Country Report Cape Verde October 2008

Outlook for 2009-10

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 fall to 6.5% in 2008 and 6% in 2009 as the country suffers slightly from the global economic crisis, before increasing to 7% in 2010 as economic activity picks up in Europe. The Economist Intelligence Unit expects that average inflation will fall moderately, from an estimated 5% in 2008 to 4% in 2009 and 3.5% in 2010 as prices stabilise in international markets.

The political scene

The prime minister, Jose Maria Neves, has carried out a cabinet reshuffle. The new cabinet is notable for its high number of women (eight), but it has retained key figures from the previous administration and policy is expected to be broadly unchanged. The country's third-largest party, Uniao Caboverdiana Independente e Democratica (UCID), has split into two opposing camps.

Economic policy

The IMF has completed its fourth review of Cape Verde's policy support instrument (PSI) and its 2008 Article IV consultation, praising the government for meeting all the programme targets by wide margins. However, the Fund urged more efforts to maintain fiscal stability, strengthen the financial sector and diversify economic activity. The government is planning to reduce the rate of personal and corporate income tax from 30% to 25% in the 2009 budget.

The domestic economy

The Banco de Cabo Verde (the central bank) has applied stricter loan classification criteria, which have seen the share of non-performing loans rise from 3.9% in 2006 to 13.5% in 2007. A fire has destroyed a fish-freezing and storage facility on the island of Sao Vicente, prompting the government to pledge €14m (US$20m) to rebuild the installations.

Foreign trade and payments

Cape Verde has become a full member of the World Trade Organisation (WTO), nearly nine years after starting membership negotiations. The country will have until 2018 to meet all of its WTO convergence targets, which will involve new legislation on commercial, customs and copyright law, and on health regulation.