international development association program...
TRANSCRIPT
Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No. 65183-CV
INTERNATIONAL DEVELOPMENT ASSOCIATION
PROGRAM DOCUMENT
ON A PROPOSED CREDIT
IN THE AMOUNT OF SDR 7.9 MILLION
(US$12 MILLION EQUIVALENT)
TO THE
REPUBLIC OF CAPE VERDE
FOR A
SEVENTH POVERTY REDUCTION SUPPORT CREDIT (PRSC VII)
May 22, 2012
Poverty Reduction and Economic Management 4
Country Department AFCF1
Africa Region
This document has a restricted distribution and may be used by recipients only in the performance of
their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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ii
Currency Equivalents
(Exchange Rate Effective as of May 18, 2011)
Currency Unit = Escudo US$1.00 = 86.8 ECV
Weights and Measures
Metric System
Fiscal Year
January 1 – December 31
ABBREVIATION AND ACRONYMS
ADEI
AFTFP
ARAP
Agência para o Desenvolvimento Empresarial e Innovação
(Business Development and Innovation Agency)
Africa Finance and Private Sector Unit
Agencia Reguladora para Aquisições Públicas (Regulatory Agency
for Public Acquisitions)
ARE
ASA
Agencia de Regulação Económica (Economic Regulatory Agency)
Administradora de Aeroportos (State Airports Administration)
BCV
BOP
BSG
Banco de Cabo Verde (Central Bank of Cape Verde)
Balance of Payments
Budget Support Group
CAN Conselho Nacional do Ambiente (National Environmental Council)
CIAP Comissão Independente para Aquisições Públicas (Independent
Commission for Public Procurement)
CEM
CoM
COSiSA
Country Economic Memorandum
Council of Ministers
Commissão de Operacionalização do Sistema de Seguimento e
Avaliação (Implementation Committee for the National Monitoring
and Evaluation System
CFAA Country Financial Accountability Assessment
CPAR
CPIA
Country Procurement Assessment Review
Country Policy and Institutional Assessment
CPIP
CPS
DB
Country Procurement Issues Paper
Country Partnership Strategy
Doing Business
DeMPA
DGCI
DGPOG
DSA
Debt Managment Performance Assessment
Direção Geral de Impostos e Contribuições (Directorate for Taxes
and Contributions)
Direcção Geral de Planejamento, Orçamento e Gestão (Directorate
for Planning, Budget and Management)
Debt Sustainability Analysis
DSCP
Direção de Serviço de Contratação Pública (Public Procurement
Directorate)
iii
DTIS
ECV
Diagnostic Trade Integration Study
Escudo de Cabo Verde (Cape Verdean Escudo)
ELECTRA Empresa de Electricidade e Água (Public Water and Electricity
Company)
ENAPOR Empresa Nacional de Administração dos Portos (Port Authority)
EROT Esquema Regional de Ordenamento do Território (Island
Development Plan)
ETS Economic Transformation Strategy
FDI Foreign Direct Investment
FSAP Financial Sector Assessment Program
GDP Gross Domestic Product
GNP Gross National Product
GoCV
GPRSP
Government of Cape Verde
Growth and Poverty Reduction Strategy Paper
IBRD International Bank for Reconstruction and Development
ICA Investment Climate Assessment
ICR Implementation Completion Report
IDA International Development Association
IFC International Finance Corporation
IFRS International Financial Reporting Standards
IGF Inspeção Geral de Finanças (Inspector General of Finances)
IMF International Monetary Fund
INE Instituto Nacional de Estatística (National Institute of Statistics)
JSAN Joint Staff Advisory Note
LDP Letter of Development Policy
LIC Low-Income Country
M&E
MDG
Monitoring and Evaluation
Millennium Development Goal
MECC Ministério de Economia, Competitividade e Crescimento (Ministry of
Economy, Competitiveness and Growth)
MIC
MIGA
Middle-Income Country
Multilateral Investment Guarantee Agency
MoFP Ministério de Finanças e Planejamento (Ministry of Finance and
Planning)
MOU
MTDS
MTEF
MTFF
MTFSS
Memorandum of Understanding
Medium-Term Debt Strategy
Medium-Term Expenditure Framework
Medium-Term Fiscal Framework
Ministry of Labor, Family and Social Solidarity
NGO Non-Governmental Organization
NOSI Núcleo Operacional da Sociedade da Informação (Operational
Nucleus for an Information Society)
OECD-DAC
OPES
Organization for Economic Cooperation and
Development – Development Assistance Committee
Orgãos Produtores de Estatísticas Setoriais (Sectoral Producers of
Statistics)
iv
PANA Programa de Ação Nacional para o Ambiente
(National Environmental Action Plan)
PCCS Plano de Cargos, Carreiras e Salários (Career and Salary Plan)
PDM Plano de Desenvolvimento Municipal (Municipal Development Plan)
PEFA Public Expenditure and Financial Accountability Assessment
PEMFAR
PER
Public Expenditure Management and Financial Accountability
Review
Public Expenditure Review
PFM
PPIAF
Public Financial Management
Public-Private Infrastructure Advisory
PRSC Poverty Reduction Support Credit
PSI Policy Support Instrument
REER Real Effective Exchange Rate
RBM Results-Based Management
SDR Special Drawing Rights
SIGOF Sistema Integrado de Gestão Orçamental e Financeira (Integrated
Financial Management System for the State Budget)
SIM
SiSA
Sistema de Informação Municipal (Municipal Information System)
Sistema de Seguimento e Avaliação (National Monitoring and
Evaluation System)
SME
SNTA
SSQA
Small and Medium Enterprise
Subnational Technical Assistance Program
Environmental Quality Monitoring System
TA
TACV
Technical Assistance
Transportes Aéreos de Cabo Verde (Cape Verde Airlines)
TdC Tribunal de Contas (Court of Accounts)
TFSCB
TSF
Trust Fund for Statistical Capacity Building
Training Support Fund
TVET Technical, Vocational and Educational Training
UGA Unidade de Gestão de Aquisições (Procurement Management Unit)
UGAC
UCRE
Unidade de Gestão de Aquisições Central (Procurement Management
Central Unit)
Unidade de Coordenação e Reforma do Estado (State Reform
Coordination Unit)
UNDP
VAT
United Nations Development Program
Value-Added Tax
WTO World Trade Organization
Vice President: Country Director:
Sector Director: Sector Manager:
Task Team Leader:
Makhtar Diop (AFRVP) Vera Songwe (AFCF1) Marcelo Giugale (AFTPM) Miria Pigato (AFTP4) Fernando Blanco (AFTP4)
v
CAPE VERDE
SEVENTH POVERTY REDUCTION SUPPORT CREDIT
TABLE OF CONTENTS
CREDIT AND PROGRAM SUMMARY ...................................................................................... vii
1. INTRODUCTION .................................................................................................................. 1
2. COUNTRY CONTEXT ......................................................................................................... 3
A. Recent Economic Developments in Cape Verde ............................................................ 4 B. Economic Prospects and Debt Sustainability ................................................................. 9
3. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESS .................. 11
4. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM .......................................... 13
A. Links to the Country Partnership Strategy ..................................................................... 13 B. Collaboration with the IMF and Other Donors .............................................................. 14 C. Relationship to Other World Bank Operations .............................................................. 17 D. Lessons Learned ............................................................................................................. 18 E. Analytical Underpinnings ............................................................................................... 19
5. THE PROPOSED PRSC VII ................................................................................................ 21
A. Rationale and Objectives ................................................................................................ 21 B. Policy Areas ................................................................................................................... 22
6. OPERATION IMPLEMENTATION .................................................................................. 38
A. Poverty and Social Impacts ............................................................................................ 38 B. Environmental Aspects ................................................................................................... 39 C. Implementation, Monitoring and Evaluation ................................................................. 40 D. Fiduciary Aspects ........................................................................................................... 41 E. Disbursement and Auditing ............................................................................................ 41 F. Risks and Risk Mitigation .............................................................................................. 42
Tables:
Table 2.1: Key Macroeconomic Indicators, 2008-2015 .................................................................... 5 Table 2.2: Budget Support Flows, 2008-2012 (in US$ million) ....................................................... 6 Table 2.3: Central Government Operations, 2008-2015 (in percent of GDP) .................................. 7 Table 4.1: Policy Areas by Members of the Budget Support Group ................................................ 16 Table 4.2: Relevant Bank Analytical Work ...................................................................................... 20 Table 5.1: Cape Verde’s Ranks in the Doing Business Survey ........................................................ 27 Table 5.2: Prior Actions for the Proposed PRCS VII and Their Current Status ............................... 35
vi
Annexes:
Annex 1: Project Information ........................................................................................................... 44 Annex 2: Letter of Development Policy ........................................................................................... 45 Annex 3: Policy Matrix ..................................................................................................................... 57 Annex 4: IMF Relationship Note ...................................................................................................... 63 Annex 5: Country at a Glance ........................................................................................................... 64 Annex 6: Map of Cape Verde, IBRD 33383 ..................................................................................... 67
The Economic Governance Reform Grant was prepared by a team led by Fernando Blanco
(Senior Economist, AFTP4). The core team included Sidy Diop (AFTPC), Alvaro Gonzalez
(AFTFP), Maximilien Queyranne (AFTFM), Geraldo Martins (AFTED), Stephan Garnier
(AFTEG), Fabrice Bertholet (AFTEG), Kavita Sethi (AFTTR), Ricardo Varsano (Consultant),
Sean Lothrop (Consultant), Christian Borja-Vega (Consultant), Helen Edmundson (YPP,
AFTP4), Luz Meza-Bartrina (LEGAF), Judite Fernandes (Language Program Assistant,
AFTP4), Glaucia Ferreira (Program Assistant, AFTP4) and Paula J. White (Program Assistant,
AFTP4). McDonald Benjamin (AFCF1, Acting Country Director), Vera Songwe (Country
Director) and Miria Pigato (Sector Manager, AFTP4) provided guidance. The team also
worked with the IMF team headed by Janet Stotsky.
vii
CAPE VERDE
SEVENTH POVERTY REDUCTION SUPPORT CREDIT
CREDIT AND PROGRAM SUMMARY
Borrower: The Republic of Cape Verde.
Implementing Agency: Ministry of Finance and Planning.
Financing Data:
IDA Credit, Standard IDA terms: 40-year maturity with a 10-year grace
period.
Operation Type:
Single-Tranche Operation of SDR 7.9 million (US$12 million equivalent). Third in a programmatic series of 3 operations.
Main Policy Areas:
The proposed operation will cover four policy areas: (i) good governance;
(ii) human capital enhancement; (iii) competitiveness; and (iv)
infrastructure.
Key Outcome
Indicators: Number of years to submit the General
Accounts of the State to the Court of
Accounts
Number of audits prepared by ARAP
Projects and programs for which indicators
are tracked by the M&E system (as percent of
total budget).
Recovery rate by claimants (creditors,
employees, govt.) from insolvent firms (cents
per dollar owed)
Average time to close a firm (years)
ELECTRA’s debt service coverage ratio
(DSCR)
ELECTRA’s technical and non-technical
losses (as a percentage of total megawatts
generated).
TACV’s revenue- passenger- kilometer (in
million of ECV).
2010 Target (2012) 1 < 1
0 >10
67 100
0 < 40
4 2
0.7 > 1.1
26.5 < 25
721 840
Program Development
Objective and
Contribution to
Country Partnership
Strategy:
The main development objectives of the proposed credit are to: (i) improve
the efficiency and transparency in the use of public resources and preserve
macroeconomic stability through the implementation of a reform agenda for
public finance management, debt management, procurement, and the
government’s statistical system; (ii) improve the qualifications of the labor
force through the institutional upgrading of the vocational training system;
(iii) enhance the country’s investment climate by simplifying procedures for
closing firms and promoting a level playing field for private investors; and
(iv) strengthen the performance of public utilities in the energy and air
transportation sectors.
viii
The proposed PRSC VII supports the three strategic objectives of the
Country Partnership Strategy (CPS): (i) promoting good governance and
public sector capacity; (ii) improving competitiveness and the investment
climate to enable private sector-led growth; and (iii) strengthening human
capital and social cohesion.
Risks and Risk
Mitigation:
(a) Risks posed by high fiscal and external deficits in a worsening
global scenario: Due to its close ties with the South-Western European
economies, and with Portugal in particular, the ongoing economic crisis in
Europe has heightened risks to the Cape Verdean economy. This is reflected
in the strong deterioration in its balance of payments and the reduction of
international reserves in 2011. Furthermore, Cape Verde’s fiscal and
external deficit projections remain high as a result of the increased capital
spending and tax cuts that were part of the government’s countercyclical
fiscal impulse over 2009-11, and the strong incentive for the government to
access as much external financing as possible before the end of the 5-year
window following the graduation from the UN list of Least Developed
Countries. To reduce macroeconomic vulnerabilities, the government has
started to reduce fiscal deficits and to adopt a tighter monetary policy to
reduce external deficits and curb the declining path of international reserves.
(b) Long-term growth risks posed by inefficient infrastructure
service provision: While the public investment program has eased
infrastructure constraints in the roads and seaports sectors, the inefficient
provision and inadequate coverage of electricity and air transport services
represent a serious constraint to the country’s growth prospects. The
successful restructuring of ELECTRA and TACV is not only essential to
attenuating the risk of contingent liabilities, but it is also vital to the long-
term competitiveness and growth of the Cape Verdean economy. The
current administration has stated that reforming ELECTRA and TACV will
be top priorities of its term and this proposed operation supports the
government efforts in this area.
(c) Political environment risks derived from the results of the
parliamentary and presidential elections: Since the adoption of a
multiparty system in 1991 Cape Verde has enjoyed remarkable political
stability with power changing hands regularly. Nonetheless, the election
results of this year pose an unprecedented test for the country’s political
stability and governance system as this will be the first time that the
President and Prime Minister will represent opposing parties, While the
legislative approval of the structural reforms may require complex
negotiations and consensus, this unprecedented situation could represent an
opportunity to reinforce checks and balances.
(d) Implementation capacity: Budget support requires substantial
administrative capacity to design and implement reforms and to monitor
their impacts. The limited number of technical staff in the public
administration poses problems in this regard. To address this risk in the
short term the government’s budget support partners have made available a
combination of capacity building and technical support.
Operation ID: P122669
1
THE REPUBLIC OF CAPE VERDE
SEVENTH POVERTY REDUCTION SUPPORT CREDIT
1. INTRODUCTION
1.1 The proposed Seventh Poverty Reduction Support Credit (PRSC VII) is the final
operation in a programmatic series of three one-year operations initiated in 2009 at the height of
the global financial crisis and designed to support the implementation of the government’s
Second Growth and Poverty Reduction Strategy Paper (GPRSP-II) for the period 2008-2011.
The Government of Cape Verde (GoCV) acted swiftly to counter the effects of the crisis, seizing
the opportunity to tap into the fiscal space and external reserves that it had created in previous
years and boost public investment, both to shore-up aggregate demand in the short-run, and at
the same time addressing a number of binding infrastructure constraints on long-term growth. In
this regard, the budget support provided by the Bank’s PRSC series and by other development
partners in 2009-11 enabled the government to adopt its countercyclical fiscal policy and
continue its course of investment in critical infrastructure areas.
1.2 The Cape Verdean economy is well integrated into the global economy, and its links to
the Euro-zone are particularly strong. Therefore, the decline in the volume of international trade
in services that accompanied the global financial crisis has had a deeply negative effect on Cape
Verde, with GDP growth slowing to 3.7 percent in 2009 from 8.6 percent and 6.2 percent in
2007 and 2008 respectively. In response, the government initiated a countercyclical fiscal
impulse based on an expansion of public investment accompanied by targeted tax cuts. New
resources were directed to alleviating infrastructure bottlenecks through much-needed capital
investment in power generation, ports, roads and airports. Meanwhile, tax rates on corporate and
individual income were reduced in order to bolster private-sector investment and sustain
household-level consumption.
1.3 The GoCV’s response to the 2008-09 global financial crisis proved highly effective: GDP
growth rebounded to 5.2 percent in 2010. However, the ongoing economic crisis in Europe since
mid 2011 and the effects of the government’s countercyclical policies have increased fiscal and
external vulnerabilities. Higher investment expenditures and lower revenues led to large fiscal
deficits higher than 10 percent of GDP in 2010-11. Consequently, public debt increased from
62.7 percent in 2009 to 71.8 percent in 2011. Current account deficits have also worsened being
higher than 12 percent of GDP in the last three years.
1.4 The worsening of global conditions in 2011 has heightened macroeconomic risks for the
Cape Verdean economy. The strong fall in FDI and net income inflows, higher prices for energy
and food imports have exacerbated the external disequilibria. On the positive side, tourism
services and remittances are the main sources of foreign exchange, and while for the time being
both have been resilient, they are likely to suffer from the economic downturn in Europe. The
current account deficit reached 12.5 percent of GDP in 2011 as official transfers and net income
inflows fell considerably while the strong growth of imports offset the good performance of
tourism services. As a result, in 2011, international reserves fell from €295 million (or 4.2
months of current year’s imports) to €258 million (about 3 months of current year’s imports).
2
Finally, driven by the fall in the construction sector, economic activity decelerated in the second
part of 2011. GDP growth for 2011 reached 5 percent.1
1.5 In response, the authorities have taken substantive measures to reduce fiscal deficits and
contain domestic credit growth. The government has recognized that its ambitious investment
plan and the expansion of domestic credit by the Central Bank in 2011 contributed to the
deterioration of external balances. Consequently, the Ministry of Finance has cut recurrent
spending and slowed down the execution of its investment program. On the monetary front, in
December 2011 the BCV restrained domestic credit growth through open market operations and
higher reserve requirements and increased its headline interest rate to defend the exchange rate
peg. The initial effects of these policies have already been observed. By the end of 2011,
international reserves recovered to €258 million (or 3 months of current year’s import). Fiscal
and external deficits for 2011 were lower than expected. Preliminary information corresponding
to the first quarter of 2012 indicates the consolidation of these trends, with declining fiscal and
external deficits and domestic activity. Assuming consistency in the government fiscal and
monetary tightening and that the global economy conditions will not deteriorate any further in
2012, it is expected a gradual improvement of the country’s macroeconomic position. On the real
side, the fiscal and monetary contractions are expected to further decelerate economic activity
and revised projections indicate a GDP growth rate of 4.3 percent in 2012.
1.6 On the political side, after the parliamentary and presidential elections in 2011 for the
first time President and Prime Minister are from the two major opposing political parties and
they are sharing the political leadership.
1.7 In this context of economic difficulties and new political environment, the proposed
PRSC VII supports the government’s macroeconomic stabilization effort and the continuation of
its structural reforms efforts. The PRSC VII is expected to contribute to consolidating the
stabilization of international reserves and reduce domestic borrowing needs. In the medium
term, the completion of the government’s public investment program is expected to reduce the
pressure on fiscal and external accounts and alleviate binding infrastructure constraints to
growth. In the long term, the structural reform agenda supported by this operation is expected to
enhance the country’s economic growth conditions.
