Country Report Cape Verde July 2008

Outlook for 2008-09

The ruling party, Partido Africano da Independencia de Cabo Verde (PAICV), is expected to remain firmly in power over the forecast period, despite the strong showing of the main opposition party, Movimento para a Democracia (MPD), in the May 2008 municipal elections. The PAICV will continue to implement its political programme and should have no major difficulties in passing legislation, since it has a clear majority in the National Assembly. The government is expected to reach the targets agreed with the IMF under the policy support instrument (PSI). Real GDP growth is expected to accelerate from an estimated 6.7% in 2007 to 7% in 2008 and 7.7% in 2009, supported by high inflows of foreign direct investment in the tourism and construction sectors. The Economist Intelligence Unit expects that average inflation will rise from an estimated 4.4% in 2007 to 5% in 2008 owing to high oil and food prices in international markets, before falling to 4% in 2009.

The political scene

The MPD has swept to victory in municipal elections held on May 18th, winning control of 11 municipalities to the PAICV's ten, including the country's three largest: Praia and Santa Catarina (on Santiago island) and Sao Vicente. The one remaining municipality, Sal, has been won by an independent party allied to the MPD, Grupo Independente para Modernizar Sal (GIMS). The PAICV has accused the MPD of vote-buying in the elections. Cape Verde and the EU have signed a mobility partnership accord aimed at promoting legal circular migration to the EU and clamping down on illegal migration.

Economic policy

The National Assembly has approved emergency measures to lessen the impact of high world food prices, including a reduction in import duty on wheat, and exemption from value-added tax (VAT) for maize, wheat, milk products and cooking oils. The government has approved a new petrol tax earmarked for road maintenance works.

The domestic economy

The Banco de Cabo Verde (BCV, the central bank) has raised its inflation forecast to 5% in 2008, owing to high international oil and grain prices, and has lowered its forecast for real GDP growth in 2008 to 6.5-7.5%, owing to falling private consumption and the expectation of lower emigrant remittances.

Foreign trade and payments

Cape Verde's trade deficit widened by an estimated 28.1% in 2007, reflecting a sharp increase in imports destined for the tourism sector and a moderate fall in exports, notably of fish.