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Document of The World Bank
Report No. 43495-CV
INTERNATIONAL DEVELOPMENT ASSOCIATION
PROGRAM DOCUMENT
FOR A
PROPOSED FOURTH POVERTY REDUCTION SUPPORT CREDIT
IN THE AMOUNT OF SDR 6.2 MILLION
(US$10 MILLION EQUIVALENT)
TO THE
REPUBLIC OF CAPE VERDE
June 9,2008
Poverty Reduction and Economic Management 4 Country Department AFCFl Africa Region
Th is document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.
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ADB ADR ARAP ARE B C A B C V BDEO BSG CAS C F A A CPAR CPI CPIA DGAM DGCI DGP DGT DPR ESW EU FEF FMS GCP GDP GNFS GNI GNP Gocv GOP GPRSP
QUIBB
HDI HIES HIV/AIDS HPR HR IBRD IEFP
CURRENCY EQUIVALENT Currency unit = Escudo (CVE)
(Exchange rate as o f M a y 28,2008) US$1= CVE 70.5
FISCAL YEAR January 1 - December 31
ABBREVIATIONS AND ACRONYMS
Afncan Development Bank Alternative Dispute Resolution Regulation Entity for Public Acquisitions Agencia de Regulaqrlo Econh ica (Economic Regulatory Agency) Banco Comercial Atldntico Banco de Cabo Verde (Bank o f Cape Verde) Base do Dados Estatisticos e Operacionais (Statistical Data Base) Budget Support Group Country Assistance Strategy Country Financial Accountability Assessment Country Procurement Assessment Review Country Performance Indicators Country Policy and Institutional Assessment General Directorate for Asset Management General Directorate for Income Tax General Directorate for Planning Treasury department Development Policy Review Economic and Sector Work European Union financial equilibrium fund Financial Management System Growth and Competitiveness Project Gross Domestic Product Goods and Non-Factor Services Gross National Income Gross National Product Government of Cape Verde Grandes Opq6es do Plano (Major Planning Options) Growth and Poverty Reduction Strategy Paper (Documento de Estratigia de Crescimento e de Reduqio da Pobreza) Questionbrio UniJcado de Indicadores Brisicos de Bem-Estar (Survey of Indicators o f Well-being) Human Development Index Household Income and Expenditure Survey Human Immune-deficiency Virus/Acquired Immune Deficient Syndrome Human Poverty Rate Human Resources International Bank for Reconstruction and Development Professional Training and Employment Institute
ICCA IDA IFAD IGF ILO IMF INDP
INE INERF
I N P S IT JSAN LDP M&E M C A M C C M D G s MFA MIGA M I S MIT M L F S MOE MOF MOFPA MOE M O H M O L M O U MREAP MTEF M T S MTSEF NDP NGO NOS1
NPRB NPV OAS OPCS PA PANA PCCS PEM PER P F M PHRD PIU
Cape Verdean Institute for Children and Adolescents International Development Association International Fund for Agricultural Development Inspecqiio Geral das Finanqas (General Inspectorate for Finances) International Labor Office International Monetary Fund Instituto Nacional de Desenvolvimento das Pescas (National Institute of Fisheries) Instituto Nacional de Estatistica (National Statistics Institute) Instituto Nacional de Engenheiria Rural e Florestal (National Institute of Rural Engineering and Forestry) Instituto Nacional da Previdkncia Social (National Institute for Social Protection) Information Technology Joint Staff Advisory Note Letter o f Development Policy Monitoring and Evaluation Mi l lennium Challenge Account Mi l lennium Challenge Corporation Millennium Development Goals Ministry o f Foreign Affairs Multilateral Investment Guarantee Agency Management Information System Ministry o f Infrastructure and Transport Ministry o f Labor, Family and Solidarity Ministries o f Education Ministry of Finance Ministry o f Finance and Public Administration Ministry o f Education Ministry o f Health Ministries o f Labor (MOL) and Education (MOE) Memorandum o f Understanding Ministry for State Reform and Public Administration Medium-Term Expenditure Framework Ministry o f Labor and Solidarity Medium Term Sectoral Expenditure Frameworks National Development Plan N o n Governmental Organization Nucleo Operacional da Sociedade da Informaqiio (Operational Nucleus for Information Systems) National Poverty Reduction Board Net Present Value Observatory and Analybcal System Operational Policies and Country Services Poverty Assessment Programa de AcqZo Nacional para o Ambiente (National Environmental Action Plan) Plano dos Cargos, Carreiras e Saldrios (Career and Salary System) Public Expenditure Management Public Expenditure Review Public Finance Management The Japan Policy and Human Resources Development Fund Project Implementation Unit
11
PNCP PRCBWE PRSC PRSP TF PRSPS PSI PSM RPRBS SDR SIGOF S I M SMP SSDP STAD
TdC TVET UCRE UCRE UGA UNDP VAT WBI WHO WTO
Plano Nacional de Contabilidade Pziblica (Chart o f Accounts) Privatization and Regulatory Capacity Building and Water and Energy Poverty Reduction Support Credit Poverty Reduction Strategy Trust Fund Programa - Reformar o Sistema para Promover a Salide (Health Reform Strategy) Policy Suport Instrument Pens60 Social Minima (Minimum Social Pension) Regional Poverty Reduction Boards Special Drawing Rights Integrated Financial Management System Municipal Information System Statistical Master Plan Social Sector Development Project Secretariado Tbcnico de Apoio ao Desenvolvirnento (Technical Secretariat for Development Assistance) Tribunal de Contas (Independent General Audit Office) Technical and Vocational Education and Training State Reform Coordination Unit Unidade de Coordena@io das Reformas Estaduais (State Reform Coordination Unit) Unidades de Gestco e Aquisipio (Procurement Units) United Nations Development Program Value Added Tax Wor ld Bank Institute World Health Organization Wor ld Trade Organization
Vice President: Obiageli K. Ezekwesili Country Director: Madani M. Tal l
Sector Director: Sudhir Shetty Sector Manager: Antonella Bassani
Task Team Leader: Manuela Francisco
... 111
THE REPUBLIC OF CAPE VERDE
FOURTH POVERTY REDUCTION SUPPORT CREDIT
TABLE OF CONTENTS’
CWDIT AND PROGRAM SUMMARY .................................................................................. vi 1 . INTRODUCTION ................................................................................................................... 1 2 . COUNTRY CONTEXT .......................................................................................................... 1
A . COUNTRY OVERVIEW .......................................................................................................... 1 B . RECENT ECONOMIC DEVELOPMENTS .................................................................................. 3 c . THE GOVERNMENT’S PROGRAM: CAPE VERDE’S POVERTY REDUCTION
STRATEGY (2005-07) ........................................................................................................... 7 3 . BANK SUPPORT TO THE GOVERNMENT’S PROGRAM .......................................... 13
A . LINKS TO COUNTRY ASSISTANCE STRATEGY ................................................................... 13 B . COORDINATION WITH THE AND OTHER DONORS ...................................................... 13 c . RELATIONSHIP TO OTHER BANK OPERAT10NS ................................................................. 14 D . LESSONS LEARNED ............................................................................................................ 14 E . ANALYTICAL UNDERPINNINGS ......................................................................................... 15
4 . THE PROPOSED OPERATION ......................................................................................... 15 A . RATIONALE AND OBJECTIVES ........................................................................................... 15 B . POLICY AREA 1 : PROMOTE GOOD GOVERNANCE, REINFORCE EFFECTIVENESS AND
GUARANTEE EQUITY ......................................................................................................... 16 C . MONITORING AND EVALUATION ....................................................................................... 21 D . POLICY AREA 2: DEVELOP AND UPGRADE HUMAN RESOURCES ...................................... 23 E . POLICY AREA 3: IMPROVE THE EFFECTIVENESS AND SUSTAINABILITY OF THE SOCIAL
PROTECTION SYSTEM ........................................................................................................ 24 F . PNOR ACTIONS FOR THE PROPOSED PRSC -4 ...................................................................... 26
5 . OPERATION IMPLEMENTATION .................................................................................. 28 A . POVERTY AND SOCIAL IMPACT ......................................................................................... 28 B . IMPLEMENTATION ............................................................................................................. 29 C . FIDUCIARY ASPECTS ......................................................................................................... 31 D . DISBURSEMENT AND AUDITING ........................................................................................ 31 E . ENVIRONMENTAL ASPECTS ............................................................................................... 32 F . CAPACITY BUILDING ......................................................................................................... 32 G . RISKS AND RISK MITIGATION ............................................................................................. 33
The PRSC team i s l ed by Manuela Francisco (AFTP4) and comprised o f HClkne Grandvoinnet and Tony Verheijen (AFTPR). Maurizia Tovo (AFTH2). Soukeyna Kane. (AFTFM). Ghislaine Delaine (AFTQK). Bourama Diaite and Eric Yoboue (AFTPC). Sttphane Legros (WBIHD). Luz Meza-Bartrina (LEGAF). and Wolfgang Chadab (LOAFC) . PRSC Peer Reviewers are Catherine Laurent (MNSED) and Dav id Warren (LCSHS) . Judite Fernandes (AFTP4) provided valuable assistance .
1
iv
List of Tables:
Table 2.1: Basic Macroeconomic Indicators. 2005-2007 ............................................................ 7 Table 2.2: Executed Expenditures - Selected Ministries. 2004-2007 ......................................... 9 Table 3.1 : Status o f K e y Analytical Underpinnings .................................................................. 15
List of Figures:
Figure 4.1 : Management Information System for Monitoring and Evaluation o f Cape Verde’s Social and Economic Development .................................................. 21
Annexes:
Annex 1 : Joint General Budget Support Matr ix for the Government o f Cape Verde ................ 34 Annex 2: Letter o f Development Policy ..................................................................................... 44 Annex 3: IMF Relations Note .................................................................................................... 56 Annex 4: Statement o f IDA Operations ..................................................................................... 57 Annex 5: Statement o f IFC Investments .................................................................................... 58 Annex 6: Country at a Glance .................................................................................................... 59 Country M a p IBRD 33383
V
THE REPUBLIC OF CAPE VERDE
FOURTH POVERTY REDUCTION SUPPORT CREDIT
CREDIT AND PROGRAM SUMMARY
Borrower:
Implementing Agency:
Amount:
Terms:
Description:
Benefits:
Risks:
The Republic o f Cape Verde
Ministry o f Finance and Public Administration
SDR 6.2 mil l ion (US$lO mi l l ion equivalent)
Standard IDA terms: 40-year maturity with a 10-year grace period
The Fourth Poverty Reduction Support Credit (PRSC-4) supports the last year o f implementation o f Cape Verde’s f i rst Growth and Poverty Reduction Strategy (GPRSP-I). This one-tranche operation i s a transitory one between the first and the second PRSC series, which will be based on the GPRSP-I1 finalized by the Government at end o f M a y 2008. The pol icy dialogue and the results-based framework under PRSC-4 focus on the following pillars o f the GPRSP-I: (i) promote good governance; (ii) develop human capital; and (iii) improve the effectiveness and sustainability o f the social protection system. Specifically, PRSC-4 supports selected measures that aim to: (a) improve public expenditure management, reform and modernize the public administration, strengthen decentralization and municipal management capacity, and strengthen monitoring and evaluation systems; (b) improve quality and efficiency o f basic health; and (c) modernize and rationalize social protection services, with a focus on improving the normative and operational framework for social protection services at the municipal level.
The measures supported by the proposed PRSC-4 are expected to have a significant positive impact on poverty reduction. Specifically, expected benefits include: (i) the strengthening o f public finance management, which would enhance efficiency, transparency and accountability in public resources use; (ii) the expansion o f health infrastructure, particularly in remote areas, that would increase access to quality health services for the poor; and (iii) the strengthening and extension o f basic social protection to the poor. Due to the nature o f the instrument, the PRSC i s also expected to reduce transaction costs and distortions associated to project financing.
The main r isks associated with PRSC-4 are: (i) limited capacity in some ministries to pursue the reform agenda; (ii) decline in external
v i
concessional support at a faster pace than expected; (iii) fiscal r isks (including accumulation o f contingent liabilities and non-discretionary expenditure programs that could cause fiscal slippages and stall implementation o f the more sensitive pol icy reforms); and (iv) continued increase in fuel and food prices could delay firther poverty reduction, especially in rural areas, given that most o f the food and al l o i l has to be imported.
Single tranche o f SDR 6.2 million (USSlO mi l l ion equivalent) to be disbursed upon Credit effectiveness.
Estimated Disbursements:
Project ID Number: P106502
vii
INTERNATIONAL, DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR
A PROPOSED FOURTH POVERTY REDUCTION SUPPORT CREDIT
TO THE REPUBLIC OF CAPE VERDE
1. INTRODUCTION
1.1 The proposed PRSC-4 i s a stand-alone operation that supports the last year o f implementation o f the Government’s First Growth and Poverty Reduction Strategy Paper (GPRSP-I), and contributes to Cape Verde’s effort to attain the Mil lennium Development Goals (MDGs). The proposed PRSC-4 builds on results achieved under the f i rst series and continues to support the Government’s efforts in three o f the five pillars o f the GPRSP, based on the division o f labor with other IDA and donor projects. The three pillars to be supported are:
(a) promote good governance -especially effectiveness and equity- through reforms in public
(b) develop human capital, with a focus on health; and (c) strengthen the effectiveness and sustainability o f the social protection system.
expenditure management, civil service and decentralization;
1.2 The second GPRSP (GPRSP-11), which was finalized in end M a y 2008, puts greater emphasis on infrastructure and private sector development to support growth and reduce poverty. The World Bank Country Assistance Strategy (CAS) for FY08-12, to be discussed at the Board in September 2008, wi l l be articulated around these objectives. Consistent with the GPRSP-I1 and the CAS, after this transitory operation the second series o f PRSCs i s expected to shift the focus to infrastructure and private sector development reforms.
1.3 Continuing the approach o f the three previous PRSCs, this fourth operation i s prepared in close coordination with other budget support partners, following a Memorandum o f Understanding signed with the Government. The design o f the proposed PRSC-4, embedded in a three year matrix agreed with the authorities and donors, was prepared under extensive consultation with various stakeholders under the Government’s leadership. This consultative and harmonized approach minimizes the burden on the limited Government capacity and ensures Government ownership o f the supported reforms.
2. COUNTRY CONTEXT
A. COUNTRY OVERVIEW
2.1 Cape Verde i s an archipelago o f ten islands located on the West coast o f Africa. The country has a 472,000 resident population and almost as twice population living abroad, mostly in Europe and the U.S. This diaspora keeps close ties with the motherland, providing a substantial f low o f remittances, which accounted for slightly more than 12 percent o f the GDP in 2005 and 10 percent o f GDP in 2006. Services represent approximately 70 percent o f GDP and industry, mainly light manufacturing, around 23 percent o f GDP. Industrial growth i s constrained by high factor costs and the absence o f economies o f scale, but i s encouraged by the availability o f
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qualified labor and a steadily improving investment climate. Agriculture, which represented around 7 percent o f GDP in 2006, i s severely constrained by the scarcity o f water, lack o f rainfall, the soil type, and problems with inter-island means o f reliable transport to unify the domestic market. There are no known major mineral resources.
2.2 Cape Verde’s performance in social indicators outpaces most African countries. The country’s good economic performance (GDP per capita o f US$2,100 in 2005) and successful public programs increased access to education and health care and paved the way to Cape Verde’s graduation from least developed status in January 2O0fL2 Cape Verde i s considered to be on track to meet the MDGs by 2015 due to i t s high growth and strong performance on several social indicator^.^ Poverty has declined from 37 to 29 percent between 2001 and 2006,4 and the human development index has increased from 0.63 in 1990 to 0.72 in 2003. The adult literacy rate is high at 79 percent, while among the youth it reaches 97 percent. In al l cases, however, overall national progress conceals important geographic variations, with the rural areas generally lagging behind global averages. The most rural islands, l i ke Santo Antgo, Fog0 and Brava, have significantly higher poverty rates. They are also the most isolated islands, with especially high transport costs and, for Brava, no regular air or sea links. Limited access to quality education and health care, isolation due to bad roads, and low agricultural productivity contribute to the entrenched nature o f rural poverty
2.3 Since the adoption o f a multi-party system in 1991, there have been three national elections and two orderly changes in government. A free press and media further support the building o f an open society. The last presidential and legislative elections took place in early 2006. Cape Verde’s strong economic performance and good governance has attracted sizable inflows o f external finance for investment and development. Cape Verde has signed a compact with the U S Millennium Challenge Corporation (MCC) in 2005, which wil l provide grant financing o f around US$110 mi l l ion spread over five years.