1.8 The proposed PRSC VII supports the government’s structural reform agenda which is
based on four pillars: (i) promoting good governance and public-sector efficiency; (iii)
improving technical and vocational training; (iii) strengthening the investment climate; and (iv)
improving the management of public utilities providers. Indeed, the proposed operation is
consistent with the World Bank’s Strategy for Africa through its support to enhance governance
and public sector capacity (PRSC’s pillar 1) and competitiveness (pillar 3) and employment
(pillar 2).
1.9 Furthermore, as recommended by the Bank’s Africa Region Strategy, this operation has
been prepared in close coordination with other budget support partners through the joint policy
matrix of the Budget Support Group (BSG). The design of the proposed PRSC VII, which is
1 At the beginning of 2011, GDP was projected to rise 6.1 percent. This projection was downward revised in
September to 5.6 percent.
3
embedded in a three-year matrix agreed upon with the authorities and the BSG, was based on the
government’s GPRSP-II and expected to be consistent with the forthcoming GPRSP-III. This
will ensure both harmonized donor support and strong government ownership of the reforms
included in the program.
2. COUNTRY CONTEXT
2.1 Located in the Atlantic Ocean about 500 km off the coast of Senegal, Cape Verde is a
small archipelago consisting of ten volcanic islands, nine of which are inhabited. Cape Verde
has a total population of about 500,000, and in 2010 its GDP was US$1.65 billion. Aside from
some modest fishing potential in its territorial waters Cape Verde has very limited natural
resources. Its land area is small and not well suited for agriculture. Rainfall is both low and
irregular, and only about 10 percent of the country’s land area is arable. In addition, neither the
islands nor their territorial waters are believed to contain any significant mineral resources, and
all fuel products are imported. Cape Verde’s fragmentary geography and dispersed population
poses serious logistical challenges that prevent the formation of economies of agglomeration. Its
abundant natural beauty, rich local culture and close proximity to Europe have made Cape Verde
a popular tourist destination, and as a result, services have become the predominant economic
sector. Nonetheless, as highlighted in Cape Verde’s National Adaptation Programme of Action
(NAPA), the islands are exposed to increased climate vulnerabilities and natural disaster risks,
and to maintain this comparative advantage in tourism, environmental concerns and natural
resource management will need to be an integral part of its economic growth strategy.
2.2 Services represent a full 75 percent of GDP, and tourism is the most dynamic industry in
the Cape Verdean economy. Over the past decade economic growth has been primarily driven by
tourism and related industries, including real estate, construction and air transportation. During
this period tourism receipts grew by 28 percent; together with passenger transportation, tourism
services comprise more than 80 percent of total exports. In addition, tourism and tourism-related
real estate and construction are the main attractors of foreign direct investment (FDI) and
together account for more than 80 percent of FDI flows.
2.3 Cape Verde’s major trading partners include Great Britain, Portugal, Italy, Spain, France
and the United States, with the Euro-zone economies being particularly important to the tourism
industry. These countries also represent the primary sources of FDI and portfolio investment in
Cape Verde and are the points of origin for the majority of Cape Verdean remittances. By
regional standards Cape Verde is highly integrated into the global economy, and the performance
of the Euro-zone is especially vital to its capital supply (via FDI), export demand (via tourism),
and domestic consumption and savings (via remittances).
2.4 Good governance, political stability, sound economic management—including strong
fiscal discipline and credible monetary and exchange-rate policies— and the responsible use of
donor support have produced impressive results throughout the Cape Verdean archipelago. Cape
Verde currently ranks first in the Country Policy and Institutional Assessment (CPIA) for the
Africa Region in 2010, and in recent years it has been routinely listed among the region’s top
performers in the Doing Business report. The country boasted a remarkable average annual GDP
4
growth rate of 6.0 percent from 2000 through 2010,2 with inflation averaging 2 percent and
indebtedness declining until 2009. During this time per capita GDP grew from US$1,215 to
US$3,323. In 2008 Cape Verde graduated from the UN list of Least Developed Countries (LDC)
and its actual exit to the LDC list is expected to be completed by the end of 2012 following a
five-year transition period during which it still qualifies for concessional financing.3
2.5 Poverty has fallen substantially over the past decade, with the poverty headcount rate
dropping from 37 percent in 2002 to 26.7 percent in 2007 (latest available information).
Meanwhile, health and education indicators have consistently improved: by 2007 Cape Verde
had reached four of its eight Millennium Development Goals, and the remaining four are on
track to be achieved before 2015. Cape Verde ranks 118th
out of 169 countries in the 2010
Human Development Index.
A. RECENT ECONOMIC DEVELOPMENTS IN CAPE VERDE
2.6 Despite its record of robust macroeconomic performance, due to its integration with the
global economy, Cape Verde has been hit hard by the 2008-09 global financial crisis and the
ongoing economic crisis in Europe. In 2009, first-round effects resulted in a sharp deterioration
of the Balance of Payments (BoP) fostered by a sharp decline in the demand for service exports,
negatively impacting tourism and the trade balance, diminished remittances from Cape Verdeans
working abroad widening the current account balance, while a simultaneous drop in FDI (-43
percent to US$119 million in 2009)4 led to a shift in the balance of payment from surpluses of
about 4 percent of GDP in the period 2004-08 to a deficit of 0.5 percent in 2009.
2.7 Second-round effects were also quite strong and became apparent almost immediately.
The previously robust economic expansion was already being substantially slowed by the fourth
quarter of 2008, with GDP growth slipping from 8.6 percent in 2007 to 6.2 percent for 2008 as a
whole, and dropping to just 3.7 percent in 2009, when the full impact of the crisis was being
registered. Declining demand for tourism and air transportation services, along with secondary
effects on associated sectors such as construction and real estate were reflected in a strong fall of
private investment and had a major adverse impact on economic activity nationwide.
2.8 The third-round effects of the crisis involved the deterioration of public finances
associated to the government’s policy response. In 2009 alone public revenues dropped 4.9
percentage points of GDP. By mid 2009, the GoCV initiated a large-scale public investment
program designed to shore-up domestic demand while easing a number of infrastructure
bottlenecks that represented potential constraints on medium-term growth. Fortunately, the
GoCV had a sizeable fiscal space (created over the previous decade) with which to finance an
aggressive countercyclical response. New public investment commitments initially exceeded the
execution capacity of state agencies, but capital spending accelerated rapidly in 2010-11. At the
same time, the government enacted a set of individual and corporate tax cuts designed to further
boost private sector activity. While this expansionary policy had succeeded in bolstering
aggregate demand, it also significantly exacerbated the worsening in fiscal and external deficits.
2 Population growth was 1.8 percent.
3 Nonetheless, Cape Verde still benefits and will benefit from IDA's regular terms due to the "small islands
economies" exceptions. 4 UNCTAD World Investment Report 2011.
5
Expanding investment commitments and contracting revenues resulted in a significant
deterioration of the overall fiscal balance, which fell from -1.3 percent of GDP in 2008 to -6.3
percent of GDP in 2009 and -10.6 percent of GDP in 2010.
Table 2.1: Key Macroeconomic Indicators, 2008-2015
2008 2009 2010
2011
(e)
2012
(f)
2013
(f)
2014
(f)
2015
(f)
National Accounts and Prices (percent
change)
GDP Growth Rate 6.2 3.7 5.2 5.0 4.3 4.4 4.5 4.7
GDP per capita Growth Rate 4.8 2.3 3.8 3.6 2.9 3.0 3.1 3.3
GDP Deflator 3.2 4.2 3.3 3.9 3.4 2.9 2.9 2.9
Consumer Inflation (CPI) 6.8 1.0 2.1 4.5 2.1 2.0 2.1 2.0
Investment / Savings (percent of GDP)
Gross Capital Formation 46.6 39.1 37.8 36.5 34.6 34.7 35.2 34.8
Public 13.9 14.0 18.8 14.8 14.7 14.2 14.1 13.0
Private 32.6 25.0 19.0 21.7 19.9 20.5 21.2 21.8
Domestic Savings 30.8 23.4 25.3 24.1 22.5 24.2 26.0 25.2
External Sector (percent of GDP)
External Current Account (incl. official
transfers) -15.7 -15.6 -12.5 -12.5 -12.1 -10.5 -9.3 -9.6
External Current Account (excl. official
transfers) -22.5 -21.1 -18.8 -20.3 -14.5 -13.9 -12.9 -12.7
Overall Balance of Payments 1.6 -0.4 1.6 -2.2 1.3 1.2 1.2 1.5
Government Finances (percent of GDP)
Revenue 33.3 28.8 28.0 25.1 24.7 26.3 26.8 26.7
Domestic Revenue 28.1 23.4 21.7 22.3 22.2 22.9 23.2 23.7
External Grants 5.5 5.4 6.3 2.8 2.5 3.4 3.6 3.1
Expenditure 34.9 35.0 38.6 33.9 33.5 33.7 33.6 32.3
Recurrent Expenditure 19.9 19.4 19.7 19.0 18.8 19.4 19.6 19.3
Capital Expenditure 13.9 14.0 18.8 14.8 14.7 14.2 14.1 14.0
Other Expenditures 1.0 2.1 1.0 0.7 0.7 1.0 1.0 1.0
Overall Balance -1.3 -6.3 -10.6 -8.8 -8.8 -7.4 -6.8 -5.5
Public Debt 67.9 68.8 74.9 76.5 80.9 84.7 86.3 83.7
External 44.9 46.3 51.3 54.3 59.1 64.6 68.1 68.1
Domestic 23.0 22.5 23.5 22.2 21.8 20.1 18.2 15.6
Memo Items:
GDP (in US$ Million) 1,559 1,605 1,662 1,902 1,940 2,087 2,238 2,400
GDP per capita (in US$) 3,147 3,175 3,247 3,723 3,970 3,760 3,962 4,174
Gross Int. Reserves (months of imports) 3.9 3.9 3.6 3.0 3.1 3.2 3.2 3.4
Source: IMF. E: estimated. F: forecast. Figures were revised in March 2012.
6
2.9 On the monetary side, the economic slowdown and consequent drop in commodity prices
reduced pressure on the inflation rate, which fell from an unusually high 6.8 percent in 2008 to
just 2.1 percent in 2010, thereby creating the potential for monetary easing. However, as the
main objective of Cape Verdean monetary policy has been to maintain a level of international
reserves sufficient to protect its fixed exchange rate peg against the Euro, the Cape Verdean
Central Bank (Banco de Cabo Verde, BCV) did not adopt an aggressive countercyclical
monetary-easing policy as observed in other countries. Indeed, foreign reserves were kept at
prudent levels of 3.9 months of imports in 2009-10.
Table 2.2: Budget Support Flows, 2008-2012 (in US$ million)
Donor / Lender
2008 2009 2010 2011 (e) 2012 (f)
African Development Bank (L) 4.6 27.6 27.2 21.0 14.0
African Development Fund (L) 0.0 5.0 2.7 0.0 0.0
Austria (D) 0.6 1.4 4.1 0.0 0.0
European Union (D) 7.7 11.7 23.3 10.9 0.0
Luxemburg - - - - 0.9
Netherlands (D) 9.6 4.8 3.8 2.5 0.0
Portugal (D) 0.0 2.1 2.7 2.9 0.0
Spain (D) 4.4 5.1 4.2 6.5 6.5
World Bank (L) 5.5 0.0 25.0 0.0 22.0
Total/ 32.3 57.7 93.0 43.8 42.5
Source: BSG and Government Budget Reports.
D Donor / L Lender.
2.10 By late 2009 rising public investment expenditures had begun to successfully mitigate the
effects of the financial crisis, as investment-driven growth helped to maintain overall
employment and support continued private investment despite declining global export demand.
The expansion of GoCV’s investment and a swift, though partial, rebound in external demand for
tourism and air transportation services allowed for a rapid and strong recovery of economic
activity. By the second half of 2009 the economy had arrested the declining trend observed since
the third quarter of 2008, and the negative impact on GDP growth was less severe than expected.
The recovery was further boosted by market adjustments in the private sector, and reduced prices
for tourism services prompted an increase in the numbers of hotel bookings and visiting guests
(which rose by 25 percent in 2010). In the transportation sector passenger arrivals and cargo
shipping have enjoyed a robust recovery, while government infrastructure investments and a
resurgent real estate market led to a substantial expansion in construction activities. As a result
the real GDP growth rate rebounded to 5.2 percent in 2010.
7
Table 2.3: Central Government Operations, 2008-2015 (in percent of GDP)
2008 2009 2010 2011
(e)
2012
(f)
2013
(f)
2014
(f)
2015
(f)
Revenue 33.3 28.8 28.0 25,1 24,7 26,3 26,8 26,7
Domestic Revenue 28.1 23.4 21.7 22,3 22,2 22,9 23,2 23,7
Of which: tax revenue 25.3 20.2 19.1 19,7 19,6 20,2 20,6 21,1
Income and Profit Taxes 7.3 6.3 5.7 5,7 5,7 5,8 5,9 6,0
Consumption Taxes 11.4 8.9 8.8 9,4 9,6 9,9 10,1 10,8
International Trade Taxes 5.2 4.1 3.9 3,9 3,6 3,9 3,9 3,7
Other 1.4 0.9 0.7 0,7 0,7 0,7 0,7 0,7
Non tax revenue 2.6 3.2 2.6 2,6 2,6 2,6 2,6 2,6
External Grants 5.5 5.4 6.3 2.8 2,5 3,4 3,6 3,1
Capital Grants 4.1 3.7 3.8 1.7 1,1 2,2 2,5 2,1
Budget Support 1.4 1.7 2.5 1.1 1,3 1,2 1,2 1,0
Expenditure 34.9 35.0 38.6 33.9 33,5 33,7 33,6 32,3
Recurrent Expenditure 19.9 21.0 19.8 19,1 18,8 19,4 19,6 19,3
Primary Recurrent
Expenditure 18.3 19.5 18.3 18.4 16.9 17.7 17.7 17.6
Wages and Salaries 11.6 11.7 11.7 9,2 11,2 11,1 11,1 10,9
Goods and Services 1.8 1.8 1.9 1,7 1,7 1,8 1,9 2,0
Transfers and subsidies 4.1 3.8 3.7 5,0 3,0 3,3 3,4 3,3
Other expenditures 0.9 2.1 1.0 0,7 0,7 1,0 1,0 1,0
Domestic Interest payments 1.2 1.0 1.1 1,5 1,5 1,4 1,3 1,2
External Interest payments 0.5 0.5 0.5 0,9 0,8 0,8 0,9 0,9
Capital Expenditure 13.9 14.0 18.7 14.8 14,7 14,2 14,1 13,0
Foreign Financed 10.0 9.7 18.3 10,6 11,1 11,3 11,3 10,4
Domestic Financed 3.9 4.3 0.5 4,2 3,6 2,9 2,8 2,6
Other Expenditures 1.0 1.6 0.2 0.0 0.0 0.0 0.0 0.0
Overall Balance, including grants -1.3 -6.3 -10.6 -8.8 -8,8 -7,4 -6,8 -5,5
Financing 1.3 6.3 10.6 -8.8 -8,8 -7,4 -6,8 -5,5
External Financing 3.0 5.0 10.6 9.4 8,7 7,9 7,0 6,3
Domestic Financing -1.0 0.8 0.6 -0.6 0,1 -0,5 -0,2 -0,8
Net errors and Omissions -0.7 0.5 -0.5 0.0 0.0 0.0 0.0 0.0
Public Debt* 67.9 68,8 74,9 76,5 80,9 84,7 86,3 83,7
External 44,9 46,3 51,3 54,3 59,1 64,6 68,1 68,1
Domestic 23,0 22,5 23,5 22,2 21,8 20,1 18,2 15,6
Source: IMF. E: estimated, F: forecast; * Includes SOEs. Figures were revised in March 2012.
2.11 The expansion of public investment has been financed by a significant external resource-
mobilization effort, which was further spurred by the government’s strong incentive to access
concessional financing terms in anticipation of the imminent completion of Cape Verde’s exit to
the LDC list. Tables 2.2 and 2.3 show that budget support flows and external financing
commitments increased substantially in 2009, spiked in 2010, and fell sharply in 20115.
5 It is worth to note that budget support operations in 2010 were exceptionally high. The World Bank disbursements
corresponding to the PRSC V (approved in 2009) and PRSC VI (approved in 2010) were done in 2010. The
European Union also concentrated disbursements in 2010.
8
2.12 The GoCV’s countercyclical fiscal impulse, though highly successful in mitigating the
effects of the global financial crisis, is also reflected in increasing levels of indebtedness. As a
result, public debt increased from 67.9 percent of GDP in 2009 to 74.9 percent of GDP in 20106.
The rapid increase in fiscal and external deficits has, however, raised concerns regarding the
long-term sustainability of the government’s fiscal stance.
2.13 During the first semester of 2011, economic prospects were favorable. As in 2010, the
boost in aggregate demand caused by the expansion of public investment continued to be the
leading force in driving GDP growth which was projected to rise to 5.6 percent. However, due
to its close ties with the Western European economies in general, and with Portugal in particular,
the ongoing economic crisis in Europe has threatened Cape Verde’s external position and
interrupted the consolidation of the recovery of economic activity observed since 2010.
2.14 As noted above, the countercyclical expansion of public spending in the second part of
2009 was initially limited by the implementation capacity of the agencies responsible for public
investment. However, as this capacity has been progressively enhanced, the implementation of
the government investment program accelerated rapidly in 2011. Public investment grew from
14 percent in 2009 to 18.8 percent of GDP in 2010, and fell to 14.8 percent of GDP in response
to the deterioration of macroeconomic conditions in 2011. The government was also able to
control recurrent expenditures. Accordingly, the overall fiscal deficit in 2011 fell to 8.8 percent
of GDP.
2.15 Cape Verde’s balance of payments suffered a significant weakening in 2011 that was
reflected in continuous foreign exchange reserves losses. There was a sharp deterioration in the
balance of payments from a positive 1.6 percent of GDP in 2010 to a deficit of 2.2 percent of
GDP. The strong deficits of the capital and financial account have been the main factors behind
the worsening of the balance of payments as the current account deficit increased slightly.
2.16 Due to higher food and fuel prices and accelerated capital imports fostered by the
expansion of domestic credit, the trade deficit worsened from €513 million (or 41 percent of
GDP) in 2010 to €609 million (or 44.6 percent of GDP) in 2011. Despite the strong resilience of
tourism services and remittances, the current account deficit increased from €156 million (or
12.4 percent of GDP) in 2010 to €170 million (or 12.5 percent) in 20117. The capital and
financial account balance deteriorated sharply falling from €237 million in 2010 to €142 million
in 2011 as FDI flows fell from €85 million in 2010 to €65 million in 2011 and other investments
fell €124 million to €68 million. As a result, international reserves fell from €295 million (or 4.2
months of current year’s imports) in December 2010 to €258 million (or 3 months of current
year’s imports) in December 20118.
