Financial Crime World

Here is the article in Markdown format:

Cabo Verde’s Fiscal Performance Improves, but Risks Remain

The International Monetary Fund (IMF) has released a report highlighting significant improvements in Cabo Verde’s fiscal performance during the first quarter of 2023.

Improved Fiscal Performance

According to the report, tax revenue increased by 21 percent year-on-year, while spending rose by 8.1 percent. The strong growth in capital expenditures and moderate increase in current expenses contributed to the improved fiscal performance.

Debt Reduction and Current Account Deficit

The public debt-to-GDP ratio decreased from 144.6 percent in 2021 to 121.2 percent in 2022, a significant reduction. Additionally, Cabo Verde’s current account deficit narrowed in 2022 due to the stronger-than-expected recovery in goods exports, tourism receipts, and remittances.

Monetary Policy and Financial Sector

The monetary policy stance remains focused on safeguarding the peg and strengthening the transmission mechanism of monetary policy. The Monetary Policy Committee (MPC) raised the policy rate from 0.25 to 1.0 percent in early May 2023, a move aimed at narrowing the differential with the European Central Bank’s policy rate and protecting reserves.

The financial sector appears stable, adequately capitalized, and liquid:

  • Regulatory capital-to-risk-weighted assets stood at 22.3 percent, well above the regulatory minimum of 12 percent.
  • Return on equity was 17.4 percent.
  • Return on assets was 1.7 percent.

Medium-Term Outlook

Cabo Verde’s medium-term outlook is cautiously optimistic, with growth potential seen as high. However, the country remains susceptible to the effects of climate change, which is a key medium-term risk. Authorities have agreed with the IMF’s assessment of the risks and are committed to advancing State- Owned Enterprise reforms and reducing fiscal consolidation efforts.

Recommendations

The report concludes that Cabo Verde must continue to prioritize:

  • Fiscal discipline
  • Reducing fiscal risks from State-Owned Enterprises
  • Modernizing its monetary policy framework
  • Supporting policies for inclusive, sustainable, and resilient growth