- IMF Backs Cabo Verde Stability Agenda as Public Debt Risks Remain Elevated
The International Monetary Fund has said Cabo Verde’s economy remains strong, supported by robust investment activity and services exports, but warned that elevated public debt and exposure to external and climate-related shocks continue to pose important vulnerabilities for the island economy.
The assessment followed an IMF staff visit to Praia from July 21 to 24, 2026, led by Martin Schindler. The mission held introductory discussions with Cabo Verde’s new government, which took office in mid-July, but the visit will not result in a discussion by the IMF Executive Board.
“The Cabo Verdean economy remains strong,” the IMF team said at the end of the mission, noting that real GDP grew by 6.40% year-on-year in the first quarter of 2026.
The Fund said the expansion was supported by robust investment activity and services exports, while inflation remained low at 1.10% in June. International reserves also continued to provide what the mission described as a comfortable buffer against external shocks.
The tone of the statement was broadly positive, but carefully qualified. Cabo Verde is not being presented as an economy in distress. Rather, the IMF is signalling that the country’s recovery and growth performance remain intact, but that the new administration must avoid policy choices that could weaken fiscal sustainability.
The Fund’s message to the new government was clear: protect the gains, keep debt falling, and avoid broad-based spending commitments that may be politically attractive but fiscally dangerous.
The IMF said it welcomed the authorities’ commitment to safeguard macroeconomic stability and fiscal sustainability while advancing reforms to support inclusive growth, job creation and improved living standards.
That formulation captures the policy dilemma facing the new administration. Cabo Verde must continue growing, creating jobs and improving welfare, but it must do so without reopening fiscal vulnerabilities or allowing public debt to drift away from a downward path.
For a small island economy exposed to tourism cycles, external financing conditions, imported inflation, climate shocks and global demand trends, fiscal space is not merely a budgetary concept. It is a form of national insurance.
The IMF therefore emphasised the importance of preserving fiscal sustainability and keeping public debt “on a firm downward trajectory.” It said policies should remain fiscally prudent while protecting vulnerable households.
The Fund’s caution against broad-based, untargeted subsidies is particularly significant. Such subsidies can offer short-term political relief, especially when households face cost pressures. But they can also create permanent fiscal costs, distort public spending priorities and weaken the consolidation gains achieved over recent years.
The IMF’s advice suggests that Cabo Verde’s government should favour targeted social protection rather than blanket subsidies. In practical terms, that means support should go to households most affected by poverty, price shocks or vulnerability, rather than to measures that benefit all consumers regardless of income.
This is likely to become one of the central tests of the new government’s economic management. It must demonstrate that it can protect living standards without undermining debt sustainability.
The IMF also highlighted the need to strengthen public finances and address fiscal risks, including those arising from state-owned enterprises. That warning is familiar across many developing economies. SOEs can become hidden sources of fiscal pressure when their losses, arrears, guarantees or weak balance sheets eventually migrate onto the public budget.
For Cabo Verde, where the state plays an important role in infrastructure, utilities and service delivery, improving SOE governance will be essential to reducing contingent liabilities and protecting public finances.
The Fund also called for continued structural and climate-related reforms to sustain strong and inclusive growth.
That climate reference is important. Cabo Verde’s vulnerability is not theoretical. As an island economy, it faces risks from rising sea levels, extreme weather, water stress, coastal pressures and the broader economic consequences of climate change. These risks can affect tourism, infrastructure, agriculture, public health and fiscal planning.
The IMF’s statement therefore frames climate resilience as an economic-management issue, not merely an environmental concern. For Cabo Verde, sustainable development will require investment in resilient infrastructure, better disaster preparedness, climate-smart public investment and financing strategies that do not worsen debt vulnerabilities.
The mission met with Prime Minister and Minister of Finance Francisco Carvalho, Secretary of State for Finance Maria José Lopes, Minister of Economy, Trade, Industry and Digital Transition António Baptista, Minister for the Coordination of Special Projects and Access to Funding José Varela, board members of the Banco de Cabo Verde, other senior government officials, development partners and private-sector representatives.
The broad range of engagements suggests the IMF’s interest extended beyond fiscal numbers. The discussions covered the new government’s policy intentions, its recently adopted programme and the wider reform direction of the economy.
For investors and development partners, the statement offers cautious reassurance. Cabo Verde’s growth momentum remains strong, inflation is low, reserves are adequate and the new government has signalled willingness to remain closely engaged with the IMF.
But the Fund is also making clear that macroeconomic stability must not be taken for granted. The combination of elevated debt, external exposure and climate vulnerability means the country has limited room for fiscal slippage.
The IMF’s message is therefore less about crisis prevention and more about discipline after recovery. Cabo Verde appears to have a strong economic base, but the next phase will depend on whether the new government can maintain prudent fiscal policy while delivering inclusive growth.
That is always the harder balance. Growth numbers can impress markets, but citizens judge governments by jobs, incomes, public services and living standards. The challenge is to meet those expectations without weakening the public balance sheet.
For Cabo Verde, the IMF’s visit marks the beginning of a new policy conversation with a new administration. The Fund’s verdict is encouraging, but not complacent.
The economy is strong. Inflation is low. Reserves are comfortable. But public debt remains elevated, shocks remain real, and fiscal discipline remains the condition for sustained progress.
Cabo Verde’s new government has inherited momentum. The test now is whether it can turn that momentum into inclusive growth without sacrificing the stability that made the recovery possible.
