Document of The World Bank FOR OFFICIAL USE ONLY Report … · 2016. 7. 8. · Report No. 57963-CV...

Document of The World Bank

FOR OFFICIAL USE ONLY

Report No. 57963-CV

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION

COUNTRY PARTNERSHIP STRATEGY PROGRESS REPORT

FOR

THE REPUBLIC OF CAPE VERDE

FOR THE PERIOD FY09-12

January 13, 2011

Country Department for Cape Verde (AFCF1) Africa Region

This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s Policy on Access to Information.

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CURRENCY EQUIVALENTS (as of December 28, 2010)

Currency Unit: Cape Verdean Escudo

CVE 127.96 = 1 SDR

CVE 110.27 = €1.00 (Peg) CVE 83.50 = US$1.00

1 SDR = US$1.53

FISCAL YEAR January 1 – December 31

ACRONYMS AND ABBREVIATIONS

AAA Analytic and Advisory Assistance AfBD African Development Bank AFRVP Vice President, Africa Region (World Bank) APL Adaptable Program Loan BADEA Banque Arabe pour le Développement Economique en Afrique (Arab Bank for

Economic Development in Africa) BCV Banco de Cabo Verde (Central Bank) BNPP Bank Netherlands Partnership Program BSG Budget Support Group CAS Country Assistance Strategy CCT Conditional Cash Transfer CEM Country Economic Memorandum CPIA Country Policy and Institutional Assessment CPPR Country Portfolio Performance Review CPS Country Partnership Strategy CPSPR Country Partnership Strategy – Progress Report CVE Cape Verdean Escudo DfID Department for International Development (United Kingdom) DSA Debt Sustainability Analysis EC European Commission ECOWAS Economic Community of West African States ETS Economic Transformation Strategy EU European Union FDI Foreign Direct Investment FSAP Financial Sector Assessment Program FY Fiscal Year GDP Gross Domestic Product GEF Global Environment Facility GNI Gross National Income GPRSP Growth and Poverty Reduction Strategy Paper HIV/AIDS Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report ICT Information and Communications Technology IDA International Development Agency IDF Institutional Development Fund

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IDRF Inquérito às Despensas e Receitas Familiares (Family Expenditure and Income Survey) IFC International Finance Corporation IMF International Monetary Fund INE Instituto National de Estatística (National Statistics Institute) ISR Implementation Status and Results Report JSDF Japan Social Development Fund LPRP Luxembourg Poverty Reduction Partnership M&E Monitoring and Evaluation MCA Millennium Challenge Account MCC Millennium Challenge Corporation MDG Millennium Development Goal MIGA Multilateral Investment Guarantee Agency MpD Movimento para a Democracia (Movement for Democracy) MTEF Medium-Term Expenditure Framework PAICV Partido Africano da Independência de Cabo Verde (African Party for the Independence

of Cape Verde) PER Public Expenditure Review PPP Public-Private Partnerships PREM Poverty Reduction and Economic Management (World Bank) PRSC Poverty Reduction Strategy Credit PSI Policy Support Instrument (IMF) QUIBB Questionário Unificado de Indicadores Básicos de Bem Estar (Unified Survey of Core

Welfare Indicators) SIGOF Sistema Integrado de Gestão Orçamental e Financeira (Integrated Budget and Financial

Management System) SIL Sector Investment Loan SIM Sistema de Informação Municipal (Municipal Information System) SME Small and Medium Enterprises TA Technical Assistance TACV Transportes Aéreos de Cabo Verde (Cape Verde Airlines) TVET Technical and Vocational Education and Training USD United States Dollar VAT Value-added Tax

World Bank

Vice President: Country Director:

Task Team Leader:

Obiageli K. Ezekwesili (AFRVP) Habib Fetini (AFCF1) McDonald Benjamin (AFCSN)

ACKNOWLEDGEMENTS

The World Bank Group greatly appreciates the close and fruitful collaboration with the Government of Cape Verde in the preparation of the Country Partnership Strategy (CPS) and of this Progress Report (CPSPR). This CPSPR was prepared by members of the World Bank Group’s Cape Verde Country Team, including McDonald Benjamin, Fernando Blanco, Jerome Cretegny, Upulee Dasanayake, Frank Douamba, Stephan Garnier, Alvaro Gonzalez, Vera Kehayova, Geraldo Martins, Danette Metcalfe, Luz Meza-Bartrina, Harifera Raobelison, Kavita Sethi, Thomas Vis and John Virdin, under the overall leadership of Habib Fetini. Valuable peer review comments from institutional reviewers are also gratefully acknowledged.

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FOR OFFICIAL USE ONLY

THE REPUBLIC OF CAPE VERDE COUNTRY PARTNERSHIP STRATEGY PROGRESS REPORT

TABLE OF CONTENTS

I. INTRODUCTION 1

II. COUNTRY CONTEXT 1

A. Political and Economic Developments 1 B. Country Priorities and CPS Relevance 5

III. IMPLEMENTATION PROGRESS 6

A. CPS Program Implementation 6 A1. Overall Lending Envelope 6 A2. Adjustments to the CPS Program to Date 6 A3. Analytic and Advisory Assistance (AAA) 7 A4. Portfolio Performance 8 A5. Trust Funds 9 A6. IFC and MIGA Programs 9 A7. Partnerships 10

B. Progress Towards CPS Outcomes 10

IV. LOOKING AHEAD TO THE FINAL YEAR OF THE CPS 12

A. The Final Year of the CPS 12 B. Managing Risks 13

BOXES Box 1. Discussion of the CPS with Civil Society and Private Sector Stakeholders in May 2010 6 Box 2. Electra’s Institutional and Operational Challenges 12 TABLES Table 1. Basic Macroeconomic Indicators, 2007-14 2 Table 2. Original and Revised IDA and IBRD Financing Envelope and Program for FY09-12 7 Table 3. Original and Revised AAA Program for FY09-12 8 ANNEXES Annex A1. Cape Verde FY09-12 CPS Results Matrix with Implementation Progress 15 Annex A2. Cape Verde at a Glance 23 Annex B1. Cape Verde CPSPR - Selected Indicators of Bank Portfolio Performance and Management 26 Annex B2. Cape Verde CPSPR – Key Social Indicators 27 Annex B3. Cape Verde CPSPR – Key Economic Indicators 28 Annex B4. Cape Verde CPSPR – Key Exposure Indicators 30 Annex B5. Cape Verde CPSPR – Operations Portfolio: IBRD/IDA and Grants 31 Annex B6. Cape Verde CPSPR – IFC Committed and Disbursed Outstanding Investment Portfolio 32 Country Map IBRD 33383 33

This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s Policy on Access to Information.

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I. INTRODUCTION

1. This Country Partnership Strategy Progress Report (CPSPR) reviews the relevance of the FY09-12 Country Partnership Strategy (CPS) for Cape Verde, which was discussed by the Board of Executive Directors on April 21, 2009. At the time of the Board discussion, Directors indicated that they looked forward to an early CPS Progress Report to reflect any adjustments that might be required in the program in light of the global crisis. This CPSPR is therefore being presented before the completion of the first two years of the CPS to provide an update on the country context and the evolution of key risks, progress to date under the CPS and the adjustments that are proposed in the country program.

2. This Progress Report confirms that the strategic priorities remain relevant and well aligned with national priorities. In response to the global crisis, Cape Verde has intensified its investment agenda in line with the priorities established in its Second Growth and Poverty Reduction Strategy Paper (GPRSP-II). The Bank has in turn focused on supporting Cape Verde in its efforts to maintain the impetus of reforms and consolidate progress on a strong medium-term development agenda, while making additional IDA resources available to assist the country through the crisis period. The core tenet of the strategy, namely to concentrate the Bank’s financial resources in selected areas within the three pillars of the CPS and engage fully in those areas until transformative change is achieved, remains the guiding principle for this Country Partnership Strategy. The Bank’s strong commitment to Cape Verde’s economic transformation agenda has been an important factor in the quality of the dialogue and the partnership that the Bank has enjoyed with the Authorities.

II. COUNTRY CONTEXT

A. POLITICAL AND ECONOMIC DEVELOPMENTS

3. Cape Verde, with its strong track record of political stability, is preparing for legislative elections early next year. Since 1991, when constitutional reforms brought about a peaceful transition to a multi-party democracy, Cape Verde has consolidated its democratic institutions and developed a strong track record of peaceful elections and transfers of power. It also has a free and diverse press, and active civil society and grassroots organizations. The ruling Partido Africano da Independência de Cabo Verde (PAICV) won the last legislative elections in January 2006, although the opposition Movimento para a Democracia (MpD) won a narrow majority of mayoral contests in the 2008 municipal elections. The country has now entered a pre-election mode, with the key legislative elections coming up early in February 2011, followed by the election of the (largely representational) presidency within six months. The country’s economic development in recent years, the current state of the economy and the response to the global crisis are emerging as key issues for the forthcoming elections.

4. Despite a robust and effective policy response to the economic shocks of 2008 and the 2009 global crisis, depressed tourism receipts and a collapse in foreign direct investment (FDI) sharply reduced Cape Verde’s impressive GDP growth rate in 2009. After enjoying an impressive average annual GDP growth rate of more than 7 percent from 2003-2007, GDP growth slipped but remained strong at 6.2 percent in 2008, as the country resisted the effects of the food and fuel shocks by virtue of its large stocks of cereal reserves, the appreciation of the escudo against the US dollar, as well as a range of fiscal and other measures designed to limit the full impact of food and fuel price surges on consumers. Nevertheless, late in 2008 and throughout 2009, Cape Verde experienced a sharp decline in tourism receipts, which account for around 20 percent of GDP, and a collapse in related FDI, as mainly European developers faced reduced demand and a sharp contraction in financing for their investments. Indeed, FDI was 40 percent lower in the first half of 2009 than in the same period in 2008—when it accounted for 14

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percent of GDP—contributing to the sharp decline in the growth rate of real GDP to 3.6 percent in 2009 (see Table 1). Inflation also fell from a high of 6.8 percent after the food and fuel shocks in 2008 to 1.0 percent in 2009, while unemployment rose from 18 percent in 2008 to 20.9 percent in 2009. Agriculture and industrial production (notably textiles and shoe manufacturing) declined while services held up better.