Political openness has accompanied this economic and social progress.
2.4 Cape Verde’s main economic vulnerability stems from the structure o f the current account, with a large and growing merchandise trade deficit. Tourism receipts, emigrant remittances and transfers from donors provide the foreign exchange earnings. Current transfers (official and private) are over three times the value o f merchandise exports, with emigrant remittances alone being about one-and-a-half times the value o f exports o f goods. Merchandise exports include shoes, clothing and fish and crustaceans. The small scale o f production in Cape Verde, comparatively high labor costs, l ow quality and the inability to meet sanitary regulations has limited the volume o f exports.
2.5 The economy o f Cape Verde is dominated by the tourism sector. The growth o f large scale tourism is relatively recent in Cape Verde. In 2006, tourism receipts amounted to around 19 percent o f GDP, whereas in 2002 they only reached 10 percent. However, the tourism sector has
* Resolutions 59/209 and 59/210 by the General Assembly o f the United Nations, o n 20 December 2004. MDG education targets have already largely been met, and health indicators are on track, with the exception o f
immunization rates where more efforts are needed. Meeting the provision o f water and sanitation wil l entail significant investment, but urbanization will ease meeting this goal.
These estimates are based o n changes over t ime between 2001 and 2006 in an asset index o f well-being, with corrections for changes in inequality over time.
3
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had little spillover effects on the rest o f the economy. According to a study conducted in 20075 local producers and manufacturers can not meet hotels’ requirements in terms o f quality or quantity. Cape Verde i s a net importer o f most goods and can not meet the food needs o f i t s own population (only 10 percent o f the land i s suitable for farming). Large hotels require large quantities o f high quality products and consistent reliable supplies. The resorts which are already up and running have developed their own infrastructure and/or secured long-term contracts for the provision o f products and services, limiting the opportunity for local small and medium-sized enterprises to become suppliers to these hotels. The absence o f a clear national tourism strategy causes lack o f communication and involvement with the other sectors in planning and improving new tourism developments, resulting in little impact on the other sectors o f the economy.
2.6 Looking ahead, the country faces a number o f challenges. Remittances may decline over time, as the income gap and the ties with the diaspora decrease. Furthermore, the country i s highly dependent on oi l imports (including for water desalination, which accounts for about 75 percent o f water production). In addition, income inequality has r isen and as rural populations f lee entrenched poverty, urbanization i s putting pressure on basic services. Finally, the capacity o f the environment to support large-scale expansion in tourism, industry and construction may be at risk if not adequately managed.
B. RECENT ECONOMIC DEVELOPMENTS
2.7 Macroeconomic policies in Cape Verde have strengthened significantly over recent years, enabling the country to correct the macroeconomic imbalances o f the beginning o f the decade. Cape Verde has experienced robust growth with real GDP growth averaging 5.1 percent during the period 2002-05. Estimates o f GDP growth for 2006 indicate that, despite difficulties with electricity supply, the economy i s growing more rapidly than anticipated with the GDP growth rate at 10.8 percent. This rate o f growth, wel l beyond the original projections, reflects strong public and private investment (driven by significant foreign direct investment), directed largely towards infrastructure development and tourism, and the telecommunication industry. Prospects for 2007 are good with the growth rate projected at 7 percent, reflecting among other factors the carry-over effect o f foreign direct investment inflows during 2006. Unemployment f e l l to 18.3 percent in 2006, down 6.1 percentage points from 2005.
2.8 Bolstered by a firm monetary pol icy and an exchange rate peg to the Euro, consumer inflation has been subdued in the past years (-1.9 and 0.4 percent respectively in 2004 and 2005). However, in 2006 inflation reached approximately 5.4 percent, largely reflecting supply shocks (poor rainfall drove up domestically produced food prices). In 2007, inflation stood at around 4.4 percent, once again driven by food prices (domestically produced).6 Inflation over the medium term is expected to stabilize at around 2 percent consistent with the currency peg.
2.9 Monetary pol icy has focused on strengthening the sustainability o f the exchange rate peg to the Euro by building up reserves and ensuring price stability, hence helping to foster an
Private Enterprise Partnership, Afr ica Studies (2007). International cereal prices have not impacted yet in the CPI because importers have absorbed the impact by
reducing their margins. However, importers have reported that they wil l not be able to continue absorbing the shock. Authorities have indicated that import duties and VAT will no t b e applied o n some cereal products to mitigate the international price effect.
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environment conducive to increased private investment, inflows o f remittances and accumulation o f emigrant deposits. These factors, coupled with a strong performance o f exports (estimated to have grown by 35 percent in 2006), have led to a steady increase o f international reserves at the Bank o f Cape Verde (BCV). These reached 3 months o f prospective imports by end December 2006 compared to 2.8 months at the end o f December 2005 and are expected to reach 3.6 months by the end o f 2007. Since 2006, the B C V has intervened more actively (started selling bank securities) to prevent capital inflows leading to inflationary pressures and the deterioration o f foreign reserves. Furthermore, the Central Bank is closely monitoring interest rate differentials with the Euro area.
2.10 The external current account deficit has narrowed in the recent years, falling from over 14.4 percent o f GDP in 2004 to approximately 5 percent o f GDP in 2006. The improvements in the external position reflect primarily increasing revenues from tourism, an effective demand management and a more diversified import source base. Exports are estimated to have grown by 35 percent in 2006, compared to 24 percent in 2005, whereas imports grew by 23.4 percent in 2006 and 0.5 percent in 2005.
2.1 1 Fiscal policy has been consistent with macroeconomic stability and debt sustainability. In 2005, despite strong revenues and prudent spending, the fiscal deficit (including grants) reached 6.3 percent o f GDP, mainly reflecting delays in the disbursement o f budget grants. In 2006, the fiscal deficit stood at 5 percent o f GDP reflecting strong revenue performance from both income and value added (VAT) taxes as wel l as greater control o f expenditures. Estimations for 2007 indicate that the fiscal deficit will stand at around 0.7 percent. Quarterly accounts for 2007 show that tax revenues grew faster than projected. Expenditure commitments were closely monitored and controlled, with expenditures evolving in line with budget ceilings. In addition, the 2008 Budget Law suggests that the fiscal pol icy stance wil l remain firm with recurrent spending declining as a share o f GDP as a result o f a reduction (as percentage o f GDP) o f wages and ~alar ies,~ and goods and services.
2.12 Nevertheless fiscal risks persist. The major source o f fiscal r isks is Electra, the para-statal Water and Electricity Company. There are several reasons that underpin its critical financial situation: lack o f investments, difficulties with billing collection especially from municipalities, and tariff setting below costs. I t s under-pricing structure was exacerbated when direct subsidies to Electra were eliminated (April 27, 2006) and the tariffs increase for water and electricity which took place in June 2006, were insufficient to compensate for the increase in the price o f fuel. As a result, in September 2007, Electra’s treasury difficulties filed a request for an urgent payment o f the tariff deficit for the period M a y 2006-February 2007, amounting to 550 C V E mi l l ion (US$6.3 million).* In early April 2008, ARE published a regulation that sets a new tariff base (a long time request from Electra) that will take into consideration efficiency levels, investment costs, and operational costs, among others. However, the publication o f the new regulation has produced no results as tariffs (water and electricity) have not been revised. Furthermore, petroleum products’ prices were adjusted in March 2008, producing immediate implications for the utility tariffs (water and electricity) as i t s tariff formula is indexed to petroleum products’ prices. Nevertheless, no
’Hiring and promotions have been frozen until the revision o f the Career and Salary System Plan (with the exception o f the Health, Education, Social Protection and Security sectors).
T h i s amount does not appear in the budget because, as o f April 2006, o i l subsidies were eliminated and therefore no provision in the budget was included. 8
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adjustment took place and thus tariff deficit is accruing again. Therefore, even though there i s a clear pol icy o f not subsidizing oil-related products (the budget does not provide for those) since April 2006, subsidies do exist, but are not recorded in the budget. As a result, the current fiscal position i s understated, and the budget does not provide adequate support for planning current year spending against current year resources. Fiscal r isks that emerge from the energy sector have been at the center o f the IMF program (PSI). Under the Letter o f Intent and Memorandum o f Economic and Financial Policies for the third PSI review (dated November 29,2007) the authorities made the commitment to implement three measures (two structural assessment criteria and one benchmark) related to the energy sector: (i) finalize and publish the mechanism for setting base utility tariffs; (ii) fully apply the mechanism for setting and adjusting electricity, water, and fuel prices, and (iii) finalize and publish a revised mechanism for adjusting petroleum price^.^ Up to now only assessment criteria (i) has been met.
2.13 The Government has implemented a number o f measures to reduce fiscal risks in general. These measures include: (i) creation o f a macroeconomic pol icy unit to strengthen the formulation o f fiscal policy in the context o f the overall macroeconomic pol icy objectives; (ii) creation o f a sub-unit (under the Treasury unit) to follow-up on state participations in companies; (iii) introduction o f a formal mid-year review o f fiscal developments in order to assess revenue, expenditure and financing developments against projections, and if necessary take timely corrective actions; and (iv) monitoring o f budget executions through SIGOF o f Autonomous Institutes and municipalities." With regard to the energy sector and Electra specifically, the Government recognizes the urgency o f improving the technical and financial position o f the company and to that end is: (i) seeking financing for the most needed investments; (ii) strengthening regulation; and (iii) seeking solutions to reduce Electra's commercial losses. More specifically, the authorities are taking the following measures: (a) purchasing equipments that wil l allow cheaper petroleum products as input; (b) creating a logistics company that wi l l handle importation, storage and inter-island distribution o f o i l products, thus increasing efficiency and reducing transaction costs; and (c) improving bill payments.
2.14 The recent increase in international food prices has not yet had an impact on domestic prices, owing to the large stocks o f cereals. As these stocks are reduced, prices may increase, but this i s not l ikely to threaten fiscal or external stability in the short term given the fiscal space and comfortable level o f international reserves. The price increase could however affect vulnerable groups. The Council o f Ministers has recently approved a package o f measures to mitigate the impact o f possible future increases, which includes the elimination o f international trade taxes and VAT on cereals, improvements in importation efficiency, and increase in the amount and coverage o f the non-contributory pension (from C V E 3150 to C V E 3500). Authorities and donors, including the World Bank and IMF, will continue monitoring closely the developments in this area. In addition, the Bank will help the authorities to simulate the poverty impact o f this shock across different groups, so as to identify further mitigation measures.
2.15 In July 2006, the IMF approved the request o f the government for a three-year Policy Support Instrument (PSI). The PSI is designed to support the government's economic objectives and pol icy framework for 2006-2009. This program focuses on measures to reduce
(i) and (ii) are structural assessment and (iii) is a benchmark. lo Not a l l municipalities and Autonomous Institutes are connected yet.
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macroeconomic risks, provide a margin o f safety against exogenous shocks and address the prospects o f a longer-term decline in highly concessional external support. The third PSI review was successfully completed in December 2007.
Macroeconomic Outlook and Debt Sustainability
2.16 The medium term outlook (2008-2010) i s optimistic (see Table 2.1.). According to the most recent projections, the GDP growth i s expected to stand at 7.5 percent on average over the period 2008-2010. Growth i s projected to be led by private investment in tourism, public investment in infrastructure, and private consumption. Inflation is expected to stabilize at around 2 percent consistent with the currency peg.
2.17 The current account deficit i s expected to widen, as a result o f the increase in imports for capital formation and tourism. Projections indicate that current account deficit, as a percent o f GDP, may reach 15 percent in 2010. The increase in imports o f investment goods wil l be largely driven by the FDI inflows, which are expected to remain above 10 percent o f GDP in the coming years and to gradually decline afterwards as the investment boom weakens. On the other hand, it is expected that remittances will decline as a percentage o f GDP as income in Cape Verde grows and ties with the diaspora becomes looser. Furthermore, i t i s expected that external aid wil l decrease over time as the economy grows and social indicators improve.
2.18 I t i s expected that fiscal policy wil l continue to be dominated by fiscal prudence. Preliminary projections indicate that the fiscal deficit (including grants) wi l l continue to decline as percentage o f GDP, reaching 2.4 in 2010. Revenues are expected to continue growing fuelled by the strong economic growth and improvements in tax administration. The expenditures are expected to be constrained. Improvements in public expenditure management will also contribute for further control in expenditures.
2.19 Significant progress has been achieved with debt sustainability management. The share o f total central government net debt and guarantees to GDP started to decline in 2005, and has been declining sharply since then. I t f e l l to 77 percent o f GDP in 2006, down from 87 in 2005, owing to the rapid GDP growth and prudent fiscal stance. The domestic debt-to-GDP ratio was reduced from 33 in 2005 to 19.7 percent in 2007, two years ahead o f the PSI schedule. An analysis o f the sustainability o f Cape Verde’s public debt carried out in December 2007 concluded that, despite the l ikely gradual reduction in access to concessional loans, al l external debt indicators would remain below the relevant thresholds under the baseline and alternative scenarios. The most extreme scenario i s a hypothetical 30 percent devaluation o f the exchange rate in 2008. I t causes a one-off increase o f 7 percent o f GDP in the NPV o f the debt to GDP ratio. Even in this scenario, the external debt ratios remain below the threshold. In sum, the debt sustainability analysis concluded that the risk o f debt distress i s low.
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Table 2.1 : Basic Macroeconomic Indicators, 2005-2007
Real GDP growth (annual percentage change) 4.4 6.5 10.8 6.9 7.7 7.4 7.4 Indicator 2004 2005 2006l 2007’ 2008’ 2009’ 2010’
Real GDP per capita growth (annual percentage change) 2.5 4.6 8.8 5.0 5.7 5.4 5.3
-3.8 -6.3 -5.0 0.7 -3.5 -3.0 -2.4 Overall fiscal balance, including grants (percentage o f GDP)
-5.1 -9.5 -11.5 -12.6 -14.7 Current account balance, including official transfers -14,4 -3 .4 (percentage o f GDP)
2.4 2.8 3.0 3.6 3.7 3.8 3.9 Reserve coverage (months o f prospective imports o f goods and services) kroad money growth (annual percentage change) 10.5 15.5 17.7 13.3 13.9 12.5 12.1 CPI annual average (annual percentage change) -1.9 0.4 5.4 4.4 4.0 1.7 2.0 Total Central Government debt 88.9 87.1 77.3 66.3 59.6 54.3 50.1 ‘Preliminary. ’Projections.
Source: IMF, Ministry o f Finance and Public Administration and Staff estimates
C. THE GOVERNMENT’S PROGRAM: CAPE VERDE’S POVERTY REDUCTION STRATEGY (2005-07)
Government’s Program Objectives and Proposed Measures
2.20 Cape Verde’s GPRSP-I (2005-2007) built on a well-articulated set o f strategies and priorities that address Cape Verde’s main development challenges. The priorities o f the Government were along five “pillars”: (i) promoting good governance, reinforcing effectiveness and guaranteeing equity; (ii) promoting competitiveness to foster economic growth and employment creation; (iii) developing and upgrading human capital; (iv) developing the infrastructures, promoting land use planning and protecting the environment; and (v) improving the effectiveness and sustainability o f the social security systems.
2.21 The first PRSC series and the proposed PRSC-4 support three o f the five pillars: Pillar I, promoting good governance, reinforcing effectiveness and guaranteeing equity; Pillar III, developing and upgrading human capital; and Pillar V, improving the effectiveness and sustainability o f the social security systems. The next paragraphs present an overview o f the Government’s objectives and planned measures in the areas supported by the proposed PRSC-4.
Pillar I - Promoting Good Governance, Reinforcing Effectiveness and Guaranteeing Equity
2.22 Under this f i rst pillar, the Government aimed to improve governance by modernizing Government procedures and institutions and by increasing i t s interface with citizens. Accountability and equity were expected to be enhanced through more direct participation o f citizens, better management practices for public finance and human resources, improvements in tax policies, a firmer regulatory role in the economy, legal and judicial reform, simplified administrative procedures, expanded use o f information technology (IT), and increased decentralization o f responsibilities and resources.
