INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND CABO VERDE Joint World Bank-IMF Debt Sustainability Analysis October 2020 Prepared Jointly by the staffs of the International Development Association (IDA) and the International Monetary Fund (IMF) Approved by Marcello Estevão (IDA), Annalisa Fedelino and Johannes Wiegand (IMF) Cabo Verde: Joint Bank-Fund Debt Sustainability Analysis Risk of external debt distress High Overall risk of debt distress High Granularity in the risk rating Sustainable Application of judgement No Cabo Verde’s risk of external and overall debt distress remains high, unchanged from the joint Debt Sustainability Analysis (DSA) of April 2020. The present value (PV) of public and publicly- guaranteed (PPG) external debt-to-GDP ratio breaches its threshold during 2020–24 under the baseline, and protractedly under stress test scenarios. The PV of total public debt-to-GDP ratio is projected to breach its threshold during 2020–27 under the baseline scenario and during 2020–31 under stress test scenarios. The debt sustainability assessment is predicated on several assumptions, including a gradual recovery of economic activity in 2021, reprofiling of debt service of all official bilateral creditors under the debt service suspension initiative (DSSI), growth- friendly fiscal consolidation in the post-pandemic period as well as resumption of structural reforms, notably to restructure State-Owned Enterprises (SOEs) and improve the business environment. Prudent borrowing policies and strengthened debt management, as well as measures to enhance the functioning of the government securities market are critical to stabilizing debt dynamics over time. In view of Cabo Verde’s vulnerability to exogenous shocks, sustained progress in export and output diversification are also needed for long-term debt sustainability. PUBLIC DEBT COVERAGE 1. The coverage of the public sector is in line with the previous DSA (Text Table 1). Consistent with fiscal accounts, the social security fund and local governments are excluded from the DSA, while the coverage of extra budgetary funds (EBFs) is focused on government support to State-Owned Enterprises (SOEs) through onlending and capitalization operations. Government guarantees to SOEs’ external borrowing are included in the baseline stock of debt, while publicly-guaranteed domestic debt and non-guaranteed debt by SOEs are excluded because of limited information on the repayment schedule. Efforts to broaden the coverage of public sector debt are ongoing, including by supporting debt transparency reforms through a World Bank Development Policy Financing Operation.1 Text Table 1. Cabo Verde: Coverage of Public-Sector Debt and Design of Contingent Liability Stress Test Subsectors of the public sector Check box 1 Central government X 2 State and local government 3 Other elements in the general government 4 o/w: Social security fund 5 o/w: Extra budgetary funds (EBFs) X 6 Guarantees (to other entities in the public and private sector, including to SOEs) X 7 Central bank (borrowed on behalf of the government) X 8 Non-guaranteed SOE debt Public debt coverage and the magnitude of the contingent liability tailored stress test 1 The country's coverage of public debt The central government plus extra budgetary funds, central bank, government-guaranteed debt Default Used for the analysis Reasons for deviations from the default settings 2 Other elements of the general government not captured in 1. 0 percent of GDP 0.3 3 SoE's debt (guaranteed and not guaranteed by the government) 1/ 2 percent of GDP 24.3 To reflect vulnerabilities associated with guaranteed domestic debt and non-guaranteed SOE debt. 4 PPP 35 percent of PPP stock 1.1 5 Financial market (the default value of 5 percent of GDP is the minimum value) 5 percent of GDP 5 Total (2+3+4+5) (in percent of GDP) 30.7 1/ The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country's public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE's debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to 0%. 2. The contingent liability tailored stress test is calibrated to account for the debt coverage gaps highlighted above. First, the default shock of 0 percent of GDP for other elements of the general government not captured in the baseline stock of debt is raised to 0.3 percent of GDP to account for the size of publicly-guaranteed domestic debt of local governments.2 Second, while the strong financial position of the social security fund (INPS) before the COVID-19 crisis has not risen concerns of immediate fiscal risks, the need to adjust the contingent liability stress test for its exclusion would need to be re-assessed in the post-pandemic period, based on the updated actuarial study (planned for 2021) to account for implications of larger unemployment benefits paid out in 2020, temporary suspension of contributions, and other measures undertaken by the government in response to the health crisis. Third, the default shock of 2 percent of GDP for SOEs’ debt is raised to 24.3 percent of GDP to reflect 1A comprehensive assessment of contingent liabilities is expected to be concluded in 2021. 2Government-guaranteed domestic borrowing of municipalities from the banking system stood at CVE 623.4 million (0.3 percent of GDP) at end-December 2019 (see Text Table 3 for more details). 