Cape Verde: Financial situation “stable” despite fall in GDP, Standard and Poor’s says

6 March 2009

Praia, Cape Verde , 6 March – The first rating from the Standard & Poors credit agency on Cape Verde, published this week, qualifies the archipelago’s financial situation as “stable” despite pointing to a strong slowing in the economy’s growth rate.

“The rating is supported by the country’s historical record of political stability and high human development indicator.

Monetary stability as a result of long having been pegged against the euro and improvement of fiscal management are also positive factors in classification,” according to the document.

S&P rated the Cape Verdean economy as “B+”.

Ratings, which are a maximum of “AAA” and a minimum of “C”, are currently important instruments in the negotiation of credit by a country or company – the return (interest rate) demanded by the creditor will be lower as the probability of not servicing the debt decreases.

Cape Verde is also seen as a country with great external imbalances and indebtedness which, according to the report, are a reflection of a “narrow economy” considering that tourism accounted for 25 percent of 2008 GDP.

According to the report, there is a prospect of a more stable economic management and improvements in the balance of payments, which will make the country more sustainable and less dependent on foreign direct investments and remittances from emigrants, which would be possible if tourism and other exports and imports started to slow.

Figures from the document showed that Cape Verde posted its greatest level of GDP growth in 2006 (10.8 percent), far above the projection for 2009 (2.0 percent).

This year inflation is expected to total around 4.2 percent, according to S&P’s figures, whilst in 2006 it totalled 5.4 percent. (macauhub)