Located 500 kilometers off the west coast of Africa, Cabo Verde is an archipelago of 10 islands of which nine are inhabited. The country has an estimated population of 520,500. Only 10% of its territory is classified as arable land, and the country possesses limited mineral resources.
Political Context
Politics in Cabo Verde have been largely consensus-oriented, and since its independence from Portugal in 1975, Cabo Verde has not experienced a single coup d’état. Elections are considered free and fair, and parties in power alternate regularly.
The Government of Cabo Verde has been in office since the presidential and parliamentary elections of 2016, which led to a change with the victory of the opposition Movimento para Democracia (MpD) after 15 years of government under the Partido Africano da Independência de Cabo Verde (PAICV). These two parties dominate Cabo Verde’s political scene and are both fairly centrist. There is also a third party, the União Caboverdiana Independente e Democrática (UCID), which slightly increased its share of votes. Municipal elections were also held in August 2016. The MpD won 18 of 22 Municipalities, and they successfully supported the re-election of President Jorge Carlos Fonseca.
Economic Overview The country’s small population spread across a large water area constitutes a major constraint to growth and development. It limits economies of scale, and creates significant connectivity issues, as well as challenges for service delivery (including energy, water, education, health ).Despite the challenges associated with being a small island economy, Cabo Verde witnessed spectacular social and economic progress between 1990 and 2008, driven mainly by the rapid development of inclusive tourist resorts. During the period of 2009-2015, economic growth decelerated significantly, a result of the protracted impact of the global financial crisis. Countercyclical fiscal measures did not restore growth but instead led to a sharp increase in the stock of debt.
Gross domestic product (GDP) growth recovery started in 2016 and was consolidated in 2017 as information from the Institute of National Statistics show that GDP grew by 4.7% and 4%, respectively. The recovery is being driven driven consumption and strong export performance. At the sectoral level, real GDP expanded thanks to the dynamism of the electricity and water, tourism, financial and manufacturing sectors.The fiscal accounts recorded a deficit of 3.1% of GDP in 2017, slightly above the level achieved in 2016. Revenues climbed to record levels at 28.5% of GDP. However, this increase was offset by higher spending (31.6% of GDP), driven notably by the acquisition of assets associated with the restructuring of the social housing project, in the amount of 2.5% of GDP.
Public debt decreased by 1.7 percentage point to 126.1% of GDP in 2017, owing to exchange rate appreciation. Nevertheless, the country remains at high risk of external debt distress
Consolidating its achievements as a middle-income country and further strengthening the conditions for poverty reduction and boosting shared prosperity will be key challenges. With its small open economy, the country is vulnerable to the vagaries of global economic developments. Given the fixed exchange rate with the Euro, it will be vital for the country to rebuild fiscal buffers to absorb future shocks. Diversification within and beyond the tourism sector, and more flexible labor markets can help to absorb shocks.
Last Updated: Nov 01, 2018