Table 1. Basic Macroeconomic Indicators, 2007-14

Indicator 2007 a 2008 a 2009e 2010f 2011f 2012f 2013f 2014f

Nominal GDP (CVE billions) 107.3 116.7 126.0 137.2 149.2 163.8 181.0 199.1 Real GDP growth (% annual change) 8.6 6.2 3.6 5.4 5.9 6.8 7.6 6.9 Gross capital formation (% of GDP) 46.4 46.6 39.4 49.6 46.1 43.5 39.0 38.0

Private 35.0 32.6 25.3 27.0 27.8 27.9 27.4 26.5 Public 11.4 13.9 14.1 22.6 18.3 15.6 11.7 11.5

CPI annual average (% annual change) 4.4 6.8 1.0 2.2 3.0 2.5 2.0 2.0

Overall fiscal balance, including grants (% of GDP) -0.8 -1.3 -6.3 -13.5 -11.0 -7.7 -3.6 -3.0

External flows (external grants plus foreign financing as % of GDP) .. 10.1 10.4 20.4 15.7 13.3 9.1 7.2

External current account, including official transfers (% of GDP) -14.7 -12.8 -9.8 -18.1 -16.8 -15.2 -12.4 -9.7

Reserve coverage (months of prospective imports of goods and services)

4.1 4.2 4.4 4.0 4.1 4.3 4.3 4.7

Central Government debt (% of GDP) 68.0 65.0 63.9 80.9 86.7 87.7 84.2 79.5 Memo Item: 2010 census data from INE show the population of Cape Verde at 491,000 in 2010, growing at 1.2 percent/year. NB: a = actual; e = estimated; f = forecast. Data source: IMF.

5. The continuing economic weakness of key European trading partners has slowed Cape Verde’s recovery from the global crisis. Spain and Portugal account for 50 percent of Cape Verde’s imports and 75 percent of its exports, and the two partner countries are also important sources of remittances and of donor assistance. More broadly, European countries account for the vast majority of Cape Verde’s tourism receipts. While the downward trend in the country’s tourism receipts has been reversed in recent months, the incipient recovery in this area is being accompanied by a decline in remittances from Cape Verde’s large diaspora in the Euro Zone, due to adverse employment and wage effects in these countries. Between January and June of 2010, total remitted income was 5 percent less than that observed during the same period in 2009.1

6. The Government moved swiftly to address the effects of the global crisis through a strong expansionary fiscal impulse driven by a combination of tax cuts and increased public investment. These measures avoided a deeper slump in domestic economic activity and contributed to the gradual recovery in economic growth beginning late in 2009. Cape Verde’s long track record of fiscal prudence created the fiscal space that the Government drew on to respond when the crisis materialized. Moreover, the rapid response has been geared to address structural issues in ways that strengthen medium-term recovery and growth. In particular, it has comprised cuts in personal and corporate income taxes,

There is also a downside risk to donor assistance as European countries implement austerity budgets, although bilateral commitments have been maintained to date. On balance, these effects, combined with the Government’s fiscal stimulus, are contributing to a recovery in projected real GDP growth to 5.4 percent in 2010.

1 Remittances have accounted for between 8-13 percent of GDP since 2005, representing a substantial contribution to private consumption and the balance of payments. While remittances held up well in 2009, the continuing weakness in Euro Zone economies, which together account for most of Cape Verdean remittances, is likely to result in a further decline in the short term. Thus remittances from Euro Zone countries fell by 7 percent in the first half of 2010, even as remittances from the US rose by 6 percent, for an overall decline of around 5 percent.

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selective increases in priority social expenditures, and prudent containment of current public expenditures, combined with an aggressive public investment program designed to stimulate domestic demand while addressing infrastructure constraints (such as ports and airports) to encourage medium-term growth. In order to finance the public investment program, Cape Verde has drawn on expanded concessional donor financing that has been made available to the country by bilateral partners for a five-year window following Cape Verde’s graduation to middle-income status in 2007.

7. The resulting fiscal stimulus has been quite sizable for 2009-10, with capital expenditures rising from 14 percent of GDP in 2009 to 23 percent of GDP in 2010. This has led to a sharp rise in the fiscal deficit from 1.4 percent of GDP in 2008 to 6.3 percent in 20092

8. While the overall macroeconomic outlook remains strong, the Government will need to decelerate external borrowing after 2011 to restore buffers against future shocks. During 2005-09, the Government reduced the public sector debt from 87 to 64 percent of GDP, however public debt is expected to rise again to 81 percent of GDP this year and to reach almost 88 percent by 2012. Stress tests conducted as part of the recent Joint World Bank-IMF Debt Sustainability Analysis (DSA) suggest that, as in last year’s DSA when the risk of debt distress was rated as low, key debt ratios remain below thresholds in the base case scenario and in most stress scenarios. Nevertheless, it will be important for Cape Verde to reduce fiscal deficits beginning in 2011 to contain the ratio of the present value of debt to GDP and thereby avoid an increase in the risk of debt distress.

and a projected 13.5 percent in 2010, although the deficit is expected to decline to 11 percent in 2011 and to single digits thereafter (see Table 1). On the monetary side, the accumulation of foreign reserves remained a priority with a view to maintaining the fixed exchange rate peg of the Cape Verdean escudo against the euro. Appropriately cautious monetary policy through the Central Bank’s policy rate has contributed to maintaining foreign reserves at around 4 months of imports and reserves are projected to remain stable. The escudo is supported by a standing line of credit from the Central Bank of Portugal, and the IMF Staff Report for the 2010 Article IV Consultation suggests that the escudo is broadly aligned with its fundamentals.

3 There are important signs that such a risk can be averted: quarterly growth rates for 2010 are already exceeding expectations, FDI and tourism receipts are beginning to rise again, future growth projections do not fully reflect the long-term impact of the public investment program,4

9. Looking forward, the medium-term macroeconomic outlook remains relatively favorable, although there are important down-side risks if the economic weakness in key Euro Zone countries markedly intensifies and persists beyond current projections. While the Cape Verdean economy will experience double-digit fiscal deficits and large current account deficits during 2010-11 (see Table 1), the large deficits are expected to be a transitory reflection of external conditions and appropriate policy choices rather than structural weaknesses in the domestic economy or in the Government’s macroeconomic policy framework. The GDP growth rate is expected to recover to 6 percent in 2011 and average 7 percent annually from 2012-2014. Fiscal deficits are projected to fall to 7.7 percent of GDP in 2012 and to 3 percent by 2014 as public investment returns to pre-crisis rates of around 11-12 percent of GDP. External balances will return to their pre-level crisis of around 12 percent by 2013, while inflation

and the Government, with its strong track record of prudent fiscal management has long presented the current acceleration in the public investment program as a transitory measure agreed with the IMF and designed to take full advantage of the window of opportunity for concessional financing that is expected to begin to close after 2012.

2 Earlier IMF projections pointed to a deficit equal to 10 percent of GDP in 2009, but delays in implementing public investments and a lower than expected fall in revenues resulted in the actual fiscal deficit of 6.4 percent. 3 A further consideration is that the DSA coverage extends only to Central Government accounts, and excludes contingent liabilities due to municipal or State-Owned Enterprise obligations. 4 All projects in the public investment program have undergone feasibility and market studies, with rigorous evaluation of expected impacts in addressing critical infrastructure constraints in transport, energy and water. The Government has made a commendable effort to avoid wasteful or impractical spending and to ensure that projects contribute to the long-term growth of the economy. As a result of this evaluation process for public investments, future growth and fiscal revenues are likely to exceed the projections of recent debt sustainability analyses.

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is projected to remain low at around 2 percent. According to data from INE, Cape Verde has begun to experience a turn-around in tourism receipts—which rose by 7 percent in the first quarter of 2010 relative to the same period in 2009—although data on FDI trends are less clear and Cape Verde’s open economy remains highly sensitive to changes in the global economic context, especially among key economic partners in Europe. A further intensification or greater persistence of the Euro Zone crisis could have spillover effects notably through reduced tourism arrivals, a renewed decline in FDI or reduced donor financing. This eventuality is spurring very close economic monitoring by the IMF under a new 15-month Policy Support Instrument, as well as by the Bank, which would be in a position to respond if the need arises by front-loading support during the first year of IDA-16. At the same time, Cape Verde’s sound economic management, its swift and measured response to the crisis and its implementation of the public investment program in line with the available concessional financing, augur well in the event that down-side risks presented by the Euro Zone crisis materialize in a significant way.

10. Cape Verde is one of the top ten reformers in the 2011 Doing Business rankings, rising from 142nd to 132nd in the world, which augurs well for its medium-term growth prospects. Cape Verde’s performance in strengthening the investment climate provides clear evidence of progress with regard to its economic transformation strategy. The country achieved sharp increases in its rankings with regard to starting a business (up 19 places), registering property (up 27 places) and paying taxes (up 43 places), and it has retained one of the higher positions in the world (38th) in the area of contract enforcement, which is critical for reducing investor risk and ensuring good governance. The Bank has provided important support to Cape Verde in strengthening its investment climate in the improved areas above. At the same time, there are important areas in which further reforms are needed to strengthen the business environment, notably in further reducing the cost of starting and licencing a business, making it easier to register property that can be used as collateral, and in particular strengthening access to finance—in which Cape Verde is ranked 152nd—and introducing bankruptcy procedures, for which Cape Verde is ranked 183rd for want of well-established and clear bankruptcy procedures. These are areas that the Bank will be supporting under the SME Capacity Building and Economic Governance Project. The business environment will also be improved by addressing shortcomings in the energy sector (see Box 2 below).

11. Cape Verde also stands out as one of the few African economies that is on track to achieve all the MDGs by 2015. While there are no survey instruments to allow for an estimation of the impact of the global crisis on poverty in Cape Verde, the analysis of the latest three poverty surveys suggests that the share of the population in absolute poverty decreased from 49 percent in 1988-89 to 37 percent in 2001-02 and to 27 percent in 2007.5

12. At the same time, Cape Verde continues to face important social challenges, with high unemployment among vulnerable groups contributing to a rise in crime, and unequal opportunities by gender affecting women’s well-being. Though the proportion of the labor force unable to find formal work fell from 26 to 18 percent between 1998 and 2008, unemployment remains high and rose with the global crisis, particularly among youth, women and rural populations, and there are sharp

The sharp reduction in poverty since 1990 has been complemented by significantly increased access to education (with net primary enrollment exceeding 95 percent) and gender parity in school enrollment. Infant mortality has been reduced from 45 to 25 per 1,000 live births since 1990, maternal mortality has also declined as births attended by skilled health personnel have risen sharply from 54 percent in 1995 to around 90 percent, and life expectancy at birth (71 years) is the third highest in Africa. Cape Verde has made important efforts to contain the spread of infectious diseases with an HIV/AIDS prevalence rate of 0.8 percent according to the most recent survey, versus 0.5 percent in the mid-1990s, and an incidence of tuberculosis that has held at around 165 per 100,000 since the early 1990s. Cape Verde has also increased the forested area from 14 percent to slightly over 20 percent of land area since 1990. In addition, it has become an increasingly open economy, with trade rising from 56 to 69 percent of GDP since 1990, and with internet and telephony access bounding since 2000.