2 vulnerabilities associated with: (i) publicly-guaranteed domestic debt by ELECTRA, Newco, TACV, IFH, ENAPOR and CERMI amounting to CVE 13.1 billion (6.7 percent of GDP) at end-2019 and; (ii) non-guaranteed domestic debt of loss-making SOEs totaling CVE 34.3 billion (17.6 percent of GDP) at end-2019.3 Fourth, the default shock of 1.1 percent of GDP has been kept for public private partnerships (PPPs), in line with the previous DSA. Fifth, given that most banks are foreign-owned and well- capitalized, Cabo Verde’s financial sector does not exhibit significant vulnerabilities that warrant an upward adjustment of the default minimum value of 5 percent of GDP for the financial market shock. BACKGROUND Evolution and Composition of Public Debt 3. The stock of public debt stood at 125 percent of GDP at end-2019 (Text Figure 1). It declined from its peak of 128.4 percent of GDP in 2016, reflecting the downward trend in external debt (which accounts for 73.2 percent of the total stock of public debt), consistent with improvement in the fiscal position. Domestic debt accounts for over 60 percent of debt service since most of the external debt is on concessional terms as explained below. Text Figure 1. Cabo Verde: Profile of Public Debt and Debt Service, 2002–19 Sources: Cabo Verdean authorities and IMF staff estimates. Note: Publicly-guaranteed external debt stock and debt service of SOEs included from 2015. 4. Cabo Verde’s public external debt is highly concessional (Text Table 2). Multilateral institutions, notably the World Bank and the African Development Bank are the main creditors, while Portugal is the main bilateral creditor. The average maturity of external debt is about 30.2 years, and the 3The total stock of non-guaranteed domestic debt stood at CVE 80.0 billion at end-2019, of which CVE 34.3 billion represented borrowing by eight SOEs that recorded negative net income in 2019 (ELECTRA, TACV, ICV, SCS, FIC, EHTCV, APN, and LEC). 3 average interest rate is below 1 percent.4 More than two third of the external debt portfolio is euro- denominated, and therefore, exchange rate risks are limited since the Cabo Verdean escudo (CVE) is pegged to the euro. Text Table 2. Cabo Verde: External Debt Profile by Type of Creditors, 2019 5. Domestic debt consists mostly of medium and long-term Treasury securities. At end-2019, it accounted for 26.8 percent of total public debt, comprising mainly Treasury bonds (97 percent); with average maturity and interest rate of about 7.5 years, and 4.7 percent respectively. The banking sector is the main holder of government securities (60 percent), while the social security fund and households hold 38 percent and 2 percent, respectively. 6. Publicly guaranteed debt stood at CVE 15.4 billion (7.9 percent of GDP) at end-2019 (Text Table 3). State guarantees are mainly issued for SOEs’ domestic debt (85 percent of the stock), which reached 6.7 percent of GDP at end-2019. The publicly-guaranteed external debt covers TACV debt contracted with a consortium of foreign banks, while guaranteed domestic debt consists primarily of the liabilities of ELECTRA, Newco, TACV, IFH, Enapor and CERMI to the domestic banking system and Stock Exchange; and borrowing by a few municipalities (though amounts are significantly smaller). The issuance and management of State guarantees is regulated by the Decree-Law 42 of June 29, 2018, which clarifies the entities that could benefit from guarantees as well as the conditions. The law includes also an article requiring the Minister of Finance’s approval for the issuance of loan guarantees. The annual guarantee ceiling is indicated in budgets submitted to parliament.5 4 Commercial loans mainly consist of debt owed to Caixa Geral de Depósitos (CGD) under favorable terms: an average maturity of 20 years and an average interest rate of 1.55 percent. 5 In addition, on December 28, 2019 Parliament passed a new Public Debt Law, which set the limits on short-term and medium- term borrowing, and specified instruments to be used. 4 Text Table 3. Cabo Verde: Publicly-Guaranteed Debt, 2016–19 2016 2017 2018 2019 CVE Percent Percent CVE Percent Percent CVE Percent Percent CVE Percent Percent million of GDP of debt million of GDP of debt million of GDP of debt million of GDP of debt External Debt (A) 882 0.5 100.0 2,117 1.2 100.0 1,674 0.9 100.0 1,628 0.8 100.0 contracted by SOEs 599 0.4 67.9 1,834 1.1 86.6 1,674 0.9 100.0 1,628 0.8 100.0 contracted by private entities 283 0.2 32.1 283 0.2 13.4 0 0.0 0.0 0 0.0 0.0 Domestic Debt (B) 10,516 6.3 100.0 11,778 6.8 100.0 12,078 6.6 100.0 13,773 7.1 100.0 contracted by local governments 381 0.2 3.6 677 0.4 5.7 682 0.4 5.6 623 0.3 4.5 contracted by SOEs 10,135 6.1 96.4 11,102 6.4 94.3 11,388 6.2 94.3 13,140 6.7 95.4 contracted by private entities 0 0.0 0.0 0 0.0 0.0 8 0.0 0.1 9 0.0 0.1 Total Publicly-Guaranteed Debt (A+B) 11,398 6.9 13,895 8.0 13,752 7.5 15,401 7.9 Source: Cabo Verdean authorities and IMF staff calculations. 7. Historical series of private external debt derived from international investment position (IIP) data indicate a relatively low stock of about 10 percent of GDP at end-2019. Private debt includes both bank and non-bank external debt. The central bank (BCV) compiles and publishes non- financial corporations’ private debt stock statistics. Significant progress was achieved by the BCV in external sector statistics (ESS) in recent years, including the migration of BOP and IIP statistics to BPM6 and the reporting of quarterly IIP. Outlook and Key Macroeconomic Assumptions 8. The baseline scenario is predicated on a gradual economic recovery starting in 2021 (Text Table 4). Real GDP growth is projected at 4.5 percent for 2021, and 6.2 percent over the medium term. The rebound assumes the gradual resumption of tourism activities and capital flows, as the global economy recovers. However, the trajectory is highly uncertain for the next two years, as the Cabo Verdean economy remains vulnerable to external shocks and dependent on export of services. Structural reforms aimed at enhancing the business environment, improving inter-island connectivity and strengthening linkages between tourism and other sectors, as well as the completion of critical infrastructure projects are expected to support growth going forward. 