World Bank Document

Document of The World Bank Public Disclosure Authorized FOR OFFICIAL USE ONLY Report No. 84449-CV THE REPUBLIC OF CAPE VERDE Public Disclosure Authorized JOINT IDA-IMF STAFF ADVISORY NOTE ON THE GROWTH AND POVERTY REDUCTION STRATEGY III (2012 - 2016) January 23, 2014 Public Disclosure Authorized Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without the authorization of the World Bank and the International Monetary Fund. FOR OFFICIAL USE ONLY INTERNATIONAL DEVELOPMENT ASSOCIATION AND INTERNATIONAL MONETARY FUND REPUBLIC OF CAPE VERDE JOINT STAFF ADVISORY NOTE ON GROWTH AND POVERTY REDUCTION STRATEGY III (2012 - 2016) Prepared by the Staffs of the International Monetary Fund And the International Development Association Approved by David Owen and Chris Lane (IMF) and Vera Songwe (IDA) January 23, 2014 I. OVERVIEW 1. This Joint Staff Advisory Note (JSAN) reviews Cabo Verde’s Third Growth and Poverty Reduction Strategy Paper (GPRSP-III) covering the period 2012–2016. The GPRSP-III reflects a consistent and broad consensus on the country’s development strategy, which has been spelled out in various documents including the long-term Economic Transformation Strategy (ETS), prepared in 2003; the first and second Growth and Poverty Reduction Strategy Papers, adopted between 2004 and 2012; and the government programs for the legislatures of 2002–2006, 2007–2011 and 2012–2016. Based on its assessment of Cabo Verde’s comparative advantages and recognizing the difficult external environment facing Cabo Verde and the unique challenges presented by the transition to middle-income country (MIC) status, the GPRSP-III aims at operationalizing through structural reforms and programs the government’s objective of "building a dynamic, competitive and innovative economy, and promoting shared prosperity". 2. The GPRSP-III was prepared in a participatory manner. To support strong and enduring ownership of the strategy, thematic group discussions and extensive consultation forums were held with the active participation of key stakeholders at the national and regional levels, including representatives from government agencies, civil society, the private sector, various national institutions and Cabo Verde’s development partners. While the GPRSP-III describes in detail the participatory process through which the objectives were formulated, there is no information on the dissemination strategy and how stakeholders’ feedback was incorporated into the final version. Staffs therefore recommend that the authorities publish the 2 strategy and hold a final validation forum to inform participants to what extent any previously voiced concerns have been addressed. 3. While preserving consistency with the government’s long term development vision, the GPRSP- III entails several important policy shifts. The GPRSP-III places significantly greater emphasis on the structural reforms needed to improve the country’s competitiveness. Recognizing the difficult external environment facing Cabo Verde and the government’s constrained fiscal position and reduced access to concessional financing, the GPRSP-III sets out an ambitious structural reform agenda to improve the efficiency of public sector investment and state-owned enterprises’ (SOEs) service delivery, enhance the investment climate, and reform the labor market (with a view to raising productivity and fostering private sector development). Staffs commend the sharpened focus on structural reforms to enhance the country’s competitiveness and productivity, which will need to be major drivers of economic growth in the next years. 4. The GPRSP-III also focuses on promoting shared prosperity through developing and modernizing agriculture and fisheries, and strengthening linkages between tourism and the rest of the economy. Given the potential of the agricultural sector to create jobs and reduce poverty, the GPRSP-III directs special attention to increasing agricultural productivity and strengthening its linkages with the tourism sector. Indeed, the GPRSP-III added the agricultural sector as the seventh cluster of the transformation agenda, with its development one of the top priorities of the overall strategy. Promoting human capital development, in particular fostering technical, vocational education and training (TVET) and expanding the coverage of health service delivery are also set out as priority areas to ensure inclusive growth. 