2.23 The main areas o f focus targeted by the Government to pursue this f i rs t pillar included the reform o f public administration, the reform o f the financial management system and decentralization. In the area o f public administration, the Government intended to implement
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measures and reforms including: (i) using modern technologies to improve efficiency, outreach and transparency o f public services, particularly important given the discontinuous geographical setting; (ii) decentralization o f human resource management and implementation o f a merit-based recruitment system; (iii) training public servants, in particular in the areas o f information and communication technologies; and (iv) rationalizing public administration structures. Furthermore, the Government intended to reform the State’s financial system by implementing the Country Financial Accountability Assessment (CFAA) and Country Procurement Assessment Review (CPAR) action plans. More specifically, the C F A A action plan focused on: (i) controlling contingent expenditure by completing a cross-debt analysis and elaborating a plan for the settlement o f arrears; (ii) improving budget planning and preparing the Medium Term Expenditure Framework (MTEF); (iii) expanding the tax base by identifying the tax payers and improving tax administration; (iv) improving budget execution and reporting by de-concentrating the expenditure commitments and liquidation process through IT to line Ministries and by instituting the quarterly preparation o f accounts; and (v) improving the impact o f external and internal controls by submitting the executed budget to Parliament in time and by redefining and strengthening the court o f auditors (TdC) and the General Inspectorate for Finances (IGF). The CPAR action plan recommended the adoption o f a National Procurement Code and the launch o f a regulatory function. With regard to decentralization, the GPRSP-I planned the approval o f a new law defining the attributions and competencies o f the municipalities and the revision o f the law that established the criteria for the distribution o f the financial equilibrium fund (FEF).
Pillar I11 - Developing and Upgrading Human Capital
2.24 Under th is pillar, the Government intended to improve the health status o f the population. Mindful o f increasing costs, the Government’s sectoral reform strategy focused on an expansion o f the network o f health facilities, limiting treatment overseas by improving local alternatives, improving human resource management through decentralization, strengthening the health information system, and reinforcing citizen participation in health promotion and disease prevention.
2.25 The GPRSP-I identified the following measures for the health sector as the drivers for poverty reduction: (i) expansion o f the network o f health facilities particularly in the rural areas; (ii) limitation in the number o f the treatment overseas by training specialists and improving infrastructure; (iii) increase in the capacity o f planning by improving health information systems; (iv) preparation o f a strategy for non-communicable diseases, and (v) reinforcement o f the population’s participation in the health promotion and disease prevention.
Pillar V - Improving the Effectiveness and Sustainability of the Social Protection Systems
2.26 Under this pillar, the Government planned to focus on curbing the increasing income inequality as wel l as reforming the existing social protection schemes to ensure sustainability and broaden coverage. Specifically, the Government’s reform strategy sought to: (i) move from a focus on ex-post assistance to increased attention to r i s k mitigation and prevention measures; and (ii) decentralize and contract out service delivery in line with the broader reform underway.
2.27 The GPRSP-I identified five main measures to achieve the goals set up for the fifth pillar: (i) develop institutional capacity in social protection; (ii) strengthen and extend programs that
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reach disadvantaged groups (including social pensions, social assistance and health insurance programs); (iii) promote local initiatives and community development; (iv) promote the r i gh ts o f children; and (v) improve mechanisms to prevent and manage food crises and strengthen food security.
Results Achieved since the Inception of the First PRSC Series
2.28 The outcome matrix for the f i rst PRSC series was drawn from government strategies identified in the GPRSP-I. The Annual Progress Report for the GPRSP-I (July 2006) provided an update on the implementation o f the GPRSP-I. Overall, implementation i s progressing well. Among the most important achievements so far, it i s worth mentioning the following:
Pillar I - Promoting Good Governance, Reinforcing Effectiveness and Guaranteeing Equity
Public Finance Management
2.29 Support for Priority Sectors: Budget execution i s in line with the benchmarks for social sectors (health and education) stated in the GPRSP-I(see Table 2.2) and amounts even surpassed the benchmarks for both sectors in the four years o f i t s implementation.
Table 2.2: Executed Expenditures - Selected Ministries, 2004-2007 (Percentage of Total Expenditures)
2004 2005 2006l 2007l Social sectors/GPRSP-I benchmarks Min. o f Education and Sports 25.12 24.85 24.46 23.72 (GPRS-I benchmarks) 20 22 22.5 23 Min. o f Health 7.62 8.48 7.46 7.71 (GPRS-I benchmarks) 6.3 6.5 7 7
"Projections Source: Ministry o f Finance and Public Administration.
2.30 Control Contingent liabilities: A cross-debt study" that took place in 2004 identified 5.9 billions o f net debt o f the central government. This study was revised in 2005 (with regard to the central government debt) and a plan was prepared, whereby the government agreed to settle C V E 4.8 bi l l ion (approximately 5.5 percent o f the GDP) through a four-year plan, beginning in 2006. Furthermore, to prevent accumulation o f arrears (usually related to contingent liabilities) several actions have been undertaken: (i) publication o f the adjustment mechanism for water and electricity;12 (ii) creation o f a sub-unit under the Treasury unit to follow-up state participations in companies; and (iii) inter-connection between autonomous institutes and ministries (and some municipalities) through the Integrated Financial Management System (SIGOF) enabling the Budget and Treasury units to follow their budget execution and take measure if necessary in order to prevent liabilities from autonomous institutes from being passed on to the central government.
2.31 Medium term planning and budget preparation: Two draft laws have been sent to Parliament: (i) the budget framework law; and (ii) the budget planning law (which was latter
I t analyzed the debt between Central Government, municipalities, autonomous institutes, and para-statals. 11
l2 However, the mechanism has not been applied consistently.
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withdrawn from the Parliament). Capacity in preparing global and sectoral MTEFs has slowly been built across ministries (with international technical assistance). Following the preparation o f global MTEFs in 2004, sectoral MTEFs were initiated, even though at different paces because o f uneven capacity levels within the ministries. The authorities are currently preparing the second global MTEF.
2.32 Budget execution and reporting: The IT-based Financial Management System (FMS) i s now connecting al l the Ministries, allowing them to monitor their accounts in real-time - a very impressive achievement. Furthermore, the deconcentration o f the budget execution started in 2007. Line ministries can commit and liquidate through SIGOF. In 2008 the deconcentration was extended to Institutes. The Government finalized the 1998-2005 state general accounts, thus clearing the backlog. The 2006 accounts, which by law should have been submitted to Parliament by end 2007, were submitted to Parliament in March 2008.13 Quarterly accounts are prepared timely and have been submitted to Parliament on a regular basis since 2004.
2.33 Management and Control o f Tax Proceeds: The identification o f the income tax payers i s completed. Reforms in tax administration also include the end o f the agreement with B C A as the sole tax c ~ l l e c t o r . ' ~ This has provided tax payers with more payment options and i s expected to reduce revenue foregone.
2.34 Cash management: Good progress has been achieved regarding cash management. A new cash management plan has been developed in coordination with the Operational Nucleus for Information Systems (NOSI). Cash f low forecasts will be prepared for the fiscal year and wil l be updated monthly on the basis o f actual cash inflows and outflows.
2.35 Debt Management: Since 1996 the Treasury department (DGT) has had specific software to register public debt, but only started using i t effectively after 2004. The software already allows the estimation o f the service debt payments, generating quarterly information. In addition, i t contributes to the budget preparation process given i t s integration with SIGOF. The Authorities are not yet conducting debt sustainability analysis, for which they have received training, because the software is not operational yet. At present, only DGT has access to the software and the debt is not registered in terms o f accounting.
2.36 a draft law that strengthens that mandate o f the TdC i s in the Parliament for discussion.
Internal and External Audits: A new organic Law for the IGF was approved in 2005 and
Decentralization
2.37 Legal Framework: The revision o f the Local Finances Law has substantially increased the amount o f resources transferred to local governments on the basis o f a formula - increase o f 60 percent from 2005 to 2006 - which i s positive as formula-based transfers are the least prone to
l3 Difficulties in closing the 2006 accounts emerged from the fact that the 2006 Budget was approved in August 2006 (because it was an election year), and therefore until that date, the budget was executed on the basis o f the 2005 budget. l4 Until 2006 BCA was the only tax collector and retained 1 percent o f the taxes collected. During the first semester o f 2006 agreements were signed with other institutions whereby a flat rate o f 200 to 300 ECV per collection was defined as the remuneration for their services. Since May 2007, B C A also receives a flat rate, with retroactive effects dated July 2006.
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political interference and ensure some predictability o f the proceeds. Furthermore, following extensive discussions on the strategic approach to decentralization, the Council o f Min is ters approved in November 2007 the Framework Law on Decentralization, which has been submitted to parliament and i s expected to be approved after the local elections, scheduled for May 18,2008.
2.38 Introducing IT systems at the Municipality level: N O S I developed a modern tool - “Municipal Information System” (SIM) - to strengthen municipal management capacity (including tax collection) and communication between the central level and the municipalities, and between municipalities.
Public A dm in istration
2.39 Civ i l Service Reform: Cape Verde’s administration has now completed the integration o f the recently updated personnel database with the payroll, an important achievement that wil l ensure data consistency and monthly reconciliation o f processes. The easily accessible updated data was used as the basis to elaborate c iv i l service reform options. The new Basic law on c iv i l service (Lei de Buses du FunqCo Pziblicu) was approved by the Council o f Ministers in January 2008. However, i t s submission to the parliament has been delayed to ensure that the accompanying secondary legislation and fiscal impact assessment o f wage reform implementation i s f i rst completed. The Government i s experiencing problems with the design o f secondary legislation on the Career and Salary System (PCCS), due to resistance from interest groups in the administration, as wel l as o f limited capacity for conducting fiscal impact assessment, which has resulted in an incomplete and so far inadequate impact assessment document. The Government has undertaken the task to hire an international expert to support the local team in improving the impact assessment document.
2.40 State Reform: The State Reform Coordination Unit (UCRE), created under the Ministry for the Chairmanship o f the Council o f Ministers, State Reform and Defense, has finalized i t s report on the rationalization o f the State, which has been validated by the Commission for the Rationalization o f the State (CRE). Following its adoption, the Prime Minister has adopted a resolution for the f i rst phase o f i t s implementation, focusing on rationalizing the central structures o f line ministries (including the creation o f a mandatory structure, the integrated office o f Budget, Organization and Management), the re-definition o f the institutional status o f four research institutions, strengthening the inspection system and de-concentrating budget and human resources management to the l ine ministries.
2.41 E-Government: One o f the main successes o f public sector reform in Cape Verde lies with the embrace o f IT by the country’s public administration. The e-government initiative, under the auspices o f the NOSI, launched many activities with a direct impact o n citizens and business. Achievements under this initiative include (i) a functioning integrated financial management and information system; (ii) an integrated human resources database and payroll; (iii) financial management systems installed in the largest municipalities; (iv) revamping o f the tax registry; and (v) reengineering o f various administrative processes to create a single-window for the most used services.
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Pillar I11 - Developing and Upgrading Human Capital
2.42 Improve health information systems: The Ministry o f Health completed a situation analysis o f the Health Information System in April 2005. Since 2004, reliable health statistics reports are published on a yearly basis, providing accurate data upon which to build the specific technical reforms needed in the sector, as wel l as to facilitate monitoring o f GPRSP-I implementation.
2.43 Health financing: The I N P S i s implementing i t s medium-term strategy with success, incorporating 14,000 c iv i l servants under its health insurance scheme, expanding i ts coverage through the creation o f special coverage systems (regimes especiais), controlling pharmaceutical costs, reducing reimbursement for certain medical specialties, and monitoring membership o f beneficiaries. As a result, the health debt has been cleared with an E C V 36 million and 26 mi l l ion positive balance respectively in 2005 and 2006.
Pillar V - Improving the Effectiveness and Sustainability of the Social Security Systems
2.44 Improve coverage and management o f non-contributory systems: The harmonization, modernization and unification o f the two non-contributory pension systems have been completed. A unified Management Information System (MIS) database is active, new digital ID cards have been issued, the revised poverty map was used to allocate additional pensions by municipality, and a National Pension Center i s operational. The rationalization o f the system has made it possible to increase the number o f beneficiaries from 14,446 in 2005 to 18,343 in 2007.
2.45 Improve planning and management instruments: A Social Services Map (Carta Social) was elaborated and i s accessible through the web. The Map contains information on coverage and utilization o f al l social service centers and represents a critical f i rst step toward the development o f service norms.
2.46 Protection o f children’s r ights: Laws and regulations concerning minors have been revised and an overarching Statute for Children and Adolescents has been drafted. At the same time, committees for the defense o f children r ights have been set up in al l municipalities, and collaboration with NGOs strengthened.
2.47 Food Security: A food security survey was carried out in 2005 and wil l provide the baseline for monitoring at the municipal level, as envisaged in the Food Security Strategy approved in 2004. This survey identified food insecure households and could therefore be used to help targeting interventions to address the impact o f rising food prices. Also, a National Council for Food Security was created in August 2005, representing an important step towards a more coordinated approach to cope with food insecurity. In addition, a National Food Security Program for 2007-1 1 was approved, but its operationalization i s facing some challenges.
2.48 Building on the lessons learnt and the results achieved in the first PRSC series, the pol icy dialogue and the results-based framework o f the PRSC-4 focus on: (i) public expenditure management reforms; (ii) civ i l service reform and decentralization; (iii) the monitoring and evaluation system; (iv) capacity to deal with non-communicable diseases; (v) management o f health human resources and financial sustainability o f health services; (vi) decentralization and
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rationalization o f service delivery; and (vii) social protections schemes, particularly for disabled people. As indicated in paragraph 1.2, the PRSC-4 i s a transitory operation between the f i rst and the second PRSC series. The latter wil l support the implementation o f the GPRSP-11. The GPRSP- I1 i s based broadly on the same five pillars as the GPRSP-I with a stronger emphasis on the role o f infrastructure and private sector development as the main drivers for growth and poverty reduction. As a result, the second PRSC series i s expected to shift the focus towards infrastructure and private sector development.
3. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM
A. LINKS TO COUNTRY ASSISTANCE STRATEGY
3.1 The thrust o f the Bank’s FY05-08 assistance strategy for Cape Verde i s to: (i) assist the country in implementing i t s poverty reduction strategy; and (ii) to improve aid effectiveness by shifting the form o f assistance towards programmatic support and sharpening focus on results. The first PRSC series (PRSCs 1-3) and this stand alone PRSC are central to the CAS, accounting for about 60 percent o f proposed IDA lending over four years. This emphasis on programmatic lending i s consistent with Cape Verde’s performance in implementing the activities supported by the previous CAS, its level o f institutional, economic and political development, i t s strong and sustained performance in recent years, and the recommendations o f core diagnostic work (PER, CFAA and CPAR). The CAS deems the PRSC to be a strategic lending instrument to: (i) provide predictable resource flows, particularly important given Cape Verde’s reliance on donor financing; (ii) strengthen public administration and public expenditure management systems, with spillover benefits to non-IDA resources; and (iii) help harmonize donors and reduce the potential distortions and transaction costs o f external assistance. Furthermore, this operation (as well as the f i rst PRSC series) wil l contribute to the following outcomes o f the current CAS: (i) improved transparency o f public expenditure, and empowerment o f oversight institutions; (ii) clarified framework for municipalities; (iii) improved ability to manage public sector reform across institutions; and (iv) improved sustainability, access and quality o f health services.
B. COORDINATION WITH THE IMF AND OTHER DONORS
3.2 Budget support in Cape Verde has been catalytic for donor harmonization around key policy measures and results. Six donors15 are now part o f the Budget Support Group. They have signed with the Government a Memorandum o f Understanding entitled “Partnership Framework between Budget Support Partners and the Government o f Cape Verde for the provision o f Budget Support”. The Group consists o f IDA, the European Union (EU), the Afr ica Development Bank, and the Austrian, the Dutch and Spanish Cooperations. These donors conduct jo int reviews twice a year, which allow for consensus-building and the reduction o f transaction costs for the Government. To facilitate and strengthen coordination, the Government and the donors have recently developed a joint, streamlined matrix, which i s used as a basis for discussions and disbursement in the donors’ respective operations. All Bank prior actions are part o f the joint matrix document (see Annex 1).
’’ The Portuguese Cooperation joined the BSG in December 2007. I t i s not formally part o f the group as it has not signed the MOU yet.
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3.3 The PRSC has been prepared in close coordination with IMF staff and the IMF PSI reviews. The PSI focus, inter alia, on supporting the exchange rate peg, creating fiscal space, strengthening public sector management, and addressing fiscal risks. In a number o f areas where the PSI and this operation overlap, the work i s being closely coordinated to ensure that consistent advice i s provided to the authorities.
c. RELATIONSHIP TO OTHER BANK OPERATIONS
3.4 The use o f the PRSC instrument has allowed the Bank to consolidate i t s lending operations and engage in policy and technical dialogue in three o f the five GPRSP-I pillars, on governance, human development, and social protection. This focus complements the support provided by the Bank through ongoing investment operations, notably projects in energy, transports (roads), private sector development and HIV/AIDS.
