Located 500 kilometers off the west coast of Africa, Cabo Verde is an archipelago of 10 islands. The country has an estimated population of 520,500 spread across nine islands that are scattered within a large water area, which constitutes a major constraint to growth and development. Only 10% of its territory is classified as arable land, and the country possesses limited mineral resources.
Cabo Verde's economy is driven by tourism grounded in year-round attractive weather, beautiful beaches, stable democracy, limited security risks and proximity to Europe. Its limited economies of scale create significant connectivity issues, as well as challenges for service delivery including energy, water, education, and 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
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 current 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. The next legislative and presidential elections are scheduled for the first half of 2021.
Economic Overview
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 and instead led to a sharp increase in the stock of public debt.
Gross domestic product (GDP) growth recovery started in 2016 and reached 5.5% in 2019 (4.2 in per capita terms), well above the potential growth rate of 3.6%. On the demand side, growth was driven by high consumption (public and private) and strong export performance. On the supply side, construction, retail, transport, and tourism services contributed to the dynamism of the economy. Tourism and travel-related industries represent 25% of GDP and drive around 40% of overall economic performance. The primary fiscal balance stood at 0.7% of GDP in 2019, turning positive for the first time in a decade. The overall fiscal deficit declined from 2.8% of GDP in 2018 to 1.9% in 2019. Improved fiscal performance is due to central government consolidation efforts combined with the reforms of state-owned enterprises (SOEs). However, the risk of external debt distress remains high.
The unfolding COVID-19 crisis will reduce economic growth, delay fiscal consolidation, halt public debt decline, and slow poverty reduction in Cabo Verde. GDP growth is expected to have the largest contraction on record in 2020, The country relies heavily on tourism that is the hardest hit sector. Tourism receipts alone are expected to decline by 70% compared to 2019. The crisis opened a large fiscal financing gap in 2020, which has been filled mainly by concessional borrowing and grants from Development Partners. The World Bank has responded to this crisis with three operations: the COVID-19 Emergency Response Project; the Cabo Verde Disaster Risk Management Development Policy Financing with CAT-DDO; and the Second State-Owned Enterprises (SOEs) Reform and Fiscal Management Development Policy Financing (DPF) that is under preparation. The latter operation supports reforms to strengthen the foundations for economic recovery and resilience in the context of the COVID-19 crisis.
Last Updated: Sep 18, 2020