5 Sources: 1988-89 and 2001-02 IDRF family expenditure and income surveys (Inquérito às Despensas e Receitas Familiares) and the 2007 QUIBB Unified Core Welfare Indicators Survey (Questionário Unificado de Indicadores Básicos de Bem Estar).

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differences across islands, reflecting a misalignment between skills and job opportunities and constraints in domestic migration. This has translated into an increase in crime in urban areas and to a significant share of the economically active population, especially the poor, gaining their livelihoods in the informal sector. Moreover, while gender inequality is less pronounced than elsewhere in Africa, women continue to face challenges that need to be addressed. In particular, women in Cape Verde are likely to be poorer than men, earning less in urban areas than men with similar levels of education and experience, and farming smaller plots of land than men in rural areas. Women have experienced impressive gains in education and health, including parity in enrollments, declines in maternal mortality, and a decline in total fertility from 5.4 to 2.7 since 1990. However continuing challenges include reducing the incidence of domestic violence, further strengthening access to basic social services for female-headed households, and ensuring equality of opportunity in employment.

B. COUNTRY PRIORITIES AND CPS RELEVANCE

13. Cape Verde’s development is guided by the vision of the economic transformation of its economy in a way that takes advantage of its geo-strategic position as well as its natural and cultural assets. This vision translates into a strategy to promote Cape Verde as a multi-purpose service center, with a combination of financial services, hub services for air passengers, transshipment and distribution of goods, and fish processing, in addition to building on its significant tourism business. The Economic Transformation Strategy (ETS), which was grounded in extensive dialogue early in 2001, is at the foundation of the country’s earlier Growth and Poverty Reduction Strategy Paper (GPRSP) for 2004-07 and its current GPRSP-II for 2008-11. The strategy focuses on ensuring consistent broad-based growth by expanding and diversifying the nation’s productive base and deepening reforms and investments to build a more competitive economy around four clusters: sea, sky, ICT and financial services.

14. The original objectives of the GPRSP-II were to reduce unemployment to below 10 percent, attain an accelerated real economic growth rate above 10 percent, and cut poverty by half.6 These objectives are recognized to be overambitious now in light of the global crisis. The current GPRSP-II draws on the ETS as well as strategic documents such as the Government Program and the ‘Grand Options of the Plan’, and maintains the thrust of the earlier GPRSP, while putting greater emphasis on infrastructure and private sector development to support growth and reduce poverty. The specific actions are broadly grouped under the same five strategic pillars as for the first GPRSP, namely promoting government reform; developing human resources; enhancing competitiveness; investing in the country’s economic infrastructure and strengthening social cohesion. The GPRSP-II reflects strong ownership from both the Government and civil society as it was drawn up in a participatory manner with broad consultations with municipal representatives, civil society organizations and private sector stakeholders in different parts of the country. The 2009 GPRSP-II Progress Report ratifies the strategic objectives and reports satisfactory progress towards indicators in most areas of the strategy during 2009, while noting the repercussions of the global crisis on various economic indicators.7

15. The CPS objective of helping the Government sustain high levels of growth and reduce unemployment, poverty and inequality remains relevant and aligned with national priorities. To achieve this objective, the Bank is providing technical and financial support under three CPS pillars with a view to: (a) promoting good governance and public sector capacity; (b) improving competitiveness and the investment climate for private sector-led growth, and (c) strengthening human capital and social inclusion. The aim is to provide focused and sustained support in key areas under these three pillars to achieve irreversible economic transformation to higher levels of performance in these areas. The importance of focusing on certain areas rather than frequently switching project areas was moreover

6 The Joint IDA-IMF Staff Advisory Note on the GPRSP-II (Report No. 43927-CV) was discussed by the Board on July 8, 2008. 7 2009 Global Report on the Progress of Execution of the Growth and Poverty Reduction Strategy (GPRSP-II), prepared by the National Planning Department, Ministry of Finance, in April 2010.

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confirmed during discussions with civil society in Praia in May 2010 (see Box 1). The CPS objectives and strategy remain highly relevant and fully aligned with the Government’s priorities, as has also been confirmed in the course of policy dialogue with the Authorities and of the Bank’s economic monitoring. In addition, CAS outcomes remain broadly relevant and likely to contribute to the country’s development goals (see Section III); therefore, no change in strategy is proposed at this time.

Box 1. Discussion of the CPS with Civil Society and Private Sector Stakeholders in May 2010

A meeting was held in Praia, Cape Verde, on May 10, 2010, to disseminate the CPS document, report back on the first year of progress under the CPS and invite feedback for consideration in the preparation of the CPS Progress Report. The meeting was hosted by the Ministry of Finance and attended by representatives of civil society and private sector organizations, including grassroots NGOs, the leading business chambers and other stakeholders.

Participants asked why the presentation had not been held earlier and how the Bank could engage more directly with grassroots NGOs rather than passing resources through the Government, since NGOs, with their proximity to civil society, would like to engage more closely with the Bank. They asked about the articulation of Bank support with that of other donors in the area of capacity building and asked whether the Bank could finance small-scale renewable energy projects. The Bank was commended for its engagement with small- and medium-scale enterprises through matching grants. It was noted, however, that projects tend to be short term and thus not ensure continuity, and that a longer concentration was needed in one area to resolve issues before moving on to other areas.

Ministry of Finance and Bank staffs reported back on the (a) wish to deliver the first year of the program before reporting back to civil society; (b) strategic approach of focusing donor assistance in key areas over time and coordinating donor assistance through the Ministry of Finance; (c) intention to concentrate IBRD investments on strengthening energy supply for the main grids (in relation to the question of financing small-scale off-grid renewable energy); (d) commitment to continued support for matching grants for SMEs under the new project for SME capacity building and the need for scaling-up of this program, and (e) efforts that will be made to engage with civil society organizations through the Bank’s operations and grant assistance.

III. IMPLEMENTATION PROGRESS

A. CPS PROGRAM IMPLEMENTATION

A1. Overall Lending Envelope

16. In light of Cape Verde’s strong performance and of its vulnerability to the global crisis, the Bank has made additional IDA resources available to the country. The original indicative IDA envelope of SDR 27 million (US$40 million equivalent) envisaged in the CPS was reduced to SDR 25.2 million in FY10, following adjustments in line with the Performance-Based Allocation System (driven by factors that included a downward adjustment in Cape Verde’s population and consequent upward revision of its GNI per capita). However, the Bank front-loaded IDA assistance in FY10, notably under PRSC V (see Table 2 below), and in FY11 it made available US$12 million in unused IDA resources within the Africa Region to Cape Verde, thereby raising Cape Verde’s IDA-15 allocation to SDR 33.1 million (US$50.5 million equivalent).8

A2. Adjustments to the CPS Program to Date

The reallocation took into consideration Cape Verde’s significant vulnerability to the global crisis, its ineligibility as an IBRD-IDA blend country for Global Food Crisis Response Program or the Pilot Crisis Response Window funds, and its position as the IDA-eligible country with the highest Country Performance Rating Bank-wide.

17. The country team has delivered the CPS lending program to date largely as planned, with modest adjustments in the timing and amounts of credits but not in the lending program that was 8 This is based on the IDA 15 replenishment exchange rate of SDR 1 = US$1.5244—the exchange rate for each project may vary.

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foreseen. In FY09, the Board approved the PRSC IV operation for US$10 million as projected. In FY10, the PRSC V was increased from US$10 million to US$15 million in response to the crisis, and the Growth TA and SME Support Project (renamed the Small and Medium Enterprise Capacity Building and Economic Governance Project) was approved for US$4.5 million, rather than the US$3.5 million originally envisaged. There was also a modest increase in the IDA allocated to the West Africa Regional Fisheries Program (from US$1.5 million to US$2 million), allowing Cape Verde to leverage additional GEF and Regional IDA resources proportionally and increase the overall financing from US$6 million to US$8 million. The FY10 Transport Sector SIL, originally envisaged as an operation that would focus on road sector investments but begin to finance institutional capacity building around multi-modal transport, has been converted into Additional Financing for the successful on-going Road Sector Support Project, and has been postponed to FY11 and increased from US$5 million to US$9 million. At the same time, broader transport sector issues related to air and maritime transport will be taken up under IDA-16 in the previously un-programmed SIL for FY12, once diagnostic Analytic and Advisory Assistance (AAA) is completed in FY11 (see Section A3. below on AAA). This change exemplifies the Bank’s strategy of focusing and deepening support within priority areas (in this case transport) in order to achieve transformative change. On the IBRD side, the proposed Energy Sector Partial Risk Guarantee for FY10 was dropped at the Government’s request, as it opted instead to establish an escrow account to cover Electra’s liquidity risk, which is satisfactory to investors. The Energy Sector Support Operation has been postponed to FY12 in order to allow for fuller technical analysis of policy options and agreement with the new Administration on the reform agenda. It is currently foreseen at US$40 million, although the final amount is likely to be adjusted upwards within the limits of the IBRD envelope.

Table 2. Original and Revised IDA and IBRD Financing Envelope and Program for FY09-12

Financing Source and Project Name Originally Planned Financing in CPS Revised Planned Financing in CPSPR US$ million IDA 15 IDA 16 IDA 15 IDA 16

FY09 FY10 FY11 FY12 FY09 FY10 FY11 FY12^ IDA – Total 51.5m (Revised 67.5m)

PRSC IV – VII (annual budget support) 10 10 10 10 10 A 15 A 10 A 10 Transport Sector Support – SIL (changed to Road Sector Support AF) 5 9 ..