2.17 By the end of 2011, the government has managed to reverse the decline in international
reserves by reducing fiscal deficits and tightening monetary policy including reduction in
6 In present value terms, in 2010 the external PV of debt to GDP was 59.4 percent. The difference with the face
value reflects the concessional nature of most of the public debt. 7 The strong fall of in official current transfers from €80 million in 2010 to €50 million in 2011 also contributed to
the worsening of the external current account. 8 International reserves reached in November 2011 €216 million (or 2.5 months of imports) their lowest level since
2003. Further decreases in international reserves could put the pegged exchange rate regime at risk.
9
subsidies and operating costs. As a result, the overall fiscal deficit in 2011 reached 8.8 percent of
GDP, lower than the 10.3 percent of GDP projected in the budget.9
2.18 On the monetary side, since November 2011, the Central Bank has adopted measures to
reduce liquidity through open market operations and increases in reserve requirements. In late
December, the Central Bank also raised the headline interest rate from 4.25 percent to 4.75
percent and increased the overnight rates charged by the Central Bank to commercial banks.
2.19 Higher international fuel and food prices have affected domestic prices with consumer
inflation increasing to more than 4.6 percent in 2011. It is worth to note that in 2010, while food
price inflation was only moderate, rising global fuel prices had pressured energy prices in Cape
Verde: the government limited its subsidy regime and progressively passed higher import prices
on to consumers in the form of increasingly cost-reflective energy tariffs. In 2011, the
authorities, conscious that expanding fuel subsidies to offset further price increases would be
fiscally unfeasible, decided to increase the pass-through of fuel to energy prices and food price
inflation also increased. The monetary tightening and the deceleration of food and fuel prices led
to a sharp decline in inflation which reached 1 percent in April 2012 (year on year comparison).
In the medium term, inflation is projected to return to the 2-3 percent range.
2.20 Initial effects of fiscal and monetary tightening have already been also observed on the
external front. The good performance of tourism receipts, the reduction of capital imports and the
effects of the monetary tightening supported the recovery of external accounts and international
reserves in the first quarter of 2012. On the negative side, the slowdown of economic activity has
been confirmed with investment and consumption demand showing signals of deceleration, but
the policy makers’ priority to maintain stability is appropriate. GDP growth projections for 2012
were revised downward from 6.4 percent (at mid 2011) to 5.1 percent (at December 2011) and to
4.3 percent (latest projection at March 2012)10
.
B. ECONOMIC PROSPECTS AND DEBT SUSTAINABILITY
2.21 Assuming that global market conditions will not deteriorate any further and the
continuation of corrective fiscal and monetary policies to maintain macroeconomic stability and
rebuild international reserves, baseline projections for the coming years suggest a gradual
improvement in the macroeconomic outlook. For 2012, conservative execution ceilings on
budget allocations have slowed down expenditure execution in the first part of the year, which is
expected to enable the GoCV to reduce the overall deficit to less than 8 percent of GDP. Higher
revenues and lower investments are expected to lead to overall fiscal deficits of less than 5
percent of GDP by 2016.
2.22 Annual GDP growth is expected to vary around 4.5 percent in 2013-15, driven by the
recovery of external demand for tourism services and of domestic consumption. The completion
of the investment program combined with the resumption of the government’s structural
9 The figures for 2011 presented here were revised in March 2012 by the IMF team and are different than the ones in
the IMF staff report on the Second Review of the PSI of February 2012. 10
The team has been working closely with the IMF team in monitoring the macroeconomic situation of the country.
The projections presented in this document correspond to a recent update of the macroeconomic framework
produced by the IMF team/
10
economic reforms, which were temporarily overtaken in recent months by the pressing demands
of responding to the global financial crisis, may enable Cape Verde to improve its growth
performance even more.
2.23 The current account deficit is expected to narrow to single digit levels by 2014, based on
the assumption of decreasing public investment expenditures and the fact that the import content
of the public investment program is high. In this context, the projected reduction of public
investment will reduce pressure on the trade and current accounts.
2.24 Public debt sustainability risks are mitigated by the high percentage of concessional
borrowing at highly favorable (LIC) terms. The public debt service-to-revenue and grant ratio is
projected to reach a peak of 12 percent in 2012 and decline gradually to less than 10 percent by
2015. The government has announced it will maintain public debt sustainability by scaling back
deficits, as public investment expenditures return to their pre-crisis average and a slow
improvement of tax revenues is projected as the recovery takes hold. While total public debt is
forecast to increase from 76.5 percent of GDP in 2011 to 86.3 percent in 2014, it is then forecast
to resume a declining path from 2015 onwards based on the twin assumptions of decreasing
fiscal deficits and long-term potential GDP growth around 5 percent. These assumptions are not
a priori overoptimistic given that the forecast growth rate is lower than the 6 percent observed in
2000-10.
2.25 Turning to external debt sustainability, since external debt is mostly public (about 80
percent) and therefore concessional, the external debt portfolio has a long maturity profile and a
low average interest rate, with over 95 percent contracted at a fixed rate. These favorable
conditions are reflected in a low NPV and a low external debt service-to-GDP ratio. The public
debt service-to-export ratio is projected to remain below 7 percent until 2015 and to decline
further thereafter.11
2.26 Downside risks are substantial but manageable, and the Government’s ability to respond
to a protracted second global downturn is restricted. The fiscal space available for a
countercyclical response has been exhausted and the tightening of monetary policy to defend the
currency peg severely diminishes the possibility of resuming countercyclical fiscal and monetary
policies. Improved monetary and fiscal policy coordination is required to find an appropriate
balance between government spending cuts and interest rate increases to contain credit growth
while ensuring adequate room for private sector credit. However, the fact that the recent fiscal
expansion was based on the acceleration of investments while recurrent expenditures were kept
under control will facilitate further fiscal adjustments to accommodate adverse shocks should the
need arise.
2.27 In summary, despite the current difficulties, Cape Verde’s macroeconomic management
framework provides an appropriate basis for the proposed operation. The government’s actions
thus far have been generally sound: its response to the 2008-09 global crisis was swift and
forceful and the initial fiscal impulse significantly alleviated the impact of declining external
demand by focusing on growth-enhancing capital investments in key infrastructure. The response
to the impact of the ongoing economic crisis in Europe has also been appropriate. The
11
Under, stress test scenarios, debt service to export ratio does not exceed 10 percent.
11
government’s investment program in 2011 was perhaps overly ambitious but the authorities
adopted corrective measures on the fiscal and monetary fronts that reversed international
reserves losses. Policy makers are aware of both the need to steer away from crisis response and
the new risks posed by a potential worsening of economic crisis in Europe.
3. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESS
3.1 The government’s current development strategy was set forth in its second Growth and
Poverty Reduction Strategy Paper (GPRSP-II), which covered the period 2008-2011, and which
will be succeeded by a third GPRSP (GPRSP-III) expected to be adopted in June of 2012. The
GPRSP-II builds on a number of important strategic documents, including the current
administration’s Government Program, the Great Options of the Plan and the Economic
Transformation Strategy (ETS) adopted in 2003. The GPRSP-III is expected to follow the same
structure and include updated goals under the same policy areas. Recognizing that development
challenges of Cape Verde are manifold and interdependent, the ETS proceeds from the premise
that poverty cannot be reduced without a robust broad-based growth agenda based on
accelerating growth rates, diversifying the national economic base and increasing
competitiveness. The GPRSP-II therefore focuses on pursuing three primary goals organized
under five strategic pillars. The objectives and strategy of the forthcoming GPRSP-III are
expected to be consistent with the design of its precursor unless otherwise noted.
3.2 The overarching objectives of the GPRSP-II were12
:
(a) To reduce unemployment to below 10 percent;
(b) To maintain an annual real GDP growth rate of over 10 percent; and
(c) To reduce the national poverty rate by one-half.
3.3 In order to achieve these objectives the GPRSP-II established a reform agenda
prioritizing macroeconomic stability as a necessary condition for accelerated growth and poverty
reduction. It emphasized the reorganization and modernization of the government to make
public administration more transparent, accountable, efficient and results-oriented. It identified
the development of human capital as necessary to match the skills of the labor force with the
shifting demands of a dynamic labor market and promote the growth of formal-sector
employment. Finally, it called for investment in the country’s economic infrastructure to
eliminate bottlenecks to growth, and for the enhancement of social protection policies and social
service delivery.
3.4 Accordingly, the GPRSP-II’s five strategic pillars are:
(i) Promoting Government Reform. The GPRSP-II regards public-sector efficiency as
a prerequisite for ensuring long-term growth and poverty reduction while maintaining
fiscal and external debt sustainability. The overarching objective is to make public
sector operations more cost-effective and better oriented to the government’s
12
While Cape Verde has obtained important strides in reducing unemployment, maintaining a high economic
growth rate and reducing poverty, these objectives have proved to be overoptimistic, in particular as they were
defined in a pre-global financial crisis scenario.
12
development priorities. Specific policy goals under this objective include
modernizing the public administration and implementing improved practices in public
financial management, procurement procedures and the management of human
resources. The reform agenda also aims to simplify administrative processes,
especially those related to business licensing and regulation, expand the use of
information technology, and decentralize revenue-collection responsibilities and
expenditure decisions from the national government to the municipal authorities. The
GPRSP-III is expected to strengthen the monitoring and evaluation (M&E)
component of this pillar through an increased emphasis on enhancing its already
much-improved capacity for data collection and statistical analysis. This will allow
the government to assess progress in key reform areas with greater accuracy and
detail and enable better targeting of future policies.
(ii) Developing Human Capital. The GPRSP-II recognizes that in order to sustain high
levels of growth and meet the unique challenges following the graduation from the
UN list of Least Developed Countries in 2008, investment in human capital is vital.
The objective of this pillar is to create a more competitive labor force with advanced
levels of scientific, technical and technological knowledge and the skills demanded
by sophisticated service industries. As the economy of Cape Verde continues to
evolve and becomes ever more integrated into global markets, the cultivation of a
diverse, highly qualified and experienced labor force will be necessary in order to
promote the continued growth of employment and strengthen Cape Verde’s global
competitiveness in technology-intensive industries and services.
(iii) Enhancing Economic Competitiveness. In tandem with its public-sector reform
agenda, the government’s adoption of a growth-oriented agenda focused in the
development of the private sector which included measures to deepen trade openness,
improve private sector access to credit, promote financial sector stability, and
enhance the overall business and investment climate with specific measures aimed at
improving the Cape Verde rating in the Doing Business rank.
(iv) Improving Economic Infrastructure. Closely related to pillar three, this objective
focuses on resolving key infrastructure bottlenecks before they become binding
constraints to growth through the implementation of a broad public investment
program to address much-needed public investment in critical infrastructure areas. In
particular, a central objective of the GPRSP-II is to develop a modern and efficient
energy sector capable of supplying the power needed for broad-based growth,
competitiveness and welfare improvements. This is not simply a matter of increasing
public investment in power generation and distribution capacity, but also hinges on
the managerial and financial reform of the public energy utility, ELECTRA. In
addition, the national air carrier, TACV, which is vital to Cape Verde’s burgeoning
tourism industry, is the subject of a similar reform program. The government has
indentified the successful restructuring of ELECTRA and TACV as top priorities for
its new term in office, and the forthcoming GPRSP-III is expected to reflect the
importance of these ongoing processes.
(v) Strengthening Social Cohesion. Unlike the other pillars, which are primarily
economic in nature, the objective of this pillar is to reduce both monetary and
13
nonmonetary poverty by: (i) improving access to microcredit, promoting better labor
conditions and bolstering the social protection system; (ii) reducing unemployment;
(iii) strengthening food security; (iv) ensuring better healthcare services across
income groups; (v) supporting youth development and integration into the economy;
and (vi) promoting gender-sensitive development.
Participatory and Consultative Process
3.5 The vision of Cape Verde’s development priorities embodied in the GPRSP-II reflects
not only rigorous technical analysis, but also a participatory decision-making process. The Joint
Staff Advisory Note that accompanied the GPRSP-II highlighted its inclusive preparation
process, which resulted in strong ownership of the strategy by the government and society at
large. The GPRSP-II was prepared by the Technical Secretariat for Development Assistance at
the Ministry of Finance, which worked in close coordination with the line ministries. A
corresponding communication strategy was also developed, and consultations were held with
representatives of municipal governments, civil society organizations and private sector
stakeholders in Santiago, São Vicente and Sal Islands.13
The government is planning to initiate a
similar consultative process for the GPRSP-III following the submission of the 2012 budget in
October, 2011. This process is likely to be concluded more swiftly than that for the GPRSP-II,
since the content of the GPRSP-III is expected to be largely similar to that of its predecessor. 14
4. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM
A. LINKS TO THE COUNTRY PARTNERSHIP STRATEGY
4.1 The proposed operation is part of Cape Verde’s Country Partnership Strategy (CPS) for
FY09-12, which was approved by the Board in April 2009. The CPS establishes a framework for
providing selective and demand-driven support during the implementation of the GPRSP-II. The
CPS is designed to aid the government in sustaining high levels of growth, increasing
employment, and maintaining fiscal sustainability by promoting good governance, economic
competitiveness and positive social outcomes. The CPS’s three strategic objectives, consistent
with the goals of the GPRSP-II, are: (i) to promote good governance and an efficient, highly
capable public sector; (ii) to improve economic competitiveness and the investment climate to
enable private sector-led growth; and (iii) to strengthen human capital and extend economic
opportunities throughout society. The CPS program is implemented with: (i) financial resources
from the International Development Association (IDA) and the International Bank for
Reconstruction and Development (IBRD) and associated trust funds; and (ii) non-financial
support from these organizations through analytical and advisory services, technical assistance
(TA), policy dialogue, and project supervision.
13
The process of consensus-building and information-gathering included working sessions between: (i) the Minister
of Finance and Public Administration and members of the government and ministerial staff responsible for planning
and management; and (ii) the Technical Secretariat for Development Support and other government departments (in
particular for defining the logical framework, budgeting, and indicators) as well as with municipal chambers, civil
society groups and the private sector. 14
In election years, the budget preparation and approval are delayed until the new government is appointed and
takes office and the new National Assembly initiates its activities. Next versions of this program document should
include updated information on the preparation and content of the GPRSP III.
14
4.2 A Country Partnership Strategy Progress Report (CPSPR) was recently prepared to gauge
progress in its implementation. The results of this assessment were highly positive: the current
strategy remains well-aligned with the government’s priorities, and the CPS is broadly on track
to achieve its intended outcomes. In 2012 a new CPS will be developed in collaboration with
Cape Verde and its cooperating partners. The new CPS will be consistent with the forthcoming
GPRSP-III.
4.3 The current CPS specifies how the PRSC series will contribute to achieving each of its
three overarching priorities, and the new CPS developed in 2012 will further elaborate this
strategy in conformity with any changes to the GPRSP. The PRSC series will continue to be the
main instrument for supporting reforms in public financial management, strengthening public
administration and improving the business environment. The budget support program will
increasingly focus on reforms designed to strengthen private sector development and boost
competitiveness, reflecting the stated priorities of the government (as described in GPRSP-II).
4.4 The proposed PRSC VII supports four of the five strategic pillars of the CPS, which in
turn are modeled on the policy priorities of the GPRSP-II. This includes reforms to: (i) promote
good governance and responsible macroeconomic management (e.g. by supporting the
government’s efforts to maintain fiscal sustainability in the face of recent and prospective
external shocks); (ii) enhance human capital to meet the demands of a dynamic and competitive
labor market (e.g. by strengthening vocational training); (iii) improve economic competitiveness
and the investment climate, by supporting the adoption of regulatory and trade-policy reforms
compatible with World Trade Organization (WTO) regulations and reducing the costs of
business licensing and regulatory compliance; (iv) guarantee the efficient provision of economic
infrastructure and services, by promoting managerial reform in key infrastructure sectors,
particularly energy and transportation; and (v) achieve positive social outcomes, by supporting
the design and adoption of well-targeted social protection policies.
B. COLLABORATION WITH THE IMF AND OTHER DONORS
4.5 In accordance with the new Africa Strategy recommendations, the proposed PRSC VII
has benefitted from technical cooperation with other agencies such as the European Union, the
IMF and the African Development Bank, drawing on the comparative advantages of these
partners in specific policy areas at the national, regional and global levels. The staffs of the Bank
and the IMF in particular collaborate closely in their work with Cape Verde, with the Bank
typically taking the lead on sectoral issues—including public sector management, private sector
support and infrastructure provision—while the IMF takes the lead on macroeconomic and
financial policies. This PRSC has been prepared in consultation with IMF staff and in
consideration of the IMF Policy Support Instrument (PSI) reviews. In keeping with the IMF’s
core macroeconomic policy role, the PSI focused on supporting fiscal, tax, debt management and
financial stabilization reforms. In a number of areas in which the PSI and PRSC series overlap
the operations are being carefully coordinated to ensure that consistent advice is provided to the
government and that triggers and structural benchmarks are complementary. Two such areas are
PFM and debt management. To support the government’s efforts to control the growth of
contingent liabilities the IMF included the compilation of a consolidated balance sheet for five
state-owned enterprises (including ELECTRA and TACV) detailing their debt by maturity,
currency, residency and state guarantees as a structural benchmark for 2008-2009. This
15
benchmark was met by end-March 2009 and the balance sheets produced continue to inform the
financial restructuring agenda supported by the PRSC VII. The staffs also collaborated on the
preparation of a Debt Sustainability Analysis (DSA).
4.6 The major bilateral and multilateral donors have harmonized their budget support around
a framework of mutually agreed-upon policy measures and a set of common results indicators.
Seven donors comprise the Budget Support Group (BSG), and have signed a Memorandum of
Understanding (MoU), the ―Partnership Framework between Budget Support Partners and the
Government of Cape Verde for the provision of Budget Support‖. In the past year one new
partner (Luxembourg) has joined it. The BSG now consists of the African Development Bank,
the Austrian Development Agency, the European Union, the Netherlands, the Government of
Portugal, the Spanish Agency for International Development Cooperation, the Luxembourg
Agency for Development Cooperation, and the World Bank. These donors conduct joint reviews
twice a year, which allow for consensus-building and reduce transaction costs for the
government.
4.7 The government and its cooperating partners have developed a simplified matrix for
monitoring policy actions and associated goals across different areas. Donor harmonization in
Cape Verde has allowed international support to expand to address a broad range of sectors
while avoiding redundant efforts and allowing for the provision of coordinated technical
assistance in certain key reform areas. In addition, the formation of the BSG has increased the
government’s ability to attract further external support.
16
Table 4.1: Policy Areas by Members of the Budget Support Group
African
Developmen
t Bank
Austrian
Developmen
t Agency
Europea
n Union
Luxembour
g
Cooperatio
n
Netherland
s
Portuga
l
Spanish
Cooperatio
n
Worl
d
Bank
Macro-
economic
Stability
PFM
Procurement
State
Modernization
Statistics,
M&E
Water &
Sanitation
Education
Vocational
Training
Competitivenes
s
Decentralizatio
n /Territorial
Management
Environment
Energy
Housing
Security
Social
Cohesion
17
C. RELATIONSHIP TO OTHER WORLD BANK OPERATIONS
4.8 Related Bank operations in Cape Verde currently include investment support, technical
assistance and other development lending operations, as well as selective grant-based funding.
