afrol News, 14 June - Economic growth in Cape Verde has been somewhat greater than expected. The Cape Verdean government is encouraged by this growth to go ahead with economic reforms. The value-added tax (VAT) finally is to be introduced this month.

- Economic performance in 2002 has been encouraging, according to the latest assessment by the International Monetary Fund (IMF). "Real economic growth and international reserves are higher, inflation lower, and the fiscal deficit smaller than originally projected."

Real GDP growth is expected to rise to about 4 ½ percent in 2002, up slightly from 4 percent in 2001. The better-than-expected economic growth was being driven by "exports of manufactured goods, tourism, and transportation services, all of which performed more favourably than envisaged in the first half of 2002, as did private transfers, which have helped support the domestic construction industry," the IMF says.

Also the fiscal deficit, including grants, is projected to fall to 2.0 percent of GDP in 2002, from 4.6 percent in 2001, "reflecting a higher level of revenues and grants (as a share of GDP) and reductions in recurrent expenditures."

These developments have encouraged the Cape Verdean government to go ahead with its planned fiscal and trade reforms, which have encountered some delay. The value-added tax (VAT) and new customs tariff schedule were unanimously approved by the National Assembly in June 2002, and the reforms will be in place by this month. More time had been needed to "establish the administrative framework and to draft supporting regulations."

In addition, a new central bank law was approved in late 2002, establishing the independence of the Bank of Cape Verde, and two large loss-making public enterprises were liquidated, IMF said. "The social impact of the liquidations is being mitigated through the provision of financial support for former employees, with support from the World Bank," the fund added.

The IMF commended the Cape Verde authorities for "their strong efforts to restore macroeconomic stability by reducing the fiscal deficit substantially, keeping down inflation, regularising domestic and external arrears, and strengthening international reserves." They also saw "encouraging indications" that economic growth was reviving.

- The challenge now facing the authorities is to consolidate the recent macroeconomic achievements, the IMF said, "and to further strengthen the foundations for growth through structural reforms to enhance private sector competitiveness, while tackling poverty by fostering human development and social services."

The IMF also encouraged Cape Verdean authorities to identify the numerous tax exemptions which currently result in significant revenue losses, and to develop a comprehensive strategy for substantially reducing them over time.

The fund finally said it "looked forward to the implementation of plans to redirect public expenditures toward social development and infrastructure, address remaining public weaknesses in budget management with assistance from a budget advisor, and carry out a comprehensive and transparent audit of domestic arrears."

Cape Verde has implemented a long list of structural reforms and a far-reaching economic reform programme prescribed by the IMF since 1992. These reforms have led to a large-scale growth in the country's GDP - growth averaging about 7 percent a year in the period 1992-2000. The social price of many reforms has however been high.

By staff writers

© afrol News

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