D. LESSONS LEARNED
3.5 have been taken into account in preparing the proposed operation:
The following lessons are drawn from the experience o f the three previous PRSCs and
(a) Enhance Government ownership and donor coordination through the use of budget support. As a small country with many donors, Cape Verde’s public sector can be overwhelmed with aid coordination demands and its staffing patterns disrupted through the creation o f multiple project units. PRSCs have been instrumental in improving Government ownership and donor harmonization and coordination, sharpening Government’s ownership for reforms and focus on setting priorities and strengthening intra-government coordination and reducing the burden o f multiple monitoring systems. The M o U signed between the six donors providing budget support, the scheduling o f joint missions, and the use o f a joint matrix have resulted in reduced transaction costs and distortions o f international assistance.
(b) Better link sectoral and cross-cutting issues. In shifting from a sectoral investment project focus to the PRSC, the ability to embed sector pol icy within cross-cutting issues - including decentralization, improved expenditure management, and c iv i l service reform- can increase the sustainability and impact o f service delivery.
(c) Find ways to provide technical assistance at short notice for capacity building. The shift to budget support has meant that there i s limited access to short-term consultancies or technical assistance fkom the Bank side during credit preparation, because administrative procedures for the traditional Bank preparation trust hnd (PHRD) are too slow in light o f the short span o f a PRSC preparation cycle. Yet, achieving the results targeted by the PRSCs requires strengthening counterpart capacity. The World Bank, at the request o f the Government, will remain closely involved in capacity building through three main channels: (a) technical advice from members o f the core PRSC team; (b) financial support through relevant TA components o f existing projects; and (c) a PRSP Trust Fund. Another positive outcome o f the creation o f the Budget Support Group i s that i t allows for coordinated technical assistance from donors; for instance, the European Union i s financing long-term technical assistance requested during the missions. Hence,
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complementary analytical work or financial support from other donors i s also being coordinated with the Bank activities.
Fiduciary Assessments
E. ANALYTICAL UNDERPINNINGS
Country Financial Accountability Completed (6/03), action Plan Project files Assessment (CFAA) validated Country Procurement Assessment Completed, action p lan Project files Review (CPAR) validated
3.6 The analytical foundations o f the PRSC have focused on the adequacy: (i) o f government policies and institutions for adequately targeting poverty reduction; and (ii) o f systems and procedures for effectively channeling resources to support these strategies. The PRSC design has been informed by the conclusions and recommendations o f core ESW, including two PERs, a CFAA, a CPAR, a DPR and a Poverty Assessment. The main conclusions o f this analytical work were the basis for the design o f the reform program supported by the proposed PRSC. For example, the public expenditures agenda was designed on the basis o f the high priority actions identified in the 2003 and 2006 PER and C F A A action plan. Besides the core assessment that informed the design o f the PRSC series, other analytical pieces - prepared by IDA, the Government or other donors - continue to inform the program, such as the study on fue l subsidies conducted as part o f the 2006 PER, or the analysis o f the likelihood o f achieving the M D G s prepared by the Government with assistance from the UNDP. Table 3.1 presents the current status o f these key analytical underpinnings.
Table 3.1: Status of Key Analytical Underpinnings
4. THE PROPOSED OPERATION
A. RATIONALE AND OBJECTIVES
4.1 The proposed Fourth Poverty Reduction Support Credit (PRSC-4) supports the last year o f implementation o f Cape Verde’s first Growth and Poverty Reduction Strategy (GPRSP-I). This one-tranche operation wil l be a transitory one between the f i rst and the second series. The pol icy dialogue and a results-based framework under PRSC-4 focus on the fol lowing pillars o f the GPRSP-I: (i) to promote good governance; (ii) to develop human capital; and (iii) to improve the
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effectiveness and sustainability o f the social protection system. Like the f i rst PRSC series (PRSCs 1-3), the proposed PRSC-4 supports a small and strategic subset o f the GPRSP-I pol icy and reform agenda. The proposed operation builds up on the first PRSC series and aims at addressing the reforms proposed under the GPRSP-I that were s t i l l to be completed at the inception o f the operation or that had emerged as priorities for the Government.
4.2 The PRSC-4 i s embedded in the three year Joint Matr ix covering the period 2007-2009 and agreed upon in M a y 2007 by Government and donors. Based on experience over the past three years, the matrix i s prepared along two principles: (i) simplification (fewer triggers, fewer activities); and (ii) harmonization (common matrix shared by donors). The next sections discuss the rationale for the selection o f the PRSC-4 prior actions and identify possible actions that the Government intends to undertake in 2008 as they result from the Joint Matrix.
4.3 presented in the following sections):
The development pol icy objectives o f the PRSC-4 are summarized below (details are
(d) Promote good governance: through public expenditure management reforms, c iv i l service reform and decentralization, and improvement in the monitoring and evaluation system.
(e) Develop human capital, with a focus on health: strengthen capacity to deal with non- communicable diseases, improve management o f health human resources, and increase financial sustainability o f health services with special attention to contributory schemes.
(f) Improve social protection: decentralize and rationalize service delivery, improve management and planning instruments by implementing the social protection strategy, and support the implementation o f the National Action Plan for disabled people.
€3. POLICY AREA 1 : PROMOTE GOOD GOVERNANCE, REINFORCE EFFECTIVENESS AND GUARANTEE EQUITY
Public Expenditure Management Reforms
4.4 The government reform agenda i s based on the assessments o f the 2003 CFAA, 2003 PER, 2006 PER and CPAR. Together, these analytical pieces provide a comprehensive overview o f the critical weaknesses in the public expenditure management system. Fol lowing the 2003 CFAA, an action plan focusing on comprehensiveness and transparency o f budget and financial accountability i s being implemented by a CFAA Unit with the support o f the Netherlands, the EU and the Bank. The key issues o f the Government reform agenda affecting public expenditure management, on which this operation focuses, are the following:
4.5 Clearance o f the stock o f arrears: O f the stock o f arrears recognized in 2005 (CVE 4.8 billion, approximately 5.5 percent o f the GDP) approximately 60 percent have been cleared (as o f December 2007). The 2008 budget includes a provision o f C V E 1,289 million, which if hl ly executed will reduce the outstanding stock to 16 percent. According to the plan for the settlement, al l arrears wil l be cleared by 2009 and no new arrears will be created. Several actions are being undertaken to prevent the accumulation o f new arrears: (i) the treasury will seek to clear arrears more rapidly if extraordinary revenues materialize; (ii) adequate budgetary allocation are being made for goods and services; (iv) as o f 2007, November 30 has been instituted as the deadline for committing expenditure; and (v) measures have been taken to control contingent liabilities - as
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discussed in the macro section - (in the past accumulation o f arrears emerged largely from materialization o f contingent liabilities). l6
4.6 Budget execution and reporting: A new public accounting system has been designed and approved but not yet implemented. The new chart o f accounts (PNCP) i s expected to start being implemented in 2009. The PNCP will be used not only for the State budget, but also for the autonomous institutes and the municipalities. This new system will allow the Ministry o f Finance and Public Administration to produce consolidated annual Government statements, including information on revenues, expenditures and financial assetsAiabilities. I t wil l establish a double- entry accountancy system and enable the publication o f periodical accountancy reports, which can include the State position in al l its dimensions - patrimonial and extra-patrimonial, operational, financial and budgetary. Delays with the implementation o f the PNCP are caused by difficulties with the assets’ assessment methodology (to allow for the full implementation o f the PNCP, the definition o f the assets assessment is required). The manual for asset evaluation wil l be completed by end-2008.
4.7 Internal controls: The publication o f the new organic diploma o f IGF in 2005 empowered General Inspectorate o f Finance (IGF). However, even though resources allocation has increased since then, it has not addressed fully the larger financing needs that resulted from the enlargement o f i t s scope o f work. The CFAA Implementation Unit has provided to IGF modem IT equipment and connection to SIGOF to follow budget execution on real time. Training i s required for the efficient use o f these new instruments. Additional challenges in the internal control area include the slow response o f the judicial system, and the s t i l l recent and limited use o f performance audits.
4.8 External controls: The draft o f the new Organic Law for the TdC has been discussed in Parliament and is expected to be approved by July 2008. Once the law i s approved and the implementing decrees published, the mandate o f TdC wil l be strengthened improving significantly the transparency and accountability o f public resources. The audits o f the 2001-2005 accounts were completed in 2007, thus clearing the backlog. This impressive achievement was possible thanks to external technical support financed by the EU and the World Bank (PRSP TF). The TdC i s therefore current on auditing o f the state accounts. I t i s critical that in the future auditing wil l take place in time, to ensure that the outcome o f the auditing can produce legal effects.
4.9 Procurement: The National Procurement Code was approved by the Parliament in July 2007, along with implementing decrees, and in March 2008 a decree-law established the Procurement Regulatory Authority. According to the new procurement code, transactions will be handled by a Procurement unit (UGA) within each key ministry and controlled by the Court o f Auditors for contracts above US$50,000. Below this threshold, there i s no clear and efficient mechanism to ensure internal control o f contracts awarded by UGA.
l6 Cross-debt study (2004).
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PRSC-4 prior actions
4.10 The proposed prior actions for PRSC-4 are:
(a) 2008 Budget Law takes into account, inter alia, adequate funding for the priority sectors
(b) Implementation o f the plan for clearance o f the arrears continued, as evidenced by the
(c) Audited State General Accounts for 2001-2005 submitted to Parliament; and (d) Decree creating the Procurement Regulatory Authority i s published.
(health and education);
reduction o f the outstanding stock to 40 percent;
Other actionsplanned by the Government for 2008 in the context of the agreed Joint Matrix
(a) A 2009 draft budget law submitted to Parliament in l ine with the GPRSP-I priorities
(b) Implementation o f the plan for clearance o f the arrears continued, as evidenced by the
(c) Revised version o f the adjustment mechanism for petroleum products published; (d) Audited State General Accounts for 2006 submitted to Parliament.
and MTEF;
reduction o f the outstanding stock to 16 percent;
Public Sector Reform and Decentralization
4.1 1 Cape Verde’s public administration has been able to deliver quality services for several decades. Still, in a country setting where insularity adds specific challenges to responsive service delivery, citizens continue to perceive the public administration as inefficient. Moreover, sustainability i s at stake in a context where the overall wage bill represents around 12 percent o f GDP, and more importantly, more than 30 percent o f public expenditure.” The keys issues on c iv i l service and decentralization are:
Public Sector Reform
4.12 Law on civil service: The revised law on c iv i l service (Lei de Bases da Funq6o Publica) was approved by the Council o f Ministers in January 2008. The law introduces major changes: (a) the creation o f a consultative commission; (b) the restriction o f a career-based c iv i l service for top management positions, al l other positions being governed by the labor law; (c) stricter conditions for entry into the c iv i l service (with a minimum degree o f “licenciatura’8”, longer probation period, etc.) and for promotions; (d) the introduction o f an evaluation system based on clear work programs; and (e) introduction o f “mission letters”, and a system to manage redundant personnel. For the difficult issue o f redundant personnel, a decree and program encouraging mobility and other ways to deal with this staff i s being designed.”
4.13 Revision o f the PCCS: Whi le progress i s being made on the definition o f a new pay and grading structure, concerns remain over the lack o f clarity on key aspects and on the fiscal
l7 PER, 2006. ’* Bachelors level. l9 This mobil i ty p lan includes incentives for staff that will be in the ‘staffing reserve’ to seek alternative careers, both through positive (subsidies) and negative (reduction in wage after 6 months o f being in the ‘reserve’) incentives
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impact o f the reform. The current fiscal impact assessment is partial and does not provide the a cost analysis for the broad reform package. It has been limited to the assessment o f impact o f establishing a core professional group o f c iv i l servants (approximately 570 staff), without calculating the impact on the wages o f the other public servants, whose wage development would be linked to this core group. Furthermore, the last version o f the draft o f the PCCS indicates that the number o f wage supplements and the number o f “quadros privativos” will increase. The overall reform package might not be fiscally viable, as the wage reform package for the 570 core c iv i l servants would require an approximately 35 percent increase in their wage level. Whereas the number i s l ikely to be smaller for the public service as a whole, due to the skewed design o f the reform,20 the fact that the core group i s used as a reference group for other professional cadres might s t i l l generate a large wage bill increase. Finally, the current approach entails serious r isks in that the impact on the budget o f municipalities (which employ approximately 25 percent o f al l c iv i l servants) has not been assessed. In view o f the impending local elections, and the installation o f new local governments, this could have negative implications on the ability o f local governments to function effectively. The government has expressed i t s commitment to widen the scope o f the fiscal impact assessment (which thus far had been limited to the assessment o f impact o f the upgrading o f wages o f a small core group o f professionals) and to reconsider the number o f wage supplements as well as to attempt to keep the number o f “quadros privativos2’” to a minimum.
4.14 Payroll Management: The c iv i l servants database was h l ly validated and integrated with payroll. The database i s currently functioning at the central level (the State Secretariat for Public Administration manages the human resource components and the General Directorate for Public Accounting the salary component) and i s gradually being de-concentrated to the line ministries. Thus far data entry and base wage calculation have been de-concentrated, but other human resources processes remain centralized. Meanwhile, the government has published for the first time a “Profile o f Public Employees” (in print and on the Government website) which i s an important step in increasing transparency and strengthening monitoring.
4.15 State Reform and state restructuring: With the creation o f a Ministry for the Chairmanship o f the Council o f Ministers, State Reform and Defense (following the 2006 legislative elections), the Government sent a strong signal in favor o f reform coordination. The State Reform Coordination Unit, created under this Ministry, has finalized its report o n the Rationalization o f the State, which has been validated by the Commission for the Rationalization o f the State (CRE). Following its adoption, the Prime Minister has adopted a resolution for the f i rst phase o f i t s implementation, which has been initiated and is progressing in a satisfactory manner. The key elements include the rationalization o f central administrative structures, including: (i) the creation o f integrated management and budget offices in each ministry; (ii) the reorganization o f four research institutes including the integration o f INAG (administration and management), INIDA (agriculture) and INDP (fisheries) in the National University o f Cape Verde and the transformation o f INERF (rural engineering and forestry) in a joint stock company; (iii) the reform and strengthening o f inspectorates (including the creation o f a central
2o Wages for the non-core grades in the c i v i l and public service would increase by inf lat ion levels only, which means that the impact on administrative level officials would be much smaller. However, the wages o f professional groups in health, education and local government would st i l l be l inked to the core group, thus requiring similar levels o f increases for these officials. 21 Cadres with special privileges and higher wages.
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methodology and capacity building unit); and (iv) the de-concentration o f human resources and budget management functions. In addition, island-level coordination structures wil l be created to rationalize and improve public service delivery systems.
Decentralization
4.16 Decentralization: Decentralization o f responsibilities and resources to the municipalities i s one o f the key vehicles chosen by the Government to improve service delivery. Local governance in Cape Verde has proven dynamic, with hotly contested municipal elections and numerous local development initiatives - many o f them through decentralized cooperation arrangements. However, discrepancies in size and revenue potential o f municipalities are very high. The Local Finances Law, adopted in 2005, led to an increase in the formula-based transfer for recurrent expenditures. Some municipalities are also using the new possibility o f accessing credit from private banks. However, the absence o f an overall legal and regulatory decentralization framework cause limitations on the coordination between municipal, central and deconcentrated government activities.
4.17 Basic framework law on decentralization: Following broad based discussions with political parties, municipalities, c iv i l society and decentralization experts, the Government has developed a national vision o f decentralization which wil l not include political regionalization but wil l strengthen the regions as wel l as inter-municipal cooperation. This led to a revision o f the draft o f the framework Law on Decentralization, which was approved in the Council o f Ministers in November 2007. This text i s an important milestone in further implementing the decentralization agenda. Ma in innovations o f this law are the following: the framework law sets out the principles o f the architecture o f the state, which wil l be based on bottom up inter- municipal cooperation and a strengthening o f the regions, without, however, leading to political regionalization. The vision on strengthening the regions calls for further de-concentration, while the municipal level will remain the main decentralized level o f government. The modalities o f managing the de-concentrated level o f government are in the process o f being defined. Together with the revision o f the Local Finances Law, the Framework L a w constitutes the basis for a new management system for intergovernmental administrative and fiscal relations.
