Cabo Verde DPO

closed

This Development Policy Financing (DPF) series is structured around two interrelated pillars designed to: (i) reducing fiscal risks and (ii) It supports decisive and difficult reforms aimed at repositioning the role of the state in the economy while addressing the overarching binding constraint of connectivity, as identified in the 2018 Systematic Country Diagnostic (SCD). The first pillar focuses on reducing fiscal risks from SOEs while promoting private-sector led provision of infrastructure services. This includes supporting the government’s goal to transfer ownership of the national airline, Cabo Verde Airline (CVA) to the private sector; promoting a strategic partnership in the maritime sector for improved quality and financial sustainability of inter-island maritime transportation service delivery; strengthening the financial position of the public energy utility; and enhancing the financial performance of the social housing program to reduce associated debt service risks. The second pillar aims to strengthen accountability and effectiveness in fiscal management. This includes reforms to improve the legal framework for budget and debt management and the medium-term fiscal framework; strengthening external controls; enhancing transparency in tax mobilization and streamlining tax expenditures; and rationalizing the selection of public investments for improved effectiveness of fiscal policy. These pillars are consistent with the SCD which highlight fiscal sustainability and private sector development as essential for growth and poverty reduction. This DPF series supports maximizing finance for development (MFD). Opening the transport sector in Cabo Verde to private sector participation directly supports increased private finance for development, while the sale of the airline and the maritime concession will encourage private sector investments. A financially viable energy utility will also make it easier to accelerate the planned divestment of the utility. Improved macroeconomic stability and fiscal accountability will also help reduce risks for private investors, which will allow to allocate scarce public funds to areas where private sector engagement is suboptimal or unavailable.