The Government of Cabo Verde is implementing reforms aimed at enhancing fiscal sustainability and promoting inclusive economic growth. A new Public Finance Review (PFR) released by the World Bank highlights the need for a more efficient fiscal policy to improve domestic revenue mobilization and public spending quality.
The report, titled “Enhancing Fiscal Sustainability in the Face of Shocks,” examines public finance performance from 2019 to 2023 amidst external shocks and economic recovery. It suggests policy options to help Cabo Verde create additional fiscal space, estimated between 3.65% and 4.15% of GDP, through revenue and expenditure reforms while reducing fiscal risks associated with state-owned enterprises (SOEs).
Indira Campos, World Bank Group Resident Representative for Cabo Verde, stated, “The finalization of the PFR – a core World Bank Group diagnostic – reaffirms our commitment to supporting Cabo Verde with timely and in-depth analytical work to inform strategic fiscal decisions. This report offers concrete, actionable recommendations to support ongoing efforts for a more sustainable fiscal path that promotes growth and protects the most vulnerable.”
To expand fiscal space, the PFR outlines priority measures such as addressing a tax gap of about 10 percentage points of GDP by reassessing tax incentives, revisiting VAT exemptions, improving direct taxation, and exploring health and environment taxes.
On expenditure, the report stresses improving goods and services spending efficiency, reviewing subsidies, ensuring social protection reform sustainability, strengthening public investment management, and modernizing public procurement systems for potential savings.
SOEs remain a focus due to their liabilities posing significant fiscal risks. Enhancing governance, transparency, financial discipline in SOEs, and restructuring loss-making entities are crucial for reducing fiscal pressures and reallocating resources towards productive investments.
The PFR indicates that well-designed fiscal policy can anchor macroeconomic stability by supporting a credible national budget and sustainable debt path while fostering inclusive growth and long-term development in Cabo Verde.