Country Report Cape Verde July 2009

Outlook for 2009-10

The ruling Partido Africano da Independencia de Cabo Verde (PAICV) and the prime minister, Jose Maria Neves, are expected to remain in power in 2009-10. However, the government will come under increased pressure, as the global economic crisis will affect the country's economic performance and lead to rising unemployment. The government will continue to provide a fiscal stimulus to offset the negative effects that an expected contraction in the tourism and construction sectors will have on domestic consumption levels. Real GDP growth is forecast to fall significantly owing to a contraction in the tourism and tourist home sectors, but it will remain positive at 1.8% in 2009, as public spending supports investment in infrastructure and the agricultural sector expands. Real GDP growth is forecast to rise moderately to 4% in 2010, driven by a recovery in the tourism and construction sectors. Average inflation is forecast to fall to 4% in 2009, reflecting lower oil and food prices in international markets, before increasing to 4.5% in 2010, as commodity prices start rising again.

The political scene

Cape Verde's three main political parties have scheduled conventions to be held later this year, ahead of the legislative and presidential elections in early 2011. Mr? Neves is expected to be re-elected as PAICV's secretary general, but the leadership dispute in the main opposition party, Movimento para a Democracia (MPD), is expected to be more intense. The race to become the different parties' presidential candidate has also begun, with different politicians aspiring to occupy this largely ceremonial post in Cape Verde.

Economic policy

The IMF has completed its sixth review under the policy support instrument (PSI), commending the government for the measures taken to offset the impact of the global economic downturn. The Fund has also agreed to extend the PSI to 2010. The government has launched a social housing programme that projects the construction of almost 10,000 housing units.

The domestic economy

The Banco de Cabo Verde (BCV; the central bank) has reduced its real GDP growth forecast to around 5% in 2009, substantially higher than the 2.5% projected by the IMF. Activity in the local stock exchange has picked up in recent months with the floating of several small companies.

Foreign trade and payments

Remittances rose by 2.6% in 2008, from CVEsc10.15bn in 2007 to CVEsc10.42bn (US$138m), the equivalent of 9% of GDP. However, they could fall in 2009 owing to the global economic downturn.

This report covers the following industry codes:
SIC Code: 70;1;60
NAICS Code: 72;11;52