Growth TA and SME Support Project – SIL 3.5 4.5 A

Investment operation to be determined (changed to Transport Sector SIL) 1.5 4

Regional Fisheries Project* 1.5 2 A

IBRD – Total 52.8m (Revised 40-55m) Energy Sector Support Operation 41 40-55 Energy Sector Partial Risk Guarantee 11.8 0 A

GEF – Total 1.5m (Revised 2m) Regional Fisheries Project* 1.5 2 A

A = Actual. * Note: Amounts do not include $3m planned ($4m actually funded) in Regional IDA allocation for Fisheries. ^ Note: FY12 figures are indicative only and subject to change, depending on the following factors at the time of allocation: (i) Allocable IDA 16 resources; (ii) the performance rating, population, GNI per capita and applicable terms of IDA assistance of Cape Verde and of other IDA recipients, and (iii) the number of IDA-eligible countries.

A3. Analytic and Advisory Assistance (AAA)

18. The important AAA program was left largely undetermined by the CPS in order to be responsive to emerging priorities from the client, and has now been rationalized and focused on specific priorities. The FY09 AAA program was delivered as foreseen, with the Poverty Assessment feeding into dialogue on reforming targeted social assistance and the FSAP serving to identify areas for

8

strengthening banking supervision. The FY10 Initial Labor Market Assessment was delivered, reviewing constraints in the labor market while finding reasons for optimism in the areas of net job creation and integration of a national labor market. An unspecified Policy Note for FY10 became a Debt Management Performance Assessment, which was highly valued by the Authorities, who have requested follow-on technical assistance from the Bank’s Treasury and PREM Departments. In addition, capacity building sessions were provided in the area of Anti-Money Laundering and Countering the Financing of Terrorism. The proposed PER for FY11 has been replaced by an in-depth Transport Diagnostic, with a focus on air transport and on the national carrier, TACV, while a previously unspecified FY11 Policy Note will take the form of largely trust-funded AAA for Higher Education. The previously unspecified AAA program for FY12 has been determined at this time and will comprise a Country Economic Memorandum (CEM) and technical assistance to further strengthen management of Cape Verde’s public investment program. This assistance will also help the Government to develop a capacity to routinely evaluate poverty, gender and other social impacts of investments. The Government has also requested a Public Expenditure Management and Financial Accountability Review for FY12, which will provide an important input for the policy dialogue under the PRSC series. The AAA program has been well aligned with PRSP and CPS priorities, contributing to the Bank’s policy dialogue and operational support to the Authorities on issues of public sector effectiveness and private sector competitiveness.

Table 3. Original and Revised AAA Program for FY09-12

FY09 FY10 FY11 FY12

Poverty Assessment (Delivered) Financial Sector Assessment (FSAP – Delivered)

Initial Labor Market Assessment (Delivered) Policy Note (Changed to: Debt Management Performance Assessment – Delivered)

PER (Changed to: Air Transport Diagnostic AAA) Policy Note (Changed to: Higher Education AAA)

Policy Note (Changed to: CEM) Policy Note (Changed to: Public Investment Program TA) New: Public Expenditure Management and Financial Accountability Review

A4. Portfolio Performance

19. Cape Verde has had one of the smaller but also generally one of the best performing portfolios in the Africa Region. The current portfolio comprises two investment operations, for Road Sector Support (US$20 million) and SME Capacity Bulding and Economic Governance (US$4.5 million), with a total of US$4.6 million undisbursed as of December 31, 2010. Both operations are currently rated satisfactory and on track to meet their development objectives.9

9 The SME operation is the first in which the Government’s integrated financial management system (SIGOF) is being used in lieu of separate accounting software for financial management purposes under a Bank project. This is likely to set the trend for future projects, in light of the country’s track record on financial management in Bank projects and of the Bank’s policy dialogue with the Authorities on public financial management at the macro level.

The Cape Verde APL of the West Africa Regional Fisheries Program is also considered satisfactory, with US$8 million in IDA and GEF commitments, of which US$7.6 million remain available as of November 3, 2010. Three ICRs have been prepared since the Board discussion of the CPS, namely for PRSC IV, rated Satisfactory, for an HIV/AIDS project, rated Moderately Satisfactory, and for the Energy and Water Sector Reform and Development Project, which was the first Bank project in Cape Verde to close with an Unsatisfactory rating since FY05. The project fell short of its objectives to enhance the supply, efficiency and management of water and electricity, including from renewable energy sources, and the Bank is drawing a range of lessons from this experience in preparing its forthcoming support in the energy sector, especially with regard to regulatory strengthening, tariff policy, institutional arrangements and

9

strengthening the financial position of the public utility.10 The Bank has additionally supported in-depth analytical work on the energy and water sector, and in particular on institutional arrangements, in preparation for its forthcoming IBRD assistance.11

A5. Trust Funds

A fourth project, for Growth and Competitiveness, closed in June 2010 with satisfactory ratings on its final ISR. In light of the small size and generally strong performance of the portfolio, projects have been supervised individually rather than through Country Portfolio Performance Reviews (CPPRs), although a CPPR is proposed once the next IDA and IBRD operations are approved.

20. The trust fund portfolio for Cape Verde is small, but is closely linked to the IDA program. The current portfolio comprises the US$2 million GEF related to the regional fisheries project and a US$240,000 grant for a Water Transport Review funded by the South Africa Fund for Energy and Transport. A recently closed US$150,000 grant funded by the South Experience Exchange Trust Fund, supported a successful South-South Exchange with Mauritius on broader policy and institutional reforms and the Authorities have requested assistance for a similar exchange with Singapore. An earlier grant for Access to Justice for Vulnerable Groups including Women, funded by the Japan Social Development Fund (JSDF), closed successfully in June 2009, having provided substantial capacity building and supported the creation of legal advisory centers on several islands in the archipelago, while Subnational Technical Assistance Resources were used to prepare a critical institutional assessment of the electricity and water utility, Electra, in preparation for proposed IBRD lending for energy and water. Finally, initial endorsement has been obtained for a grant of US$287,600 from the Trust Fund for Statistical Capacity Building to support statistical capacity for monitoring of results and a US$100,000 grant from the Luxembourg Poverty Reduction Partnership (LPRP) to support capacity building for the implementation of the Government-wide M&E system. The Bank will continue to draw selectively on trust fund resources to support key aspects of the CPS program.

A6. IFC and MIGA Programs

21. The International Finance Corporation’s (IFC’s) current investment portfolio in Cape Verde is limited, with a total of US$4.4 million in investments in the telecommunications and banking sectors. The IFC strategy will continue to focus on opportunities to improve financing options for SMEs in Cape Verde, tourism and public-private infrastructure projects. In tourism, IFC is considering an investment in a hotel project on the island of Sal, and the provision of advisory services to the industry as a whole. In infrastructure, IFC has been active in financing the expansion of cellular telephone networks, the main infrastructure sector attracting private investment. In SME finance, IFC is expanding current trade finance and credit lines with Caixa Econômica to other interested commercial banks. IFC is also exploring the potential for supporting credit for SMEs through the leasing sector and through the development of a Credit Bureau in the country. In this regard, IFC and the Millennium Challenge Account in Cape Verde (MCA-CV) signed an advisory agreement in January 2009 to support the development of a private credit reporting system in the country. Since the Agreement was signed, IFC's Global Credit Bureau Program has helped raise awareness about credit reporting in the country, assessed the legal and regulatory environment for credit reporting, conducted a market study with detailed recommendations, and supported stakeholders in issuing an international request for proposal (RFP) to identify a suitable credit bureau partner to build the system. Stakeholders have officially selected an international credit bureau partner and are currently conducting contract negotiations.

10 Lessons from the other two operations include the following: the PRSC IV ICR notes the usefulness of a budget support group to coordinate donor support around a Government-led agenda and the continuing need to strengthen national M&E systems, while the HIV/AIDS ICR also points to the need to establish strong baselines for effective monitoring and evaluation and concludes that targeted assistance is warranted even under multisectoral approaches, but that ensuring political commitment for targeting high risk populations may be challenging. 11 This work was financed with funding from the Public-Private Infrastructure Advisory Facility.

10

22. The Multilateral Investment Guarantee Agency (MIGA) does not currently have any exposure in Cape Verde. Nevertheless, MIGA is well advanced in its consideration of an engagement in a large wind-farm project in Cape Verde at this time and is providing advice on how to structure the related public-private partnership. This renewable energy project is complementary to the IBRD’s support for strengthening fuel-based generation capacity and the management of the sector.

A7. Partnerships

23. Donor coordination has been particularly important and effective in the area of budget support. Joint reviews of a streamlined budget support matrix are conducted biannually by the seven donor partners that are members of the budget support group,12

B. PROGRESS TOWARDS CPS OUTCOMES

with the most recent one completed in October 2010, under the effective coordination of the Ministry of Finance. The Bank has also continued to provide services to the Dutch cooperation for the supervision of its budget support for education, and has coordinated with donor partners in key areas of engagement, for example with the MCA in the area of road sector support. The Bank also plays a key role in such areas as public finance, roads and energy in ensuring strategic coherence of donor support through its role in policy dialogue and technical support. In addition, the Bank has continued to exchange information and coordinate closely with the IMF on macroeconomic issues and economic monitoring, including through participation in IMF missions.

24. Progress towards the envisaged CPS Outcomes is broadly on track. As is presented in greater detail in Annex A1 of this CPS Progress Report, Pillar 1 of the CPS for Promoting Good Governance and Public Sector Capacity envisaged three broad outcomes, namely (i) reduced and better managed liabilities, (ii) strengthened management of public resources at central and local levels, and (iii) a strengthened regulatory and oversight role for the public administration. With regard to the first of these, 90 percent of Government arrears have been cleared to date (versus a target of 100 percent by 2012), with the balance due to municipalities to be offset against municipal arrears to the State. Progress indicators with regard to clearance of Electra’s arrears to suppliers are on track, with Electra re-establishing access to suppliers’ credit. In addition, to track progress on managing expenditures and liabilities, a new progress indicator is proposed, namely the adoption of a reform agenda on public financial management based on a new PEMFAR. With regard to the second outcome, the Municipal Information System (SIM) is being generalized and related outcome and progress indicators are on track, with the number of municipalities using the SIM rising from 3 in 2008 to 18 in 2010, versus a target of 12 in 2010. The indicators have been adjusted slightly to reflect the use of SIM (as a progress indicator) leading to the production of timely audited accounts (as a revised outcome, see Annex A1). The integrated financial management system (SIGOF) is now applied to all of the budget, and the target of aligning budgeted expenditures closely with the GPRSP and the MTEF is on track. With regard to the third outcome, the indicator related to improving the timeliness of State accounts has been sharpened to refer to a reduction in the delay between budget execution and auditing of State accounts from three years in 2008 to two years by 2012. This is on track, with State accounts for 2008 audited by 2010 as targeted, and the CPS will continue to monitor this indicator through 2012 for the 2009 and 2010 accounts. Cape Verde is also on track to have a fully operational M&E system, with 67 percent of the annual budget going to programs that have been integrated into the M&E system, and with the National Statistics Institute (INE) implementing new survey instruments that feed into Government planning and monitoring. The Bank’s technical support, in partnership with donors in the Budget Support Group, has been important with regard to the progress achieved under this Pillar.

