Cape Verde calls for international budget support in the face of “disastrous scenario” – Economy

“It is a disastrous scenario. It is a scenario I would even say dramatic, but together we will be able to solve it”, said today the Deputy Prime Minister and Minister of Finance, Olavo Correia, when presenting the situation to the diplomatic corps accredited in the country. macroeconomic forecast for 2022, after the consequences of the war in Ukraine, namely the need for state intervention to stabilize energy and food prices.

Cape Verde has no refining capacity and imports all the fuel it needs, including for electricity production, in addition to 80% of all the food it consumes.

In a scenario that, for the Government, is of a strong worsening of all macroeconomic variables, including the downward revision, from 6% to 4% of the most optimistic forecast of economic growth in 2022, still managing the economic consequences of the covid-19 pandemic and after three years of drought, Olavo Correia said that Cape Verde needs to find solutions, addressing the diplomats who would attend the presentation.

“From the start, Cape Verde clearly needs – we have to speak clearly – of budget support to face these new challenges. [4.000 milhões de escudos, mais de 36 milhões de euros] of needs”, he appealed.

According to data presented today – at a meeting that also involved three other ministers and the prime minister, Ulisses Correia e Silva – the Government of Cape Verde estimates that this year it will spend 1,700 million escudos (15.4 million euros) on stabilizing prices. of fuels and 2,000 million escudos (18 million euros) in electricity prices (80% guaranteed by fossil fuels).

In addition, 500 million escudos (4.5 million euros) for financial compensation to maintain the current prices of foodstuffs, such as corn, wheat or oils, and 144 million escudos (1.3 million euros) to increase by 3,000 the number of beneficiaries of the social pension.

Overall, this is an estimated expense of around 4,300 million escudos (39.2 million euros) in 2022 alone, which according to Olavo Correia is equivalent to 70% of the estimated domestic debt for this year.

Among the solutions, and in addition to the appeal made to budget support by international partners, the deputy prime minister pointed out priorities such as the diversification of the economy or the transition from the formal economy to the informal economy.

At the international level, the appeal aimed at special drawing rights, so that they “can be made available” to Cape Verde, as well as the resumption of the suspension of debt service payments, as happened in 2020 and 2021, due to the consequences of the pandemic, as well as the activation of the Resilience Trust Fund, as well as a sovereign debt restructuring program for small island states.

Cabo Verde faces a deep economic and financial crisis, due to the sharp drop in tourist demand – a sector that guarantees 25% of the archipelago’s Gross Domestic Product (GDP) – since March 2020, due to restrictions imposed to control the covid-19 pandemic. .

In 2020, the country recorded a historic economic recession, equivalent to 14.8% of GDP, and economic growth of 7% in 2021, driven by the recovery in tourist demand in the fourth quarter.



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