9. A gradual improvement in fiscal and external balances is forecasted for the medium term. By 2025, the fiscal deficit is expected to be almost eliminated while the external current account is projected to narrow to 1.8 percent of GDP, which will facilitate the stabilization of public and external debt dynamics. A gradual fiscal consolidation will be supported by enhanced domestic revenue mobilization and strengthened expenditure management and prioritization. The gradual improvement in the primary balance, combined with progress in the restructuring of SOEs are projected to bring total financing needs to 0.2 percent of GDP over medium term. A resumption of, and expansion in tourism activities, remittances, and capital flows are expected to help strengthen the medium-term external position and the build-up of international reserves. 5 Text Table 4. Cabo Verde: Assumptions for Key Economic Indicators, 2020–40 (Percent of GDP) 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 - 30 2031 - 40 Act. Act. Act. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Real GDP growth Current DSA 3.7 4.5 5.7 -6.8 4.5 4.8 5.7 6.0 6.2 5.5 5.5 2020 April DSA (RCF) 3.7 4.5 5.7 -5.5 5.0 6.4 6.0 5.7 5.5 5.1 5.0 GDP Deflator Current DSA 0.7 1.5 0.6 1.1 1.2 1.4 1.5 1.6 1.7 1.8 2.0 2020 April DSA (RCF) 0.7 1.5 0.6 1.7 1.7 2.0 1.9 1.9 2.0 2.1 2.2 Fiscal balance (including grants) Current DSA -3.0 -2.7 -1.8 -9.7 -6.6 -3.7 -1.8 -0.8 0.0 0.1 0.3 2020 April DSA (RCF) -3.0 -2.8 -1.8 -8.4 -4.1 -1.4 -1.1 -0.9 -0.7 -0.5 -1.0 Overall financing needs (including onlending) Current DSA -3.3 -3.7 -5.1 -12.1 -6.4 -3.9 -2.0 -1.0 -0.2 0.1 0.3 2020 April DSA (RCF) -3.3 -3.9 -5.1 -10.9 -5.1 -2.2 -1.3 -1.1 -0.9 -0.5 -1.0 Current account balance (including grants) Current DSA -7.8 -5.2 0.3 -14.2 -9.2 -6.4 -4.1 -2.1 -1.8 -1.0 -0.9 2020 April DSA (RCF) -7.9 -5.4 -0.2 -14.3 -8.6 -4.7 -2.6 -1.7 -0.5 0.8 4.7 Cv$/USD exchange rate (e-o-y) Current DSA 92.4 96.3 98.5 95.5 93.6 93.1 93.0 93.0 93.1 93.1 93.1 2020 April DSA (RCF) 92.4 96.3 98.5 100.3 99.5 98.9 98.3 97.8 97.8 97.8 97.8 Sources: Cabo Verdean authorities; and IMF staff estimates and projections. 10. The current shock to the Cabo Verdean economy is severe, with large uncertainties about its duration, as well as economic and social impact. A more prolonged health crisis could stall the economic recovery and become a drag on export and domestic revenue collection, as well as capital flows and private investments, leading to a deeper economic contraction in 2020, a delayed rebound, and higher balance of payments and fiscal financing needs. 11. The DSA assumes that financing needs would be covered by identified external sources, including debt service suspension under the DSSI and by net domestic borrowing up to the authorities’ annual ceiling of 3 percent of GDP. Multilateral and bilateral sources for budget support of US$168 million (2.7 percent of GDP) are expected to be mobilized through 2020-22, of which 73 percent are anticipated from multilateral sources (the World Bank and the African Development Bank).6 While projecting continued concessional foreign support in the short and medium term, the DSA assumes a slow and gradual shift toward less concessional sources in the long term, including semi-concessional loans (with a grant element of less than 5 percent) and limited non-concessional borrowing, consistent with Cabo Verde’s middle-income status. With respect to domestic debt, the DSA assumes that bonds with maturities of at least 4 years would account for 97 percent of the stock in the medium term, in line with the profile of domestic debt portfolio at end-2019. The average interest rate is set to 1 percent for T- bills, and 4 and 5 percent for short-term and medium to longer-term bonds, respectively. Based on agreements secured by the authorities, debt service suspension under the DSSI amounts to US$ 8.96 million (about 0.5 percent of GDP) in 2020. 6The World Bank approved in April 2020 a COVID-19 Emergency Response operation totaling US$5 million. The Disaster Risk Management Development Policy Financing with CAT-DDO amounting US$10 million was disbursed in May 2020. The Second State-Owned Enterprise Reform and Fiscal Management Development Policy Financing, totaling US$25 million is expected to be disbursed in the third quarter of 2020. 6 12. Tools for assessing the realism of the baseline scenario flag some deviation from historical experience, which are explained below. • Drivers of debt dynamics (Figure 3). The current DSA projects similar debt accumulation in 2020-21, while slightly higher after 2022, compared to the previous DSA. The contributions of past and projected debt-creating flows to the PPG external debt and to gross public debt have also changed with the higher current account deficit and lower FDI negatively contributing to PPG external debt accumulation; and the higher primary fiscal deficit contributing to the accumulation of gross public debt relative to its historical trajectory. • Realism of planned fiscal adjustment (Figure 4). The projected three-year fiscal adjustment in the primary balance stands at 1.5 percentage points of GDP between 2019 and 2022 and lies in the second quartile of the distribution of past adjustments of the primary fiscal deficit derived from the sample of LICs. • Consistency between fiscal adjustment and growth (Figure 4). The projected growth path for 2020 and 2021 is revised down compared