CV-DPL 3-PRSC VII

closed

The development objectives of the Seventh Poverty Reduction Support Credit Program (PRSC VII)for Cape Verde are to (i) improve the efficiency and transparency in the use of public resources and preserve macroeconomic stability through the implementation of a reform agenda for public finance management, debt management, procurement, and government's statistical system; (ii) improve the qualification of the labor force through the institutional upgrading of the vocational training system; (iii) enhance the country's investment climate by simplifying procedures for closing firms and promoting a level playing field for private investors; and (iv) strengthen the performance of public utilities in the energy and air transportation sectors. The PRSC VII is the final operation in a programmatic series of three one-year operations initiated in 2009 at the height of the global financial crisis and designed to support the implementation of the government's Second Growth and Poverty Reduction Strategy Paper (GPRSP-II) for the period 2008-2011. The Government of Cape Verde (GoCV) acted swiftly to counter the effects of the crisis, seizing the opportunity to tap into the fiscal space and external reserves that it had created in previous years and boost public investment, both to shore-up aggregate demand in the short-run, and at the same time addressing a number of binding infrastructure constraints on long-term growth. In this regard, the budget support provided by the Bank's PRSC series and by other development partners in 2009-10 enabled the government to adopt its countercyclical fiscal policy and continue its course of investment in critical infrastructure areas. The Cape Verdean economy is well integrated into the global economy, and its links to the Euro-zone are particularly strong. Therefore, the decline in the volume of international trade in services that accompanied the global financial crisis has had a deeply negative effect on Cape Verde, with Gross Domestic Product (GDP) growth slowing to 3.7 percent in 2009 from 8.6 percent and 6.2 percent in 2007 and 2008 respectively. The recent worsening of global conditions in 2011 has heightened macroeconomic risks for the Cape Verdean economy. The strong fall in FDI and net income inflows are direct effects of the increasing risk aversion fostered by the Euro-zone crisis. Tourism services and remittances are the main sources of foreign exchange, and while for the time being both have been resilient, they are likely to suffer from the economic downturn in Europe.