Cabo Verde’s economy affected by heavy dependence on Euro Zone

20 November 2013

The heavy financial dependence of Cabo Verde (Cape Verde) on the Euro Zone has had a strong effect on the archipelago’s economy, the Bank of Cabo Verde said in its Monetary Policy Report, published Monday in Praia.

The bank said that the economic climate indicators suggested a continued slowdown for the last nine months, which was also influenced by the deterioration in the confidence of economic agents and the balance of the banking system.

Weakening of financing conditions for the private sector – reflecting the circumstances of financial markets in Europe as well as the internal risks to financial stability – along with containment of public spending, had meanwhile contributed to reducing the economy’s external imbalances and reduce inflationary pressure.

In order to revert this situation and encourage funding for projects, the report said that the central bank had adopted a moderate approach by refocusing auctions of its own securities based on rates proposed by the banks, lowering interest rates on deposits from 3.25 percent to 1 percent and reducing the target for liquidity of the banking system by half.

These measures are intended, over the next six months, to maintain the level of foreign reserves and to boost the financial system in general.

“Driven also by the slight growth in the country’s principal partners, the central scenario of the current projections points to some recovery in growth in 2014,” the summary of the Monetary Policy Report concludes. (macauhub)