12 The budget support group currently comprises the Bank, AfDB, the European Union, Austria, the Netherlands, Portugal and Spain, although Austria and the Netherlands may leave at the end of 2010, while Luxembourg may join the group in 2011.

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25. Further progress will be required during the next two years under Pillar 2 of the Strategy—notably energy—although excellent progress has been made in relation to Doing Business. Pillar 2 of the CPS for Improving Competitiveness and the Investment Climate for Private Sector-Led Growth envisaged two broad outcomes, namely (i) an improved business climate, and (ii) improved access to and quality of key economic infrastructure services. With regard to the former, Cape Verde’s Doing Business ranking has already reached the target for 2012, rising from 143 to 132 in the first two years of the CPS. More services have been added to the Citizen House (a one-stop shop for public services), access to telecommunications has improved considerably, and IDA financing is strengthening access to business development services for SMEs (in lieu of microfinance, see Annex A1). While FDI in tourism declined during the first two years of the CPS, this is due to the external shocks and there are data that point to a beginning of a turnaround, although reliable data are difficult to obtain. The Council of Ministers adopted a Tourism Plan in 2009 and Bank support for tourism planning under the SME project is designed to support a process of greater diversification of FDI in tourism across islands, with a new outcome indicator proposed for this in the CPS (see Annex A1). At the same time, there is scope for further improvement of other aspects of the business climate that will be addressed with Bank support (see paragraph 10 above).

26. With regard to infrastructure, the key challenges are in the area of energy. Bank support for energy will begin in earnest with the proposed IBRD operation and MIGA guarantee in the second half of the CPS period, with a view to increasing generation capacity—with a larger share related to renewable energy—and significantly strengthening the financial viability of Electra, which is now a more realistic outcome than restoring Electra’s financial viability by 2012. The related outcome indicators have been adjusted to specify expected outcomes more precisely (see Annex A1). Even though progress has been made with regard to plans for investment and organizational restructuring and plans for loss reduction and performance-based contracting, further progress will be required in 2011 with regard to developing plans for balance sheet restructuring and reviewing the tariff mechanism (see Box 2 below). Technical and non-technical losses are declining (from 30 percent in 2008 to 26 percent in 2009) but the IBRD operation will only be presented for Board consideration in FY12 so that a further decline to 22-23 percent by 2012 is more realistic than the 20 percent foreseen in the CPS. The targeted improvement in Electra’s debt service coverage ratio by 2012 has similarly been adjusted for realism (see Annex A1). Stronger progress has been made in relation to roads, notably road maintenance, and the progress indicator target for the percentage of the road network maintained has been increased from 50 to 55 percent, having already risen from a baseline of 35 percent in 2008 to 44 percent this year. The outcome indicator in relation to the quality of roads has been adjusted in light of corrected baseline data (see Annex A1), but remains on track for 55 percent rated fair to good condition by 2012. In order to reflect a change in the Bank’s broader transport support from focusing on multi-modal inter-linkages to air transport and especially the operations of TACV, the related progress indicator has been revised.

27. Progress is satisfactory with regard to fisheries. Outcomes with regard to increasing the gross value added from fishing remain on track, with only a minor clarification of the wording of the indicator in Annex A1. Support for the regional fisheries program became effective in Cape Verde in April 2010.

28. Under Pillar 3 of the Strategy, namely Strengthening Human Capital and Social Inclusion, progress has been solid in relation to vocational training, but improved targeting of public expenditures remains an important challenge. The CPS envisages two key outcomes under Pillar 3, namely (i) better position of the education and vocational training sectors for labor market needs, and (ii) improved targeting of public expenditures and specific programs. Under the former, the outcome and progress indicators related to vocational training have been met and exceeded, and therefore have been revised upwards (see Annex A1). Studies have also been conducted to estimate demand, and Bank AAA support for Higher Education will examine issues of quality and demand for the vocational skills being produced and help to develop a medium-term action plan and a strengthened policy and regulatory framework. However, no poverty survey has been implemented since the 2007 QUIBB survey and the Government has indicated that it is unlikely to articulate, test and implement a new generation of better

12

targeted social programs by 2012.13

Therefore, this outcome indicator (and the related progress indicator) has been replaced by an indicator intended to ensure that poverty, gender and social impacts are routinely evaluated for the public investment program and to build capacity on poverty and social impact analysis in key Ministries such as Finance, Infrastructure, and Labor, Family and Social Solidarity, as well as in INE (see Annex A1). Strengthening this capacity would be supported through the TA for the public investment program. Finally, outcomes with regard to access to legal serves for vulnerable groups have been met, including via the establishment of 11 legal centers with JSDF financing as envisaged.

IV. LOOKING AHEAD TO THE FINAL YEAR OF THE CPS

A. THE FINAL YEAR OF THE CPS

29. In the context of the aftermath of the global crisis and continuing weakness in Euro Zone countries, the Bank will continue to monitor economic developments in Cape Verde closely, in partnership with the IMF. Should evidence of a sharp reversal in the current growth prospects in Cape Verde emerge, the Bank may draw on the country’s IDA allocation under IDA 15 and especially in the first year of IDA 16, where there is scope for front-loading of financing if necessary, to provide a blend of budget support and investment financing in the identified priority areas that is best suited for the situation. For example, if down-side risks materialize, a scaling up of PRSC VII to provide more resources to

13 The Poverty Update (Report No. 48658-CV) and PRSC I-IV series completed in FY09 were the main vehicles for this dialogue.

Box 2. Electra’s Institutional and Operational Challenges

Access to electricity in Cape Verde is relatively high at over 70 percent (over 90 percent in urban areas but around 50 percent in rural areas). The cost of electricity and water service provision is high due to the small scale of each service center and consequent widespread use of diesel rather than less expensive heavy fuel oil for thermal generation, scarcity of fresh water resources and the need to desalinize sea water, and high logistical costs due to the insularity of the country.

Unsatisfactory and deteriorating financial performance. Electra was privatized in 1999, when Energias de Portugal (the main Portuguese integrated power utility) acquired a majority equity stake, and coverage expanded rapidly until 2003, when most of the key relevant indicators began to deteriorate. Delayed and partial tariff adjustments, combined with the company’s disappointing operational performance, resulted in a deterioration of Electra’s financial performance, and since EDP and the Authorities were unable to resolve their dispute over tariffs, they agreed in 2006 to an amicable resolution involving a financial restructuring of Electra that reduced its debts substantially (from €76 to €45 million) and raised Government’s ownership stake to 85 percent, and EDP departed. A new management team took over, but was not able to improve Electra’s operational performance. On the contrary, distribution losses rose to around 30 percent in 2008, compared to 18 percent in 2003, with significantly higher losses in Praia, reflecting high levels of uncontrolled fraud.

Key challenges. These include: (a) institutional restructuring of Electra to strengthen its corporate governance and ensure better management of energy and water services in the North and South of the country; (b) significantly increasing generation and reducing its cost by consolidating generation in larger units using heavy fuel oil, upgrading transmission lines and pursuing substantial investment in wind energy through independent power producer arrangements (which would also provide a steady supply of energy during non-peak hours for desalination), as well as upgrading the distribution network; (c) significantly improving the company’s commercial performance and its performance monitoring; (d) ensuring the operation of a tariff mechanism by the Economic Regulation Agency (ARE) that guarantees timely and well calibrated tariff adjustments; and (e) financial restructuring of Electra with a view to significantly strengthening its financial viability.

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finance essential safety net expenditures could be considered if it underpins an enhanced program of reforms that is appropriate to the economic context.

30. While the Bank will maintain a continuous engagement, together with donor partners, on economic management and investment climate issues, greater emphasis is likely to be placed in the second half of the CPS period on difficult reforms in energy and transport. Following the elections in February 2011, the Bank will engage with the new Administration on energy reforms under the proposed IBRD Energy Sector Support Operation. This operation will not only address institutional reforms in Electra and enhance generation capacity but also promote improvements in commercial and financial performance and in sector regulation, including the adequacy of the tariff mechanism. The diagnostic AAA on transport is also likely to highlight important areas for reform with regard to the national carrier, TACV, which will not only be addressed further through the PRSC series, but also through a proposed investment operation that is also expected to address air and maritime transport constraints more broadly. These are challenging areas for reform in which the Bank has been engaged for some time through the now closed Growth and Competitiveness and Energy and Water Sector Reform operations, and in which progress is essential to mitigate fiscal risks arising from contingent liabilities and to lay the foundations for more rapid private sector-led growth. These areas are widely recognized to be priority areas for reform, so that the prospects for launching important reforms in the course of the final years of the CPS are considered stronger, although sizeable political-economy risks cannot be discounted.

31. Important progress is expected in the second half of the CPS period with regard to Pillar 3 of the CPS, namely Strengthening Human Capital and Social Inclusion. As envisaged at the time of the CPS, this pillar will not involve a social sector operation but rather mainstreaming of social inclusion into the investment portfolio. Thus, the SME Capacity Building and Economic Governance Project will not only support SMEs with matching grants and easing access to finance, but also track their access to public procurement and track the extent to which tourism opportunities are extended beyond the high tourism islands of Sal and Boa Vista to other islands. Key objectives under the energy and water and the road sector operations will be to broaden access to these areas of basic infrastructure, including for example to rural roads.14

32. Further progress is also expected on the results agenda, as Cape Verde continues to strengthen its M&E systems with Bank support. Monitoring and evaluation has been an important area of policy dialogue since the first PRSC series and has been taken up again under the ongoing PRSC series. Cape Verde has made important progress in developing and integrating country M&E and financial management systems and is working to link these with national statistics, with a view to linking its public investment program to results monitoring systems through a unified technological platform, known as Cabo Verde Digital. The country is also broadening its survey data to key tourism and labor areas. Moreover, it has recently conducted a national census, which is beginning to generate new information on demographic trends and socioeconomic data. At the same time, the recent downward revision of historical nominal GDP numbers, the infrequency of poverty survey data and quality issues related to FDI and other data point to the need for further strengthening of statistical capacity. The Bank has provided TA for strengthening M&E as part of the dialogue for the PRSC series, and further support for statistical capacity building will be provided with trust funds during the second half of the CPS period.