IBRD’s Cape Verde Recovery and Reform of the Electricity and Water Sectors Project is
especially relevant, as it is designed to support the comprehensive recovery of the energy sector,
an objective shared by the proposed PRSC VII. The IBRD project includes three major
components: (i) investments in physical infrastructure; (ii) reforms to improve the utilities’
financial performance; and (iii) support for ELECTRA’s administrative restructuring. The
energy pillar of the PRSC VII reinforces components (ii) and (iii) above, supporting key
administrative reforms designed to enhance ELECTRA’s efficiency and operational capacity.
These reforms are necessary to guarantee the financial sustainability of ELECTRA as a
prerequisite for the further expansion of the energy supply.
4.9 In 2010 the Board of the Bank approved the Small and Medium Enterprise (SME)
Capacity Building and Economic Governance Project. This project provides technical assistance
to the government for the design and implementation of investment-climate reforms such as the
new bankruptcy law, the revised investment code, and a set of government procurement reforms
designed to guarantee transparent and fair competition in government purchases. All of these
objectives are reflected in the competitiveness pillar of the PRSC VII. The PRSC VII team is
therefore working in close collaboration with the SME Capacity Building and Economic
Governance Project to ensure synergy between this project and the PRSC series.
4.10 The PRSC VII also supports continued reform efforts in areas addressed by the Growth
and Competitiveness Project, which was approved in May 2003 and closed in December 2009.15
The goal of the Growth and Competitiveness Project was designed to broaden the range of firms
active in Cape Verde’s economy, enhance its overall economic competitiveness, and promote the
further development of its domestic financial sector. The project focused on regulatory and
investment-climate reform, particularly in the financial sector, along with post-privatization and
divestiture reforms, and capacity-building support to relevant public sector agencies. The PRSC
VII will reinforce the gains made under the Growth and Competitiveness Project by continuing
to support improvements in the investment climate, strengthen the financial sector and increase
regulatory efficiency.
4.11 Finally, the PRSC VII will benefit from the recently approved grant from the Trust Fund
for Statistical Capacity Building (TFSCB). This grant will support Cape Verde’s efforts to
improve the collection, processing, analysis, dissemination and use of timely, high quality
statistics in accordance with the objectives of the PRSC VII’s good governance pillar. In
particular, the component on statistics and M&E supports the government’s analytical capacity-
building efforts, an area which is expected to receive increased emphasis in the forthcoming
GPRSP-III.
15
A Growth & Competitiveness Supplemental Credit was approved on January 2007 to further support these
development objectives through funding for additional activities.
18
D. LESSONS LEARNED
4.12 The design of PRSC VII is based on the following lessons learned from Cape Verde’s
experience with PRSCs I through VI:
(a) Strong client ownership of the reform program is essential to its success. In the
proposed operation client ownership is assured by the close and ongoing dialogue
between the Bank and the government, and by the government’s role in defining the
policy matrix.
(b) Budget support can enhance donor coordination and the alignment of reform
incentives. The shift in favor of budget support in Cape Verde has been catalytic in
harmonizing aid, and budget support operations have succeeded in enhancing the
leverage for reforms while reducing transaction costs. This is particularly important
in a small country such as Cape Verde, where the public sector can quickly be
overwhelmed by large volumes of aid and associated requests from donors. The
BSG currently includes eight participants. These partners have signed a
Memorandum of Understanding with the government detailing their commitment to
aid coordination; this includes a joint matrix defining the main policy and results
indicators to be supported, and provides for joint review missions twice a year as
well as joint preparation and discussion of Aide Memoires.
(c) Technical assistance and capacity-building resources should accompany policy
lending in order to ensure: (i) the strengthening of domestic public-sector capacity;
and (ii) that reforms are informed by specialized analytical work or accompanied by
reform-specific analytical capacity building. Achieving the objectives of the PRSC
series requires strengthening counterpart capacity, and the World Bank will remain
closely involved in capacity building through the provision of technical advice by
the PRSC team and financial and technical support through the SME Capacity
Building and Economic Governance Project. Particularly relevant for this operation
is the SME project’s ongoing analytical work on poverty and labor markets.
(d) It is critical to establish realistic, achievable reform targets. The technical capacity
of Cape Verde’s government, though high by regional standards, is nevertheless
limited, and the specific policy objectives of this PRSC series have been designed
to take these constraints into account. A variety of arrangements for technical
support have been incorporated into the project, from the provision of TA from
other projects (e.g. the IBRD SME project) to TA provided by other development
partners (e.g. the European Union, Spanish Cooperation, etc). Political constraints
have led to the inclusion of PRSC VII prior actions that depend exclusively on the
President and triggers that will need strong political support, which is most likely to
be available in the first year of a new presidential administration.
(e) Greater attention should be given to the establishment of effective data collection
and M&E systems. Significant progress has been made in improving the statistical
research capacity of the Cape Verdean government, but further advances in
analytical capability will be necessary to ensure effective policy targeting. As noted
above, the forthcoming GPRSP-III will strengthen the government’s focus on M&E
19
systems. In this context the PRSC VII will continue the work of PRSCs V and VI to
support the further development of public sector M&E.
(f) It is crucial to simplify and harmonize the policy matrix. Based on the experience
of the previous PRSCs the policy matrix was prepared according to the principles of
simplification (fewer prior actions and triggers) and harmonization (the use of a
common matrix shared by donors).
E. ANALYTICAL UNDERPINNINGS
4.13 The proposed operation is built on a number of reports by the Bank that generated a solid
analytical foundation for the identification of the key reforms supported by the PRSCs series and
for provision of technical assistance to the government in the design and implementation of the
prior actions included in the policy matrix. This includes: (i) a Public Expenditure Review
(PER), a Public Expenditure and Financial Accountability Assessment (PEFA), and a Debt-
Management Performance Assessment (DeMPA), all of which contributed to the identification
of key reforms to promote good governance, improve public financial management, avoid the
generation of new arrears, and enhance public sector capacity; and (ii) the Doing Business
reports of 2009 to 2011, the Financial Sector Assessment Program (FSAP), the Diagnostic Trade
Integration Study (DTIS) and a recent analysis of the formal labor market, which enabled the
identification of reforms to improve competitiveness and the investment climate, promote private
sector-led growth, and support improvements in the quality and availability of vocational
training.
4.14 The Public Expenditure Review Update, ―Cape Verde: The Challenge of Increasing
Fiscal Space to Meet Future Pressures‖, highlights both Cape Verde’s recent successes in fiscal
consolidation as well as the necessity of further reforms. Progress in PFM has included efforts to
improve the legal framework for budget preparation and enhance budget execution processes.
Remaining impediments to PFM efficiency include: (i) delays in the submission of accounts to
the Court of Auditors (Tribunal de Contas, TdC), which reduces the effectiveness of the Court’s
work; (ii) weak implementation of the Medium-Term Expenditure Framework (MTEF); and (iii)
insufficient funding for the TdC and the office of the Inspector General for Finances (Inspeção
Geral de Finanças, IGF), which renders them unable to fulfill their mandates. Additionally, the
PER Update points out the need to increase electricity tariffs to ensure the fiscal viability of
ELECTRA, a politically unpopular reality, but one that must be recognized. The PRSC VII
supports organizational reforms to speed up the submission of accounts to the TdC and
improvements in budget execution to reduce the emergence of contingent liability and arrears
accumulation.
4.15 Diversification is also strongly advocated in the DTIS prepared under the leadership of
the United Nations Development Programme (UNDP) in 2008. Recognizing the impressive
performance of Cape Verde’s economy over the past several decades the study identifies the
tourism sector, offshore services and business-process outsourcing, and the potential use of its
geographical location as a transshipment point and passenger hub as offering important
opportunities for future growth. The study also provides recommendations for improving trade
policy and fostering a more hospitable investment climate. Trade-specific recommendations
include the definition of an external trade strategy and the development of institutional and
20
human resource capacity in ministries involved in trade promotion. Investment climate
recommendations include enhancing vocational training programs and guaranteeing a stable,
reliable energy supply throughout the country; both of these actions are supported by the PRSC
series.
Table 4.2: Relevant Bank Analytical Work
Study Contribution to PRSC VII and
Program Document
Cape Verde: Country Economic Memorandum (Forthcoming,
(2011)
Cape Verde: Inter-island Transport Study (Forthcoming, 2011)
Electra; From Recovery to Sustainability Study -Subnational
Technical Assistance Program (SNTA) - Public-Private
Infrastructure Advisory (PPIAF) (Forthcoming, 2011)
Cape Verde: Higher Education (Forthcoming, 2011)
Recent Macroeconomic Developments
Air Transportation Subcomponent
Energy / Infrastructure Policy Area
Human Capital Development /
Vocational Training Policy Area
Cape Verde: Country Partnership Strategy Progress Report (2011)
Doing Business 2011: Cape Verde: Making a Difference for
Entrepreneurs
Initial Assessment of the Formal Labor Market (2010)
All Policy Areas
Competitiveness Policy Area / Business
Climate
Human Capital Enhancement /
Vocational Training Policy Area
Doing Business 2010: Comparing Regulation in 183 countries
Competitiveness Policy Area / Business
Climate
Cape Verde: Enhancing Planning to Increase Efficiency of Public
Spending. Public Expenditure Review (2009)
Macroeconomic Section. Good
Governance Policy Area
Cape Verde’s Insertion in the Global Economy - Diagnostic Trade
Integration Study (DTIS) for the Integrated Framework for Trade-
related Technical Assistance to the Least Developed Countries
(2009)
Competitiveness Policy Area / Trade
Financial Sector Assessment Program (FSAP) (2009) Competitiveness Policy Area / Financial
sector
4.16 Although the proposed PRSC VII is the last operation in this programmatic series, current
and future analytical work may still inform the design of any subsequent operations. This
includes the Bank team’s cooperation with the aforementioned labor market study, the purpose
of which will be to assess the recent divergence between the employment and GDP growth rates.
This study will help both the team and the government to better understand the role of labor
market in determining the relationship between growth and poverty reduction. In addition, a
forthcoming economic and sector work study on multimodal transportation in Cape Verde is
21
expected to yield useful information for the TACV reform process. A forthcoming report in
higher education provided orientations on the definition of the vocational training component.
Finally, the ongoing preparation of a Country Economic Memorandum (CEM) has opened a
large window for policy dialogue with authorities on fiscal sustainability, debt management and
the public investment agenda.
5. THE PROPOSED PRSC VII
A. RATIONALE AND OBJECTIVES
5.1 The proposed operation in the amount of US$12 million (SDR7.9 million equivalent) is
the third in a series of three annual operations (PRSCs V to VII) designed to support the
implementation of the government’s GPRSP-II. In accordance with the changing government
priorities reflected by the GPRSP-II, the current PRSC series marks a shift in the Bank’s support
from social sectors towards a greater focus on the economic growth and competitiveness agenda.
Accordingly, while continuing to support good-governance reforms and human capital
enhancement efforts, the proposed PRSC VII concentrates on the competitiveness and
infrastructure pillars of the GPRSP-II.
5.2 The results of PRSCs V and VI have been broadly satisfactory. The most notable
achievements in the area of good governance have been: (i) the elimination of government
arrears16
; (ii) the shortening of the period between end of the fiscal year and the submission to
the State General Accounts to the Court of Accounts (TdC) to less than one year, (iii) the
shortening of the period between the end of the fiscal year and completion of the audits by the
TdC from 3 years to 2 (as mandated by Constitution) and the broadening of audit coverage to
include municipalities and embassies; (iv) the development of the national M&E system,
including the government’s data collection and statistical analysis capacities; (v) the reform of
the legal framework for the government’s procurement system and the institutional strengthening
of the different agencies involved in procurement; (vi) the completion of the state-agency
restructuring program, which encompassed both the general government administration and the
internal structures of all ministries; and (vii) the universal use of the Municipal Information
System by the 22 existing municipalities.
5.3 On the human resources development component strong progress has been achieved in:
(i) building the institutional architecture of the vocational education and training system; (ii) the
increase in the supply of vocational training courses and activities; (iii) the operation of the
accreditation system for vocational training centers; and (iv) and the effective functioning of the
Training Support Fund (TSF), which is already financing projects in this area.
5.4 On the competitiveness pillar the most important results have been: (i) the passage of a
series of reforms aimed at simplifying the business registering and licensing procedures, the
16
The government has already completed the clearance of its arrears with the private sector in the amount of CVE
4,808 million. The remaining arrears of CVE 0.554 million will be offset against the debts owed by the municipal
chambers to the government, which amount to CVE 0.641 million, this implies that the government having a
positive balance as a net creditor to the municipal chambers, has completed the clearance of its arrears recognized in
2005.
22
success of which made Cape Verde one of the top performers in the Doing Business rankings for
2011 and 2012; (ii) the general reduction of corporate tax rates to foster strong private sector
growth; (iii) improvements in bank solvency indicators through stricter bank supervision; and
(iv) the approval of a new customs code consistent with the World Trade Organization
guidelines.
5.5 Results achieved under the infrastructure pillar have been more modest. Both the public
electricity and water utility (ELECTRA) and the national air carrier (TACV) remain in a very
difficult financial situation, reflecting both poor operational and commercial performances.
However, the reform process is ongoing and the following measures are expected to improve the
financial position of ELECTRA and TACV and improve their commercial and operational
performance over the medium term: (i) the institutional restructuring of ELECTRA, which is
expected to improve its managerial and operational efficiency; (ii) the preparation of the
ELECTRA investment plan; (iii) the regularization of reporting and the publication of financial
statements by TACV; and (iv) the elimination of arrears accrued by TACV.
5.6 The main development objectives of this third policy operation are: (i) to reinforce the
effectiveness, transparency and accountability of public sector operations through the continuity
of the government’s public sector reform agenda; (ii) to improve the business climate through the
rationalization of the fiscal incentive system and the streamlining of firm closing procedures; and
(iii) to enhance the performance of the public energy utility and national air carrier.
5.7 The operation focuses on a select number of reforms that: (i) are triggers from the
previous PRSC VI and represent follow-up actions to the previous PRSCs; (ii) are backed by
Bank analytical work and complement other Bank operations; (iii) have benefitted from the
Bank’s and other development partners’ technical assistance projects; and/or (iv) are leveraging
reforms supported by the IFI and donors in the BSG.
B. POLICY AREAS
5.8 In line with the government’s GPRSP-II, the proposed operation encompasses four policy
areas:
(i) Good Governance
(ii) Human Capital Enhancement
(iii) Competitiveness
(iv) Infrastructure
Good Governance
5.9 The good governance agenda aims at enhancing the public sector’s ability to provide the
services necessary to improve investment and growth conditions and promote poverty reduction.
This policy area encompasses five components: macroeconomic stability, public finance
management, procurement, government modernization, and statistics and M&E systems.
5.10 While the reforms in this area supported by the previous PRCSs focused on demand side
improvements to strengthen transparency and accountability, the proposed PRSC VII supports
government initiatives on the governance supply side which are designed to reinforce
23
macroeconomic stability, improve public finance management (PFM), increase the efficiency of
procurement procedures, and strengthen the national statistical system. Under the
macroeconomic stability component the proposed PRSC VII supports the improvement of the
government’s debt management policy. The transition from concessional lending to reliance on
the private bond market presents a unique set of challenges to macroeconomic stability and
sound fiscal management. In this context, the government must develop its capacity to
responsibly utilize international financial markets by accurately assessing the risks and benefits
of different financial instruments and defining the appropriate composition of the debt portfolio,
while taking into account key macroeconomic indicators and market conditions. Therefore, the
proposed operation supports the adoption of the Medium-Term Debt Strategy (MTDS) which
should inform the government’s cost and risk calculations in evaluating different debt
management strategies and enhance its ability to manage the risk exposure associated with
potential variations in debt service costs and their budgetary impact.
5.11 The PFM component in the area of good governance supports improvements in the
timeliness of fiscal reporting and the adoption of a new budget classification system aimed at
improving the quality of budgetary and fiscal information. To improve the timeliness of public
account audits PRSCs V and VI supported procedural reforms designed to shorten the period
between the end of the fiscal year and the submission of the State General Accounts to
Parliament from two years to one year, reduce the time necessary to complete the audits by the
Court of Accounts from four years to two, and expand the coverage of the Court of Accounts’
audits to municipalities and embassies. To continue supporting more timely fiscal report, and as
the backlog in the auditing of public sector accounts has now been reduced, the PRSC VII
supports the submission of the State General Accounts of 2010 to Parliament, which would
further reduce the period between the end of the fiscal year and the submission of the Accounts
to less than one year. In addition, and still under the PFM component, the proposed PRSC VII is
supporting improvements in the budget classification system in line with the IMF’s Government
Financial Statistics (GFS) best practices and the U.N.’s Classifications of Functions of
Government COFOG, which would allow for a better assessment of the budget’s functional
classification system, providing more accurate information for policy decisions.
5.12 The third component, regarding government procurement practices, supports the
continuing implementation of the Public Procurement Law designed to promote efficiency and
economy in government purchases. The Law became effective in January 2008 following its
approval by the National Assembly in July 2007. The PRSC V supported the approval and
promulgation of related regulations, which are critical to implement the new legal framework for
procurement, while the PRSC VI supported the redefinition of the mandates of all agencies
included in the new system, the appointment of new senior management staff in these agencies,
and the provision of the equipment and training necessary to perform their activities. The
proposed PRSC VII supports the institutional strengthening of the Regulatory Agency for Public
Acquisitions (ARAP) through the completion of the recruitment of its executive staff, the
formation of its Consultative Council and its Conflict Resolution Committee with representatives
from the private sector and civil society and the recruitment of staff for its auditing and policy
departments.
5.13 The fourth component supports the improvement of the government’s statistical and
M&E systems. PRSCs V and VI supported the establishment of the national M&E system
24
(Sistema de Seguimento e Avaliação, SiSA), the development of a set of performance indicators
for the line ministries with the largest budget allocations and their incorporation into the
integrated system of budget and financial execution (SIGOF), the development of the platform
linking the National Institute of Statistics (INE) database to the M&E system as a step toward
full implementation of the system, and the adoption of a scope-of-vision document defining the
principles and objectives of the government’s M&E system. The PRSC VII supports the
satisfactory implementation of the Statistical Agenda for Development, which covers the
government’s planned statistical activities for the period 2008-2011 and includes several
statutory documents for the INE, as well as the completion of the technological and institutional
components of this agenda.
Proposed PRSC VII Prior Actions:
(i) The issuance of the Medium-Term Debt Strategy (MTDS) for 2012-15 by the
Ministry of Finance;
(ii) The submission of the State General Accounts for 2010 to Parliament and the
adoption of the new budget classification system;
(iii) The further strengthening of the government’s procurement system as demonstrated
by: (a) the full staffing of the ARAP management directorate; (b) the establishment
of the Consultative Council and Conflict Resolution Committee of ARAP; and (c)
the recruitment of staff for the ARAP audit and policy departments; and
(iv) The satisfactory implementation of the Statistical Agenda as evidenced by the
approval of the relevant INE statutes and the national system of statistics and the
passage of all necessary complementary legislation.