4.18 Municipal management capacity: NOS1 developed a modem tool to strengthen municipal management capacity (the Municipal Information System) which wil l enhance communication between the central level and the municipalities, and between municipalities. Financing has been secured for installing i t in twelve municipalities. Implementation i s continuing, with the aim to complete the extension o f the system to the remaining municipalities.
PRSC-4 prior actions
4.19 The proposed prior actions for PRSC-4 are:
(a) Minister o f State Reform approves the diagnostic report on State restructuring; and (b) Council o f Ministers approves the draft Law on C iv i l Service (Lei de Bases da
Funp7o Pziblica).
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Other actionsplanned by the Government for 2008 in the context of the agreed Joint Matrix
(a) Implementation o f the recommendations o f the diagnostic report on State restructuring in at least 5 ministries (new organigrams, f k i o n and extinction o f Institutes), reflected in the preparation o f 2009 budget;
(b) Implementation o f the new legal framework (including basic law on civil service and decree on mobility) continued, as evidenced by: (i) completion o f the training plan for the evaluation system; and (ii) identification o f the redundant staff and finalization o f mobility options; and
(c) Finalization o f the PCCS, reflecting the principles o f transparency, equity and sustainability, accompanied by a solid and comprehensive fiscal impact assessment.
c. MONITORING AND EVALUATION
4.20 The implementation of the GPRSP-I as wel l as the PRSC i s overseen by a Steering Committee. Under the umbrella o f the Ministry o f Finance and Public Administration, a l l ministries involved in the three GPRSP-I pillars supported by the PRSC (i.e. Finance, Public Administration and Civ i l Service, Health, Labor and Solidarity) were involved in the PRSC design, implementation and monitoring.
4.21 The monitoring and evaluation program (M&E) o f the GPRSP-I built o n the proposals for an integrated national monitoring and evaluation system, the structure o f which i s shown in Figure 4.1. L ike the first PRSC series, the proposed PRSC aims at supporting a results-based M&E system with the objective o f ensuring timely access to relevant data in order to monitor progress, evaluate the impact o f the poverty reduction strategy, and help define new orientations or make changes based on analysis o f current data. Overall PRSC monitoring i s the responsibility o f the STAD under the General Directorate for Planning.
Figure 4.1 : Management Information System for Monitoring and Evaluation of Cape Verde’s Social and Economic Development
Official Statistical Data Base Data Base of Policies and Projects
Genera Direction of Planning. Operations
and Management and Management Operations and
Ministry of Health nculture Fishin
MOF Financial Management
System
Administrator: General Direction
of OperationdNOSI
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4.22 Since the inception o f the GPRSP-I, progress in the M&E system lagged behind, not fulfilling the expectations o f i t s original design. The slower than expected development and implementation o f the M&E system can be largely explained by the improperly structured units, inadequate management system, and de-motivated human resources. T o signal the importance given to M&E, Government and donors decided to include actions on this component in the donors’ joint matrix to elevate the importance o f this work as a Government priority (in the case o f the World Bank, these actions were included for the PRSC-2 and PRSC-3). As a result, M&E started to receive increased attention. A household survey was carried out, a training program started being implemented, active search for staffing o f STAD started, and the extension o f N O S I was initiated.
4.23 This increased commitment led to progress on several fronts: the Government made progress by launching the recruitment process to hire more STAD staff; providing continued support for the completion o f the BDEO; and creating a Working Group for the Harmonization o f the M&E System (GHMES). The QUIBB survey was also completed in 2006 and the results were used to prepare the 2005 MDGs Report. Nonetheless, M&E implementation was s t i l l lagging in mid-2007 at the time o f the design o f the PRSC-4. The completion o f the platform with N O S I for integrating M&E was behind schedule, and the Government had not signed a protocol with NOSI, thereby preventing NOSI from carrying out a number o f activities.22 In addition, the staffing o f STAD remained in flux. Delays in hiring three specialists (economist, statistician, and programmer) were eventually overcome, but the recruitment o f the coordinator was stalled. A s a result, Government and donors considered that monitoring and evaluation continued to be an important component o f the pol icy dialogue under the Pillar I - Promote Good Governance. Therefore, the PRSC-4 proposes to continue supporting actions in this area. The authorities have identified two main priorities to advance in this area: (i) staffing STAD adequately so that this unit can fulfill i t s mandate; and (ii) extend access to SIGOF to sectors, autonomous institutes and STAD. Project information has been inserted in SIGOF thus allowing monitoring budget execution and performance. STAD’s staff as well as sectoral staff that deals with M&E has received training.
PRSC-4 prior action
4.24 The proposed prior action for PRSC-4 is :
(a) Extend NOSI to STAD, as evidenced by: (i) completion o f the installation o f the system; (ii) training o f the team; and (iii) STAD database contains project information to allow budget performance evaluation.
Other actionsplanned by the Government for 2008 in the context of the agreed Joint MatrLx
(a) Implementation o f the STAD Action Plan continues as evidenced by training in M&E
(b) Implementation o f the Agenda Estatistica, as evidenced by training and preparation o f
(c) Large dissemination o f 2007 QUIBB results (publications, pamphlets).
STAD and sectors;
population census; and
22 These included: (i) harmonizing the system, and in particular, extending the Geographic Management System in the sectors and revising the organization of the BDMP at the DGP; (ii) revising the databases at the Ministries of Education, Environment, and Agriculture; and (iii) supporting ME for the completion of the BDEO system.
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D. POLICY AREA 2: DEVELOP AND UPGRADE HUMAN CAPITAL
4.25 Compared to other countries in Africa, Cape Verde’s coverage rate o f health services at 73 percent i s good and the country is on track to achieve the MDGs. However, these good indicators mask significant regional disparities that are based on an unsustainable financial framework. The key issues o f the Government reform agenda affecting health are the following:
4.26 Health outcomes and access to health services: Reliance on medical evacuations, both within and outside o f the country, i s necessary because o f the lack o f specialists and diagnostic equipment in remote areas. Medical evacuation^^^ to Portugal have increased recently due to the growing cases o f non-communicable diseases, with the consequent increase in evacuation costs (4.8 percent o f the budget for health in 2007). There are inequities in health outcomes by island, but access to health services does not account for a l l o f the disparities in such outcome. Differences in access to water, sanitation, and chi ld nutrition are also important factors
4.27 Human resources: The problems with human resources limit the effectiveness o f the health system. These include: (i) an insufficient number o f doctors, particularly specialists; (ii) poor distribution o f staff, with about 75 percent o f doctors practicing in the two central hospitals; (iii) a lack o f incentives to maximize personnel deployment, focus on the poor, prioritize certain services; and (iv) a growing number o f public sector doctors working in an unregulated private sector, which could raise additional problems for access to health care particularly for the poor, and contribute to the increase o f health care expenditures. A national human resource strategy for the health sector was prepared in 2005 in collaboration with WHO to address these challenges. Annual action plans should now be prepared in order to translate the strategy into effective interventions, such as increasing the rate o f doctors and nurses per 10,000 inhabitants.
4.28 Increase in non-communicable diseases. Today the burden o f non-communicable diseases significantly hinders economic growth. On average, men lose 13.6 years o f productive l i fe and women 11.3 years, due to chronic illnesses within an aging population. Health prevention and promotion programs have to be introduced to impact on health expenditures in the future, particularly for the poor who are less able to afford treatment. Participation o f the population in health promotion and chronic diseases prevention remains a priority, to be achieved in part by strengthening cooperation across sectors and with civil society organizations. To address the increase in non-communicable diseases, the authorities prepared a situation analysis and a national strategy, which was approved by the Council o f Ministers in December 2007. Several interventions are expected for 2008, including production o f clinical protocols for care o f high blood pressure, diabetes, and rheumatic fever.
4.29 Health financing: Total Government health spending i s high, around US$70 per capita, o f which about US$10 is provided by donors. This i s largely explained by (i) a weak allocative efficiency o f the national health budget; and (ii) a very high and rapidly increasing rate o f expenditures with the introduction o f new pharmaceuticals (because o f increases in demand, as incomes improve, population ages and non-communicable diseases augment). A PER conducted in 2006 shed light on expenditures issues. One o f the main findings o f the PER i s that i t is difficult to undertake an efficiency analysis, because there is insufficient knowledge about al l the resources
23 The ceiling for evacuations covered by the Portuguese Government i s 300 patients per year.
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channeled to health (aid and other resources that are not included in the budget) and o f the distribution o f human resources. Furthermore, significant disparities among islands were found because the larger share o f expenditures is channeled to the central hospitals leaving the poorest regions without enough funds. As a result, cost-effective interventions, such as neonatal care and immunization, are lacking.
PRSC-4 prior action
4.30 The proposed prior action for PRSC-4 is:
(a) Strategy for non-communicable diseases is approved by the Council o f Ministers.
Other actions planned by the Government for 2008 in the context of the agreed Joint M a t r k
(a) National Institute for Social Protection (INPS) transfers, recovery costs and revenues and international aid support are included in the Ministry o f Health and central hospitals budgets (2009 budget); and
(b) The 2005-2010 immunization strategy i s translated into key interventions aiming at increasing immunization coverage o f the whole population.
E. POLICY AREA 3: IMPROVE THE EFFECTIVENESS AND SUSTAINABILITY OF THE SOCIAL PROTECTION SYSTEM
4.31 Cape Verde has a relatively well developed social protection system for Africa, so the pressing issues have mostly to do with reforms o f existing programs to increase efficiency, equity and coverage, as wel l as to fill in specific gaps. Since the beginning o f the PRSC series, considerable progress has been made, particularly concerning social security. A series o f reforms has managed to harmonize and unify the non-contributory pension system, and a National Pension Center now manages al l non-contributory pensions using state-of-the-art tools. At the same time, reforms to rationalize contributory social security have been undertaken, increasing long-term financial sustainability and expanding coverage (see the health section). The reform o f the non- contributory pension system constituted the main goal pursued under the previous PRSC series. With that successfully achieved, the authorities are now focusing on decentralization o f social services, the continued modernization and rationalization o f social protection services, and the provision o f appropriate services to disabled people in view o f their productive integration into society. In addition, the policy dialogue has been expanded to include labor, as it i s under the mandate o f the same Ministry and is linked to social protection. The main issues to be addressed are summarized below.
4.32 Legal framework for decentralization o f social protection services: Social protection services have been enjoying a certain level o f deconcentration for some time, but a clear legal framework i s needed to improve efficiency and, especially, to clarify accountability at the municipal level. A draft Decree Law regulating the legal and operational framework for social protection services at the municipal level has been prepared, and updated framework agreements (protocols) between the Ministry o f Labor Family and Solidarity (MLFS) and municipalities for the provision o f decentralized social protection services have been prepared. Finalization, however, i s contingent upon the adoption o f the Framework Law on Decentralization, a process
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that has taken some time because o f the political debate surrounding it. With the law approved by the Council o f Ministers in November 2007, i t s f inal adoption by Parliament i s expected for 2008. Approval o f the Decree Law by the Council o f Ministers is expected shortly thereafter.
4.33 Planning, monitoring and evaluation o f social protection services: A s the volume and variety o f services offered have increased, the targeting, monitoring and evaluation systems have failed to keep up and are now largely inappropriate, making adequate planning more difficult. For example, central and municipal governments often contract with local associations and NGOs for the day-to-day management and operation o f various social protection services, but no modem system has been set up to monitor the performance and impact o f these sub-contracted services. Similarly, a system to update regularly the geo-referenced map o f social services (Carta Social) prepared in 2004 needs to be established, a task that should be made easier by the redefinition o f central versus municipal level responsibilities envisaged above. In addition, the work o f the M L F S appears to be significantly hampered by insufficient human resources. For example, two cadres retired from the General Direction o f Social Solidarity and cannot be replaced, and there are only 7 labor inspectors, which far below the needs. Thus, while the Decree Law will facilitate strategic and cost-effective partnerships for the delivery o f social protection services throughout the country, the instruments for effective delivery are not always available.
4.34 Child Protection: The legal and institutional framework for chi ld protection needs updating and strengthening, and a participatory process toward this goal has been underway for some time. The adoption by the Council o f Ministers o f a new Code or Statute for Children and Adolescents i s now expected in the second quarter o f 2008, accompanied by a preliminary proposition (ante-projecto) for a new statute for the Cape Verdean Institute for Children and Adolescents (ICCA). In the meantime, efforts to deconcentrate service delivery have resulted in the establishment o f Municipal Committees for the Protection o f Children’s Rights in al l municipalities. The Committees comprise representatives o f concerned stakeholders (e.g., police, tribunal, health, municipal government), and their members have been trained by ICCA. The challenge i s now to go beyond ad hoc committees and to establish a hll time outreach service in all islands.
4.35 Disability: Within the context o f the African decade o f the disabled, Cape Verde has adopted a National Action Plan for Disabled People in November 2007. This plan constitutes a significant departure from the old approach that treated the disabled mostly as passive recipients o f assistance, as it stresses the rights o f the disabled to be productive citizens. A Steering Committee comprising public and private sector representatives has been set up and trained, and a smaller Managing Committee has been created. These entities, however, are only consultative and concrete implementation wil l depend on the recruitment o f a h l l - t ime Coordinator and successhl fund- raising. I t i s also noted that the government has not yet ratified International Labor Office (ILO) Convention no. 159, an action that would trigger provision o f technical assistance by ILO. Among the f i rst concrete steps for the implementation o f the Plan wil l be teacher training on special education issues which in turn should result in higher enrollment and retention rates for handicapped children.
4.36 Labor: A new Labor Code was approved in October 2007, with a more comprehensive approach covering additional groups (e.g., the whole maritime sector, domestic employees and immigrants). Unfortunately, no corresponding implementation law (regulaqio) has been issued
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and therefore the new Code has not yet been applied. The Labor Inspectorate remains grossly under-resourced, in terms o f staff (see above), means (e.g., no transport, no instruments to measure risks) and information (no solid data, no electronic database). Given the steady economic growth, i t is o f concern that workers’ protection appears to have been somewhat neglected. The full application o f the Labor Code and a performing Labor Inspectorate are not only a matter o f social justice but also important instruments to prevent poverty and f i l f i l l the responsibilities o f a middle income country such as Cape Verde.
PRSC-4 prior action
4.37 The proposed prior action for PRSC-4 is :
(a) National Action Plan for Disabled People is approved by Council o f Ministers and steering committee has been established.
Other actionsplanned by the Government for 2008 in the context of the agreed Joint Matrix
(a) Issue Decree Law regulating a normative and operational framework for social
(b) Continue the implementation o f the National Action Plan for Disabled according to protection services at the municipal level; and
schedule.
F. PRIOR ACTIONS FOR THE PROPOSED PRSC-4
4.38 The matrix attached below l ists the prior actions for the proposed PRSC-4 as detailed in the sections above and their current status o f implementation. These actions represent a sub-set o f the Government program o f reforms detailed in the harmonized donors’ joint matrix and in i t s Letter o f Development Policy (LDP, Annex 2). The rationale for their selection i s based o n the following considerations: (i) they are deemed essential to the successhl implementation o f the Government’s reform program; (ii) the Bank has a comparative advantage in supporting the Government in thee areas and/or support i s not being provided by other donors; and (iii) they exclude areas where the dialogue with the government has matured, progress i s satisfactory or Bank support i s being provided through other instruments (such as for education and justice). Compliance with these prior actions as defined in the Financial Agreement forms the basis for IDA to proceed with the proposed operation.
4.39 The outcome indicators to which the operation will contribute are detailed in the joint donors’ matrix presented in Annex 1. These are identified in italics in this matrix, together with baseline and target indicators. All outcome indicators for the proposed operation refer to 2008.