5. The GPRSP-III has a matrix structure based on five axes of government interventions and seven clusters with strong potential to accelerate growth and shared prosperity. The axes are: (i) infrastructure, (ii) human capital development, (iii) reinforcing of the private sector, (iv) good governance, and (v) the global nation. The clusters are: (i) tourism, (ii) agri-business, (iii) air transportation, (iv) maritime economy including transport and fisheries, (v) financial services, (vi) information and communications technology (ICT), and (vii) the creative economy based on local cultural products and services. While gender and environment issues are incorporated as cross-cutting objectives along each of the five axes, staffs note the need for more explicit reference to policies aimed at ensuring gender equality and environmental sustainability in the main objectives and structure of the GPRSP-III. Generally, staffs commend the Strengths, Weaknesses, Opportunities, Threats (SWOT) assessments, which clearly identify potential gains and risks. However, staffs recommend keeping in mind potential resource constraints when trying to implement policies in all seven clusters, which suggests the need to prioritize further. II. POVERTY TRENDS 6. Cabo Verde’s strong economic growth has translated into considerable poverty reduction, especially in the most touristic islands. The poverty rate fell from 37 percent to 27 percent between 2002 and 2010. The proportion of the population in extreme poverty has also dropped, from around 21 percent in 2002 to 12 percent in 2010; the first Millennium Development Goal (MDG) on halving poverty between 1990 and 2015 has already been achieved. The latest poverty map of 2010 indicates that poverty is lowest in the Sal and Boavista islands. These two islands—which are most developed from a tourism 3 perspective—also experienced significant declines in poverty during 2000-2010, more than halving to 10 percent in Sal and 11 percent in Boa Vista. In contrast, the incidence of poverty in the rural islands of Santo Antão and Fogo, at 41 percent and 40 percent, remains well above the national average. Also, poverty reduction was slow in these two islands, with poverty rates falling by only 15 and 5 percentage points, respectively. 7. Poverty incidence is higher for households working predominantly in agriculture and fisheries. These households are significantly worse off than the average household—especially those linked to agriculture. While the national poverty headcount is about 27 percent, poverty headcount among agriculture and fisheries workers is 44 percent and 35 percent, respectively. Poverty among households linked to the tourism sector, which includes hotels and restaurants, is just 12 percent. 8. The GPRSP-III also highlights achievements in reducing non-monetary poverty. Cabo Verde’s average life expectancy, estimated at 71 years, is the highest in Sub-Saharan Africa. The infant mortality rate fell from 26 per 1,000 live births in 2007, to 15 in 2011. Cabo Verde is one of only eight countries in Sub- Saharan Africa likely to achieve the MDG on child mortality. In addition, the maternal mortality rate has fallen from 36 per 100,000 live births in 2006, to 26 in 2011. By 2011, 94 percent of children under one year were fully immunized, and the percentage of the total population living less than half an hour from a health center reached 86 percent. Education outcomes have also been very good. The adult literacy rate is estimated at 87 percent. However, gender disparities persist between adult male and female literacy rates. 9. The GPRSP-III aims to reduce the poverty rate to 20 percent and extreme poverty to 9 percent by 2016, through promoting agriculture and fishing, which would enhance employment prospects for vulnerable groups. Investments in the agriculture sector (water mobilization, access to credit for farmers through microfinance, fostering drip irrigation and enhanced technical support to rural extension) and fishing (especially ports) are expected to play a critical role in accelerating poverty reduction. In addition, the GPRSP-III gives priority to the improvement in the quality of basic and secondary education in conjunction with programs for the development of technical and vocational training as a way to increase labor productivity and income. Investing in agriculture and fishing as well as human capital will help Cabo Verde reduce extreme poverty and boost shared prosperity, especially among the poor. III. MACROECONOMIC POLICIES AND FRAMEWORK 10. In the face of a sharp deterioration in the external environment, Cabo Verde's macroeconomic policies and framework provided critical support to the economy during the GPRSP-II period. The euro zone crisis had a particularly large impact on tourism, FDI, and concessional lending, which spilled over into weaker domestic private demand. Real GDP growth was only 2.7 percent per year on average during 2008– 11, compared to 7 percent during 2001–2007. On

Load more