Human Capital Enhancement
5.14 The second pillar, human capital enhancement, focuses primarily on vocational training.
Despite the relative quality of human capital in Cape Verde its high rates of both unemployment
and unfilled jobs suggest there may be a mismatch between labor supply and demand
requirements. Simulations indicate that to reduce unemployment from its current 17 percent to
10 percent by 2012 roughly 6,000 people would need to be trained annually. Aside from the
limited number of workers with sophisticated technical skills, there are several issues that
negatively affect the quality of human capital in Cape Verde, including: (i) unused training
capacity; (ii) inadequate assessments of labor market needs; (iii) the variable quality and
effectiveness of current training programs; and (iv) a general lack of resources and significant
institutional weaknesses, including inadequate coordination on planning, implementation and
monitoring activities between different actors involved in vocational training (government
employment centers, the Ministry of Labor, private educational service providers, etc.).
5.15 In 2010 the government made substantial progress on this objective by expanding the
delivery of technical, vocational and educational training (TVET) courses both in terms of the
number of beneficiaries and the geographical areas covered. According to data from the Ministry
of Labor, Family and Social Solidarity (MTFSS) the delivery of technical and vocational courses
increased substantially from 2009 to 2010. It is estimated that the number of beneficiaries rose to
6,000 in 2010 from 4,500 in 2009. This increase may be partially explained by the expanded
25
supply of both public and private training courses across the country. And although it has just
recently been reactivated, the Training Support Fund (TSF) is also playing an important role in
the expansion of TVET courses. As of September 30, 2010, 55 projects involving 11 public and
private providers had been approved and financed in the amount of about €550,000 for the period
2009-2010, very close to the €600,000 target for the period. The Approval Committee (Comissão
de Aprovação) for projects to be financed by TSF met three times in 2010 to examine and
approve projects submitted by training providers In 2011, the government approved new statutes
for the Employment and Professional Training Institute (IEFP) and for the publicly funded
Employment Centers (ECs). The integration of vocational training programs and ECs under the
new IEFP model would ensure that vocational training is better attuned to the needs of private
employers, indeed the private sector has been involved in consultations on qualifications and
courses. They have also introduced a national qualification framework to ensure the quality of
training is consistent with international benchmarks, namely the system applied in the EU.
Finally, the certification/accreditation system for TVET programs is now operational, with five
training centers accredited in 2011.
5.16 The government recent efforts in this area also envisage a stronger private sector
participation in the TVET system. The IEFP restructuring encompasses the inclusion of
representatives of the private sector in its Board. The merging of employment centers
(responsible for the mediation between labor supply and demand) with the TVET training
centers will enable a more market oriented provision of TVET courses. Finally, the reactivation
of the TSF and the definition of its operating procedures are expected to play an important role in
enhancing the direct participation of the private sector in the provision of TVET courses and
strengthening the link between training and the labor market access of trainees.
PRSC VII Prior Actions
5.17 The proposed prior action under this component is:
(v) The satisfactory implementation of the TVET Action Plan for 2010 as evidenced
by: (a) the adoption of a new decree defining the statutes and mandate for the
Employment and Professional Training Institute and the restructuring of the
Employment Centers; (b) the establishment of an operational Coordinating Unit for
the National System of Qualifications; (c) the adoption of new operating procedures
by the TSF; and (d) the accreditation of four additional centers for vocational
training in 2011.
Competitiveness
5.18 Despite Cape Verde’s impressive record in successfully attracting foreign direct and
portfolio investment, there is still much room for improvement in the business environment, and
the government is pursuing a set of measures to facilitate strong private sector development as
the engine for economic growth. This policy area encompasses three components: promoting
international trade, reforming the tax system, and improving the business climate.
5.19 Measures under the first component of the competitiveness area, trade promotion, support
the government’s efforts to adapt customs, investment and intellectual property codes to WTO
26
standards which are part of the WTO accession agreement reached by Cape Verde in 2005. The
government quickly adopted trade policy changes that led to the removal of all remaining (tariff
and non-tariff) barriers designed to protect domestic industries from international competition
and reduced tariffs rates for industrial products to an average of 15 percent. For agricultural
products the maximum rate will be 19 percent. The government has also made specific
commitments to ease market access in ten service sectors and a wide range of sub-sectors.
Within the government’s economic liberalization policy framework the PRSC V supported the
adoption of a new customs code in 2009. To achieve full implementation of the WTO
agreements that would allow the country to attract greater foreign investment inflows the
government initiated the preparation of a new investment code. The PRSC V defined the
preparation of a draft of the new investment code for submission to the Council of Ministers as a
trigger for the PRSC VI. However, this trigger has not yet been achieved due to lack of
coordination among the government agencies involved in the preparation of the draft and the
government’s recognition that a more detailed assessment of the prospective legislative changes
is required.
5.20 Consequently, this trigger has been transferred to the PRSC VII but it has been
strengthened to include formal adoption by the Council of Ministers. In addition, the investment
code would include the rationalization and consolidation of fiscal incentives. In fact, improving
the investment climate will require reducing the tax burden and rationalizing the tax system, in
particular by overhauling the current highly complex system of tax incentives. In 2009, as part of
its countercyclical fiscal package the government reduced tax rates for corporate and individual
income from 30 percent to 25 percent and from 25 percent to 20 percent, respectively. At the
same time, the IMF has been providing technical assistance for simplifying and rationalizing the
system of tax incentives. The first steps taken in this area included the centralization of the
process for awarding fiscal incentives by the Directorate of Internal Revenue at the Ministry of
Finance (Direção Geral de Contribuições e Impostos, DGIC) and the preparation of a draft fiscal
incentive code based on IMF analyses and recommendations regarding the criteria and
procedures for the concession of fiscal incentives. The new investment code would guarantee
that: (i) investment incentives are automatic, thereby removing the discretion exercised by
government officials under the current system; (ii) there will be no discrimination against
projects on the basis of size; (iii) the multiplicity of investment regimes will be eliminated; and
(iv) fiscal risks related to tax incentives would be mitigated through the consolidation of
incentives.
5.21 However, while there is a general agreement on the direction of the reform to the tax
incentives system, progress in the preparation of the tax incentive reform has been modest.
Therefore, the government was not able to include in the investment code, the rationalization of
the fiscal incentive system. Therefore, the PRSC VII supports the adoption of the investment
code while the government confirmed its commitment to overhaul the fiscal incentive system in
another legislative piece in 2012. In addition, still in the area of international trade, the proposed
PRSC VII supports the adoption of a new intellectual property law, which would complete the
adaptation of Cape Verde’s legislation to WTO standards, and reassure private investors that
their patents and trademarks will be respected.
5.22 The third component of the competitiveness agenda supports government actions
designed to improve the business climate. Due to the relatively low position of Cape Verde in the
27
Doing Business (DB) rankings (Cape Verde was still ranked 146th
out of the 183 countries in the
DB report for 2010), the government set up a Steering Committee at the Operational Center for
an Information Society (Núcleo Operacional para a Sociedade da Informação, NOSI) comprised
of representatives from its State Reform Coordination Unit (UCRE), the agencies responsible for
the development of government IT activities, representatives from the Ministry of Commerce
and Energy and private-sector institutions. The Steering Committee’s mandate is to design
reforms to improve Cape Verde’s business environment according to the criteria of the Doing
Business survey. The Steering Committee has already prepared an agenda of priority actions
focused on addressing the most crucial weaknesses in the investment climate identified by the
DB survey. Particular attention has been devoted to streamlining procedures for the opening and
registration of firms and for the registration of property, areas in which Cape Verde ranks very
low in the DB surveys.
5.23 From 2010 to 2011 an aggressive reform agenda for this area produced strong
improvements in Cape Verde’s business climate that have been reflected in the 2011 and 2012
Doing Business Reports. Cape Verde was selected in the 2011 and 2012 DB reports as one of the
top 10 countries that have made significant progress in improving the ease of doing business,
improving twenty-seven positions from the 146th
position in 2010 to the 119th
in 2012. Table 5.1
below describes the main government actions directed to improving Cape Verde’s position in the
DB rankings.
Table 5.1: Cape Verde’s Ranks in the Doing Business Survey
Category 2010 2011 2012 Government Actions in 2009-2011
Doing Business (average) 146 132 119
Starting a Business 136 120 131
Casa do Cidadão / Licensing in several sectors reduced to less than
10 days; this was partly achieved by a shift to computerizing the
system for delivering the municipal license. No additional reforms
to decrease the cost and time to open a business where completed in
2011.
Dealing with
Construction Permits 83 89 116 No Reforms in this area in the last 5 years
Getting Electricity - - 70
Registering Property 126 104 61
Reduction of real estate and commercial property registration duties;
electronic registration available in major cities (2010);
implementing time limits for notaries and the land registry (2011).
Getting Credit 150 152 126 New law for microfinance/ Support to SMEs (2010); new online
platform to develop credit information (2011)
Protecting Investors 132 132 133 N.A.
Paying Taxes 112 100 104
Integration of customs and internal revenue offices / establishment
of Fiscal Identification Numbers (NIF) / use of standard tax-base
accounting (2010)
Trading Across Borders 58 55 61 New Customs Code adopted
Enforcing Contracts 38 38 37 N.A.
Closing a Business 183 183 183 New Bankruptcy Law streamlined closing procedures
Source: Doing Business 2010-12
28
5.24 An area of particular weakness involves the procedures for the closing of firms, in which
Cape Verde ranks 183 out of 183 countries. In order to define clear procedures for the closure of
firms the government adopted a new decree-law in April 2011, which defines the rules for firm
bankruptcy. This decree-law establishes a 12 month timeframe for the liquidation of assets,
which can be extended by the presiding judge for an additional 180 days; it also defines strict
qualification requirements for declaring bankruptcy and clearly delineates the responsibilities of
administrators. In an effort to further the reform process the government has recently introduced
a shorter timeframe for the liquidation process and qualification requirements for administrators
that should reduce the time needed to close a firm. Two key benefits of insolvency reform
include more expeditious firm closure, thus enabling creditors to recoup as much of their credit
as possible, but also it provides viable firms facing difficulties, with the opportunity of
restructuring their debt, maintaining both, theirs and the creditors’ investment, jobs and
commercial network.
5.25 These improvements have not been reflected in the 2012 DB survey. The DB survey
requires at least five insolvency or foreclosures on business assets per year to consider a
country’s business closure as a practice and given the short period from the adoption of the
decree-law and the period of data collection of the DB survey, the closing business indicator still
consider Cape Verde as a no practice country. While this improvement could be reflected in the
2013 DB survey, it should be noted that communication and dissemination of the regulatory
changes to the business and legal community are required to maximize their impact. The
proposed PRSC VII supports the adoption and implementation of the new bankruptcy law and
related procedural reforms.
PRSC VII Prior Actions
5.26 The prior actions for the PRSC VII consist of follow-up actions to the prior actions
defined in the PRSC VI, the adoption of the investment code developed under the PRSC VI to
consolidate Cape Verde’s accession to the World Trade Organization, and the completion of
associated reforms. Therefore, the prior actions for the PRSC VII in the competitiveness area
would include:
(vi) The adoption of the new Investment Code by the Council of Ministers;
(vii) The adoption of the new Intellectual Property Law by the Council of Ministers; and
(viii) The adoption by the Council of Ministers of the new Bankruptcy Law
Infrastructure
5.27 The fourth policy area of the PRSC VII supports the government’s efforts to ease key
infrastructure constraints, which represent the most critical challenge to long-term economic
growth.
5.28 The first infrastructure component relates to the energy sector. This component supports
the government’s actions to address the most important infrastructure bottleneck to higher and
sustained growth over the medium and long term. Due to a lack of investment in the sector the
power grid has not been able to accommodate increasing demand, and the power supply has
29
become unreliable in many areas.17
At the core of these problems is the critical financial
situation of the national electricity utility, ELECTRA. Poor commercial and operational
performance resulting in part from an inappropriate organizational structure, the absence of
adequate incentive mechanisms to improve performance—as well as the country’s physical
isolation and geography, which increases the cost of power generation and transmission—have
generated an unsustainable debt burden, a significant portion of which is short-term debt.18
Debt
to suppliers (arrears) is also high and ELECTRA has no room left to increase its arrears, as some
suppliers are now demanding payment in advance. The company must now secure financing
before undertaking even modest maintenance or investment projects, and as a result ELECTRA
has all but lost its financial ability to initiate new investments. Underinvestment in water
services, which also fall under the purview of ELECTRA, has decreased the overall reliability of
the water supply and in some cases produced chronic shortages, such as in the capital, Praia, as
well as raising production costs due to reliance on outdated and poorly maintained equipment.
5.29 Taking into account the electricity used for water desalination and pumping, the energy
sold by ELECTRA in 2010 was 204.4 GWh and the number of consumers in 2009 was 104,398,
a doubling over the previous decade – which equates to an average annual growth rate of
approximately 9 percent. Cape Verde had relatively high electricity coverage at around 70
percent of the population, however, access is intermittent; in 2006 Cape Verde had power
outages for 150.4 days of the year. To put this in perspective, low income countries have an
average of just over 40 days whilst for middle income countries, power outages occur, on
average, 6 days every year19
. Analysis by the Recovery and Reform of the Electricity and Water
Sectors project suggests that peak demand in 2009 was 28 MW compared to less than 20 MW of
power availability at the consumer terminal. The capacity gap is estimated to have increased
further in 2011 with a demand of close to 40 MW and supply close to 2009 levels.
5.30 ELECTRA’s poor operational and commercial performances are reflected in high power
generation costs due to the use of gasoil, technical and non technical losses in transmission and
distribution of electricity (in excess of 35 percent in Praia), and commercial losses derived from
the inability to collect tariffs from users, in particular from municipal governments that refuse to
pay public lighting services to ELECTRA.
5.31 In addition to ELECTRA’s financial situation, weaknesses in the regulatory framework
are cited as an important factor in the poor performance of the energy sector. Following the
failure of the privatization process in 2006-0720
a framework was put in place for setting and
indexing tariffs for the period 2008-2011. The accompanying regulatory mechanisms, however,
have not been sufficient to maintain reliability and increase the supply of energy to consumers,
17
Nevertheless, overall access to electricity has tripled since 1998. 18
Low operational efficiency and high commercial losses are largely due to electricity theft and the non-collection
of bills. Distribution losses have increased significantly, especially in the capital, Praia. As of end-2009 ELECTRA
had accumulated €55 million in financial debt, equivalent to 12 months of turnover and 10 times the company’s
equity. ELECTRA’s short-term (less than one-year maturity) financial debt was at €12.4 million, which is already
high even without the longer-maturity debt burden. In addition, a €10 million bond will reach maturity in 2012.
19 Figures are taken from the forthcoming policy research working paper on Cape Verde’s infrastructure.
20 ELECTRA was privatized in 1999/2000 and a majority of its stake sold to EDP, its Portuguese counterpart. The
equity share was attributed to EDP (51%) and the remainder to the municipalities and the government. They were
disagreements over the respective obligations of the parties`, particularly in relation to tariff adjustments, and in
2006 the government bought back EDP’s shares.
30
nor have they succeeded in ensuring the financial sustainability of ELECTRA. On the contrary,
significant ongoing disagreements have arisen between ELECTRA and the Economic Regulatory
Agency (Agencia de Regulação Econômica, ARE) regarding the application of tariff
adjustments.21
5.32 In April 2011, the government decided to revised tariff levels in accordance with recent
fuel price increases22
. This resulted in an average tariff increase close to 20 percent from an
average of 32 to 38 USc per kWh. This adjustment reflects the recognition that for structural
reasons, electricity supply in a small thermal-based system in an Archipelago like Cape Verde is
inherently costly and that those high costs need ultimately to be recovered from electricity users.
Whilst Cape Verde’s tariffs are relatively high compared to other African countries, they are not
dissimilar to other small island states with corresponding economies of scale difficulties.
5.33 Recognizing that restoring ELECTRA’s financial viability is a necessary condition for
improving the performance of the energy sector and is thus vital to the country’s overall
economic growth and development, the government and ELECTRA have initiated a set of
reform measures supported by PRSCs V and VI and by other Bank projects. Because of
ELECTRA’s lack of financing capacity the government obtained financing for a very ambitious
US$130 million investment program to be executed between 2010 and 2013, which is designed
to significantly expand the country’s energy supply.23
5.34 The Bank has supported the government’s efforts to improve the performance of the
energy sector. Bank support consists in a coordinated approach between the IBRD Cape Verde
Recovery and Reform of the Electricity and Water Sectors Project and the current PRSC series.
The former includes three major components:
(a) priority investments in electricity and water systems as part of the government’s
public investment program: the government has played a key role in mobilizing
finance from a number of donors to invest in electricity generation, both to ensure
that the fast growing electricity demand is properly met and also to help reduce the
cost of thermal generation of electricity by improving the generation mix and
network integration. The two large power stations covered under this investment
plan, illustrate a shift towards more efficient electricity production, taking
advantage economies of scale, and will provide nearly two thirds of Cape Verde’s
electricity market. The IBRD loan will also be used to help fund water storage
facilities given the nexus between the electricity and water sectors. Over the last
three years the government has completed 47 percent of the investment plan (e.g.
transmission lines, four wind farms with a total installed capacity of 28 MW),
demonstrating strong commitment to this project;
21
The current tariff regulatory system is provisional (in fact it is considered a pilot) and expired at the end of 2010.
Consequently, a new regulatory system must be established in 2011. 22
Fuel costs represent 70 percent of power reduction costs. The lack of adjustment to the electricity tariffs, allowing
full cost pass through of oil prices in the mid 2000s, has led to a serious deterioration of the company’s capital. 23
As the loans will be registered in the government balance sheet and debt service obligations will be honored by
the government, the investment program can be considered as a transfer from the government to ELECTRA.
31
(b) improvements in ELECTRA’s operational and commercial performance: with the
Bank’s technical assistance support, ELECTRA launched a program to improve
operational and commercial performance. This includes a set of measures to reduce
distribution losses, recover non-collected bills and reduce operational inefficiencies
through: (i) investments in network improvement; (ii) use of prepayment meters,
introduction of efficient lighting devices (CFLs); (iii) toughening anti-theft laws
and improving enforcement; (iv) expanding the MV network therefore making theft
much more difficult; and (v) the installation of electronic meters for large
consumers. The second component of the IBRD loan will be used to support the
government in financing the metering technology which should have the twin effect
of improving energy efficiency and revenue collection; and financing external
auditors to monitor the government’s commitments and ELECTRA’s performance,
in accordance with the performance contract; and
(c) support for the institutional reform of ELECTRA: this third pillar of the
government’s strategy involves the reform of the overall electricity and water sector
by restructuring and geographical unbundling ELECTRA. The plan orchestrates the
decentralization of managerial responsibilities to two regional subsidiaries in order
to allow more local flexibility, especially in the municipality of Praia where most of
the distributional and commercial losses originate. ELECTRA has developed and
begun to implement a plan for restructuring its short-term debt with providers. The
Recovery and Reform of the Electricity and Water Sectors Project will continue to
support the government’s efforts in this area, by financing the contract of the
international consultant in charge of implementing the reform process which will be
carried out over the next 18 months.24
5.35 Correspondingly, the PRSC V supported the preparation of a medium-term strategic plan
for the energy sector and defined a process for the institutional restructuring of ELECTRA by the
Council of Ministers. The PRSC VI supported the adoption of measures to improve ELECTRA’s
operational and commercial performance and the satisfactory implementation of the first phase
of that restructuring, which included the formal establishment and registration of ELECTRA’s
two subsidiaries. In addition, the PRSC VI supported the adoption of a comprehensive
investment plan by ELECTRA’s Board of Directors, including a financing and implementation
schedule consistent with the IBRD Recovery and Reform of the Electricity and Water Sectors
Project. Finally, the PRSC VI supported the adoption of ELECTRA’s short-term debt
restructuring plan and the satisfactory implementation of its first stage, which covered the
negotiation of the rescheduling of ELECTRA’s arrears with its suppliers.