In addition, the proposed Higher Education AAA will provide an opportunity for policy dialogue in relation to strengthening human capital development. Gender dimensions will be considered in all the above cases, with monitoring of access to economic opportunities for women.

B. MANAGING RISKS

14 The energy and water sector support, together with MIGA’s investment in renewable energy (wind), is expected to support Cape Verde in advancing its climate change adaptation and mitigation agenda.

14

33. The risks identified in the CPS, related to the global economic downturn, the political climate for reforms, contingent liabilities, administrative capacity and access to concessional financing, remain valid.15 As discussed above under Political and Economic Developments, the external shocks related to the global economic downturn sharply reduced Cape Verde’s growth rate in 2009, and even though the economy has begun to recover in 2010, the economic situation among key trading partners in Europe presents a continuing downside risk. The mitigating factors identified in the CPS remain relevant and appropriate for this risk.16 The political climate for difficult reforms was envisaged to be complicated before the elections but is likely to be more promising after the elections, irrespective of the outcome, since the opposition MpD launched an important structural reform program in the 1990s that the ruling PAICV has deepened over the past decade.17

34. In conclusion, there continue to be important risks at this time, even after measures are taken to mitigate them; however, there are major benefits associated with the continuing Bank partnership with Cape Verde, as the country endeavors to advance on its economic transformation agenda and weather the volatile global economic context. Continued implementation of the well-aligned CPS strategy—which is strategically focused and deeply committed over time to key sectors, and which works in partnership with other donors—can play a transformative role in key areas such as energy, roads, the investment climate and public administration, thereby setting the foundations for sustained economic growth while promoting social inclusion and ensuring that resources reach the poor.

Some of the more challenging structural reforms in energy and transport are therefore foreseen in the second half of the CPS period with the next Administration, and will directly address key sources of contingent liabilities, namely Electra and TACV. Even in the post-election context, the risks to advancing the reform programs in these areas will be significant. Moreover, while a continuation of prudent fiscal policy is foreseen, there is a modest risk of policy discontinuity. These risks will be mitigated via intensive policy dialogue on macroeconomic issues as well as intensive consensus building with Government and key stakeholders in the key sectors to be supported by the investment program. Capacity building has been an integral part of the Bank’s and other donors’ support for Cape Verde, and further support in this area is foreseen during the next two years. The Bank has also stepped up its IDA financing for Cape Verde under IDA 15 and will continue to work with Cape Verde to secure a strong IDA allocation in IDA 16 under the Performance-Based Allocation system, as well as encourage donor partners to maintain concessional financing commitments to the country, although the risk of reduced budget support from selected donors cannot be discounted.

15 In addition, Cape Verde’s vulnerability to climate and natural disasters, including its historical exposure to droughts and more recent exposure to heavy flooding, bears mentioning. This will be mitigated through climate-resilient infrastructure investments. 16 They include the Cape Verde’s build-up of sizable international reserves in recent years; its standing line of credit with the Central Bank of Portugal; its continued monitoring under the IMF PSI; its access to budget support from donor partners, including the Bank (with its scope for front-loading assistance under IDA-16) and the country’s solid track record of proactive economic management and timely adjustment to shocks. 17 There may, for example, be a better opportunity after the elections for approval of draft laws presented to the Legislature for the Budget Framework and Court of Auditors.

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Annex A1. Cape Verde CPS FY09-12 Results Matrix with Implementation Progress

Country GPRSP-II Goals

Major Issues and obstacles

Original CPS Outcomes and

Indicators

CPSPR Status of Outcomes and

Proposed Revisions

CPS Progress Indicators

CPSPR Status of Progress Indicators

and Proposed Revisions

WBG and Development

Partners’ Interventions

CPS Pillar 1 – Promoting Good Governance and Public Sector Capacity • Maintain

framework of economic policies geared toward accelerated and sustainable economic growth to reach double-digit growth, reduce unemployment to 10 percent, and halve poverty

• Restructure

Government to be more effective and cost-efficient

• Establish an efficient and

• Narrow fiscal

space, vulnerability to external shocks, and continued contingent liabilities could jeopardize macro-framework

• Very dependent on external aid but 2008 graduation to middle-income country reduces scope for concessional aid to finance development

• Current

government structures are less effective and more bureaucratic than necessary and need

Outcome 1.1: Reduced and better managed liabilities • Outstanding stock

of Government’s arrears cleared and no new arrears accumulated

Outcome 1.2: Strengthened management of public resources at central and local levels • All municipal

governments produce timely accounts as a result of generalization of the Municipal

> This indicator is on track: 90% of arrears recognized in 2005 have been paid as of December 2009. The unpaid amounts, which are to municipalities, need to be offset against higher municipal arrears to the State > ADJUSTMENT: The revised indicator is: Municipal governments produce timely audited accounts as a result of

• Effective

implementation of Electra’s suppliers’ arrears clearance plan, following its adoption in 2009

• Number of

municipalities using SIM and producing timely accounts increases from 3 in 2008 to

> This indicator has been met as Electra has restructured arrears and re-established access to suppliers’ credit. In addition, to reduce and better manage liabilities, a NEW INDICATOR is proposed: Adoption of a reform agenda on public financial management based on a new PEMFAR > ADJUSTMENT: The indicator is revised to refer only to the use of SIM, not the production of timely accounts. The number

Proposed financing: • IDA PRSC VI-VII Ongoing AAA and TA: • DeMPA and TA on

debt management Proposed AAA and TA: • CEM • Public Investment

Program TA • Trust fund for

Statistical Capacity Building

• LPRP Capacity Building for M&E

Development Partners: • Budget Support

Group on budget execution, internal and external controls and specific emphasis from: - AfDB on budget

planning and allocation

- Spain on public procurement

16




Indicators


Proposed Revisions




WBG and Development


transparent budget management system

• Enhance services offered to users by the public administration at central and municipal levels

• Strengthen

management capacity of public administration

to be more strategic • Audits of State

accounts not timely • Weak internal and

external controls capacity

• New procurement law needs to be operationalized for a transparent and efficient national public procurement system

• M&E and statistical public administration capacity low

• Shortage of skilled

public servants

Information System (SIM)

• Budgeted

expenditures are closely aligned with the GPRSP and MTEF

Outcome 1.3: Strengthened public administration regulatory and oversight role • Timeliness of

audits of State accounts improved

the generalization of the SIM. The indicator is on track; 13 municipal accounts were audited by Court of Auditors during the past five years—the baseline. Target is 5 more audits by 2012 > This indicator is on track; the public investment program is specified in the GPRSP > ADJUSTMENT: This indicator is revised to: The delay between budget execution and auditing of State accounts is reduced from three years in 2008 to two years by 2012. This is on track

12 in 2010 • Percentage of

government budget units with SIGOF access and effective utilization increases from 80% to 100%

• 2008 State accounts

audited in 2010

of municipalities using the SIM has risen from 3 in 2008 to 18 as of June 2010, so the indicator has been met > This indicator has been met > This indicator has been met. 2008 State accounts were audited in 2010. NEW: 2009 Accounts are submitted by 2010 and audited by 2011, and 2010 accounts are submitted by 2011 and audited by 2012

- MCC on M&E system

- Swedish, Spanish and Brazilian cooperation on statistical system

- EU on decentralization

• Portugal: territorial development

• Austria: decentralization and public finance

• France: good governance and decentralization

• Spain: decentralization and public finance

• The Netherlands: public finance reform

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Indicators


Proposed Revisions




WBG and Development


• Fully operational national M&E system

• Use of updated

indicators by Government in planning and monitoring programs

> This indicator is on track; platorm linking INE database with M&E system in Ministry of Finance has been completed > This indicator is on track; the national M&E system includes all investments in the public investment program

• All active projects and programs output indicators are integrated in a national M&E system

• Up-to-date

indicators on tourism, transport, water and sanitation

> As of 2010, 67% of the annual budget goes to programs integrated into the national M&E system, up from zero in 2009 > This indicator is on track. INE has implemented new survey instruments for tourism

CPS Pillar 2 – Improving Competitiveness and the Investment Climate for Private Sector-Led Growth • Improve Cape

Verde’s competitiveness nationally and internationally and establish and disseminate national standards

• Foster productivity gains and quality of services

• Enhance regulatory capacity of the State

• Enhance role of the private sector

• Need to improve

productivity and product quality for firms to compete internationally

• Need to cut administrative barriers, strengthen regulation and policies for competitiveness

• Lack of capacity and the know-how to produce at international standards in key

Outcome 2.1: An improved business climate • Doing Business

ranking improved from 143 in 2008 to under 132 in 2012

> This indicator has been met as of Doing Business 2011, with Cape Verde currently ranked 132nd

• More services

added to the Citizen House

• Improved access to

microfinance and telecommuni-cations

> This indicator has been met with the adddition of bill and tax payment services to business licensing and obtention of birth, marriage and death certificates > ADJUSTMENT: This has been met for telecoms: access to cellphones rose 123% and to broadband rose 184% during 2007-09. For microfinance, the focus has shifted to

Ongoing financing: • IDA SME Capacity

Building and Economic Governance

• IDA Road Sector Support Project

• IDA and GEF West Africa Regional Fisheries Program

• IFC investments in finance and telecoms

Proposed financing: • IDA PRSC VI-VII • IDA Road Sector

Additional Financing

• IDA Transport

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Indicators


Proposed Revisions




WBG and Development


• Tourism: Increase

gross value added of tourism; policy of diversification of tourist products implemented; enhanced quality of tourism products and services

• Energy: Improved

energy production and distribution infrastructure; renewable energy sources and other sources with low carbon production developed

sectors of the economy (tourism, civil construction, transport)

• Need to strengthen

efficiency and quality of infrastructure services, including through stronger PPPs in transport, energy, water and sanitation services

• Infrastructure

• Increased FDI in

tourism in line with master plan

Outcome 2.2: Improved access to and quality of key economic infrastructure services • Generation

capacity increased with larger share made up of renewable energy

> FDI in tourism fell 40% in 2009 due to global crisis, but some data suggest FDI has begun to recover in 2010, although reliable data are hard to obtain > NEW INDICATOR: Diversify destination of FDI in tourism, as measured by a decline in Herfindahl index (HHI) of concentration of FDI by 2012 > ADJUSTMENT: This indicator is revised as follows: Generation capacity increased by 50 percent during 2008-12, with the share from renewable energy rising from 3% to 15% by 2012

• Tourism master

plan with local content approved

• Generation

capacity in MW increases from 73.9 in 2008 to 140 in 2012 (2010 benchmark:100)

• Share of renewable

energy increases from 3% in 2008 to

business development services, so the revised indicator is: Improved access to to business development services for SMEs, and to telecommunications > National Tourism Plan was adopted by Council of Ministers in 2009. Tourism planning to diversify tourism across islands will be supported under the SME Capacity Building and Economic Governance Project > ADJUSTMENT: This indicator is revised to: 30MW of additional Heavy Fuel Oil generation capacity contracted by 2012 > ADJUSTMENT: This indicator is revised to: 28MW of

Sector SIL • IBRD Energy and

Water Reform SIL • MIGA Guarantee

for Renewable Energy

• IFC investments Ongoing AAA and TA: • Sub-national TA

support to Electra • Air transport

diagnostic AAA

Proposed AAA and TA: • Public Investment

Program TA Development Partners: • EU: infrastructure

for water supply and sanitation

• The Netherlands: environment

• AfDB: energy (electricity project in Santiago), infrastructure

• Austria: water and sanitation

• Luxembourg: roads, water and sanitation

• France: water and sanitation

19




Indicators


Proposed Revisions




WBG and Development


• Transport: Ensure

adequate infrastructure to meet needs of growing tourism- driven economy

• Ports adapted to the needs of the internationalization of the economy

services inadequate for growth opportunities and lack of efficiency in the use, supply, financing and management of the transport sector.

