According to the S&P report, the stable perspective reflects the vision that economic growth will Quicken, thus mitigating the tax and foreign deficits. The ratings agency also says that the country has maintained its political stability, continues to benefit from technical assistance and has managed to maintain the support of multilateral donors.
The reports stresses, however, that Cape Verde’s ratings are constrained by the country’s level of fiscal and trade disequilibrium, its dependency on the tourism sector, the weakining ofthe European economy, investments and the public debt.
The agency considers Cape Verde one of Africa’s most stable democracies and hopes that the country will continue to maintain good relations with international donors. It affirms, however, that its “middle-income country” status threatens to reduce concessional loans on the middle and long term.
Standard & Poor’s also predicts real GDP growth will continue lower than desired, leading it to revise its estimate for 2014 from 2% to 1%, despite the most recent data published by the National Statistics Institute (INE) pointing to 2.7% growth.
The forecast, says S&P, is the result of a combination of slow economic growth in the Euro Zone, this year’s poor harvest in Cape Verde, the poorer performance of the tourism sector and the slowdown in public investment. Nevertheless, the agency foresees real GDP growth of 3.5%, on average, between 2015 and 2018.
The agency believes that improvements in Europe’s economic performance will positively affect tourism and foreign direct investment, while domestic demand is expected to benefit from recent public investments in basic infrastructures and lower energy prices.
In addition, the drop in petroleum prices will reduce the high cost of importing energy products and contribute toward reducing the trade deficit.
Standard & Poor’s also expects that a reduction in capital investments on the part of the government may slow down the growth of the importation of capital goods and that exports of services may be benefited with a recovery in the tourism sector, within a context of greater economic stability in Europe and the persistence of a certain degree of instability in North Africa.