- After a short down-turn last year, Cape Verde's economy "is back on track," according to a new report released today. There had been a "higher growth ... than expected" last year, the report concludes, but analysts fear uncontrolled expenditure in the run-up to the 2006 parliamentary elections.
The International Monetary Fund (IMF) has today released its latest review of Cape Verde's economic performance, regarding the Fund's funding of structural reforms - also termed the poverty reduction programme - in the Atlantic Ocean archipelago. The generally positive review ended up in another US$ 2 million disbursement for the Cape Verdean government.
IMF Deputy Director Agustín Carstens in a statement released today painted an unusually positive picture of the macroeconomic situation in Cape Verde. "The Cape Verdean authorities have succeeded in putting macroeconomic policy back on track following some slippage in 2003," the IMF leader noted.
- Economic outturns in 2003 were generally better than expected, with higher growth, lower inflation, and improved external balances, Mr Carstens said. He however urged the government in Praia to stick to those IMF-prescribed structural reforms currently executed by authorities. The Fund's reform package as always includes controversial privatisation schemes, including in the strategic water supply sector.
Mr Carstens noted that Praia authorities were determined to implement further structural reforms. "In addition to ongoing reforms in the transport and utility sectors, it is important that an automatic and transparent mechanism be adopted for the adjustment of electricity and water tariffs in response to changes in costs," the IMF leader commented.
The commercialisation and privatisation of Cape Verde's water and power utilities has been a controversial issue over the last years. Consumers that are unable to pay bills - poverty is still pervasive in Cape Verde - are simply cut off. Critics claim that this will lead to more poverty and use of unsafe water sources in stead of reducing poverty, as the IMF claims.
According to Mr Carstens, however, further privatisation is essential for Cape Verde to secure its economic successes. "To improve the environment for private sector development, the authorities should implement the privatisation programme with vigour and press ahead with regulatory reform," he emphasised.
While the IMF review is positive on Cape Verde's current macroeconomic tendencies, the Fund however warns that growth is fragile. It warns against "the rapid growth of recurrent expenditures over recent years and spending pressures that may arise in the run-up to the 2006 parliamentary elections." Praia should take efforts to "avoid jeopardising medium-term debt sustainability."
Cape Verdean authorities are in the process of finalising the IMF-funded "Poverty Reduction and Growth Facility" (PRGF) arrangement, worth a total of US$ 13 million. According to Mr Carstens, this programme has contributed to "stronger growth and poverty reduction" in Cape Verde. While analysts agree that economic growth has been impressive in Cape Verde during the last decade, many however question the gains of the fight against poverty.
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