to the past DSA, and it is not in line with the multiplier-based projections. This reflects a large shock to the economy due to the pandemic and its severe impact on economic activity. Following a robust increase in the first quarter of 2020 by 5.8 percent (y/y), output is forecasted to decelerate by 6.8 percent, consistent with the two-month long lockdown that was introduced in April. A slow recovery is projected for 2021 with a real GDP growth of 4.5 percent. The realism of these projections is predicated on a gradual revival in the most affected sectors (tourism, transport, and other services) which are expected to pick up in the fourth quarter of 2020, and on the authorities’ commitment to accelerate structural reforms and fiscal consolidation efforts when the health crisis abates. • Consistency between public investment and growth (Figure 4). The realism tool shows that like historical figures, the contribution of public investment to real GDP growth remains marginal across the previous and current DSA, mainly reflecting low multiplier for public investment, consistent with the high import content of capital spending. While public investment is expected to hover around 4-5 percent of GDP in the medium term, private investment is projected to rise gradually to about 40 percent of GDP during 2020–25. Country Classification and Determination of Stress Test Scenarios 13. Cabo Verde’s debt-carrying capacity is assessed as “strong” as in the previous DSA (Text Table 5). The methodology relies on a composite indicator (CI) combining the Country Policy and Institutional Assessment (CPIA) score, external conditions captured by world economic growth and country-specific factors. The latest CI score continues to be based on the October 2019 World Economic Outlook (WEO) vintage, and the 2018 CPIA. The CI score for Cabo Verde stands at 3.28, which is above the threshold of 3.05 applicable for a “strong” rating. It reflects positive contributions from the CPIA 7 (44 percent), international reserves (30 percent), world growth (14 percent), remittances (7 percent) and country real growth rate (3 percent). Debt burden thresholds implied by the strong debt-carrying capacity under the previous and new frameworks are summarized in Text Table 6. Text Table 5. Cabo Verde: CI Score Summary Table Components Coefficients (A) 10-year average CI Score components Contribution of values (B) (A*B) = (C) components CPIA 0.385 3.778 1.45 44% Real growth rate (in percent) 2.719 3.999 0.11 3% Import coverage of reserves (in percent) 4.052 49.735 2.02 61% Import coverage of reserves^2 (in percent) -3.990 24.736 -0.99 -30% Remittances (in percent) 2.022 10.814 0.22 7% World economic growth (in percent) 13.520 3.499 0.47 14% CI Score 3.28 100% CI rating Strong Source: IMF staff calculations. The CI cutoff for strong debt-carrying capacity is CI > 3.05. 8 Text Table 6. Cabo Verde: Debt Thresholds under Strong Debt-Carrying Capacity EXTERNAL debt burden thresholds Weak Medium Strong PV of debt in % of Exports 140 180 240 GDP 30 40 55 Debt service in % of Exports 10 15 21 Revenue 14 18 23 Source: IMF staff calculations. 14. The debt sustainability analysis relies on the six standardized stress tests and the contingent liability stress test. While the former uses the default settings, the latter is customized to address potential vulnerabilities stemming from the current coverage of public sector debt as explained in paragraph 2. None of the tailored stress tests is triggered for Cabo Verde. DEBT SUSTAINABILITY ANALYSIS External Public Debt 15. Under the baseline scenario, the PV of PPG external debt-to-GDP ratio breaches its applicable threshold during 2020-24, thereby signaling a high risk of external debt distress (Figure 1, Tables 1 and 3). In addition, the PV of PPG external debt-to-export ratio breaches its threshold in 2020. The other debt burden indicators remain below the prescribed thresholds. However, both debt service- to-exports and debt service-to-revenue ratios increase throughout 2021-22 (when Cabo Verde starts repaying the principal due on loans from the Portuguese bank Caixa Geral de Depósitos) and decrease gradually from 2023 onward. 16. The PV of PPG external debt-to-GDP ratio also breaches its threshold protractedly under the stress test scenarios (Figure 1, Tables 1 and 3). Under the most extreme shock, which is a one-time 30 percent nominal depreciation, it rises to 91.7 percent in 2021 before gradually receding below the threshold of 55 percent of GDP in 2029. The threshold is also breached under the remaining five standardized bound tests, and under the tailored combined contingent liabilities test during 2020–27. The PV of PPG external debt-to-exports ratio exceeds its applicable threshold during 2020–26, rising to 395.1 percent of GDP in 2022, and gradually decreasing below the threshold of 240 percent of GDP by 2027. Likewise, both of Cabo Verde’s debt service-related indicators breach their respective thresholds under the stress test scenario over the projection period. The external debt service-to-export ratio breaches its threshold during 2022-24, while the external debt service to revenue breaches its threshold during 2021– 24. The projected trajectories of PPG external debt burden indicators are vulnerable to an export growth shock and to a one-time depreciation shock, stressing the need for export diversification. 