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Table 4.1: Summary PRSC-4 Prior Actions
Extend NOS1 Database to STAD as evidenced by i) completion o f the
PRSC-~ PRIOR ACTIONS I Status I Outcome I Indicat03~
M e t Improved capacity in M&E Number of staff trained in M&E
Pillar I : Promote Good Governance, Reinforce Effectiveness and Guarantee Equity
Strategy for non-communicable diseases approved by Council o f Ministers
1:
M e t Measures to control NCD have Number o f been implemented interventions o n
NCD
~~
2008 draft Budget L a w takes into account, inter alia, adequate finding for the priori ty sectors (education and health)
receive better eiucation services
Implementation o f the p lan for clearance o f arrears continued as evidenced by the reduction o f the outstanding stock to 40 percent Audited State General Accounts for 2001-2005 submitted to Parliament
handicapped children (under 15 years old)
Decree creating the Procurement Regulatory Authority i s published
Civ Minister o f State reform approves the diagnostic report o n State restructuring
Counci l o f Ministers approves the draft L a w o n Civil Service
!blic Financ M e t
M e t
M e t
M e t
Service ana M e t
M e t
Management Education and Health sectors have adequate finding (within the limitations o f the budget constraint) Central government reduces the stock o f debt towards the private sector, municipalities and Institutes Improve impact o f external controls
Improve procurement systems through enforcement o f laws, regulations and processes
Share o f the budget as % o f GDP
Outstanding stock o f arrears
Number o f years before presentation o f the audited accounts to the Parliament Number o f Procurement Uni ts (UGAs) in place and Operational
lecentralization
efficiency in the State f i l ly integrated with the
Turnover in senior
I I I
Pillar V: Improve the Effectiveness and sustainability of the social protection system Social Protection
National Act ion Plan for Disabled People 1 M e t I Children with mecia1 needs 1 Enrollment rate o f is approved by Council o f Ministers and steering committee has been established
24 For benchmarks please see Annex 1.
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5. OPERATION IMPLEMENTATION
A. POVERTY AND SOCIAL IMPACT
5.1 The share o f the population with consumption under the poverty l ine has fallen by one- fourth in the 1990s from 49 to 37 percent, with the population in extreme poverty now estimated at about 21 percent. The share o f total household consumption devoted to food was reduced from 50 to 35 percent, reflecting a reduction in the number o f poor people vulnerable to basic food insecurity. However, while poverty was reduced, inequality has increased. The Gini index for per capita expenditure rose from to 0.50 in 1988 to 0.53 in 2002, exacerbating the already high concentration o f consumption among the richest. In addition, as indicated above food insecurity i s a persistent problem, with malnutrition rates for children under five at 22 percent, compared to 21 percent in 1994.
5.2 positive impact on poverty reduction. Specifically, expected benefits include the:
The measures supported by the proposed PRSC-4 are expected to have a significant
(i) strengthening o f public expenditure management, which would enhance efficiency, transparency and accountability in public resources use;
(ii) expansion o f health infrastructure, particularly in remote areas, that would increase access to quality health services for the poor; and
(iii) strengthening and extension o f basic social protection to the poor.
5.3 Due to the nature o f the instrument, the PRSC i s also expected to contribute to increasing the Government’s absorption capacity for external resources and reducing transaction costs and distortions due to international assistance.
5.4 Whi le the PRSC-4 does not have a special focus on rural poverty, i t supports measures that wil l be particularly beneficial to the rural poor. For example, by bringing government services closer to citizens, the decentralization process wil l especially benefit those who would ordinarily have difficult access to such services, notably rural dwellers. Similarly, efforts to improve the delivery o f social services will focus on traditionally under-served areas, which tend to be rural- and in the case o f food security, the vast majority o f beneficiaries wil l be rural. The activities supported by the proposed PRSC-4 also complement other interventions to reduce rural poverty, such as the US-financed M C C (US$1 10 million) and the Bank-financed transport project, both o f which finance rural infrastructure.
5.5 Given the overall thrust o f the PRSC-4, no negative impacts on vulnerable groups are envisaged. To the contrary, al l the measures considered will result either in improved overall well- being because o f better governance and more efficient and equitable government services or in specific gains for the poorest and most vulnerable members o f society because o f efforts to reach those with difficult access to basic services, including social protection and safety nets.
5.6 The Government has gone to considerable lengths to ensure that its actions are the true expression o f the collective will, and has consistently and actively involved specific stakeholders and citizens at large throughout the process leading to and accompanying the first PRSC series and PRSC-4.
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B. IMPLEMENTATION
5.7 The PRSC-4 i s overseen by the country GPRSP Steering Committee. Under the umbrella o f the Ministry o f Finance and Public Administration, al l ministries involved in the three GPRSP-I pillars supported by the PRSC are involved in PRSC design, implementation and monitoring (i.e., State Secretariat for Public Administration, Health, Labor and Solidarity).
5.8 Since the preparation o f the f i rst PRSC series, the Bank team has worked in close collaboration with Government and budget support partners to ensure a high level o f accountability for the success o f the PRSCs. The Box below illustrates how the operation has incorporated the good practice principles o f application o f conditionality.
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Box 5.1 : Good Practice Principles on Conditionality
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C. FIDUCIARY ASPECTS
5.9 Fiduciary aspects and strengthening o f the Government’s own systems are at the core o f this operation. The 2003 CFAA and 2006 PER have addressed the main challenges o f Cape Verde’s public expenditure management and financial accountability systems. An action plan focusing on comprehensiveness and transparency o f budget and financial accountability i s being implemented with the support o f the Netherlands, the EU and the Bank. A follow-up o f the implementation o f the CFAA’s action plan has been part o f the 2006 PER, PRSC supervision and preparation. Public financial management has been improving steadily. The public financial management system i s reasonably adequate to support the PRSC.
5.10 IMF’s most recent assessment o f the Central Bank was carried out in December 2002. The assessment identified certain vulnerabilities in the reporting, internal control, and audit areas, and made appropriate recommendations, as reported in IMF Country Report No. 03/152. The B C V has fully implemented al l but one o f the safeguard assessment recommendations which regard a clear separation between the front and back office functions in the Operations division. The later has been only partially implemented. Furthermore, B C V has improved liquidity and reserve management, and strengthened banking and financial sector supervision.
D. DISBURSEMENT AND AUDITING
5.11 A single tranche credit o f SDR 6.2 million (US$10 mi l l ion equivalent) would be made available to the Republic o f Cape Verde upon credit effectiveness, anticipated for August 2008. The closing date o f the operation would be December 3 1,2008.
5.12 The credit will follow the Bank’s disbursement procedures for development pol icy lending. Once the credit becomes effective, the Government o f Cape Verde will submit a withdrawal application to IDA requesting that the proceeds o f the credit be deposited in the Central Bank (BCV) into an account that forms part o f the country’s official foreign exchange reserves. The Borrower shall ensure that upon the deposit o f the credit into said account, an equivalent amount i s credited in the Borrower’s budget management system, in a manner acceptable to the Bank and to finance management expenditures. The Borrower will report to the Bank o n the amounts deposited in the foreign currency account and credited to the budget management system. Disbursement would not be linked to specific purchases. If the proceeds o f the credit are used for the ineligible purposes as defined in the Development Credit Agreement, IDA will require the Borrower to refund an amount equal to the amount o f said payment to IDA promptly upon notice from IDA. Amounts refunded to the Bank upon such request shall be cancelled.
5.13 Through the Ministry o f Finance, the borrower wil l (a) report the exact sum received into the deposit account; (b) ensure that al l withdrawals from the deposit account are for budgeted public expenditures, except for purposes such as military expenditures or for other items o n IDA’S negative l ist; and (c) provide to IDA evidence that the E C V equivalent o f the Credit proceeds were credited to the Consolidated Fund account and disbursements from that account were for budgeted public expenditures. I t i s expected that the TdC (Court o f Auditors) will provide IDA with its annual report on the public accounts to Parliament by the end o f the year following the execution o f the budget.
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E. ENVIRONMENTAL ASPECTS
5.14 Climatic vulnerability, erratic rainfall, limited fresh water supplies, and reliance on tourism as an engine o f development put sustainable use o f resources and protection o f the environment as central to poverty reduction. The Government, with support from the Netherlands cooperation and UNDP, has developed a National Environmental Plan (PANA, 2004-14) that identifies policies, investments and result indicators to promote the rational use o f natural resources and the sustainable management o f economic activities. The Plan identifies three main environmental issues that match the MDGs in the areas o f water supply, sanitation, and marine and terrestrial biodiversity.
5.15 Within the fourth GPRSP-I pillar, “Develop basic infrastructure, promote rational land use and safeguard the environment”, the Government reiterated i t s commitment to PANA implementation. The Spanish and Austrian Cooperations are currently providing budget support to the environmental sector and have produced an environmental pol icy matrix that addresses main issues. Critical prior actions and a set o f monitorable result indicators have been identified and are being monitored.
5.16 IDA has determined that the specific actions supported under the proposed PRSC-4 are not expected to have a significant effect on Cape Verde’s environment and natural resources due to the nature o f the areas o f focus o f the operation: public finance management, c iv i l service and decentralization, monitoring and evaluation, health care and financing, and social protection. More specifically, none o f the prior actions (Table 4.1) i s expected to impact negatively on Cape Verde’s environment and natural resources.
F. CAPACITY BUILDING
5.17 As discussed in the Lessons Learned section, achieving the results expected from the PRSC-4 requires strengthening the capacity o f several o f the Government agencies and ministries involved in i t s implementation. The Government i t se l f financed a number o f technical assistance and capacity building efforts in the preparation o f the f i rst PRSC series, including strategy and development o f instruments in the social protection system, implementation o f critical C F A A recommendations and studies, and institutionalization and analysis o f the c iv i l service database, al l o f which strengthened the capacity of government agencies to carry out the PRSCs. Besides this very welcome development, the World Bank, at the request o f the Government, has remained closely involved in capacity building through three main channels: (a) technical advice from members o f the core PRSC team, through the pol icy dialogue in the context o f the PRSC or through background analytical work; (b) financial support through relevant TA components o f existing projects, and (c) a PRSP Trust Fund o f up to US$500,000.25 Complementary analytical work or financial support from other donors has also been provided to support capacity building.
25 Activit ies financed by the PSRP TF include: (a) assisting the Government in designing and implementing appropriate M&E tools; (b) strengthening capacity building for strategic planning in health financing, education testing and social protection; (c) improving governance through a more strategic use o f human resources in c i v i l service and targeted assistance to the Court o f Auditors.
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G. R I S K S AND RISK MITIGATION
5.18 The following r isks and risk mitigation strategies have been identified:
(a) Capacity. Implici t in the shift to budget support and reliance on national systems and c iv i l servants for implementation i s the issue o f capacity. The limited number o f technical staff and the high turnover o f senior staff in several core ministries pose a problem. To address this risk in the short term, the PRSC budget support partners have made available over US$3.5 mi l l ion to finance a combination o f capacity building and technical support, and close coordination, including joint missions, wil l minimize the risk o f an inefficient use o f funds. The Bank has provided a PRSP TFs. For a medium and long term resolution, the ongoing c iv i l service reform should help to build a better trained and stable cadre o f staff. The PRSC-4 (as wel l as the f i rst PRSC series) includes a component on c iv i l service aiming at supporting the ongoing reform. More specifically, PRSC-4 includes the prior action “Council o f Ministers approves the draft Law on C iv i l Service”, which expected outcome i s to create a professional and merit based civ i l service.
(b) Decline in external concessional support at a faster pace than expected: Cape Verde graduated to the United Nations’ category o f medium-developed country (MDC) in January 2008. As a result, a decline in foreign concessional support i s expected. A task force, under the Ministry o f Foreign Affairs, is leading discussions with the main partners to assure a smooth transition. However, if the donors withdraw from the country before the expected date or if the terms o f concessional lending worsen more than previously foreseen, reforms can slow down, stall or move ahead with domestic resources. If financed by domestic resources, there i s a risk o f fiscal slippages or a r ise in borrowing levels. Through the PRSCs instrument the Bank has played a catalytic role towards helping in the harmonization and security o f resources.
(c) Fiscal Risks: Accumulation o f contingent liabilities could emerge if public or semi-public companies (especially Electra) are not run efficiently, if the continued increase in o i l prices is not passed-through to domestic prices, and if municipalities continue accumulating arrears towards Electra. The PRSC has been one o f the bases that supported dialogue on fiscal risks. Several actions were taken since the inception o f the program, as referred above. To summarize a few: a study on contingent liabilities; a plan for the settlement o f arrears and prevention o f contingent liabilities; a revision o f the automatic mechanism for petroleum products - revision o f prices are made on the basis o f Platts market quotes and not on reported fob costs by the o i l companies.
(d) Food prices: Cape Verde imports most o f i t s cereal consumption. Owing to the existence o f large stocks, the recent increase in international food prices has not yet had an impact on domestic prices. However, i t i s expected that with the new shipments domestic prices wil l increase. To mitigate the effect o f food prices’ increase, especially for vulnerable groups, the Council o f Ministers has recently approved a package o f measures, which include the elimination o f international trade taxes and VAT on cereals, improvements in importation efficiency, and increase in the amount and coverage o f the non-contributory pension. In the short term it i s not expected that the increase in food prices and the approved measures wil l threaten fiscal or external stability, given the relative fiscal space and comfortable level o f international reserves. Authorities and donors, including the World Bank, will continue monitoring closely the developments in this area. In addition, in the context o f the upcoming poverty assessment the Bank will simulate the poverty impact o f this shock across different groups, so as to identify further mitigation measures. Furthermore, the Bank stands ready to continue supporting Cape Verde as the situation evolves.
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.9
REPUBLIC OF CAPE VERDE
Ministry of Finance and Plannlng
Ref. No.-TL---.. Praia, January 11, 20ds-
Robert B.Zoeltick, President The World Bank, 1818 Street, N.W. Washington, D,C. 20433. U.S.A.
SUBJECT: Lette r of Development Policv for Pover-n Sumort Credit. L.aGx!u Purpose
!., On behalf of the Government of Cape Verde I am requesting a credlt in the amount of US$ 10 million from the International Development Associa tion, to continue supporting the Government of Cape Verde's structural reform program.
2. 'This Letter of Development Policy ( U P ) provides a summary of our Growth and Poverty Reduction Strategy Paper (GPRSP). A t the same time, it reinforces the commitment of the Government of Cape Verde with the program of objectives, policies and measures spelled out in Its structural reform program.
3. The aforementioned credit will help to meet financing requirements that Cape Verde faces to implement Its GPRS.
4. The GPRSP initiative is expected to run from 2008-2010 and will be a continuation of the earlier programs documented In GPRSP 2005-2007, These are the Grand Options Plan (GOP) which emphasized growth, and poverty and income inequlty reduction among the households. The GOCV aiins to the maintenance of rhe macroeconomic balances; the strengthening and consolidation of the structural reforms; developing
competitive advantages For the economy; and the promotion of economic growth and employment.
5, The Government's medium-term objectives and strategy are set out in the GPRSP and other national planning documents such as Economic Transformation Strategy Paper, and have been reiterated and elaborated in the Government Program for 2006-11. This strategy is directed at boosting growth and reducing poverty through private sector-led development and diversification of economic activities. In support of these goals, the Government's policy prlorities include (I) building human capacities through improving access to education, training, and health care; (li) strengthening infrastructure and institutions, including to support service sector growth In areas such as tourism, financial services, and communications; and (Ill) improving governance and the capacity of the public sector to Implement policy reforms and program mandates.
Recent developments
6 . Cape Verde's economic performance has improved substantially over the past few years. Real GDP per capita (in current US$) Is estlmated a t US$ 2,100 (2005), which shows a significant improvement since independence (1975), a t which time it was US$ 190, or even as compared to 1990, when it was US$ 902. Real GDP average growth rates in the years 2000 to 2006 was 6.3%, Estimates indicate that in 2006 the economy grew more rapidly than anticipated with the GDP Qrowth rat@ at 10.8 percent. This rate of growth reflects strong public and private investment (driven by significant forelgn direct investment), directed largely towards infrastructure development, tourism, and the telecommunication industry. Prospects for 2007 are good with the growth rate projected at 7 percent, reflecting among other factors the carry-over effect of foreign direct investment inflows during 2007.
7. Monetary policy has focused on strengthening the sustainabllity of the exchange rate peg to the Euro by buildlng up reserves and ensuring price stability. That, coupled with other factors (FDI, exports), led to an increase of international reserves to 3 months of prospective Imports by end December 2006.
8. According to new data from the National Statistical Institute (INE), growth in 2006 appears to have been much stronger than earlier estlmated- reaching 10 % percent, Growth was particularly strong in tourlsm, telecomrnunicatlans, financial services, construction, and fishing. In line with this, growth for 2007 is projected to be around 7 percent. "Headline" consumer price inflation has largely come down as expected since 2006, but is now being pushed up temporarily due to poor rainfall and recent adjustments in petroleum prices. The twelve-month lnflatlon rate reached 4,5 percent by December 2007.
9. The tertiary sector became dominant in the productlve structure, supported by strong growth in tourism, as well as transports, banking and trade. The priman/ sector moved slowly, With the growing rural populatlon, and constdering that agricultural incomes play a key role in the survival of one quarter of the labor force, the weak performance of the primary sector had a crucial negative impact on the income and poverty risks facing rural workers.