5.36 As noted above, the program for the improvement of ELECTRA’s operational and
commercial performances will be implemented through a performance management contract
between the Government and ELECTRA. The agreement rules the relationship between the
Government and the Board of ELECTRA establishing the roles, responsibility and obligations of
the parties regarding the performance of the company and the Government support to make
24
It may be the case that ELECTRA could be privatized in the future. This is something the government is thinking
about, however, the first priority will be to ensure that ELECTRA is investment worthy before actively considering
a privatization strategy and seeking potential partners.
32
possible the achievement of the performance objectives (as measured by time bound
indicators/targets). The management contract will set performance indicators for ELECTRA and
clearly establish the responsibilities of the Treasury as ELECTRA’s regulator. This contract will
represent the first time that result-based management tools have been used in Cape Verde to help
to align incentives among public-sector organizations. If successful, this model could be adopted
by other organs of the government as well as public or quasi-public agencies.
5.37 In addition, the Government has also advanced in the setting-up of the new regulatory
model for tariff definition. The principles and modalities of this new tariff regulation framework
have been formalized in a new technical decree which was officially approved by the Economic
Regulatory Agency (ARE) in October 2011. The new framework is directly relevant for the
ongoing tariff review which is in its final stages. Consistent with the new regulatory framework,
ARE is expected to issue by the end of 2011 the new formula for tariff adjustments that will be
used in the 2012-2016 period, and to conduct a public consultation before the final adoption of
the proposal. The Government has indicated its commitment to the effective application of the
new tariff formula early 2012. Moreover, the government submitted to the National Assembly a
bill that enables ELECTRA to collect tariffs for public lighting from the municipal governments.
Draft legislation proposing a tax on ELECTRA consumers to be earmarked into a fund and used
by municipalities to pay for public lighting has been adopted by the Council of Ministers and is
waiting to be discussed in Parliament in 2012.
5.38 The government has made a strong commitment to renewable/ non conventional energy
production; the target is for 50 percent of all energy production to come from renewable sources
by 2020. The GoCV has commissioned a study which looks at potential non-conventional
sources of energy production, including solar, PV, wind, geothermal, solid waste and wave.
Their renewable energy penetration target of 20 percent by 2020 has been achieved through the
installation of 25 MW of wind power and 7.5 MW solar (not all of the solar has been installed
yet). The Cabeolica Wind farm is a public-private partnership (PPP) launched in late 2011. The
farm is currently in a testing phase - the authorities and the PPP are negotiating the final tariff
structure.
5.39 The PRSC VII supports a number of actions described above. These include the adoption
of an action plan for the second and most critical phase of the organizational restructuring of
ELECTRA; the finalization of a comprehensive financial restructuring plan for ELECTRA that
would encompass its recapitalization as well as the conversion of debt into equity and the
development of appropriate mechanisms for financing public lighting; the signature of a results-
based management contract between ELECTRA and the General Directorate of the Treasury
(ELECTRA’s governing agency); and the establishment of the new regulatory framework for
tariff adjustments that reflects ELECTRA’s reformed organizational structure.
5.40 Similarly, the second component of the infrastructure area, air transportation, focuses in
improving the service capacity, operational efficiency and financial position of Cape Verde
Airlines (Transportes Aéreos de Cabo Verde, TACV). Due to the geographic disposition of the
Cape Verde Archipelago and the unreliability of maritime transportation between islands,25
air
25
Strong winds and unpredictable currents limit the reliability of maritime transport, both among the islands of the
archipelago and between Cape Verde and mainland Africa.
33
transportation has become the dominant transport mode for the development of the tourism
sector, the country’s principal driver of economic growth, and the only practical option for
reaching certain destinations.
5.41 There are three main carriers providing air transportation services in Cape Verde, the
national and primary carrier, TACV, 100 per cent owned by the Cape Verdean Government;
Halcyon Air, a privately owned scheduled carrier, set up in 2008; and Cape Verde (CV) Express,
a privately owned charter airline, 90 per cent owned by Omni Aviation. TACV is the only
carrier licensed to operate regionally and internationally; they also dominate the domestic sector.
Halcyon Air accounts for around 20 per cent of the domestic market share and CV Express has a
marginal participation.
5.42 Notwithstanding its market dominance, TACV is in a difficult financial situation. Poor
commercial and operational performance compounded by adverse shocks affecting the
worldwide air transportation industry in 2007-08 have undermined TACV’s financial position.
Constrained financing for basic operational investments has resulted in rising costs, frequent
delays, irregular network connections and poor service quality, prompting a predictable decline
in demand. Underinvestment in the revenue-collection system resulted in a lower recovery rate
for receipts than that of comparable air carriers. In addition, a lack of investment in its
accounting system has prevented TACV from processing its balances in a timely manner, and the
company had not produced any audited annual balances since 2008. Assessments of its actual
financial situation are consequently inaccurate, and the calculation of marginal costs and
revenues per passenger is infeasible. The absence of such basic information also prevents the
company from attracting private financing.
5.43 The forthcoming report ―Cape Verde Inter-Transport Study‖ estimates that TACV
accumulated losses in December 2008 and 2009 in the range of €28 million and €33.6 million
respectively. International and regional flights appear to be economically viable with operating
surpluses of €3.5 million in 2007. However, these revenues are used to cross-subsidize domestic
flights which are inherently loss making – losses of up to €4 million over the same time period.
The financial health of TACV is further exacerbated by a direct operating loss of €3.9 million for
ground handling, making TACV financially insolvent and essentially bankrupt. TACV prioritizes
these international flights over the inter-island services, often delaying or changing the schedule
of the domestic flights at the last minute to accommodate delayed inbound passengers. This has
resulted in a reputation for poor punctuality that may be negatively affecting the opportunities for
inter-island tourism. Indeed, results from the recently conducted survey in the ―Cape Verde
Inter-Transport Study‖ suggest that passenger satisfaction is low and significant improvements
would need to be made before increased demand is seen.
5.44 TACV has accumulated increasing liabilities to the State Airports Administration
(Administradora de Aeroportos, ASA) with outstanding debt estimated at close to €12 million at
the end of 2009.26
This is of particular concern as it poses a threat to the government’s overall
fiscal sustainability, as the company is a potential source of contingent liabilities and represents
an implicit subsidy that puts pressure on the government’s cash flow.
26
Analysis is taken from the forthcoming publication ―Cape Verde Inter-Island Transport Study‖. The report
presents a study of inter-island transport within Cape Verde.
34
5.45 TACV has been unable to secure financing, either public or private, to expand its service
area. Given the general crisis among the air transportation companies of the West Africa Region,
which interrupted the services of TACV’s most important regional competitors, the company’s
inability to expand its network is now preventing it from becoming the regional leader in the air
transportation industry.
5.46 Given its crucial importance to the further development of the tourism sector, improving
the financial situation of TACV will be vital to the success of the country’s development
strategy, which is largely based on the expansion of tourism and related industries. Recognizing
this situation, TACV and the government have taken initial measures to restore TACV’s
financial sustainability.
5.47 In 2010 some progress in this area was observed. Bolstered by a large year-on-year
increase in revenues, TACV was able to regularize its short-term debt with its suppliers and
service providers. TACV and ASA had already agreed to the rescheduling of arrears in 2009,
and in 2010 TACV began servicing its debt according to the agreed-upon schedule. However,
TACV was unable to pay its current airport charges and had consequently generated new arrears
with ASA. Furthermore, while improved cash-flow balances in 2010 allowed TACV to clear
both its debts with its suppliers and its short-term credit lines with domestic banks, in 2011
unexpected airplane maintenance and repair costs have generated new financial obligations and
currently jeopardize TACV’s financial recovery efforts27
.
5.48 To improve its commercial performance TACV has acquired a new billing system. The
company is also purchased a new integrated accounting system that should allow for the
preparation of timely financial reports and help to avoid commercial losses due to the non-
collection of receipts from other companies. Finally, TACV is preparing a new business plan that
includes debt refinancing, new capital investments and the expansion of its service network,
which is expected to be adopted by its Board of Directors and endorsed by the government in
2011.
5.49 The PRSC VI prior actions for this component included the clearance of arrears with
suppliers and service providers, the implementation of cost-rationalization reforms, the purchase
of a new revenue-collection system, and the submission by the TACV Board of audited balances
for 2007 and the balances of 2008 and 2009 (not yet audited) to the General Directorate of the
Treasury (its controlling agency). For the PRSC VII, the prior actions follow-up on these
measures, including the presentation of the audited accounts for 2008 to 2010, the acquisition of
a new accounting system and the maintenance of zero arrears with Banks and suppliers at end
2010.28
27
Two aircraft were recently grounded because of ―foreign object damage‖ (FOD) potentially caused from the
breaking up of the runway at Praia airport. One of the two airbus aircrafts was also ground for a number of weeks
owing to the lack of spare parts, notably an ATR engine, causing further revenue losses and disruptions to the
service. 28
Arrears are defined as outstanding payments still owed at the end of the fiscal year. No information on arrears
was available for 2011 at the time of preparing this document.
35
PRSC VII Prior Actions
5.50 The proposed PRSC VII prior actions for the infrastructure area would be:
(ix) Further improvements in ELECTRA’s performance as evidenced by: (a) the
adoption of the action plan for the second phase of its institutional restructuring; (b)
the design of a comprehensive, realistic and time-bound approach to the financial
reform of ELECTRA including recapitalization, the restructuring of short-term debt
and the establishment of financing mechanisms for public lighting; (c) the adoption
of a new regulatory tariff-adjustment model compatible with ELECTRA’s
institutional restructuring; and (d) the signature of a results-based management
contract between ELECTRA and the General Directorate of the Treasury;
(x) Further improvements in TACV’s operational, financial and commercial
management as evidenced by: (a) the presentation of the audited annual accounts
for, 2008, 2009 and 2010; (b) the maintenance of zero arrears in the balance for
2010; and (c) the acquisition of an integrated accounting system for the timely
preparation of budget reports.
Table 5.2: Prior Actions for the Proposed PRCS VII and Their Current Status
PRSC VII
(triggers defined in PRSC VI)
PRSC VII
Proposed Prior Actions
Status Rationale for
change
Good Governance
The issuance of the Medium-Term Debt Strategy (MTDS) for 2012-15 by the Ministry of Finance.
Same Completed. Treasury Directorate has completed the MTDS. The MTDS was adopted by the Council of Ministries and submitted to the Bank and IMF for comments.
No change
The completion of a PEMFAR exercise and the adoption of a reform agenda for Public Financial Management based on the PEMFAR.
Submission of the State General Accounts of 2010 by the government to the Parliament and the adoption of the new budget classification system;
Completed. Government submitted the State General Accounts in October.
New budget classification was adopted by the Council of Ministers in September and published in the Official
PEMFAR is being prepared, but will not be ready until September 2012 due to delays in donor financing
36
PRSC VII
(triggers defined in PRSC VI)
PRSC VII
Proposed Prior Actions
Status Rationale for
change
Gazzette.
Further strengthening of the government’s procurement system as demonstrated by: the completion of the new procurement website and the introduction of the electronic reverse-auction for government purchases.
Further strengthening of the government’s procurement system as demonstrated by: the complete staffing of the ARAP management directorate, the establishment of the ARAP Consultative Council and its Conflict Resolution Committee, and the recruitment of all necessary staff for the ARAP auditing and policy departments
Completed. Recruitment processes concluded. ARAP Consultative Council and Conflict Resolution Committee created.
Changes were agreed as triggers defined in the PRSC VI were procedural rather than Government’s actions or reforms
The satisfactory implementation of the Statistical Agenda as evidenced by the approval of the relevant INE statutes, the establishment of its Board of Directors including the establishment of its Board of Directors and the passage of all necessary complementary legislation.
Same. Establishment of Board of Directors is included in the INE statutes
Completed. INE statutes and legislation were adopted by the Council of Ministries and published in the Official Gazette.
No change.
Human Capital Development The satisfactory implementation of the TVET Action Plan for 2010 as evidenced by: (a) the adoption of a new decree defining the restructuring of the Employment Centers; (b) the establishment of an operational Coordinating Unit for the National System of Qualifications; (c) the adoption of new operating procedures by TSF; and (d) the preparation of an Integrated Policy Letter for Technical, Educational and Vocational Training.
Same, except for part (d), in which the preparation of an Integrated Policy Letter is replaced by the accreditation of four additional centers for vocational training in 2011.
Completed. (a) to (c) were adopted by the Council of Ministries and published in the Official Gazette. (d) Completed as up to November five additional centers were accredited.
The preparation of the Integrated Policy Letter was determined to be less indicative of progress than the accreditation of new training centers
Competitiveness: Trade, Taxation and Business Climate The adoption of the new Investment Code by the Council of Ministers. including regulations for fiscal incentives consistent with WTO norms.
The adoption of the new Investment Code by the Council of Ministers (approval of regulations on fiscal incentives was excluded from the prior action)
Completed. The Investment Code was adopted by the Council of Ministries in December 28, 2011 and
Tax incentive legislation was not ready in time for negotiations. A draft bill has been submitted to
37
PRSC VII
(triggers defined in PRSC VI)
PRSC VII
Proposed Prior Actions
Status Rationale for
change
The adoption of the new Intellectual Property Law by the Council of Ministers The adoption by the Council of Ministers of the Rehabilitation of Firms and Bankruptcy Law and the submission of the draft Bankruptcy Law for public consultation
Same
Same
approved by the National Assembly in April 25, 2012. Completed. Adopted by the Council of Ministries and published in the Official Gazette. Completed. Adopted by the Council of Ministries and published in the Official Gazette.
the Council of Ministries but some further modifications may be required before it can be approved. No Change No Change
Infrastructure
Further improvements in ELECTRA’s performance as evidenced by: (a) the adoption of the action plan for the second phase of its institutional restructuring; (b) the design of a comprehensive, realistic and time-bound approach to the financial restructuring of ELECTRA including recapitalization, the restructuring of short-term debt and establishment of financing mechanisms for public lighting; (c) the adoption of a new regulatory tariff-adjustment model compatible with ELECTRA’s institutional restructuring; and (d) the signature of a results-based management contract between ELECTRA and the General Directorate of the Treasury.
Same Completed (a) to (d) were completed between June and November.
No Change
Further improvements in TACV’s operational, financial and commercial management as evidenced by: (a) the presentation of the audited annual accounts for 2008, 2009 and 2010; (b) the maintenance of zero arrears in the balance for 2010; (c) the operation of the integrated accounting system for the timely preparation of reports; (d) the signature of a results-based management contract between TACV and the General Directorate of the Treasury; and (e) Issuance of a Business Plan 2012-2015 by TACV Board.
Parts (d) and (e) were dropped according to PCN meeting decision. ( c ) was changed to “the acquisition of an integrated accounting system for the timely preparation of reports” due to delays in the procurement process.
Completed. (a) audits 2008-09-10 completed; (b) and (c) completed.
Lack of reliable financial information prevents (d) and (e)
38
6. OPERATION IMPLEMENTATION
A. POVERTY AND SOCIAL IMPACTS
6.1 The proposed operation is expected to have significant positive direct impacts on Cape
Verde’s poverty incidence and social conditions. From a fiscal perspective, the proposed budget
support operation will enable the government to simultaneously finalize its investment program
and increase in real terms its expenditures in basic social services (education, health, social
protection and culture). Indeed, despite the decrease of the share of social expenditures on total
government expenses from 41 percent in 2008 to 28 percent in 2010 (due to the large increase of
government’s investment in economic infrastructure that increased from 5 percent in 2008 to 30
percent in 2010), social expenditures in real terms increased by 32 percent between 2008 and
2010. The indirect poverty and social impact of the reforms supported by the operation are also
anticipated to be highly positive. The measures supported by the proposed PRSC VII are
expected to have a positive indirect impact on poverty reduction, mainly through increased
overall growth and rising employment, though these growth effects may be tempered by the
ongoing economic crisis in Europe.
6.2 Furthermore, to the extent that the initiatives and policy reforms supported by the
proposed operation will increase the fiscal space for increasing investments, as well as enhancing
efficiency in the use of public resources, the operation should have a positive indirect impact on
the government’s ability to increase the quality and accessibility of social and infrastructure
services. Incidence analysis shows that low-income groups have lower rates of access to
educational (in particular vocational training), energy, water and sanitation services.
Improvements in the coverage and quality of public services would therefore disproportionately
benefit the poor.
6.3 Specific positive impacts of the PRSC VII on poverty include the following:
(i) Financing the government’s countercyclical fiscal stance, which would mitigate the
damaging effects of the global financial crisis on employment and labor income;
(ii) Strengthening the reform process for public utilities and service providers
(especially ELECTRA), further reinforcing the government’s fiscal stance and
preventing disruptions in utility provision while generating efficiency gains that
could translate into lower tariffs and/or increased coverage29
;
(iii) Supporting workforce training through vocational training to improve labor
productivity and better match the skills of the workforce to employer demand,
which would increase productivity, raise labor income and reduce unemployment.
The Government TVET system has already benefited 4,5000 people in 2009 and
6,000 people in 2010 and aims to target disproportionately affected social groups
29
Reforming ELECTRA may also help reduce the costs of water provision; desalination accounts for approximately
85 percent of water provision which is an energy intensive process currently reliant on small scale diesel generation
and imported oil. Cape Verde has one of the highest water tariffs in Africa ($4.43 per cubic meter (m3) and as such
water consumption levels are a fraction of rates seen in other MICs.
39
e.g. youth, women that are the most affected by unemployment and low
qualification,30
and
(iv) Supporting the enhancement of the government’s statistical and M&E capacities,
allowing state agencies to improve the design and efficacy public programs.
B. ENVIRONMENTAL ASPECTS
6.4 The specific actions supported under the proposed PRSC VII are not likely to have
significant positive or negative effects on the country's environment, forests, fisheries or other
natural resources due to their primarily administrative nature (public finance management, civil
service reform and decentralization, monitoring and evaluation systems, improved health care
and social protection).
6.5 Additionally, the reforms related to competitiveness and growth—the second policy area
supported by this operation—are not expected to have a negative effect on the environment.
Nonetheless, there are potential indirect effects of reforms in the energy sector. On the positive
reduction in technical, commercial losses and energy theft may improve the efficiency in the use
of electricity use and thus have a positive effect on the environment, not least through the
potential secondary effects of extending access to water and sanitation.