9 Total Public Debt 17. The PV of total public debt-to-GDP ratio exceeds the 70 percent benchmark till 2027 under the baseline scenario (Figure 2, Tables 2 and 4).1 The prescribed benchmark is also breached throughout the projection period under the six standardized bound tests and the tailored combined contingent liabilities test. Furthermore, the debt outlook, as shown by the public DSA indicators, is particularly vulnerable to contingent liabilities associated with SOEs’ debt and one-time depreciation, which emerges as the most extreme shock. Still, despite the high public debt-to-GDP level, Cape Verde’s debt is assessed to be sustainable given its high share of highly concessional external debt and moderate debt service ratios. Roll-over risks from domestic public debt are also mitigated by the maturity structure of the debt and the fact that around 40 percent of domestic debt is held by the Social Security Fund. Debt Distress Ratings 18. Cabo Verde’s risk of external and overall debt distress is assessed as “high” under the baseline scenario. As discussed earlier, the PV of PPG external debt-to-GDP ratio breaches its threshold till 2024 under the baseline scenario, thereby signaling a high risk of external debt distress, and is particularly sensitive to export and growth shocks. Based on the current projections, it is expected that it will gradually decline, falling below the 55 percent threshold in 2025. The “high” risk of overall debt distress is the outcome of the breach of the PV of total public debt-to-GDP ratio through 2027. 19. The outlook for public debt has deteriorated following the pandemic, and prudent borrowing policies and strengthened debt management are needed to underpin medium-term debt sustainability. The pandemic has led to a rapid deterioration of the country’s external and fiscal positions, triggered a sharp contraction in economic activity, and affected medium-term economic prospects. The authorities have sought debt service suspension under the DSSI to support their response to the health crisis. As mentioned above, the DSA assumes that US$ 8.96 million of debt service (principal and interest payments) falling due in 2020 and for which agreements were secured will be reprofiled for 2021–24 in line with the terms of the Initiative.2 In the aftermath of the health crisis, the authorities will need to refocus on policies and reforms aimed at improving the fiscal position and boosting growth to reset public debt on a declining trend over the medium term. More generally, prudent borrowing policies, adhering to the zero limit on non-concessional external borrowing in the next few years, as well as strengthened debt management strategy remain key to stabilize future debt dynamics. Ensuring medium to long-term debt sustainability will also require sustained implementation of growth- enhancing structural reforms with a focus on actions needed to diversify the production and export base, and to address critical infrastructure gaps. Measures to develop the government securities market and lower the costs of domestic borrowing will be also crucial going forward. Authorities’ Views 20. The authorities agreed with the results of the DSA and stressed their concerns about the 1While in 2028, the PV of total debt-to-GDP reaches the threshold. 2While debt service for May and June was eligible for suspension under the Initiative, the authorities paid these obligations while waiting for participation confirmation from creditors. 10 fragility of the Cabo Verdean economy. The health crisis exposed some of the key structural challenges facing the economy, including the lack of diversification, heavy reliance on tourism, and vulnerability to exogenous shocks. The lack of natural resources combined with relatively limited fiscal space at the beginning of the health crisis, made broad-based responses to the pandemic difficult and costly, involving numerous trade-offs. The authorities reaffirmed their continued commitment to fiscal consolidation and to the goal of a public debt-to-GDP ratio lower than 100 percent over the medium term. They stressed, however, that their efforts have now been jeopardized by the pandemic. They highlighted the high uncertainties of macroeconomic assumptions and called on the IMF and the World Bank to provide them with analytical tools to inform policy discussions on debt management. At the same time, the authorities indicated that they remain committed to prudent borrowing policies, and will work towards strengthening debt management practices, and improving the functioning of the government securities market, to enhance debt sustainability in the long term. 11 Figure 1. Cabo Verde: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2020–30 PV of debt-to GDP ratio PV of debt-to-exports ratio 100 450 90 400 80 350 70 300 60 250 50 200 40 30 150 20 100 10 Most extreme shock is One-time depreciation 50 Most extreme shock is Exports 0 0 2020 2022 2024 2026 2028 2030 2020 2022 2024 2026 2028 2030 Debt service-to-exports ratio Debt service-to-revenue ratio 30 30 25 25 20 20 15 15 10 10 5 5 Most extreme shock is Exports Most extreme shock is One-time depreciation 0 0 2020 2022 2024 2026 2028 2030 2020 2022 2024 2026 2028 2030 Baseline Historical scenario Most extreme shock 1/ Threshold Customization of Default Settings Borrowing Assumptions for Stress Tests* Size Interactions Default User defined Shares of marginal debt Standardized Tests No Yes External PPG MLT debt 100% Tailored Tests Terms of marginal debt Combined CLs Yes Avg. nominal interest rate on new borrowing in USD 1.8% 1.8% Natural Disasters n.a. n.a. USD Discount rate 5.0% 5.0% Commodity Prices 2/ n.a. n.a. Avg. maturity (incl. grace period) 22 22 Market Financing n.a. n.a. Avg. grace period 6 6 Note: "Yes" indicates any change to the size or * Note: All the additional financing needs generated by the shocks under the stress tests are interactions of the default settings for the stress tests. assumed to be covered by PPG external MLT debt in the external DSA. Default terms of marginal "n.a." indicates that the stress test does not apply. debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. Stress tests with one-off breaches are also presented (if any), while these one- off breaches are deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one- off breach, only that stress test (with a one-off breach) would be presented. 