Budget Support Group press release

November 4 - 8, 2024

A mission of the Budget Support Group (BSG) co-chaired, in 2024, by the Government of Cabo Verde and the African Development Bank Group, took place in Praia from November 4^th to 8^th. The BSG aims at providing financing support and technical assistance to the national budget through grants and loans in support of the Government’s national development priorities. The BSG is composed of Luxembourg, Portugal, Spain, the European Union, the African Development Bank Group and the World Bank Group.

The Government and BSG Partners discussed topics related to macroeconomic stability, the fiscal position, public finance management, public administration reform, employment and employability, poverty reduction and social protection, health, security, climate action, energy transition, blue economy, and digital and transport connectivity.

The BSG expresses its gratitude to the Government of Cabo Verde, in particular the Ministry of Finance and Business Development, representatives of line ministries, the Bank of Cabo Verde, the Court of Accounts and the Specialized Committee on Finance and Budget of the National Assembly, and other public entities for their participation and involvement in this review.

The BSG takes note of the recent positive developments in Cabo Verde’s economy, including the strong performance of the tourism sector and an improvement in agriculture output in the first half of the year. Medium-term growth is expected to remain stable, supported by private consumption, investment in tourism and the blue economy, and the implementation of sector reforms under the Strategic Plan for Sustainable Development (PEDS II 2022-2026). While near-term prospects are favorable, the outlook is subject to risks, primarily related to the performance of state-owned enterprises (SOEs), global uncertainties and climate change. The BSG’s reiterates the need to accelerate the diversification of the economy to enhance its resilience to external shocks.

Partners recognize the ongoing efforts to improve domestic revenue mobilization, as evidenced by the increase in domestic resources in the proposed Budget for 2025. This continued momentum, together with concrete measures to rationalize tax incentives, is key to ensuring fiscal sustainability. The BSG takes note of recent reforms of public enterprises. However, the fiscal risks remain a concern given continued support through capitalizations and guarantees. Partners emphasize the need to accelerate efforts to improve the performance of SOEs, which will help reduce fiscal risks and promote a more favorable environment for private investment.

Following the publication of the Methodology for Assessing Public Procurement Systems report, Partners call on the Public Procurement Regulatory Authority (ARAP) to implement measures to address the gaps identified, including reviewing the legal and regulatory environment and accelerating the transition to e-procurement.

Regarding the external audit of the Court of Accounts, BSG reiterates its concern with the delay in processing complaints by the relevant authorities. It also notes the high number of public institutions that fail to submit their accounts on time.

BSG partners recognize the progress made in the reforms of e-governance and human resource management as part of the modernization of public administration.

The BSG reiterates the importance of prioritizing the Public Finance Management Performance Assessment Framework exercise to guide public finance management reforms.

With regard to the implementation of the National Strategy for the Eradication of Extreme Poverty (ENEPE 2022-2026), the Group highlights the significant increase in the number of beneficiaries of social transfers and social pensions, in particular through the Fundo Mais and the Treasury. For an effective implementation of ENEPE, its operationalization at the municipal level, supported by adequate human and financial resources, is considered essential to cover the most vulnerable families and strengthen social inclusion. Ensuring greater diversification of the funding sources for the Fundo Mais, as established in the Decree-Law creating the fund, is critical to mitigate the impact of tourism-related shocks.

The BSG emphasizes the importance of ensuring a continued increase in the number of vocational training actions financed by the Employment and Training Promotion Fund, in line with the National Strategy for the Promotion of Decent Employment. Regarding entrepreneurship, Partners note the ongoing efforts to adopt a new strategy for ProEmpresa, which is essential to improve the alignment of its services with the needs of the market.

Partners continue to follow the dengue epidemic with concern and take note of the measures adopted, acknowledging the need for stronger multisectoral coordination to ensure an effective response. The Group continues to emphasize the structural limitations of the health sector and the need for improved planning, budgeting and implementation. Accelerated investment, improved operations, and completion of recruitment processes are considered key factors in improving the performance of the sector and the quality of health services provided.

In the area of security, BSG recognizes the efforts of the authorities to prevent and combat crime, as reflected in the reduction of the crime rate, and urges Cabo Verde to develop the Proximity Prevention and Security Plan to prioritize and strengthen crime prevention mechanisms.

The BSG notes the important progress made by Cabo Verde to operationalize a climate governance framework adapted to the country's characteristics and needs. Complementing this framework with a clear climate resource mobilization strategy is a fundamental step towards strengthening the country's climate resilience.

BSG partners acknowledge the efforts made by Cabo Verde in the energy transition and stress the importance of increasing and building capacity of technical staff of the Ministry of Industry, Trade and Energy, as well as the Multisectoral Economic Regulatory Agency. The BSG also underlines the importance of completing the unbundling process of Electra, ensuring governance, transparency and competitiveness of the market. It also underscores the need to extend the coverage of the social electricity tariff, in line with the country's social inclusion objectives.

Partners welcome the creation of the Sea Satellite Account as a first step towards the Blue Economy Satellite Account, as well as efforts undertaken to analyze the data of the 2015-2017 period, but await an analysis for the next period that includes information until 2023. Partners emphasize the importance of accelerating the process of developing a regulatory framework to support the diversification of artisanal fisheries into income-generating activities linked to tourism. The BSG encourages the authorities to intensify their efforts to achieve their commitment of reserving 30% of Cabo Verde’s maritime space for protected areas by 2030. The Group also reiterates the importance of operationalizing the Blue Economy Steering Committee to ensure the necessary multisectoral coordination.

The Group notes the government's ambitious initiatives in establishing Cabo Verde as a digital hub in the region and welcomes the shared vision of the government for Cabo Verde's Technology Park.

Finally, while efforts are being made to overcome the challenges of domestic connectivity, Partners stress the importance of ensuring that fiscal risks are properly addressed in the operationalization of the new airline. A well-defined business model for the airline and a legal and regulatory environment conducive for competitive concession of Public Service Obligations will be crucial to ensuring the stability and quality of domestic air services in the long term.

BSG partners reiterate their continued support to Cabo Verde and thank the all the entities for their commitment to a constructive and fruitful dialogue.