Economic activity in Cape Verde will accelerate over the comingquarters as the country benefits from better-than-expected economicperformance in Europe, which is an important source of remittanceand tourists. However, with the Cape Verdean government in fiscalconsolidation mode, we believe that growth will slow once again asthe bounce in European growth fades.
Cape Verde faces a period of subdued growth over the coming decadein light of persistent structural obstacles, including its dependence ontourist and capital inflows from the EU and the government's limitedability to drive new investment.
Cape Verdean foreign policy will likely pivot towards China over thecoming years as the government looks for ways to stimulate growthand reduce unemployment. However, such a pivot risks increasingpopular frustrations if Chinese involvement in the economy is perceivedto come at the expense of ordinary Cape Verdeans.
Gradual fiscal consolidation, coupled with at least moderate growth,will see the country's public sector debt burden slowly begin to fall.Although debt levels will remain high, the generous terms of thecountry's public sector debt will support debt and external accountsustainability.
Robust institutions, well developed democratic norms and minimalcorruption will support political stability.