2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department. 12 Figure 2. Cabo Verde: Indicators of Public Debt Under Alternative Scenarios, 2020–30 PV of Debt-to-GDP Ratio 160 140 120 100 80 60 40 Most extreme shock is One-time depreciation 20 0 2020 2022 2024 2026 2028 2030 PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio 500 80 450 70 400 60 350 50 300 250 40 200 30 150 20 100 Most extreme shock is One-time Most extreme shock is Combined contingent liabilities 10 50 depreciation 0 0 2020 2022 2024 2026 2028 2030 2020 2022 2024 2026 2028 2030 Baseline Most extreme shock 1/ Public debt benchmark Historical scenario Borrowing Assumptions for Stress Tests* Default User defined Shares of marginal debt External PPG medium and long-term 35% 35% Domestic medium and long-term 63% 63% Domestic short-term 1% 1% Terms of marginal debt External MLT debt Avg. nominal interest rate on new borrowing in USD 1.8% 1.8% Avg. maturity (incl. grace period) 22 22 Avg. grace period 6 6 Domestic MLT debt Avg. real interest rate on new borrowing 3.6% 3.6% Avg. maturity (incl. grace period) 6 6 Avg. grace period 0 0 Domestic short-term debt Avg. real interest rate 0% 0.0% * Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 13 Figure 3. Cabo Verde: Drivers of Debt Dynamics - Baseline Scenario Gross Nominal PPG External Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Current DSA 60 120 60 Previous DSA Residual proj. 50 DSA-2014 40 Interquartile 100 40 range (25-75) Price and exchange rate 20 30 80 20 Real GDP growth 0 Change in PPG 60 10 debt 3/ 0 Nominal -20 40 interest rate -10 Median -40 -20 20 Current account + FDI -30 0 -60 -40 Contri bution of Change in 5-year 5-year Di s tribution across LICs 2/ 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 unexpected PPG debt 3/ historical projected -50 cha nges change change Public debt Gross Nominal Public Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Residual 40 Current DSA Previous DSA proj. 50 DSA-2014 Interquartile 160 Other debt 40 range (25-75) creating flows 20 140 Real Exchange 30 120 rate depreciation 100 0 20 Real GDP growth Change in debt 80 10 60 Real interest -20 rate 0 40 Primary deficit -10 20 -40 Median 0 Change in debt 5-year 5-year -20 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Distribution across LICs 2/ historical projected Contribution of -30 unexpected change change Sources: Country authorities; and staff estimates and projections. 1/ Difference between anticipated and actual contributions on debt ratios. 2/ Distribution across LICs for which LIC DSAs were produced. 3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation. 14 Figure 4. Cabo Verde: Realism Tools 3-Year Adjustment in Primary Balance Fiscal Adjustment and Possible Growth Paths 1/ (Percentage points of GDP) 15 4 14 Distribution 1/ 3 2 Projected 3-yr adjustment 10 12 1 In percentage points of GDP 3-year PB adjustment greater than 2.5 percentage points of GDP in approx. top 0 10 quartile -1 5 In percent -2 8 -3 0 -4 6 -5 -6 4 -5 -7 -8 2 -10 -9 2014 2015 2016 2017 2018 2019 2020 2021 0 Baseline Multiplier = 0.2 Multiplier = 0.4 More -4.5 -4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 Multiplier = 0.6 Multiplier = 0.8 1/ Data cover Fund-supported programs for LICs (excluding emergency financing) approved since 1990. The 1/ Bars refer to annual projected fiscal adjustment (right-hand side scale) and lines show possible real size of 3-year adjustment from program inception is found on the horizontal axis; the percent of sample is GDP growth paths under different fiscal multipliers (left-hand side scale). found on the vertical axis. Public and Private Investment Rates Contribution to Real GDP growth (% of GDP) (percent, 5-year average) 48 5 4 40 4 3 32 3 24 2 2 16 1 1 8 0 Historical Projected (Prev. DSA) Projected (Curr. DSA) 0 -1 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Gov. Invest. - Prev. DSA Gov. Invest. - Current DSA Contribution of other factors Priv. Invest. - Prev. DSA Priv. Invest. - Current DSA Contribution of government capital Sources: Country authorities; and staff estimates and projections. 15 Table 1. Cabo Verde: External Debt Sustainability Framework, Baseline Scenario, 2019–40 (Percent of GDP, unless otherwise indicated) Actual Projections Average 8/ Historical Projections 2019 2020 2021 2022 2023 2024 2025 2030 2040 External debt (nominal) 1/ 102.0 108.4 104.2 100.5 93.7 86.1 79.8 55.2 24.8 93.6 81.3 Definition of external/domestic debt Residency-based of which: public and publicly guaranteed (PPG) 91.4 97.0 93.8 90.8 84.8 78.0 72.3 49.9 24.8 81.6 73.5 Is there a material difference between the No two criteria? Change in external debt -0.9 6.4 -4.2 -3.7 -6.8 -7.5 -6.3 -4.2 -5.6 Identified net debt-creating flows -5.1 20.7 2.0 -2.0 -5.3 -7.3 -7.2 -6.4 -4.5 0.8 -2.9 Non-interest current account deficit -2.5 11.9 6.7 3.8 1.6 -0.2 -0.4 -1.3 -0.6 4.9 1.7 Deficit in balance of goods and services 14.0 25.5 19.7 16.6 14.4 12.2 10.9 6.6 8.2 20.4 12.5 Exports 50.7 28.3 33.8 37.3 40.2 42.9 44.7 51.0 60.7 Debt Accumulation Imports 64.6 53.8 53.5 53.9 54.6 55.1 55.6 57.6 69.0 10.0 40 Net current transfers (negative = inflow) -16.4 -14.4 -13.3 -12.8 -12.8 -13.3 -12.2 -8.4 -9.2 -16.6 -11.3 of which: official -3.0 -4.4 -4.4 -3.2 -2.2 -2.5 -1.9 -0.8 -0.4 9.0 35 Other current account flows (negative = net inflow) -0.1 0.8 0.2 0.1 0.0 0.9 0.8 0.5 0.4 1.0 0.5 8.0 Net FDI (negative = inflow) -4.0 -0.8 -2.8 -3.7 -4.0 -4.3 -4.0 -4.0 -3.8 -5.5 -3.6 30 7.0 Endogenous debt dynamics 2/ 1.4 9.7 -1.9 -2.1 -2.9 -2.8 -2.7 -1.2 -0.1 Contribution from nominal interest rate 2.2 2.3 2.5 2.5 2.5 2.4 2.2 1.9 1.4 6.0 25 Contribution from real GDP growth -5.8 7.3 -4.4 -4.7 -5.4 -5.2 -4.9 -3.0 -1.6 5.0 20 Contribution from price and exchange rate changes 5.0 … … … … … … … … 4.0 Residual 3/ 4.2 -14.3 -6.2 -1.7 -1.5 -0.2 0.9 2.3 -1.1 3.8 -1.3 15 3.0 of which: exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.0 10 Sustainability indicators 1.0 5 PV of PPG external debt-to-GDP ratio 58.8 69.2 65.8 63.8 59.9 55.5 52.0 37.1 18.6 0.0 PV of PPG external debt-to-exports ratio 116.1 244.3 194.8 170.9 149.0 129.4 116.4 72.8 30.6 -1.0 0 PPG debt service-to-exports ratio 7.0 12.5 13.4 13.7 12.4 11.0 9.6 7.3 4.0 2020 2022 2024 2026 2028 2030 PPG debt service-to-revenue ratio 13.5 14.4 17.7 19.1 17.9 16.8 15.0 13.1 8.6 Gross external financing need (Million of U.S. dollars) -35.4 301.9 204.5 148.1 95.3 40.9 31.8 -13.5 -83.4 Rate of Debt Accumulation Grant-equivalent financing (% of GDP) Key macroeconomic assumptions Grant element of new borrowing (% right scale) Real GDP growth (in percent) 5.7 -6.8 4.5 4.8 5.7 6.0 6.2 5.5 5.5 2.8 4.4 GDP deflator in US dollar terms (change in percent) -4.6 1.2 6.0 2.1 1.8 1.6 1.7 1.8 2.4 -0.9 2.1 Effective interest rate (percent) 4/ 2.2 2.2 2.6 2.6 2.7 2.7 2.8 3.4 5.1 3.2 2.8 External debt (nominal) 1/ Growth of exports of G&S (US dollar terms, in percent) 4.3 -47.2 31.9 18.3 15.8 14.9 12.5 9.5 10.2 6.9 8.9 of which: Private Growth of imports of G&S (US dollar terms, in percent) -4.2 -21.4 10.1 7.8 9.0 8.6 9.0 9.0 9.7 2.8 5.8 120 Grant element of new public sector borrowing (in percent) ... 36.4 37.1 37.7 37.9 37.9 33.6 30.0 30.0 ... 35.0 Government revenues (excluding grants, in percent of GDP) 26.2 24.5 25.6 26.9 27.8 28.0 28.7 28.5 27.9 23.5 27.6 100 Aid flows (in Million of US dollars) 5/ 170.8 267.6 228.0 200.0 126.5 103.6 118.9 140.2 252.8 Grant-equivalent financing (in percent of GDP) 6/ ... 8.9 6.4 4.6 2.7 2.2 2.3 2.0 1.9 ... 3.5 80 Grant-equivalent financing (in percent of external financing) 6/ ... 54.7 57.8 51.5 51.0 55.2 49.7 49.0 52.1 ... 52.0 Nominal GDP (Million of US dollars) 1,982 1,870 2,071 2,215 2,384 2,567 2,771 3,969 8,238 Nominal dollar GDP growth 0.8 -5.6 10.7 7.0 7.6 7.7 8.0 7.4 8.0 1.9 6.6 60 Memorandum items: 40 PV of external debt 7/ 69.3 80.6 76.2 73.5 68.7 63.6 59.4 42.4 18.6 In percent of exports 136.8 284.4 225.6 196.7 171.0 148.3 133.0 83.2 30.6 20 Total external debt service-to-exports ratio 9.5 18.0 17.8 17.6 15.9 14.2 12.6 9.7 5.6 PV of PPG external debt (in Million of US dollars) 1165.3 1294.7 1362.0 1413.5 1427.4 1424.1 1441.0 1473.3 1533.3 0 (PVt-PVt-1)/GDPt-1 (in percent) 6.5 3.6 2.5 0.6 -0.1 0.7 0.3 -0.7 2020 2022 2024 2026 2028 2030 Non-interest current account deficit that stabilizes debt ratio -1.6 5.5 10.8 7.6 8.4 7.3 5.9 2.9 5.0 Sources: Country authorities; and staff estimates and projections. 0 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g) + Ɛα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α= share of local currency-denominated external debt in total external debt. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 16 Table 2. Cabo Verde: Public Sector Debt Sustainability Framework, Baseline Scenario, 2019–40 (Percent of GDP, unless otherwise indicated) Actual Projections Average 6/ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2040 Historical Projections Public sector debt 1/ 125.0 137.5 134.8 130.0 122.8 114.9 106.3 98.9 91.8 85.2 78.8 73.0 29.8 109.3 106.7 Definition of external/domestic Residency- of which: external debt 91.4 97.0 93.8 90.8 84.8 78.0 72.3 67.2 62.5 58.0 53.7 49.9 24.8 81.6 73.5 debt based of which: local-currency denominated Change in public sector debt -0.6 12.5 -2.7 -4.8 -7.2 -7.9 -8.6 -7.5 -7.0 -6.7 -6.3 -5.8 -4.3 Is there a material difference Identified debt-creating flows -0.2 16.4 -3.0 -4.9 -7.4 -8.0 -8.7 -7.4 -6.9 -6.6 -6.3 -5.8 -3.1 5.3 -4.4 No between the two criteria? Primary deficit -0.7 7.0 3.8 0.8 -1.0 -1.8 -2.5 -2.2 -2.2 -2.2 -2.3 -2.1 -1.2 3.8 -0.4 Revenue and grants 29.4 29.2 29.2 28.9 28.9 29.2 29.8 29.5 29.5 29.5 29.6 29.6 29.1 26.6 29.4 of which: grants 3.2 4.7 3.6 2.0 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 Public sector debt 1/ Primary (noninterest) expenditure 28.7 36.2 33.0 29.7 27.9 27.3 27.3 27.3 27.3 27.3 27.3 27.5 27.9 30.4 28.9 Automatic debt dynamics -2.8 7.0 -6.8 -5.7 -6.4 -6.2 -6.2 -5.2 -4.7 -4.3 -4.0 -3.6 -1.8 of which: local-currency denominated Contribution from interest rate/growth differential -5.9 10.2 -5.2 -5.7 -6.7 -6.6 -6.4 -5.3 -4.8 -4.4 -4.0 -3.7 -1.7 of which: foreign-currency denominated of which: contribution from average real interest rate 0.8 1.2 0.7 0.4 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.1 of which: contribution from real GDP growth -6.7 9.1 -5.9 -6.1 -7.1 -7.0 -6.7 -5.6 -5.1 -4.8 -4.4 -4.1 -1.8 160 Contribution from real exchange rate depreciation 3.1 ... ... ... ... ... ... ... ... ... ... ... ... 140 Other identified debt-creating flows 3.3 2.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.1 1.1 0.2 120 Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100 Recognition of contingent liabilities (e.g., bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 80 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.1 60 Other debt creating or reducing flow (please specify) 3.3 2.