6.6 ELECTRA’s investment plan contains several projects for the generation of energy
through renewable sources. Whilst Cape Verde’s Green House Gas (GHG) emissions remain low
relative to the rest of the world, both in absolute terms and on a per capita basis, moving towards
a lower carbon economy present significant opportunities. The energy sector accounts for the
lion share of the country’s emissions and a shift towards low carbon energy production would
create both economic and environmental synergies. The recently launched Cabeolica Wind Farm
project, for example, contributes significantly towards Cape Verde’s 18 percent renewable
energy target in 2011. It is the first commercial scale Public-Private-Partnership for wind power
in Sub Saharan Africa, with estimated annual average emission reduction of close to 95
CO2eq/year.
6.7 On the other side, improvements in ELECTRA performance could result in the recovery
of its investment capacity which in turn could have environmental impacts. It is worth
mentioning that Cape Verde has strict legislation on environmental impact assessments that has
been enforced since the publication of the environmental law in 2006.
6.8 Climatic vulnerability, erratic rainfall, limited fresh water supplies, and reliance on
tourism as an engine of development make the sustainable use of resources and the protection of
the environment critical to poverty reduction. As a Small Developing Island State (SIDS), Cape
Verde faces additional challenges in tackling climate change, such as inadequate infrastructure,
especially in relation to water supply, and limited natural resources. The Cape Verdean Ministry
of Environment, Agriculture and Fishery has developed a National Adaptation Programme of
Action on Climate Change (NAPA) with the support of UNDP and funding from the Global
30
The vocational training plan has indicators for both the youth and females in their latest action plan which is
waiting for approval by the Council of Ministers.
40
Environment Facility (GEF)31
. Cape Verde is vulnerable to water scarcity and, in some areas,
intense flooding; both phenomena are set to worsen with climate change, reinforcing the need to
bolster water and sanitation services, not least to ensure Cape Verde back delivers against
Millennium Development Goal number 7.
6.9 The government, with support from Netherlands Cooperation and UNDP, developed a
National Environmental Plan (Programa de Ação Nacional para o Ambiente, PANA, 2004-14)
that identified policies, investments and results indicators to promote and monitor the rational
use of natural resources and the environmentally sustainable management of economic activities.
Furthermore, the environmental aspects of Cape Verde’s economic development and policy
reform agenda have been included in the consolidated matrix of the Budget Support Group. The
BSG’s dialogue on environmental issues has been summarized in a sector-specific environmental
policy matrix agreed upon with the government. This matrix identifies critical prior actions and
a set of results indicators, which are currently being monitored. The Spanish Cooperation and
Austrian Cooperation are currently providing budget support with a focus on dialogue regarding
environmental issues.
C. IMPLEMENTATION, MONITORING AND EVALUATION
6.10 The PRSC VII is overseen by the GPRSP-II Steering Committee, which is chaired by the
Minister of Finance. Under the umbrella of the Ministry of Finance all ministries involved in
supporting GPRSP-II objectives participate in the design, implementation and monitoring of the
donors’ joint Budget Support Matrix. The PRSC VII matrix is a subset of the Budget Support
Matrix, and these ministries are therefore also involved in the design, implementation and
monitoring of PRSC VII. The General Directorate for Planning, Budgeting and Management
(Direcção Geral de Planejamento, Orçamento e Gestão, DGPOG) at the Ministry of Finance
will be responsible for the overall implementation of the proposed operation and for reporting on
its progress. The Bank will vet the prior conditions for effectiveness and disbursement. It will be
the responsibility of the DGPOG to present this information in a timely manner and in a format
satisfactory to the Bank.
6.11 Since the preparation of the first PRSC series the World Bank team has worked in close
collaboration with the government and its budget support partners to ensure the adequate
monitoring and evaluation of the program as well as a high level of accountability for the success
of each PRSC. The government and the Budget Support Group have agreed on a matrix of
indicators that is reviewed biannually to assess progress in the different policy areas.
6.12 This operation furthers the efforts of the previous PRSCs to improve the government’s
statistical capacity and the effectiveness of its M&E systems. These elements are a high priority
in the proposed operation and have been an important issue in policy dialogue with the
government.
31
In accordance to Decision 28 of the 7th
Conference of Parties (COP7) of the United Nations Framework
Convention on Climate Change (UNFCCC), Cape Verde’s NAPA identifies the urgent and immediate needs, as an
LDC, arising owing to the adverse effects of climate change.
41
D. FIDUCIARY ASPECTS
6.13 Fiduciary reforms and the strengthening of the government’s fiscal systems constitute
one of the core policy areas of this operation. The 2003 CFAA and the 2006 PER have
identified and addressed the main challenges facing Cape Verde’s public expenditure
management and financial accountability systems. An action plan focusing on increasing the
comprehensiveness and transparency of the budget and enhancing financial accountability has
been implemented with the support of the Netherlands, the European Union and the World Bank.
The joint budget support group missions, along with PRSC-series supervision and preparation,
have helped the government to maintain its focus on the issue of public finance management, and
substantial improvements have been observed. Cape Verde’s progress in PFM has been
identified in the 2008 PEFA exercise and the latest joint budget support mission in November
2011. The latter found that Cape Verde has made steady progress in improving the quality of its
PFM, owing to the implementation of a comprehensive reform program that addressed its main
weaknesses, as reflected in the PEFA giving A and B scores to 18 out of 28 indicators.
6.14 The progress observed in PFM is reflected in the timely submission of annual budget
proposals to the Parliament, the regular publication of quarterly budget execution reports and
State’s Annual General Accounts submitted to the Court of Accounts which prepare and publish
its annual audit reports in a regular basis32
. Financial reporting is easily available in the
government websites. The general public has also access to fiscal information through the
Official Gazette printed publications.
6.15 The IMF’s most recent assessment of the Central Bank (BCV) was carried out in 2008.
The assessment found that while BCV has taken a number of steps to strengthen its safeguard
framework since the previous assessment (in 2002) there are still significant outstanding
vulnerabilities, especially in the audit and control areas. Measures undertaken to strengthen the
safeguard framework since the previous assessment included: (i) the development of an action
plan to implement IFRS for the 2008 fiscal year; (ii) the development of reserves-management
procedures; (iii) the introduction of an internal audit function; and (iv) the rotation of external
auditors. Notwithstanding these advancements, safeguard challenges remain. These include the
need to: (i) formally define the mandate of the Audit Committee; (ii) strengthen the newly
established internal audit function;33
and (iii) further enhance financial statement transparency.34
The Central Bank has agreed to adopt remedial actions to address these issues and additional
fiduciary safeguards are not needed
E. DISBURSEMENT AND AUDITING
6.16 The proposed operation would consist of a single tranche of SDR 7.9 million (US$12
million equivalent) to be available upon effectiveness and disbursed on the basis of a withdrawal
32
The timely submission of the State’s Annual General Accounts and the external audits by the Court of Accounts
have been prior actions in the PRSC programmatic series. 33
The internal audit function requires independence, qualified personnel, the implementation of a risk-based audit
methodology, and the introduction of tracking procedures for addressing external and internal audit
recommendations. 34
Transparency should be enhanced by conducting external audits in accordance with International Standards on
Auditing, completing the implementation of IFRS, and publishing financial statements and notes in accordance with
IFRS for FY2008.
42
application. The credit will follow the Bank’s disbursement procedures for development policy
lending against satisfactory implementation of the macroeconomic framework. Once the credit
becomes effective, the GoCV will submit a withdrawal application to IDA requesting that the
proceeds of the credit be deposited in the BCV into a dedicated account that forms part of the
country’s official foreign exchange reserves. The Recipient shall ensure that upon the deposit of
the credit into said account an equivalent amount in Cape Verdean Escudos (ECV) is credited in
the Recipient’s budget management system in a manner acceptable to IDA. The Recipient will
report to the IDA the amounts deposited in the foreign currency account and credited to the
budget management system. Disbursement would not be linked to specific purchases. If the
proceeds of the credit are used for ineligible purposes, as defined in the Financing Agreement,
IDA will require the Recipient to refund an amount equal to the amount of said payment to IDA
promptly upon notice from IDA. Amounts refunded to IDA upon request shall be cancelled.
6.17 Through the Ministry of Finance and Planning, the Recipient will: (i) report, within one
week from the date of receipt, the exact sum received into the account; (ii) ensure that all
withdrawals from the account are for budgeted public expenditures, excepting military
expenditures or other items on IDA’s excluded expenditure list; and (iii) provide IDA with
evidence that an ECV amount equivalent of the Credit proceeds were credited to the
Consolidated Fund account and that disbursements from that account were for budgeted public
expenditures. The Court of Accounts (Tribunal de Contas) is expected to provide IDA with its
annual report to Parliament on the audits carried out of GoCV’s public accounts by the end of the
year following the execution of the budget (i.e. December 31 N+1) or by no later than four
months from the date on which IDA may request audits of such public accounts.
F. RISKS AND RISK MITIGATION
6.18 Risks posed by high fiscal and external deficits in a worsening global scenario: Due
to its close ties with the South-Western European economies, and with Portugal in particular, the
ongoing economic crisis in Europe have heightened risks to the Cape Verdean economy. This is
reflected in the strong deterioration in the balance of payments and the continuous reduction of
international reserves since the beginning of 2011. Furthermore, Cape Verde’s fiscal and external
deficit projections remain high as a result of the increased capital spending and tax cuts that were
part of the government’s countercyclical fiscal impulse over 2009-11, and the strong incentive
for the government to access as much external financing as possible before the end of the 5-year
window following the graduation from the UN list of Least Development Countries. As a result,
the fiscal deficit for 2010 was well above historical levels, and deficits are expected to remain
high through 2012. While the debt-to-exports ratio has increased, debt service payments have
thus far remained low, thanks to long maturities and concessional interest rates. Nevertheless,
borrowing will need to decrease after 2012 in order for Cape Verde to maintain a low to
moderate risk of debt distress. These risks are well understood by the authorities. To reduce
macroeconomic vulnerabilities, the government has started to reduce fiscal deficits and to adopt
a tighter monetary policy to reduce external deficits and curb the declining path of international
reserves.
6.19 Long-term growth risks posed by inefficient infrastructure service provision: The
successful restructuring of ELECTRA and TACV is not only essential to attenuating the risk of
contingent liabilities, but it is also vital to the long-term competitiveness and growth of the Cape
43
Verdean economy. While the public investment program has eased infrastructure constraints in
roads and seaports, the efficient provision and adequate coverage of electricity and air transport
services will be key to the further development of tourism and overall economic growth, as well
as to Cape Verde’s nascent but growing financial and IT sectors. Failure to permanently realign
the structural budgetary positions of ELECTRA, and TACV and ensure that sufficient resources
will be available for the addition of new power and transportation capacity in line with the
demands of a growing economy, may present a binding constraint on economic growth and
diversification. The newly-reelected Neves administration, which will include the same
economic team that has led the reform process thus far, has forcefully stated that reforming
ELECTRA and TACV will be top priorities and the political capital garnered in the wake of its
successful election should enable it to make difficult decisions in its politically sensitive agenda.
6.20 Political environment risks derived from the results of the parliamentary and
presidential elections: Since the adoption of a multiparty system in 1991 Cape Verde has
enjoyed remarkable political stability with power changing hands regularly. Nonetheless, the
election results of this year pose an unprecedented test for the country’s political stability and
governance system as this will be the first time that the President and Prime Minister will
represent opposing parties: on February 6th
, 2011, Cape Verde’s Prime Minister, Jose Maria
Neves, won a third term in office as a candidate for the PAICV (Partido Africano para a
Independencia de Cabo Verde; the African Party for the Independence of Cape Verde) with 52.4
percent of the vote, while the PAICV won 37 of the 72 seats in the National Assembly; in a
runoff election held on August 20, 2011, Jorge Carlos Fonseca, a candidate from the country’s
major opposition party, the MpD (Movimento pela Democracia; the Movement for Democracy)
was elected the fourth President of the Republic with 55 percent of the votes. While the
legislative approval of the structural reforms may require complex negotiations and consensus,
this unprecedented situation could represent an opportunity to reinforce checks and balances
6.21 Implementation capacity risks: Budget support requires substantial administrative
capacity to design and implement reforms and to monitor their impacts. The reliance on national
systems also raises capacity issues at all steps of the budget cycle. The government has taken
decisive steps in building up of sound financial management and procurement systems, and is
completing its monitoring and evaluation system. Nonetheless, while Cape Verde has a well
recognized institutional and technical capacity in regional terms, the limited number of technical
staff in several core ministries poses problems in this regard. To address this risk in the short
term the government’s budget support partners have made available a combination of capacity
building and technical support instrument.
6.22 Finally, Cape Verde is exposed to natural hazards and impacts associated with
climate change that could affect sustainable growth and poverty reduction prospects. Cape
Verde is vulnerable to severe droughts, so much so, significant emigration occurred in the second
half of the 20th
Century resulting in a larger expatriate than internal population. Whilst Cape
Verde has graduated from the UN LDC status, it still scores poorly against the Economic
Vulnerability Index (EVI). Mitigation measures against the effects and impacts of both natural
hazards and climate change, include the completion of a fully revised National Environmental
Plan (PANA) that will feed in National Adaptation Plans. In this regard there has been wide
consultation with municipalities, civil society and the private sector to ensure ownership and
participation.
44
Annex 1: Project Information
Timetable of Key Processing Events
Concept Review: July 11, 2011
ROC Meeting: November 1, 2011
Authorization to Negotiate: December 30, 2011
Negotiation: January 4, 2012
Board Presentation: June 21, 2012
Effectiveness:
Closing Date:
June 28, 2012
December 31, 2012
45
Annex 2: Letter of Development Policy
46
47
48
49
50
51
52
53
54
55
56
57
Annex 3: Policy Matrix
Component PRSC V
PRSC VI
PRSC VII
Results
Framework
2009 2010 2011 Target
Policy Area I: Good Governance Macroeconomic
Stability
Completed the
implementation of the
second phase of the 2005
plan for the clearance of
public arrears as
evidenced by the
reduction of outstanding
public arrears to 16
percent of the original
stock.
The complete clearance of the
government arrears assumed
in 2005 except the arrears with
the municipal chambers which
will be setting off with the
debts owed by these municipal
governments with the
government.
The issuance of the
Medium-Term Debt
Strategy (MTDS) for 2012-
15 by the Ministry of
Finance and Planning.
Remaining
government
arrears (percent
of total arrears
assumed in
2005)
15
0
0
0
PFM: External
Controls
Submitted to its National
Assembly the audited: (a)
State General Accounts
for the year 2006; and (b)
accounts of key
municipalities and
embassies.
The completion of the audit of
the state accounts for 2007 by
the Court of Accounts to the
National Assembly, including
audits of the accounts of 13
municipalities, 5 embassies
and 3 institutes, and the
government’s submission by
the Council of Ministers to
Parliament of the state
accounts for 2008 and 2009.
The submission of the State
General Accounts of 2010
by the government to the
Parliament and the
adoption of the new budget
classification system.
Number of years
to submit the
General
Accounts of the
State to the Court
of Accounts
Number of years
between budget
execution and
completion of
audits.
Number of
municipalities,
embassies and
institutes audited
by TdC
3
3
19
1
2
21
<1
2
tbd
<1
2
28
Procurement Approved, through its
Council of Ministers the
regulations of the new
Public Procurement Law
The full operationalization of
the Public Procurement
Directorate (DSCP) according
to: (a) the adoption of the
decree by the Council of
Ministers establishing it and
Further strengthening of the
government procurement
system as demonstrated by:
the fulfillment of the ARAP
management directorate,
the establishment of the
Number of staff
trained under the
strategic plan of
DSCP capacity
building
0
266
299
400
58
Component PRSC V
PRSC VI
PRSC VII
Results
Framework
2009 2010 2011 Target
defining its role; and (b) the
issuance of its action plan for
2010 by the General
Directorate of Patrimony and
Public Procurement (DGPCP).
Consultative Council and
its Conflict Resolution
Committee of ARAP and
the recruitment of the staff
for the audit and policy
departments at ARAP.
Number of audits
prepared by
ARAP
0
3
n.a
>10
State
Modernization
Completed the
implementation of SIM in
11 of the Recipient’s
municipalities
The enhancement of the
government’s human
resources management system
as demonstrated by the
adoption by the Council of
Ministers of the related decree
allowing for the mobile
placement of civil servants.
Number of
ministries
restructured
Number of
municipalities
included in the
Municipal
Information
System
5
15
10
18
15
22
15
22
Statistics and
M&E
Approved, through its
National Assembly, the
Statistical Law
Progress on the
institutionalization and
implementation of the M&E
system as evidenced by: (a)
the adoption of the resolution
by the Countries of Ministers
creating the Implementation
Committee for the National
M&E System (Commissão de
Operacionalização do Sistema
de Seguimento e Avaliação,
COSiSA); (b) the completion
of the platform linking the
M&E system to the INE; (c)
the inclusion in the Integrated
Financial Management System
for the government budget of
the M&E indicators for the
government programs in
The satisfactory
implementation of the
Statistical Agenda as
evidenced by the approval
of the relevant INE statutes
and the national system of
statistics and the passage of
all necessary
complementary legislation.
Projects and
programs for
which indicators
are tracked by
the M&E system
(as percent of
total budget).
na
80
67
100
59
Component PRSC V
PRSC VI
PRSC VII
Results
Framework
2009 2010 2011 Target
education, health, agriculture
and infrastructure; and (d) the
issuance by the Ministry of
Finance of the Scope of Vision
of the M&E government
system.
Policy Area II: Human Capital Enhancement
Vocational
Training The satisfactory
implementation of the
TVET Action Plan for 2010
as evidenced by: (a) the
adoption of a new decree
defining the statutes of the
Employment and
Professional Training
Institute and the
restructuring of the
Employment Centers; (b)
the establishment of an
operational Coordinating
Unit for the National
System of Qualifications;
(c) the adoption of new
operating procedures by
TSF; and (d) accreditation
of four centers of
vocational training in 2011.
Number of
institutions
accredited by
TVET system
Number of
students enrolled
0
4,500
0
6,000
4
10
6,000
Policy Area III: Competitiveness
Trade / FDI Completed the initial
phase of implementation
of the Recipient’s action
plan which will adjust the
Recipient’s procedures
and legislation on trade to
those of WTO rules as
evidenced by: i) approval
of the Ecological Tax bill
by the Council of
The adoption of the
investment code by the
Council of Ministers,
consistent with WTO
norms.
The adoption of the new
intellectual property law by
the Council of Ministers.
Net FDI flows
(as percent of
GDP)
7.6
7.0
8.5
60
Component PRSC V
PRSC VI
PRSC VII
Results
Framework
2009 2010 2011 Target
Ministers; and ii) approval
by Council of Ministers of
the draft-law for the
customs code consistent
with the WTO agreement.
Tax System Approved through its
Council of Ministers, the
reduction in corporate tax
rates for businesses
See the above Trigger
regarding the investment
code.
New tax
incentive system
adopted
No
No
No
Yes
Financial
Sector
Reduced exposure of off-
shore banking as shown
by the closure of a
noncompliant offshore
institution.
