Cape Verde Economic Outlook
- Cabo Verde’s real GDP growth increased to 3.6% in 2015 from 1.8% in 2014 and 0.8% in 2013 as tourism receipts increased, domestic demand improved and energy prices remained low. However, the economy is still underperforming due to deflation and high unemployment.
- While government deficit has narrowed from previously high levels, fiscal consolidation remains a priority to reduce the risk of debt distress, reassure investors and safeguard macroeconomic stability.
- Despite Cabo Verde’s insularity and unequal distribution of the population across islands, its urban renewal can drive structural transformation by providing informal and micro-entrepreneurs opportunities to upgrade and expand their market reach.
Cabo Verde’s economic recovery remains feeble due to the weak global economy and domestic vulnerability. Tourism and tourism-related foreign investment, including construction, continue to be the main engines of growth. In fact, economic growth recovered to around 3.6% in 2015 (from 1.8% in 2014 and 0.8% in 2013) due to the return of foreign direct investment (FDI) – which grew by 13% in 2014 – especially in tourism. However, economic activity is still catching up with its potential. In addition to public sector efficiency, Cabo Verde’s long-term growth depends on bolstering productivity. In 2016 and 2017, growth is expected to recover to an average rate of 4%, below the rate of the boom years before the global financial crisis.
The fiscal situation improved slightly in 2015 due to public investment programme (PIP) phase-out, yet it remains vulnerable. The overall central government deficit is expected to fall in 2015 to 4.5% (from 7.4% in 2014), and again in 2016 to 4%. Challenges also remain to find the appropriate policy path given debt sustainability requirements and a need to improve economic growth. Public debt is expected to reach 118% of GDP in 2015 from 94.7% in 2013. While external public debt is high (76.2% of total public debt in 2015), it remains overwhelmingly concessional, and debt service indicators show that the country shall remain comfortable in servicing its future debt obligations.
Cabo Verde’s urban population accounts for about 65% of the country’s 514 000 population. The high rate of urbanisation is due mostly to rural-urban migration. Although the increase in the rate of urbanisation is a source of social problems, it also presents an opportunity for informal and micro-entrepreneurs to upgrade and expand their market reach. With a remarkable literacy rate exceeding 85%, Cabo Verde has the foundation for an economic lift-off driven by a robust urban population with skills for a competitive private sector. The country’s urban renewal can therefore be an important driver of structural transformation in the years ahead.