10. This gain In the growth of the real GDP per capita is manifested by improvements of the Human Development Index (HDI). HDI rose from 0.587 to 0.736 in the years 1990 and 2006, mpectlvely. A t present, life expectancy is 73,8 years and 67,5 years for women and men accordingly (2005). I n addition, Human Poverty Rate (HPR), which reflects deficlencies in terms of llfe expectancy, Income, education, literacy and other area5 improved from 28.8% in 1990 to 18.7% in 2005.
11.Cape Verde’s economic growth of the last decade resulted In an increase in the inequality of income dlstributlon as shown by the Glni coefficient, which rose to 0.57 (2002), compared to 0.51 in the late 1980s. The excesslve concentration of wealth is illustrated by the fact that 10% of the very poor population has only 1% of total Income. The first seven deciles (70°h of the households) represent only 28Oh of per capita expenditure, while the last decile (the wealthiest 1Oo/o) account for 47% of total expenditures.
12.The island of S%o Vicente has the highest concentration of wealth, with a 0.60 Gini coefficient, whereas the national average Is 0.57. Next on the list are the islands of Santo AntBo, S%o Nicolau, and Santiago, wlth 0.56.
13.The economic acceleration was accompanled by deep structural change in the economy, with services coming out on top. This situation had an important impact in terms of resource allocation among the sectors and on factor output, and, thus, on income and wealth dlstribution, on a national level, as well as within each island. On the other hand, the strong expansion in income in sectors such as tourism and other servlces worsened the imbalances in income distribution. Increasing demographlc pressure, combined wlth erosion of agricultural soils, led to a negative impact on rural per capita Incomes, thus also contributing to increase inequalities In income dtstributlon.
14.Causes of poverty relate essentially to living conditions in rural areas and to the low employability of the poor. The comblnation of the nature of Cape Verdean agriculture, the high population growth rate, and the random nature of the climate, explefin the rural stagnation and low incomes. In fact, this process may aggravate soil eroslon, which reduces their productivity and availability.
15.TO overcome the lack of resources in Cape Verde, the poor turn to migration and to the informal sector. A t first, migration led Cape Verdeans abroad, but later, facing increasing difficulties in the host countrles, they
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‘I
also started moving to the urbm areas within the country. A clear evidence of thls is the Increase In populatlon recorded in the ctty of Praia, with resulting pressure on sanltatlon, houslng, education, and health facilities .
16,The Micro-Projects Program and the National Rural Poverty Alleviation Program implemented by Clvll Soclety Organization (CSO) and Non- Government Organlzation have become the main safety net in rural areas. Subsistence anlmal husbandry also plays a key role In rural areas, as it represents a security factor against the crises that follow drought perlods. In urban areas, informal activities are the main way out for many families, as indicated by the surge in the informal economy, Women play a key role in thls area, leading to a reduction In female poverty since the f 990s.
17 .Fiscal policy has been conslstent with macroeconomic stabillty and debt sustainability. I n 2006, the flscal deflctt stood at 5 percent of GDP reflecting strong revenue performance from both income and value added (VAT) taxes as well as greater control of expenditures. Projectlons for 2007 Indicate that the flscal deficit will stand a t around 3.7 percent of
18. Meanwhile, domestic debt increased in early 2000s reflectlng the government's assumptlon of the debt of some large publlc enterprlses as part of their privatization, fiscal sllppages, and, more recently, increased reccqnltion of domestic arrears. The peak was reached in 2004 with net domestic debt a t 35 percent of GDP, To provide more flexibllity in managing debt, the budget's celllng for domestic borrowing will be on a net basis (rather than on a gross basis as in the past), and the Treasury will seek to clear arrears more rapidly If extraordinary revenues materialize. There will be no additional net domestic borrowlng by the budget in 2008. Consequently, the net domestic debt-to-GDP ratlo is projected to decline to below 20 percent by end-2008.
19.External debt service (in percent of exports of goods and nonfactor services) has remained stable, around 10.6 of GDP and around 15% of domestic revenues from 2003-2005. Moreover, external Financing support to GOCV has steadily decreased from 16.5% of the GDP in 2001 to 10.3% in 2003.
GDP.
2O.Consumer Inflation in 2006 reached approximately 5.4 percent, reflecting a rapid increase in prices due to the impact of high International oil prices on dornestic energy and water prices and the effect of temporary shortages for some food items. In 2007, inflation Is projected a t around 5 percent, once again driven by food and energy prices.
Program overview
21,Cape Verde is a small country geographically as well as economkally. Findings from Household Income and Expenditure Survey (HIES)/ Household Uving Conditions Survey (HLCS) conducted in 2001-2002 reveals that 37% of the population is considered poor, with 62% living in rural areas. Further, about 54% of the total poor population is considered to be extremely poor, while in terms of gender, about 51°h of the poor a re women.
22 .The Government is preparing its second Poverty Reduction Strategy Document (PRSP) 2008-2010, with the support from the World Bank. Its main objective is a substantial reduction In the levels of absolute poverty in Cape Verde through the adoption of an all-around poverty reductlon policy, covering macro-economic policies, public management policies, as well as sectoral and mlcroeconomic policies targeting the poor.
23. The GPRS is part of a broader strategic planning exercise that has been under way in Cape Verde and has as main components the Grand Options of the Plan 2002-2005 (COP) and the Transformation Strategy. The link between the Transformation Strategy and the GPRS will be guaranteed to ensures globat coherence of the planning instruments, thus facilitating management and monitoring of the various programs, and avoiding dupllcatton of efforts and procedures.
24.The GOCV realizes that the success of GPRS initiative will depend on good governance that focuses on the effectiveness of the economic policies especially the pro-poor pollcies, Under this program the GOCV aims to reform the public administration a t first place by introducing capacity building programs for the civil servants and enhancing manpower management skills. Particular emphasize wlll be in the area of informatlon systems, comrnunlcations technologies and human development planning, The government wil l continue to consolidate the gains reached within the framework of implementatios of the GPRSS.
25 Secondly, the objective is to integrated payroll and human resources database is managed by the DGAP from the State Secretariat for Public Administration (human resource components) and the DGTCP in the Ministry of Finances (salary components). Deconccntratlon of some of the elements related to salary calculation has already started in the Ministries of Finance, Health and Agriculture (hours worked and days of leave, bonuses), and should be completed for other ministries by the end of December. Deconcentration of human resources processes will start in January. The establishment of responsibilities and requirements for processing various types of human resources management actions in the database, however, is delayed and needs to be resumed.
20. Thirdly, the GOCV plans to continue the implementation of the Procurement Law, A harmonized procurement framework (law and implementation decree) were prepared with technical assistance financed by Growth and Competitiveness Project (World Bank funding), and regulations have been approved by the CPAR Steering Committee together with the appeals regulation. These regulations Authorlty was created by the Councll of Ministers at end of December 2007
27,Fourthly, the GOCV plans to enhance decentralization program that seeks to shift the declsion making power to the local structures, speciflcally the poor. Thls will ensure a more equltable distrlbutlon of resource by establishing the Financial Equilibrium Fund. Proceeds generated by the Fund has increased. The plan also seeks to coordinate smoothly the operation of Civil Society Organlzatlons (CSO) and that of Non- Governmental Organizations (NGO) In lmprovlng the municipalities' capabilities in the provision of health, education, environment, land use planning and service delivery.
28.The GOCV continues with Its efforts of advancing market economy by encouraging the establishment of domestic large, medium and micro enterprises, as well as promotion of partnerships with foreign investors. Public / private partnerships have been introduced. In view of this, the government has launched a competltlon p o k y that advocates the creation and enhancement of lnstltutlonal conditions for the entrance of new businesses and firms in all the sectors of the economy,
29Jn order to ensure efficiency in the provislon of goods and services the GOCV will continue implementlng the privatization program. Thls is expected to reduce the government deficlts by ellrnlnatlng subsidies, increases the government resources in the form of tax revenues and sale proceeds of the privatized structures. Moreover, the process will fulfill the government's ambition of providing the poor with more varieties of goods and servlces at affordable prjces.
Develop and upgrade human capital
3O.Despite the fact that Cape Verde will graduate to middle income country in 2008, unemployment still poses a threat especially to the poor, In the year 2005 unemployment rate stood at 24Yo for the whole nation, but in the year 2006 unemployment rate droped from 24% in 2005 to 18 O/O for the whole nation.
31.To look into the situation the GOCV has successfully inltlated an employment policy that is expected to create more jobs and generate incomes to the poor. Attention has been directed towards programs such as Micro-Projects Program that offers temporary employments at a lower pay in infrastructure projects: such as road construction, soil and water conservation structures and reforestation programs.
32,At the same time the GOCV under the Ministries of Labor (MOL) and Education (MOE) is coordinating various skills development programs to assist the poor in securing more jobs and increase their pays. This has led to the initiation of the employment and the professional trainlng policies under the two ministries respectively.
33.Aside, the GOCV is supporting the reform of the land tenure and ownership system to encourage agricultural sector employment that provides a livelihood for the largest part of the population. Furthermore, the Government is commttted to provlde technical assistance through the Ministry of agriculture to such scheme. Moreover, strategic expanslon of the tourlst industry is expected to increase employment and incomes of the poor especially in the islands of Sal, Boa Vista and Malo.
34 .The development of human capital depends on two important ingredients namely: education and health. The track record is Impressive but much remains to be done, particularly with regards to gender disparitles between rural and urban areas. For instance, Cape Verde has attained the goal of universal primary education. However, It is necessary to Improve the quality of the education system. Teacher training priorltles Is indentifled and action plan developed. In addition, students are to be encouraged to complete secondary or professional education in order to improve thetr chances of successfully entering the labor market. I n this regard, a white paper diagnosing professional training was prepared and will be implemented from 2008 to 2011, Literacy rates Improved signMcantly during the past ten years and more will be done over the coming years in thls regard,
35.Another aspect of good health is the reduction of child mortality as well as infant mortality. However, the country’s high heaith risk vulnerabllity calls for constant preventive and curative measures including routine vaccination and improvement of birth condltions in maternitles. The goal of reducing chtld mortality by two thirds by the year 2015 may be achieved if past policles that led to the current results are strengthened, In this regard, the GOCV has already completed the analysis of health human resources and drafted and approved a strategy to increase the ratio of heaith professionals per inhabitant (this is already happenlng a t the rural areas following infrastructure development). The challenges still ahead are: The @specialization of health professionals as the country undergoes epidemiological transition. Furthermore, the Government is commltted to strengthen the reforms In order to convey sustainability to the services renderred.
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36.The Non-Cornmuntcabie Diseases (NCD) was approved by yhe Councll of Ministers bin December 2007 The anatysis of NCD is comlng to an end with the field survey to be concluded by February 2008 thanks to collaboratlon between INE and the WHO local team. The conclusion of such work is essential for a country facing an epidemiological transition, where chronic diseases are significantly increasing the burden of evacuations towards Portugal.
37 .The GOCV recognizes the Importance of basic infrustructure development that includes sanitatton, water provision, and road construction and maintenance. In terms of sanltatlon, the government plan Is to enhance the collection and treatment of residual water In the cltles of Praia and Mindelo and extend this to the other cities pendlng fund availability, There is a serious problem on drainage system that threats the hygienic condltions of the poor and forms a major source of pofiution especlally of the domestic water.
38.Given the current outdated land use policies the government Is underway to implement a comprehensive modern Municipal Urban Plans that will replece the obsolete Land Use Plans, Thus the GOCV plans to reform the current basic cartography and cadastral systems to allow for property rlghts enforcement and municipal boundaries useful for other infrastructure development and property tax collections.
39 .The most common environmental calamities such as soil eroslon, coastline degradation, water and air pollutions, landslides, loss of biodiversity, waste accumulation and disperslon are ubiquitous to the GOCV. To correct for the situation the GOCV has commissioned the second Natlonal Environmental Action Pian that outlines the policy implications and management framework to mitigate the situation.
40.0ther infrastructure development policies include road services, maritime transportation facilities and airport infrastructures. Inter-urban road transportation has been totally liberalized; the open policy for the maritime transportatlon policy led to the ltquidatlon of the state-owned maritime company "Arca Verde"; and the alr code stipulates the regufations pertafnlng to the principles, rules and procedures to participate in international civll aviation industry and has led to the signing of some international air freight cooperatlon agreements.
4l.This shows that the GOCV is highly committed to introduce reforms and restructure the transportation industry that is key to cost reduction and ensures effective delivery of goods and services to the poor.
Improve the effectiveness and sustainability of the social protection system
42.The Social protection and the GPRSP. The social protection objectives under the GPRSP-1 have been achieved, with the exception of the institutional and juridical framework for service delivery at the municipal level. I t is envisaged that the accent in the next GPRSP, and the accompanying budgetary support, will be on deconcentrated service delivery, improved planning and management, and interventlans in favor of the disabled, while also broadening the policy dialogue to Include labor issues.
43.Social protection a t the municipal level. Wlth the Decentralization Framework b w approved by the Council of Minlsters and soon to be submitted to Parltament, objective wlll be met for the decentralization of social pratectlon services, This is a most welcome development, as the operationalization of the Social Protection Strategy has been held hostage of the Framework Decentralizatlon taw for two years.
44.T0 counter this, efforts are already underway to implement a financially sustainable pension scheme and reform the social security system. Nevertheless, there is a need to ensure that social protection transfers need to be well targeted to the poorest strata of the population if they are to have their deslred Impact on reducing poverty. Definitive data tables has been submitted to Bank Data.
45.More specifically, the GOCV has unified the existlng systems that provides employment such as the redefinitlon of the Ex - FAIMO workers’ benefits system and the reinforcement of the capacity of the National Social Security Institute (INPS).
46.Alternatively, the government provides credit to support the poor and allow them to contribute into the production process, However, the Government acknowledge that there Is a need to broad and better focus the targeted population. The aim Is to promote self-employment via access to micro-credit that forms Important sources of financlal capital, which empowers the poor as an tncorne generating actlvltles. This has been extended to the establishment of the financial intermediation so as to guarantee greater coverage of the poorest zones and the neediest families.
47.With the same spirit the GOCV encourages sustalnable agriculturai deveiopment where the core of the initlatlve rests on the integrated enhancement of the agrarian resources and in the generalization of the micro-Irrigation schemes.
48.In the area of food security, the GOCV provides guarantee of food availability and stabillty in the supply of the central and periphery markets, assuring the normal operation of the food markets and a management that involves the private commercial management In supplying the market.
49.TO support the process, the Government has introduced in its budgetary System preparation a Medium Term Expenditure Framework (MTEF) and a number of Medium Term Sectoral Expenditure Frameworks (MTSEF) within key line Mlnistries (Educatton, and Social Protection). It is expected that such a set-up will improve: i) prioritizing programs and projects that directly contribute towards the GPRS objectives and the sectoral objectives; 11) budgeting of programs and projects according to resources that can be mobiilzed; iii) medlum term (three years) budget allocation according to priorities Ln order to reach the established development targets.
5O.To Implement these guidellnes, the Government has begun a number of reforms to make the public management system more ePnclent, more reliable and more transparent. In this regard, a number of measures are being implemented the recommendations from the PER, CFAA and CPAR exercises.
S1.The Institutional framework for implementing the GPRS will consist of the exlsting administratlve apparatus, after the necessary functional changes in structure are introduced, The National Poverty Reduction Board is an advisory body that includes the main stakeholders, drawn from publlc administration, the private sector, and civll society. A t the central level, the General Directorate of Planning, supported by a Technical Secretariat, will be responsible for coordination and technical support. A t the sectoral level, the Studies and Planning Offices within each line Minlstry will prepare, rnonltor and evaluate priority programs and projects included in the strategy. A t the local level, there will be Regional Poverty Reductlon Boards, advisory bodies that will secure the input from local stakeholders.
Program monttoring and evaluation
52,The GOCV has set up a monitoring and evaluation system for the GPRS to guide the actions of the various actors involved In promotlng growth and poverty reduction, In addltion to governmental departments, the system include organizations from clvil society, as well as the development partners.
53 .The Government intends to ensure and reinforces the following functions In the context of the monitoring and evaluation system: (i) monitoring and analysis of trends In growth, poverty, vulnerability and Inequality; (li) monitoring the execution of programs and projects that contribute to improved growth and poverty reduction; (iit) evaluation of the impact of policies and programs related to growth and poverty reduction.
54.This system will be based on a network that is currently constructed by NOS1 (Information Technology Operational Unit) through the SIGOF. The system will include three core components and two support Components. The core components will be (1) a monltorlng and trend analysis component, (11) an execution component, and (iti) an impact evaluation component. The support components Involve (1) creation of a physical, technical Institutional and human envlronment that Is conducive to better circulation of data, information and outputs between producers and users, and (il) improving information dissemination, aiming a t a participated policy dialogue among the varlous stakeholders and, eventually, better design and execution of public policy.