• Maintenance of

existing road network not ensured

• Regulatory framework of transport sector inadequate: Road Maintenance Fund not fully operational; lack of inter-modality of the different transport modes

• Need to modernize and expand maritime sector

• Financial viability

of Electra restored • Quality of the road

network improved by increasing the proportion of roads rated fair to in good condition by 14% (baseline: 41%; target: 55%)

> ADJUSTMENT: IBRD lending towards this indicator will only start in 2011, so it will be difficult to restore viability by 2012, so this indicator is changed and specified as follows: Financial viability of Electra significantly strengthened by 2012, as evidenced by an increase in the debt service coverage ratio from 0.3 in 2008 to 1.1 by 2012 > ADJUSTMENT: This indicator is on track, although the baseline is corrected from 41% to 45%, and the target is maintained so the correct targeted increase is 10%

18% in 2012 (2010 benchmark: 9%)

• Technical and non-

technical losses decline from 30% toward less than 20% in 2012 (2010 benchmark: 24%)

• Debt service coverage ratio from 0.3 in 2008 to over 1.4 in 2012

• Percentage of road

network with maintenance increases from 35% to 50%

• Road maintenance financing mechanism implemented

• Strategy adopted by 2012 for strengthening multi-modal transport interlinkages

wind energy installed. This is on track: construction of Cabeolica wind farm has begun and should be complete in 2012 > ADJUSTMENT: Losses were cut to 26% in 2009, but a further cut to 22-23% rather than 20% is more realistic by 2012 > REMOVAL: this has been raised from a progress to an outcome indicator for Electra’s financial viability > ADJUSTMENT: This indicator is on track (44% in 2010), and the new target for 2012 is raised to 55% > This indicator has been met > ADJUSTMENT: No multi-modal strategy is under preparation, so this indicator is replaced with: Action Plan to strengthen TACV adopted and under implementation

• MCA: PSD and transport infrastructure

• Japan: fisheries infrastructure

• China: infrastructure construction

20




Indicators


Proposed Revisions




WBG and Development


• Fishing: Increased gross value added originating from fishing

• Inadequate governance and management of the fisheries sector, which contributes to overfishing

• Limited functioning infrastructure in key fishing locations and ineffective fishing equipment

• Lack of alternative livelihoods in many fishing communities

• Value-per-unit of fishing effort in targeted fisheries increased by 10% from base of 37kg/motorized vessel for artisanal fisheries, and base of 170kg/motorized vessel for artisanal small pelagic fisheries

> ADJUSTMENT: This indicator is on track, but will be adjusted to read: Value-per-unit of fishing effort in targeted fisheries increased by 10% from base of 37kg/trip/motorized vessel for artisanal fisheries, and base of 170kg/trip/motorized vessel for artisanal small pelagic fisheries

• Percentage of small-scale fishers supported to undertake alternative livelihoods in overexploited fisheries increases from base of 0% to a target of 10%

> This indicator is on track

CPS Pillar 3 – Strengthening Human Capital and Social Inclusion • Education system

better adjusted to needs of economic development

• Strengthened professional training for employment and social inclusion

• Economic

• Lack of

entrepreneurial skills

Outcome 3.1: Better positioning of education and TVET sectors for labor market needs • Percentage of

secondary school pupils of third cycle proceeding to technical school increased from base of 13.8% in 2008 to 14.1% in 2012

> ADJUSTMENT: This indicator has been met, having reached 14.2% in 2009, and the new target for 2012 is 16%

• Studies conducted

to estimate future labor demand and TVET training needs in various sectors

• Increase in number of vocational trainees from current base of

> This indicator has been met, with four studies conducted in 2009 > This indicator has been met, with 4,500 trainees in 2009, and is ADJUSTED to:

Proposed financing: • IDA PRSC VI-VII Ongoing AAA and TA: • Higher Education

AAA

Proposed AAA and TA: • Supervision of

Dutch Budget Support for education

• Trust Fund for Statistical Capacity Building

21




Indicators


Proposed Revisions




WBG and Development


environment favorable to job creation for the integration of vulnerable population groups

• Improved access by

the poor to basic social services and to income

• Weak economic

and social sector statistics

• Lack of monitoring of social services

• Poor targeting of support for vulnerable groups

Outcome 3.2: Improved targeting of public expenditures and specific programs • New generation of

social programs articulated, tested and ready for implementation

> REMOVAL: This indicator does not reflect current Government priorities and is unlikely to be achieved by 2012. Instead a NEW INDICATOR is proposed: Public investment program routinely evaluates poverty, gender and other social impacts of investments

1,850 in 2008 • Implementation of

pilot program on CCT to improve the transition from primary level to secondary in the education system

• Implementation of

household living standards surveys for poverty indicators

Increase in number of vocational trainees to 8,000 by 2012 > REMOVAL: This indicator is unlikely to be met by 2012; poverty surveys and pilot program design work are not under way. Instead a NEW INDICATOR is proposed: Capacity building on poverty and social impact analysis conducted for staff in key Ministries > ADJUSTMENT: While no survey has been conducted since the 2007 QUIBB survey, this indicator will be met by 2012, allowing for analyses; Revised indicator is: Implementation of household living standards surveys for poverty indicators and of diagnostic of the incidence of key public programs

• Public Investment Program TA

Development Partners: • Budget Support

Group • AfDB: education

(Human Development Project II)

• Portugal: human capital development and capacity building

• Luxemburg: education and training

• Germany: education and training

• The Netherlands: education

• BADEA: education • MCC: Vocational

training

22




Indicators


Proposed Revisions




WBG and Development


• Improved civil defense for poor and vulnerable groups

• Access to basic legal advice in the most pressing legal issues increased for the most vulnerable groups

This indicator has been met via legal literacy training for communities and community leaders, and is continuing via legal counseling by trained paralegals in 11 new legal centers

• Number of legal centers operating increases from 7 in 2008 to 11 in 2010

> This target has been met: 11 legal centers were established as of June 2009

23

Annex A2. Cape Verde at a Glance

24

25

26

Annex B1. Cape Verde CPSPR Selected Indicators* of Bank Por tfolio Performance and Management

As of 12/30/2010

Indicator 2008 2009 2010 2011 Portfolio Assessment

Number of Projects Under Implementation a 3 2 2 2 Average Implementation Period (years) b 7.9 5.1 2.6 3.1 Percent of Problem Projects by Number a, c 0.0 0.0 0.0 0.0 Percent of Problem Projects by Amount a, c 8.8 0.0 0.0 0.0 Percent of Projects at Risk by Number a, d 0.0 0.0 0.0 0.0 Percent of Projects at Risk by Amount a, d 8.8 0.0 0.0 0.0 Disbursement Ratio (%) e 55.6 66.7 71.6 0.0 Portfolio Management

CPPR during the year (yes/no) No No No No Supervision Resources (total US$)

Average Supervision (US$/project) 97 100 30 54

Memorandum Item Since FY 80

Last Five FYs

Proj Eval by OED by Number 20 4 Proj Eval by OED by Amt (US$ millions) 210.4 38.2 % of OED Projects Rated U or HU by Number 10.0 25.0 % of OED Projects Rated U or HU by Amt 12.6 45.9

a. As shown in the Annual Report on Portfolio Performance (except for current FY).

b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP).

d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the

beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio,

which includes all active projects as well as projects which exited during the fiscal year.

27

Annex B2. Cape Verde CPSPR – Key Social Indicators As of 04/23/2010

Latest single year Same region/income

group Sub- Lower- Saharan middle- 1980-85 1990-95 2002-08 Africa income POPULATION Total population, mid-year (millions) 0.3 0.4 0.5 819.3 3,703.0 Growth rate (% annual average for period) 1.9 2.3 1.5 2.5 1.2 Urban population (% of population) 31.5 48.8 59.6 36.4 41.3 Total fertility rate (births per woman) 5.9 4.5 2.7 5.1 2.5 POVERTY (% of population) National headcount index .. .. .. .. .. Urban headcount index .. .. .. .. .. Rural headcount index .. .. .. .. .. INCOME GNI per capita (US$) .. 1,160 2,800 1,077 2,073 Consumer price index (2000=100) 42 78 117 127 126 Food price index (2000=100) .. .. .. .. .. INCOME/CONSUMPTION DISTRIBUTION Gini index .. .. .. .. .. Lowest quintile (% of income or consumption) .. .. .. .. .. Highest quintile (% of income or consumption) .. .. .. .. .. SOCIAL INDICATORS Public expenditure Health (% of GDP) .. .. 3.4 2.6 1.8 Education (% of GDP) .. .. 5.7 4.1 4.0 Net primary school enrollment rate (% of age group) Total .. 92 84 73 87 Male .. 94 85 75 89 Female .. 89 84 70 86 Access to an improved water source (% of population) Total .. 79 .. 58 86 Urban .. 86 .. 81 94 Rural .. 73 .. 46 81 Immunization rate (% of children ages 12-23 months) Measles 54 85 96 72 81 DPT 39 88 98 72 79 Child malnutrition (% under 5 years) .. .. .. 25 25 Life expectancy at birth (years) Total 64 67 71 52 68 Male 62 65 68 51 66 Female 66 70 74 53 70 Mortality Infant (per 1,000 live births) 59 40 24 86 45 Under 5 (per 1,000) 79 51 29 144 64 Adult (15-59) Male (per 1,000 population) 292 245 171 395 204 Female (per 1,000 population) 249 218 106 362 138 Maternal (modeled, per 100,000 live births) .. .. 210 900 370 Births attended by skilled health staff (%) .. 54 78 46 65

Note: 0 or 0.0 means zero or less than half the unit shown. Net enrollment rate: break in series between 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months who received vaccinations before one year of age or at any time before the survey. World Development Indicators database, World Bank - 23 April 2010

.

