The FINANCIAL -- The Executive Board of the International Monetary Fund (IMF) approved on November 22, 2010 a 15-month Policy Support Instrument (PSI) for Cape Verde.

"The IMF's framework for PSIs is designed for low-income countries that may not need IMF financial assistance, but still seek IMF advice, monitoring, and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners," IMF informed.

The PSI for Cape Verde aims to consolidate macroeconomic stability, and achieve sustained broad-based growth. The authorities’ program will build on the macroeconomic success and structural reforms of the previous PSI supported program, and will help maintain macroeconomic discipline.

Following the Executive Board’s discussion of Cape Verde, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:

“Cape Verde is rebounding from the global economic crisis, driven by a pickup in tourism and construction. Inflation is low and the real value of the escudo remains competitive. The authorities’ strong record of policy implementation over the past several years succeeded in building fiscal and reserves buffers, which provided room for counter-cyclical macroeconomic policies to moderate the impact of the global slowdown.

“The policies supported by a new 15-month Policy Support Instrument will pursue national development objectives for increasing growth, diversifying the economy and making progress on social policies. Given these objectives, the authorities have implemented a temporary acceleration of the public investment program, which is mainly financed with concessional external resources. In order to rebuild fiscal buffers against future adverse external shocks, the authorities have committed to scale back foreign-financed spending from next year and to enhance debt management capacity. In response to weaker-than-expected revenue, they have also restrained non-priority spending while protecting social spending on vulnerable groups. These policies are welcome, as prudent fiscal management is crucial in supporting the exchange rate peg.

“Given the fragile global environment, the Bank of Cape Verde is appropriately focused on shoring up reserve accumulation by stabilizing inflows of emigrant deposits. Improving the monetary transmission mechanism will allow the authorities to better influence market interest rates, which should be brought in line with the Euribor over time to mitigate the risks of speculative inflows. The authorities’ intention of bringing all banks under a single banking law is welcome. Continued efforts to enhance banking supervision and to develop the government securities market, in line with FSAP recommendations, will help safeguard financial system soundness and enhance the transmission of monetary policy”, Mr. Portugal added.

Related Stories

• PUMA sets up 100% subsidiary in Israel
• ISO's magazine focuses on standards and crisis management
• Over 25 years of successful collaboration between adidas and Bayer MaterialScience