55.To guarantee smooth and efficient functioning of this monitoring and evaluation system, the Government has decided to set up the following three-tiered instltutlonal framework for monltoring and evaluation of the GPRS:
(a) National Pov@m Re$lualon Boar9 (NPRB): a broad-based entity responsible for monitorlng and supporting political declslons in the areas of growth and poverty reduction. NPRB will be chaired by the cabinet member In charge of Planning and wlll include 17 member Institutions from line ministries, clvll society institutlons, NGOs, private sector representatives, and labor unions.
(b) Q k w a t o ~ and Analvtirnl Svseem (OAS): made up of two sub- systems (The National Statlstlcal System and the National Plannlng System), the OAS will guarantee the necessary observation and analysis, and supply the National Poverty Reduction Board the inputs (namely studies) for monitoring and drafting growth and poverty reduction policies.
(c) Reaional povertv Rductlon m4LL-k (RPRBS): The RPRBS play an advisory role that essentlally covers, at first, approvlng activity proposals for the GPRS and valldatlon of the annual GPRS progress report. They will include, In each case, the Municipality and the municipal offices of relevant Ilne ministries as well as the reglonal or local stakeholders board
Conclusion
The Government remains committed to its overall objective of poverty reduction through sustainable economic growth, as set forth in Its GPRSP, To this end, the Government intends to energize the reform process, in a manner that Is technicaIly and administratively feaslble and consistent with the proposed overall objective. In thls matter, a swltch from project aid to budget aid is desirable, a t both the global and sactoral levels. It is therefore the Government's hope that IDA wlll grant the requested credlt to assist In
I
implementation of envisaged reform program to reduce poverty through implementation of the Growth and Poverty Reduction Strategy.
With highest consideration and esteem,
Annex 3: IMF Relations Note
Chairman's Statement, December 27,2007
"The Cape Verde authorities' well-crafted program under the PSI i s guided by the need to support macroeconomic stability and the exchange rate peg, reduce domestic debt, increase foreign reserves, and create fiscal space to accommodate the expected decline in concessional external financing as the country graduates from L D C status.
Cape Verde continues to demonstrate a strong economic performance, and the authorities are to be commended for their prudent macroeconomic management in recent years. Growth i s being sustained, bolstered by significant increases in foreign direct investment, especially in the tourism sector. Reflecting this, unemployment and poverty rates are falling. Although inflation has increased in recent months, this largely reflects poor rainfall, which temporarily drove up food prices. Underlying inflation pressures remain moderate.
Fiscal consolidation and the build-up o f official reserves have proceeded faster than program expectations. The targets for both domestic debt and official reserves init ial ly set for 2009 are l ikely to be reached in 2008.While the authorities have made progress in preventing an accumulation o f central government arrears, challenges remain in the areas o f financial sector regulation and supervision, public financial management, and energy sector reform.
I t i s important to strengthen financial sector regulation and supervision. In that regard, the authorities' plans to establish a financial intelligence unit and strengthen the framework to combat money-laundering and the financing o f terrorism in 2008 are welcome.
Progress i s being made in strengthening public sector financial management. Weaknesses in data reporting understated the deviation with respect to the extent o f net domestic borrowing. Since the excess borrowing had little effect on the economic outturn, and has now been unwound, and as measures have been taken to improve budget execution and monitoring, the Board decided to maintain a positive assessment o f Cape Verde's past program performance under the PSI.
Strengthening the energy sector wil l be critical for enhancing growth and poverty reduction and limiting fiscal risk. In that regard, i t is important that the authorities implement rapidly their plans for a comprehensive overhaul o f the energy sector, including establishing a new base utility tari f f structure and continuously applying the fuel and utility price adjustment mechanisms. This would depoliticize price setting, safeguard the budget, and give companies in the energy sector incentives for investment and efficiency gains."
- 56 -
Annex 4: Statement of IDA Operations (As o f November 6,2007; in millions o f U.S. dollars)
Credit Principal Undisbursed Approved Closing No. Projects Amount Date Date
32170 Roads Sector Support 37550 Growth & Competitiveness 36290 HIV/AIDS
15.00 4.3 19-May-05 3 1 -Aug- 10 14.50 5.1 13-May-03 28-Feb-08 14.00 3.7 28-Mar-02 3 1-Dec-08
Total active projects 43.50 13.1
Note: Disbursed amount may be higher than commitment (approved amount) due to exchange rate v is -h is SDR.
- 57 -
Annex 5: Statement of IFC Investments (In millions o f U.S. dollars)
Original Gross Commitments Disbursed
FY Type o f Approv. Company Business Loan Equity Quasi Partic Loan Equity Quasi Partic.
1992 Growela I/ Shoe manu- facturing 0.15 0.00 0.00 0.00 0.15 0.00 0.00 0.00
2004 CECV2I Financeand 4.70 0.00 0.00 0.00 4.70 0.00 0.00 0.00 insurances
Total portfolio 4.85 0.00 0.00 0.00 4.85 0.00 0.00 0.00
1/ Growela = shoe manufacturing. 2/ CECV = Caixa Economica de Cab0 Verde.
58
Annex 6: Country at a Glance
Cape Verde a t a glance 3/19/08
Key Development Indicators
(200'3)
Population. midyear (millions) Surface area (thousand sq. km) Population growth (%) Urban population (% of total population)
GNI (Atlas method, US$ billions) GNI per capita (Atlas method, US$) GNi per capita (PPP. international S)
GDP growth (%) GDP per capita growth (%)
(most recent estimate, 200&2006)
Poverty headcount ratio at $1 a day (PPP. %) Poverty headcount ratio at $2 a day (PPP. %) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5)
Adult literacy, male (% of ages 15 and older) Adult literacy, female (% of ages 15 and older) Gross primary enrollment male (% of age group) Gross primryanrollment, female (% of age group)
Access to an improved water source (% of population) Access to improved sanitation facilities (% of population)
Cape Verde
0.49 4.0 2.9 58
1.1 2,230 5,980
10.8 6.8
64 26
88 76
124 118
80
Sub- Saharan
Africa
770 24,265
2.3 36
648 842
2.032
5.6 3.2
41 72 47 96 29
69 50 98 86
56 37
Lower middle
income
2,276 28,549
0.9 47
4,635 2,037 7,020
8.8 7.9
71 31 13
93 85
117 114
81 55
Net Aid Flows
(US% mi//bns) Net ODA and official aid Top 3 donors (in 2005):
Portugal Luxembourg United States
Aid (% of GNI) Aid per capita (US$)
Long-Term Economic Trends
Consumer prices (annual % change) GDP implicit deflator (annual % change)
Exchange rate (annual average, local per US$) Terms of trade index (2000 = 100)
Population, mid-year (millions) GDP (US$ millions)
Agriculture Industry
Services
Household final consumption expenditure General gov't final consumption expenditure Gross capital formation
Exports of goods and sewices imports of goods and services Gross savings
Manufacturing
1980
62
6
41.3 214
40.2
0.3 119
8.8 14.6
76.6
84.9 7.6
53.3
36.1 81.9 30.6
1990 2000
105 94
16 23 0 8 5 3
30.9 18.1 308 216
0.0 -2.4 2.3 -2.6
70.0 120.0 100
0.3 0.4 339 531 (% of GDP)
14.4 12.0 21.4 17.9
8.2 9.3 64.3 47.5
93.4 92.9 14.7 21.3 22.9 19.7
12.7 27.5 43.7 61.4 17.6 9.1
2006 a
161
45 17 12
16.6 334
5.4 5.1
87.8 98
0.5 1,183
7.1 22.9 4.8
70.0
73.7 21.4 39.4
35.0 23.4 27.7
Age distribution, 2006 I Male Female
70.74
%&e4 5x4 4cL44 2C-a
2@24
1014
04
20 10 0 10 20
percent
Under-5 mortality rate (per 1,000)
2M 180 180 140 120 1W 80 BO 40 20
0 (880 1885 2m 20%
0 Cape Verde 8a SubSaharan Africa
Growth of GDP and GDP per capita (%) I 12 10 8 B 4 2 0 2
% w 05
+GDP - GDP per capita
1980-90 1990-2000 200048 (average annual growth %)
1.7 2.4 2.1 8.0 5.1
13.7 4.0 0.0 13.8 5.1 8.0 -8.2 3.8 6.5 8.1 6.7 3.8
3.6 7.4 5.4 1.6 7.2 -4.0
-7.4 0.2 7.0
4 . 9 14.6 14.8 -2.2 8.5 9.1
Note: Figures in italics are for years other than those specified. 2006 data are preliminary. .. indicates data are not available. a. Aid data are for 2005.
Development Economics, Development Data Group (DECDG).
59
Country at a Glance (Cont'd)
Cape Verde
Balance of Payments and Trade
(US$ mi//ions) Total merchandise exports (fob) Total merchandise imports (cif) Net trade in goods and services
Current account balance as a % of GDP
Workers' remittances and compensation of employees (receipts)
Reserves, including gold
Central Government Finance
(% of GDPj Current revenue (including grants)
Current expenditure
Overall surpiuddeficit
Highest marginal tax rate (%)
Tax revenue
Individual Corporate
External Debt and Resource Flows
(US$ mi//ions) Total debt outstanding and disbursed Total debt service Debt relief (HIPC, MDRI)
Total debt (% of GDP) Total debt service (% of exports)
Foreign direct investment (net inflows) Portfolio equity (net inflows)
2000
38 230
-1 92
-58 -10.9
87
28
20.8 18.5 34.2
-25.9
328 44 -
59.6 17.4
44 0
2006
81 472
-391
-60 -5.1
0
181
29.9 22.0 18.2
-5.0
319 33 -
29.0 6.2
116.4
:omposltlon of total external debt, 2006
Private Sector Development
Time required to start a business (days) Cost to start a business (% of GNI per capita) Time required to register property (days)
Ranked as a major constraint to business (% of managers surveyed who agreed)
Electricity Access tolcost offinanang
Stock market capitalization (% of GDP) Bank capital to asset ratio (%)
2000 2006
- 52 - 45.6 - 83
.. 35.7
.. 16.3
Governance Indicators, 2000 and 2006
Voice
C
and accountability
Political stability
Regulatory quality
Rule of law
ontrol of wmpt ion
0 25 50 15 I W
kI2M)B Counby's percenble rank (C-100) 0 Zoo0 h l g k vduss rmw be#- rshnw
Sourca Kaufmann-Kraav.MastNuzri Worn Bank
Technology and Infrastructure
Paved roads (% of total) Fixed line and mobile phone
High technology exports subscribers (per 1,000 people)
(% of manufactured exports)
Environment
Agricultural land (% of land area) Forest area (% of land area) Nationally protected areas (% of land area)
Freshwater resources per capita (cu. meters) Freshwater withdrawal (% of internal resources)
C02 emissions per capita (mt)
GDP per unit of energy use (2000 PPP $ per kg of oil equivalent)
Energy use per capita (kg of oil equivalent)
2000
69.0
4.5
18
7.3
0.31
2005
18
592
0.30
(US% mi//ions)
IBRD Total debt outstanding and disbursed Disbursements Principal repayments interest payments
IDA Total debt outstanding and disbursed Disbursements Total debt service
IFC (fisca/year) Total disbursed and outstanding portfolio
Disbursements for IFC own account Portfolio sales, prepayments and
repayments for IFC own account
of which iFC own account
MlGA Gross exDosure
0 0 0 0 0 0 0 0
98 106 10 0
1 2
0 8 0 6 0 0
1 1
2 0
Note: Figures in italics are for years other than those specified. 2006 data are preliminary. .. indicates data are not available. -indicates observation is not applicable.
Development Economics, Development Data Group (DECDG).
3/19/08
60
Country at a Glance (Cont’d)
Education indicators (%) Measles immunization (% of 1-year olds)
Mi I I en n i u m Development Goa Is Cape Verde
ICT indicators (per 1,000 people)
With selected targets to achieve between 1990 and 2015 (estimate closest to date shown, +/- 2 years)
loo
75
50
25
2wo 2W2 2005
IW 1895 2wo 2005 &Pnmary net enmllment ratio ( 1 -D- Ratlo of gills lo boys In primary &
secondary education ( 1 oCapeVerde( ) MSubSaharan Afnca
Goal 1: halve the rates for $1 a day poverty and malnutrition 1990 1995 2000 2005 Poverty headcount ratio at $1 a day (PPP. % of population) Poverty headcount ratio at national poverty line (% of population) Share of income or consumption to the poorest qunitile (%) Prevalence of malnutrition (% of children under 5) 13.5
BO
50
40
30
20
10
0 2wo 2W2 2005
Fixed + mobile subscnbers ( ) rn Internet users
Goal 2: ensure that chlldren are able to complete primary schooling Primary school enrollment (net, %) Primary completion rate (% of relevant age group) Secondary school enrollment (gross, %) Youth literacy rate (% of people ages 15-24)
51 64 102 81 21 63 6.9
Goal 3: eliminate gender dlsparlty In educatlon and empower women Ratio of girls to boys In primary and secondary education (%) Women employed in the nonagricultural sector (% of nonagricultural employment) Proportion of seats held by women in national parliament (%)
Goal 4: reduce under4 mortality by two-thirds Under-5 mortality rate (per 1,000) 60 50 40 35 Infant mortality rate (per 1,000 live births) Measles immunization (proportion of one-year olds immunized, %)
45 37 30 26
Goal 5: reduce maternal mortallty by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) Births attended by skilled health staff (% of total)
Goal 6: halt and begin to reverse the spread of HIWAIDS and other major diseases Prevalence of HIV (% of population ages 15-49) Contraceptive prevalence (% of women ages 15-49) Incidence of tuberculosis (per 100,000 people) Tuberculosis cases detected under DOTS (%)
Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) 60 Access to improved sanitation facilities (YO of population) Forest area (% of total land area) Nationally protected areas (% of total land area) C02 emissions (metric tons per capita) 0.2 0.3 0.3 0.3 GDP per unit of energy use (constant 2000 PPP $ per kg of oil equivalent)
Goal 8: develop a global partnership for development Fixed line and mobile phone subscribers (per 1,000 people) Internet users (per 1,000 people) 0 2 18 49 Personal computers (per 1,000 people) Youth unemployment (% of total labor force ages 15-24)
Note: Figures in Italics are for years other than those specified. .. indicates data are not available.
Development Economics, Development Data Group (DECDG).
3/19/08
61
SSãão Domingoo Domingo
Santa CatarinaSanta Catarina
Santa MariaSanta Maria
EspargosEspargos
NorNortete
Riberia BravaRiberia Brava
PovocPovocãão Vo Velhaelha
LajesLajes(1803 m)(1803 m)
Mt. FogoMt. Fogo(2,829 m)(2,829 m)
BOA VISTA
BRAVA
MAIO
MOSTEIROS
PAÚL
PORTONOVO
PRAIA
TARRAFAL
SAL
SANTACATARINA
SANTACRUZ
SÃODOMINGOS
SÃO FILIPE
SÃO NICOLAU
SÃO VINCENTE
RIBEIRAGRANDE
Ribeira da Cruz
Ribeira GrandeVila das Pombas
Porto Novo
MadeiralCalhau
Tarrafal
Sal-Rei
Tarrafal
Santa CruzVila do Maio
São Domingo
Santa Catarina
SãoFilipe
Furna
Mosteiros Igreja
Santa Maria
Espargos
Norte
Riberia Brava
Mindelo
São Pedro
Preguica
Povocão Velha
PRAIA
AT L A N T I C O C E A N
W I N D WA R D I S L A N D S
L E E WA R D I S L A N D S
Santo Antão
São Vicente
Ilhéu BrancoIlhéu Raso
Santa Luzia
São Nicolau
Sal
Boa Vista
MaioSão Tiago
Fogo
Brava
Ilhéus DoRombo
Lajes(1803 m)
Mt. Fogo(2,829 m)
17°N
16°N
17°N
16°N
15°N
23°W24°W25°W
23°W24°W25°W
CAPEVERDE
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.
0 10 20
0 10 20 30 Miles
30 Kilometers IBRD 33383
DEC
EMBER 2004
CAPE VERDESELECTED CITIES AND TOWNS
NATIONAL CAPITAL
RIVERS
MAIN ROADS
COUNTY (CONCELHO) BOUNDARIES
INTERNATIONAL BOUNDARIES