28

Annex B3. Cape Verde CPSPR – Key Economic Indicators As of 11/12/2010

EstimateIndicator 2004 2005 2006 2007 2008 2009 2010 2011 2012

National accounts (as % of GDP)Gross domestic producta 100 100 100 100 100 100 100 100 100 Agriculture 9 8 7 6 6 9 10 10 10 Industry 15 16 16 16 17 17 17 17 17 Services 75 75 76 77 76 74 73 72 72

Total Consumption 98 93 90 88 78 84 86 88 86Gross domestic fixed investment 39 36 39 46 47 39 50 46 44 Government investment 11 13 13 11 14 14 23 18 16 Private investment 28 23 26 35 33 25 27 28 28

Exports (GNFS)b 32 38 45 43 46 37 37 39 41Imports (GNFS) -70 -67 -73 -78 -77 -66 -75 -74 -71

Gross domestic savings -2 0 2 7 15 10 5 4 6Gross national savingsc 25 33 33 32 39 35 30 27 28

Memorandum itemsGross domestic product 924 972 1109 1333 1544 1576 1618 1726 1887(US$ million at current prices)GNI per capita (US$, Atlas method) 1720 2100 2310 2560 2830 3010 .. .. ..

Real annual growth rates (%, calculated from DB prices) Gross domestic product at market prices 4.3 6.5 10.1 8.6 6.2 3.6 5.4 5.9 6.8 Gross Domestic Income 7.9 26.5 23.8 5.2 2.0 5.7 10.3 11.3 11.9

Real annual per capita growth rates (%, calculated from DB prices) Gross domestic product at market prices 2.5 5.0 8.3 7.1 4.1 0.2 2.2 3.1 3.9 Total consumption 6.7 5.9 8.9 2.5 -3.0 -1.1 6.7 3.3 2.1 Private consumption 6.5 6.9 9.9 2.0 -3.7 -1.8 6.1 3.8 2.6

Balance of Payments (US$ millions) Exports (GNFS)b 296 367 501 571 713 586 600 668 767 Merchandise FOB 57 89 96 81 115 90 106 117 130 Imports (GNFS)b -643 -647 -806 -1037 -1183 -1036 -1209 -1272 -1345 Merchandise FOB -436 -438 -559 -743 -833 -721 -821 -858 -929 Resource balance -347 -280 -306 -466 -470 -450 -609 -605 -578 Net current transfers 328 410 415 430 460 478 350 322 321 Current account balance -38 97 65 -67 -58 -24 -330 -355 -331

Net private foreign direct investment 68 76 111 190 210 120 113 150 171 Long-term liabilities (net) 73 41 -19 73 56 47 182 158 140 Official 9 23 28 26 38 64 196 163 145 Private 65 18 -47 47 18 -17 -15 -6 -5 Other capital (net, incl. errors & ommissions) 10 11 -7 -6 -124 -80 0 0 0 Change in reservesd 7 9 -2 -2 -1 -3 -5 -5 -5

Memorandum itemsResource balance (% of GDP) -37.6 -28.8 -27.6 -34.9 -30.5 -28.6 -37.6 -35.0 -30.6Real annual growth rates ( Info Missing in LDB prices) Merchandise exports (FOB) 61.8 20.4 -14.3 29.8 -21.7 22.6 13.8 13.1 13.9 Primary .. .. .. .. .. .. .. .. .. Manufactures .. .. .. .. .. .. .. .. .. Merchandise imports (CIF) 4.7 42.4 34.5 2.5 -13.3 18.6 7.8 10.0 6.6

(Continued)

Actual Projected

29

Annex B3. Cape Verde CPSPR – Key Economic Indicators (Continued)

As of 11/12/2010

Actual Estimate ProjectedIndicator 2004 2005 2006 2007 2008 2009 2010 2011 2012

Public finance (as % of GDP at market prices)e

Current revenues 22.8 24.3 25.6 27.3 28.3 23.8 23.3 24.1 24.1 Current expenditures 21.9 22.0 19.4 20.8 20.1 19.7 21.4 21.5 20.6 Current account surplus (+) or deficit (-) -4.1 10.0 5.8 -5.1 -3.7 -1.5 -20.4 -20.6 -17.5 Capital expenditure 10.8 12.8 12.7 11.4 13.9 14.1 22.6 18.3 15.6 Foreign financing 0.3 3.1 3.2 2.2 3.0 5.1 12.3 9.6 7.8

Monetary indicators M2 (% of GDP) 72.5 76.1 78.5 82.3 81.9 .. .. .. .. Growth of M2 (%) 10.6 15.8 18.0 10.7 7.6 .. .. .. .. Domestic credit to private sector (% of GDP) 45.6 45.4 51.6 51.8 61.1 .. .. .. .. total credit growth (%) .. .. .. .. .. .. .. .. ..

Price indices (YR96 = 100) Merchandise export price index 152.4 180.0 193.6 111.6 198.6 166.9 199.2 207.0 212.3 Merchandise import price index 117.3 116.6 122.9 121.1 125.7 121.0 128.1 134.4 138.2 Merchandise terms of trade index 102.1 110.8 108.5 100.3 107.6 107.7 113.9 113.1 112.3 Real exchange rate (US$/LCU)f .. .. .. .. .. .. .. .. ..

Real interest rates 6.1 16.4 10.1 9.1 8.9 6.9 .. .. .. Consumer price index (% change) -1.9 0.4 4.8 4.4 6.8 1.0 2.2 3.0 2.5 GDP deflator (% change) -1.0 -1.4 2.6 1.4 2.1 4.7 4.2 3.7 3.2

a. GDP at b. "GNFS" denotes "goods and nonfactor services."c. Includes net unrequited transfers excluding official capital grants.d. Includes use of IMF resources.e. Consolidated central government.f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation.

30

Annex B4. Cape Verde CPSPR – Key Exposure Indicators As of 11/12/2010

Actual EstimatedIndicator 2004 2005 2006 2007 2008 2009 2010 2011 2012

Total debt outstanding and 76 47 -17 79 65 52 182 158 140disbursed (TDO) (US$m)a

Net disbursements (US$m)a 6 23 26 29 43 69 199 166 147

Total debt service (TDS) 91 103 99 95 110 110 126 128 133(US$m)a (twelve-month period ending)

Debt and debt service indicators (%) TDO/XGSb 25.72 12.83 -3.36 13.78 9.11 8.96 30.31 23.61 18.26 TDO/GDP 8.23 4.85 -1.52 5.90 4.21 3.33 11.24 9.13 7.43 TDS/XGS 30.8 28.1 19.7 16.7 15.5 18.8 21.1 19.2 17.4 Concessional/TDO .. .. .. .. .. .. .. .. ..

IBRD exposure indicators (%) IBRD DS/public DS 0.0 0.0 0.0 0.0 0.0 .. .. .. .. Preferred creditor DS/public .. .. .. .. .. .. .. .. .. DS (%)c

IBRD DS/XGS 0.0 0.0 0.0 0.0 0.0 .. .. .. .. IBRD TDO (US$m)d 0.0 0.0 0.0 0.0 0.0 .. .. .. .. Of which present value of guarantees (US$m) Share of IBRD portfolio (%) .. .. .. .. .. .. .. .. .. IDA TDO (US$m)d 2.58 2.99 3.20 3.61 4.65 .. .. .. ..

IFC (US$m) Loans, net /f 0.00 6.63 -1.24 -1.34 1.92 .. .. .. .. Equity and quasi-equity /c .. .. .. .. .. .. .. .. ..

MIGA MIGA guarantees (US$m) .. .. .. .. .. .. .. .. ..

a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital.b. "XGS" denotes exports of goods and services, including workers' remittances.c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements.d. Includes present value of guarantees.e. Includes equity and quasi-equity types of both loan and equity instruments.

Projected

f. Nonguaranteed long-term debt privately placed from the International Finance Corporation (IFC). Net flows (or net lending or net disbursements) received by the borrower during the year are disbursements minus principal repayment.

31

Annex B5. Cape Verde CPSPR Operations Por tfolio (IBRD/IDA and Grants)

As of 12/30/2010

Closed Projects 24

IBRD/IDA *

Total Disbursed (Active) 19.76

of which has been repaid 0.00

Total Disbursed (Closed) 140.41


Total Disbursed (Active + Closed) 160.17


Total Undisbursed (Active) 4.65

Total Undisbursed (Closed) 0.00 Total Undisbursed (Active +

Closed) 4.65

Active Projects

Difference Between

Last PSR

Expected and Actual

Supervision Rating

Original Amount in US$ Millions

Project ID

Disbursements a/

Project Name Development Objectives

Fiscal Year

Implementation Progress IBRD IDA GRANT Cancel. Undisb. Orig. Frm

Rev'd

P087004 CV-Road Sec Support Project (FY05) S S 2005

20

0.09 -4.76 0.24

P107456 SME Cap Bldg and Economic Governance S S 2010

4.5

4.56 1.05

Overall Result

24.5

4.59 -3.7 0.24 a/ Intended disbursements to date minus actual disbursements to date as projected at appraisal.

32

Annex B6. Cape Verde CPSPR IFC Committed and Disbursed Outstanding Investment Portfolio

As of 9/30/2010 (In USD Millions)

Committed

Disbursed Outstanding

FY Approval Company Loan Equity

**Quasi Equity *GT/RM

Partici pant Loan Equity

**Quasi Equity *GT/RM

Partici pant

2008 T plus 2.35 0 1.69 0 0

2.35 0 1.69 0 0

Total Portfolio: 2.35 0 1.69 0 0 2.35 0 1.69 0 0

* Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types.

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