Adoption of the draft banking
law by the Central Bank board
and its submission to the
Council of Ministers, thereby
strengthening the Central
Bank’s supervisory authority
and unifying the legislation
regarding onshore and
offshore banking activities.
Weighted
average by assets
of the capital
adequacy ratio
(Basel 1) of
banks (percent).
10.7
10.3
>12
Business
Climate Improvements in the business
climate as evidenced by: (a)
submission of the draft
bankruptcy law by the
Business Development and
Innovation Agency (ADEI) to
the Council of Ministers; and
(b) the switch from ad-
valorem to fixed rates for real
estate and commercial
registration duties.
The adoption by the
Council of Ministers of the
Rehabilitation of Firms and
Bankruptcy Law
Average number
of years to close
a business.
Recovery rate by
claimants
(creditors,
employees,
govt.) from
insolvent firms
(cents per dollar
owed)
Cost of property
registration
>4
0
7.7
>4
0
4
≤2
40
≤ 4.0
Policy Area IV: Infrastructure
Land
Management
Approved, through: (a) its
Council of Ministers, the
Cadastre Decree- Law;
and (b) its Prime Minister
Number of
Regional Plans
for Territorial
Organization
61
Component PRSC V
PRSC VI
PRSC VII
Results
Framework
2009 2010 2011 Target
Office, the appointment of
a task force empowered to
implement it
(EROTs)
Number of
Municipal
Development
Plans (PDMs)
0
1
3
5
6
22
10
22
Energy Approval by Council of
Ministers of a medium
term development strategy
for the electricity sector.
Improvements in the
organizational structure of
ELECTRA and measures to
improve its operational and
commercial performance as
evidenced by: (a) the adoption
by Electra Board of a
comprehensive investment
plan, including financing and
implementation schedule; (b) the adoption by the Council of
Ministers of the institutional
restructuring program for
Electra including a roadmap
for its implementation and the
creation and registration of the
two new subsidiaries; (c) the
adoption by Electra board of a
set of measures to improve
commercial and operational
performance (billing, use of
fuel oil and transmission
losses); (d) the issuance by
Electra Board of a time-bound
action plan to restructure the
arrears with its providers and
initial actions inviting the
creditors to negotiate the
rescheduling of these arrears.
Further improvements in
ELECTRA’s performance
as evidenced by: (a) the
adoption of the action plan
for the second phase of its
institutional restructuring;
(b) the design of a
comprehensive, realistic
and time-bound approach
to the financial
restructuring of ELECTRA,
including: recapitalization;
restructuring of financial
short term debt and
financing mechanisms for
public lighting; (c) the
adoption of a new
regulatory tariff-adjustment
model compatible with
ELECTRA’s institutional
restructuring; and (d) the
signature of a results-based
management contract
between ELECTRA and
the General Directorate of
the Treasury.
ELECTRA’s
debt service
coverage ratio
Technical and
non technical
losses (as percent
of megawatts
generated).
Power generation
capacity (in
megawatts)
Renewable energy
(as percent of total
power generated)
0.75
28
86
3
0.7
26.5
90
3
1.1
<25
>110
18
Transport Improvement in TACV’s
operational, financial and
commercial management as
Further improvements in
TACV’s operational,
financial and commercial
Direct operating
costs, per
available seat-
62
Component PRSC V
PRSC VI
PRSC VII
Results
Framework
2009 2010 2011 Target
evidenced by: (a) the
presentation of its annual
balances for 2007, 2008 and
2009 (including audited
balances for 2007); (b) the
complete clearance of arrears
with its private suppliers, and
the proper execution of its
debt rescheduling agreement
with ASA including adherence
to the agreed debt service
schedule; (c) the establishment
of an integrated accounting
and receipt collection system;
and (d) adoption of a set of
appropriate measures by the
Board of TACV to reduce
costs and improve the
operational performance such
as personnel rationalization
measures, the suspension of
several costly employee
benefits including free airfare
allowances for family
members and a new sales and
distribution policy to increase
revenues.
management as evidenced
by: (a) the presentation of
the audited annual accounts
for 2008, 2009 and 2010;
(b) the maintenance of zero
arrears in the balance for
2010; (c) acquisition of an
integrated accounting
system for the timely
preparation of reports.
kilometer (ECV)
Yield as
measured by
passenger -
kilometer (ECV)
Revenue-
passenger-
kilometer
(million ECV)
7.67
7.23
606
n.a
n.a
720
800
6.5
8.20
840
63
Annex 4: IMF Relationship Note
IMF Executive Board Completes Second and Final Review of Cape Verde's Performance
under Policy Support Instrument
Press Release No.12/28
January 30, 2012
The Executive Board of the International Monetary Fund (IMF) today completed the second and
final review of Cape Verde’s economic performance under the 15-month Policy Support
Instrument1 (PSI) program approved on November 2010 (see Press Release No. 10/457). In
completing the review, the Executive Board granted waivers of nonobservance of assessment
criteria.
Following the Executive Board’s discussion of Cape Verde, Ms. Nemat Shafik, Deputy
Managing Director and Acting Chair, made the following statement:
―The Cape Verde authorities tightened macroeconomic policies in the second half of 2011 in
response to risks to macroeconomic stability arising from international commodity price
increases and the European debt crisis. Given lingering global uncertainties, policy restraint will
be needed in the coming months to safeguard the exchange rate peg and build buffers against
shocks.
―The authorities plan to reduce the budget deficit and external debt over the medium term to
strengthen the fiscal position and support private sector growth. They will need to increase
domestic revenue, contain current spending, and proceed cautiously on capital spending while
relying on concessional borrowing as much as possible.
―The recent increase in the Bank of Cape Verde’s policy rate and the reserve requirements for
commercial banks will help contain inflation and bolster international reserves. Growing
financial sector vulnerabilities call for further improving banking regulation and supervision. The
recent establishment of a financial stability committee represents a welcome step in this
direction.
―While progress has been made toward the Millennium Development Goals, unemployment
remains high. This calls for reforms to enhance competitiveness, diversify the economy, and
improve the functioning of the labor market. Faster progress in restructuring state-owned
enterprises will also be important.‖
1 The IMF's framework for PSIs is designed for low-income countries (and small island states)
that may not need IMF financial assistance, but still seek close cooperation with the IMF in
preparation and endorsement of their policy frameworks. For more details see PSI Factsheet at
http://www.imf.org/external/np/exr/facts/psi.htm.
IMF EXTERNAL RELATIONS DEPARTMENT
Public Affairs
Media Relations
E-mail: [email protected] Phone: 202-623-7100
Fax: 202-623-6278 Fax: 202-623-6772
64
Annex 5: Country at a Glance
Cape Verde at a glance 3-30-12
Sub- Lower
Key D evelo pment Indicato rs Cape Saharan middle
Verde Africa income
(2010)
Population, mid-year (millions) 0,50 840 3.811
Surface area (thousand sq. km) 4,0 24.242 31.898
Population growth (%) 0,9 2,5 1,2
Urban population (% of to tal population) 61 37 41
GNI (Atlas method, US$ billions) 1,6 944 8.846
GNI per capita (Atlas method, US$) 3.290 1.125 2.321
GNI per capita (PPP, international $) 3.530 2.051 4.784
GDP growth (%) 5.2 1,7 7,1
GDP per capita growth (%) 4.2 -0,7 5,9
(mo st recent est imate, 2004–2010)
Poverty headcount ratio at $1.25 a day (PPP, %) 21 51 ..
Poverty headcount ratio at $2.00 a day (PPP, %) 41 73 ..
Life expectancy at birth (years) 74 53 68
Infant mortality (per 1,000 live births) 29 81 43
Child malnutrition (% of children under 5) .. 25 24
Adult literacy, male (% of ages 15 and o lder) 90 71 87
Adult literacy, female (% of ages 15 and o lder) 80 54 74
Gross primary enro llment, male (% of age group) 114 105 109
Gross primary enro llment, female (% of age group) 105 95 105
Access to an improved water source (% of population) 84 60 86
Access to improved sanitation facilities (% of population) 54 31 50
N et A id F lo ws 1980 1990 2000 2010 a
(US$ millions)
Net ODA and official aid 62 105 94 196
Top 3 donors (in 2008):
Portugal .. 16 23 53
United States 6 5 3 36
European Union Institutions 5 10 2 23
Aid (% of GNI) 44,5 34,1 17,8 12,6
Aid per capita (US$) 206 302 214 399
Lo ng-T erm Eco no mic T rends
Consumer prices (annual % change) .. .. 3,7 2,1
GDP implicit deflator (annual % change) 9,6 2,3 -1,9 3,3
Exchange rate (annual average, local per US$) 40,2 70,0 119,7 83,3
Terms of trade index (2000 = 100) .. .. 100 100
1980–90 1990–2000 2000–10
Population, mid-year (millions) 0,3 0,3 0,4 0,5 1,5 2,3 1,3
GDP (US$ millions) 142 307 539 1.662 5,4 7,1 6,3
Agriculture 18,6 14,4 12,9 9,9 5,7 1,7 2,6
Industry 17,0 21,4 15,3 18,0 7,4 5,7 7,4
M anufacturing .. .. .. .. .. .. ..
Services 64,5 64,1 71,8 72,1 4,8 8,3 6,5
Household final consumption expenditure 93,3 88,9 72,1 64,7 5,5 7,5 7,3
General gov't final consumption expenditure 14,7 19,0 30,7 26,0 8,6 5,9 5,5
Gross capital formation 41,9 43,8 30,7 37,7 4,3 6,3 10,2
Exports o f goods and services 17,1 17,1 27,0 38,5 5,2 10,0 8,0
Imports of goods and services 67,0 68,8 60,5 67,0 5,6 7,6 9,8
Gross savings 17,5 18,9 19,8 25,5
Note: Figures in italics are for years other than those specified. 2010 data are preliminary. Group data are for 2009. .. indicates data are not available.
a. A id data are for 2009.
Development Economics, Development Data Group (DECDG).
(average annual growth %)
(% of GDP)
10 5 0 5 10
0-4
15-19
30-34
45-49
60-64
75-79
percent of total population
Age distribution, 2009
Male Female
0
20
40
60
80
100
120
140
160
180
200
1990 1995 2000 2009
Cape Verde Sub-Saharan Africa
Under-5 mortality rate (per 1,000)
-2
0
2
4
6
8
10
12
14
95 05
GDP GDP per capita
Growth of GDP and GDP per capita (%)
65
Cape Verde
B alance o f P ayments and T rade 2000 2010
(US$ millions)
Total merchandise exports (fob) 38 105
Total merchandise imports (cif) 230 654
Net trade in goods and services -181 -462
Current account balance -59 -192
as a % of GDP -10,9 -11,5
Workers' remittances and
compensation of employees (receipts) 87 146
Reserves, including gold 28 385
C entral Go vernment F inance
(% of GDP)
Current revenue (including grants) 0,0 0,0
Tax revenue 0,0 0,0
Current expenditure 0,0 0,0
T echno lo gy and Infrastructure 2000 2009
Overall surplus/deficit 0,0 0,0
Paved roads (% of to tal) 69,0 ..
Highest marginal tax rate (%) Fixed line and mobile phone
Individual .. .. subscribers (per 100 people) 17 92
Corporate .. .. High technology exports
(% of manufactured exports) 0,8 0,0
External D ebt and R eso urce F lo ws
Enviro nment
(US$ millions)
Total debt outstanding and disbursed 319 857 Agricultural land (% of land area) 18 23
Total debt service 16 36 Forest area (% of land area) 20,3 21,1
Debt relief (HIPC, M DRI) – – Terrestrial protected areas (% of land area) .. ..
Total debt (% of GDP) 59,1 51,6 Freshwater resources per capita (cu. meters) 660 610
Total debt service (% of exports) 6,9 4,5 Freshwater withdrawal (billion cubic meters) 0,0 ..
Foreign direct investment (net inflows) 33 .. CO2 emissions per capita (mt) 0,43 0,63
Portfo lio equity (net inflows) 0 ..
GDP per unit o f energy use
(2005 PPP $ per kg of o il equivalent) .. ..
Energy use per capita (kg of o il equivalent) .. ..
Wo rld B ank Gro up po rtfo lio 2000 2009
(US$ millions)
IBRD
Total debt outstanding and disbursed – –
Disbursements – –
Principal repayments – –
Interest payments – –
IDA
Total debt outstanding and disbursed 98 286
Disbursements 10 4
P rivate Secto r D evelo pment 2000 2010 Total debt service 1 5
Time required to start a business (days) – 11 IFC (fiscal year)
Cost to start a business (% of GNI per capita) – 18,5 Total disbursed and outstanding portfo lio 0 7
Time required to register property (days) – 73 o f which IFC own account 0 7
Disbursements for IFC own account 0 0
Ranked as a major constraint to business 2000 2010 Portfo lio sales, prepayments and
(% of managers surveyed who agreed) repayments for IFC own account 1 1
Electricity .. 35,7
Access to /cost o f financing .. 16,3 M IGA
Gross exposure 2 0
Stock market capitalization (% of GDP) .. .. New guarantees 0 0
Bank capital to asset ratio (%) .. ..
Note: Figures in italics are for years other than those specified. 2010 data are preliminary. 3-30-12
.. indicates data are not available. – indicates observation is not applicable.
Development Economics, Development Data Group (DECDG).
0 25 50 75 100
Control of corruption
Rule of law
Regulatory quality
Political stability
Voice and accountability
Country's percentile rank (0-100)higher values imply better ratings
2009
2000
Governance indicators, 2000 and 2009
Source: Kaufmann-Kraay-Mastruzzi, World Bank
IBRD; 0
IDA; 286
IMF; 11Other multi-lateral; 248
Bilateral; 154
Private; 6Short-term; 2
Composition of total external debt, 2009
US$ millions
66
Millennium Development Goals Cape Verde
With selected targets to achieve between 1990 and 2015(estimate closest to date shown, +/- 2 years)
Go al 1: halve the rates fo r extreme po verty and malnutrit io n 1990 1995 2000 2009
Poverty headcount ratio at $1.25 a day (PPP, % of population) .. .. 21,0 ..
Poverty headcount ratio at national poverty line (% of population) 30,2 .. 36,7 26,6
Share of income or consumption to the poorest qunitile (%) .. .. 4,5 ..
Prevalence of malnutrition (% of children under 5) .. 11,8 .. ..
Go al 2: ensure that children are able to co mplete primary scho o ling
Primary school enro llment (net, %) 93 93 99 93
Primary completion rate (% of relevant age group) 54 67 103 87
Secondary school enro llment (gross, %) 20 27 65 81
Youth literacy rate (% of people ages 15-24) 88 .. .. 98
Go al 3: e liminate gender disparity in educat io n and empo wer wo men
Ratio of girls to boys in primary and secondary education (%) 94 94 99 104
Women employed in the nonagricultural sector (% of nonagricultural employment) .. .. 39 ..
Proportion of seats held by women in national parliament (%) 12 11 11 18
Go al 4: reduce under-5 mo rtality by two -thirds
Under-5 mortality rate (per 1,000) 59 52 46 36
Infant mortality rate (per 1,000 live births) 46 41 37 29
M easles immunization (proportion of one-year o lds immunized, %) 79 85 86 96
Go al 5: reduce maternal mo rtality by three-fo urths
M aternal mortality ratio (modeled estimate, per 100,000 live births) 230 200 170 94
B irths attended by skilled health staff (% of to tal) .. 54 89 78
Contraceptive prevalence (% of women ages 15-49) 24 .. 53 61
Go al 6: halt and begin to reverse the spread o f H IV/ A ID S and o ther majo r diseases
Prevalence of HIV (% of population ages 15-49) .. .. .. ..
Incidence of tuberculosis (per 100,000 people) 175 168 160 147
Tuberculosis case detection rate (%, all forms) 36 45 41 44
Go al 7: halve the pro po rt io n o f peo ple witho ut sustainable access to basic needs
Access to an improved water source (% of population) .. 82 83 84
Access to improved sanitation facilities (% of population) .. 40 45 54
Forest area (% of land area) 14,4 .. 20,3 21,1
Terrestrial protected areas (% of land area) .. .. .. ..
CO2 emissions (metric tons per capita) 0,2 0,3 0,4 0,6
GDP per unit o f energy use (constant 2005 PPP $ per kg of o il equivalent) .. .. .. ..
Go al 8: develo p a glo bal partnership fo r develo pment
Telephone mainlines (per 100 people) 2,3 5,4 12,4 14,3
M obile phone subscribers (per 100 people) 0,0 0,0 4,5 77,5
Internet users (per 100 people) 0,0 0,2 1,8 29,7
Personal computers (per 100 people) .. 0,4 5,7 14,0
Note: Figures in italics are for years other than those specified. .. indicates data are not available. 3-30-12
Development Economics, Development Data Group (DECDG).
C ape Verde
0
25
50
75
100
125
2000 2005 2009
Primary net enrollment ratio
Ratio of girls to boys in primary & secondary education
Education indicators (%)
0
10
20
30
40
50
60
70
80
90
100
2000 2005 2009
Fixed + mobile subscribers
Internet users
ICT indicators (per 100 people)
0
25
50
75
100
1990 1995 2000 2009
Cape Verde Sub-Saharan Africa
Measles immunization (% of 1-year olds)
SSãão Domingoo Domingo
Santa CatarinaSanta Catarina
Santa MariaSanta Maria
EspargosEspargos
NorNortete
Riberia BravaRiberia Brava
PovocPovocãão Vo Velhaelha
LajesLajes(1803 m)(1803 m)
Mt. FogoMt. Fogo(2,829 m)(2,829 m)
BOA VISTA
BRAVA
MAIO
MOSTEIROS
PAÚL
PORTONOVO
PRAIA
TARRAFAL
SAL
SANTACATARINA
SANTACRUZ
SÃODOMINGOS
SÃO FILIPE
SÃO NICOLAU
SÃO VINCENTE
RIBEIRAGRANDE
Ribeira da Cruz
Ribeira GrandeVila das Pombas
Porto Novo
MadeiralCalhau
Tarrafal
Sal-Rei
Tarrafal
Santa CruzVila do Maio
São Domingo
Santa Catarina
SãoFilipe
Furna
Mosteiros Igreja
Santa Maria
Espargos
Norte
Riberia Brava
Mindelo
São Pedro
Preguica
Povocão Velha
PRAIA
AT L A N T I C O C E A N
W I N D WA R D I S L A N D S
L E E WA R D I S L A N D S
Santo Antão
São Vicente
Ilhéu BrancoIlhéu Raso
Santa Luzia
São Nicolau
Sal
Boa Vista
MaioSão Tiago
Fogo
Brava
Ilhéus DoRombo
Lajes(1803 m)
Mt. Fogo(2,829 m)
17°N
16°N
17°N
16°N
15°N
23°W24°W25°W
23°W24°W25°W
CAPEVERDE
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.
0 10 20
0 10 20 30 Miles
30 Kilometers IBRD 33383
DEC
EMBER 2004
CAPE VERDESELECTED CITIES AND TOWNS
NATIONAL CAPITAL
RIVERS
MAIN ROADS
COUNTY (CONCELHO) BOUNDARIES
INTERNATIONAL BOUNDARIES