of delayed revenues from land sales and privatization as well as lower-than-anticipated dividend payments from public enterprises, this increased borrowing is expected to be unwound in 2007. Overall, the fiscal outlook appears consistent with the program's debt reduction objective and, on the monetary policy front, the build-up of the country’s official international reserves currently exceeds expectations.
Structural reforms in the country have paid off very well. These reforms include measures being put in place to prevent accumulation of public sector payment arrears and to strengthen the regulation of the energy sector - notably concerning the mechanisms to set and adjust electricity tariffs and to adjust retail fuel prices in line with international market developments. The authorities are also pushing forward with plans to reform the tax code, including rationalizing the currently complex system of tax exemptions, and to ensure that the development of the offshore financial sector takes place at a careful pace and under institutional conditions that are consistent with international best practices.
Since gaining independence from Portugal in 1975, Cape Verde , a resource-poor country, has achieved a strong development performance record, with sustained gains in health, education, and economic growth. Its people have faith in their leaders and these leaders are working hard and long to achieve the Millennium Development Goals (MDGs). Cape Verde is among the few African countries that are likely to attain the MDGs.
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