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 40 Residual -0.4 -7.2 -1.3 0.2 0.5 0.5 0.4 0.0 0.0 0.0 0.0 0.0 -1.3 0.9 -0.6 20 Sustainability indicators 0 PV of public debt-to-GDP ratio 2/ 92.4 107.7 106.5 102.9 97.9 92.4 86.0 80.4 75.0 69.8 64.8 60.2 23.6 2020 2022 2024 2026 2028 2030 PV of public debt-to-revenue and grants ratio 314.2 369.1 364.7 356.1 338.6 316.8 288.8 272.6 254.2 236.6 219.1 203.2 81.1 Debt service-to-revenue and grants ratio 3/ 26.9 31.4 39.6 45.6 47.1 47.6 49.2 50.7 48.5 45.4 41.3 38.2 15.7 Gross financing need 4/ 7.2 18.6 15.3 14.0 12.6 12.1 12.1 12.8 12.1 11.2 9.9 9.2 3.2 of which: held by residents of which: held by non-residents Key macroeconomic and fiscal assumptions 160 Real GDP growth (in percent) 5.7 -6.8 4.5 4.8 5.7 6.0 6.2 5.5 5.5 5.5 5.5 5.5 5.5 2.8 4.4 140 Average nominal interest rate on external debt (in percent) 1.1 0.8 1.2 1.2 1.3 1.3 1.2 1.3 1.3 1.3 1.4 1.4 1.8 1.2 1.2 120 Average real interest rate on domestic debt (in percent) 4.4 3.4 3.3 3.1 3.0 3.0 2.8 2.8 3.0 3.2 3.3 3.3 2.8 4.3 3.1 100 Real exchange rate depreciation (in percent, + indicates depreciation) 3.6 … ... ... ... ... ... ... ... ... ... ... ... 3.5 ... 80 Inflation rate (GDP deflator, in percent) 0.6 1.1 1.2 1.4 1.5 1.6 1.7 1.8 1.8 1.8 1.8 1.8 1.8 2.4 0.9 1.6 60 Growth of real primary spending (deflated by GDP deflator, in percent) 7.1 17.5 -4.6 -5.8 -0.4 3.8 5.9 5.6 5.4 5.5 5.5 6.4 5.5 2.0 4.1 40 Primary deficit that stabilizes the debt-to-GDP ratio 5/ -0.1 -5.6 6.5 5.5 6.3 6.1 6.1 5.3 4.8 4.4 4.1 3.7 3.1 1.0 4.3 PV of contingent liabilities (not included in public sector debt) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20 0 2020 2022 2024 2026 2028 2030 Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central government plus extra budgetary funds, central bank, government-guaranteed debt. Definition of external debt is Residency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 17 Table 3. Cabo Verde: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2020–30 (Percent) Projections 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 PV of debt-to GDP ratio Baseline 69 66 64 60 55 52 49 46 43 40 37 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2040 1/ 69 68 69 70 72 75 77 80 84 88 92 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 69 68 69 64 60 56 52 49 46 43 40 B2. Primary balance 69 67 66 63 59 55 52 49 47 44 41 B3. Exports 69 73 82 77 72 68 65 61 57 53 49 B4. Other flows 2/ 69 68 68 64 60 56 53 50 46 43 40 B6. One-time 30 percent nominal depreciation 69 92 85 79 73 68 64 60 56 52 49 B6. Combination of B1-B5 69 75 76 71 66 63 59 55 52 48 44 C. Tailored Tests C1. Combined contingent liabilities 69 73 72 69 65 62 60 57 54 52 49 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 55 55 55 55 55 55 55 55 55 55 55 PV of debt-to-exports ratio Baseline 244 195 171 149 129 116 106 95 87 79 73 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2040 1/ 244 202 185 174 167 167 168 167 171 175 180 0 244 197 173 153 135 123 113 102 94 85 77 B. Bound Tests B1. Real GDP growth 244 195 171 149 129 116 106 95 87 79 73 B2. Primary balance 244 198 178 156 137 124 113 103 95 87 80 B3. Exports 244 305 395 347 304 276 252 229 210 190 173 B4. Other flows 2/ 244 202 183 160 139 126 114 103 94 86 79 B6. One-time 30 percent nominal depreciation 244 195 162 141 122 110 100 89 82 74 69 B6. Combination of B1-B5 244 284 192 263 229 207 189 171 155 141 129 C. Tailored Tests C1. Combined contingent liabilities 244 217 193 171 152 139 129 119 111 103 97 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 240 240 240 240 240 240 240 240 240 240 240 Debt service-to-exports ratio Baseline 12 13 14 12 11 10 9 9 8 8 7 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2040 1/ 12 15 15 15 14 13 14 13 13 14 14 0 12 14 14 13 12 10 10 10 9 9 8 B. Bound Tests B1. Real GDP growth 12 13 14 12 11 10 9 9 8 8 7 B2. Primary balance 12 13 14 13 11 10 10 9 9 9 8 B3. Exports 12 19 26 24 22 19 18 17 18 20 18 B4. Other flows 2/ 12 13 14 13 11 10 10 9 9 9 8 B6. One-time 30 percent nominal depreciation 12 13 14 12 11 9 9 9 8 8 7 B6. Combination of B1-B5 12 18 22 20 18 16 15 14 15 15 13 C. Tailored Tests C1. Combined contingent liabilities 12 13 14 13 11 10 10 9 9 9 8 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 21 21 21 21 21 21 21 21 21 21 21 Debt service-to-revenue ratio Baseline 14 18 19 18 17 15 15 15 14 15 13 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2040 1/ 14 19 21 21 21 20 22 23 23 25 24 0 14 18 19 19 18 16 17 16 16 16 14 B. Bound Tests B1. Real GDP growth 14 18 21 19 18 16 16 16 16 16 14 B2. Primary balance 14 18 19 18 17 15 16 15 15 15 14 B3. Exports 14 18 20 19 18 16 17 16 17 19 17 B4. Other flows 2/ 14 18 19 18 17 15 16 15 15 16 14 B6. One-time 30 percent nominal depreciation 14 25 27 25 23 21 21 20 20 19 17 B6. Combination of B1-B5 14 18 21 20 18 16 17 16 17 18 16 C. Tailored Tests C1. Combined contingent liabilities 14 18 20 19 18 16 16 15 15 16 14 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 23 23 23 23 23 23 23 23 23 23 23 Sources: Country authorities; and staff estimates and projections. 1/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 2/ Includes official and private transfers and FDI. 18 Table 4. Cabo Verde: Sensitivity Analysis for Key Indicators of Public Debt, 2020–30 (Percent) Projections 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 PV of Debt-to-GDP Ratio Baseline 108 107 103 98 92 86 80 75 70 65 60 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2040 1/ 108 109 111 113 116 118 121 123 125 128 130 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 108 112 114 110 106 101 97 93 89 85 81 B2. Primary balance 108 110 113 107 102 95 89 83 78 73 68 B3. Exports 108 113 121 115 109 102 96 90 84 78 72 B4. Other flows 2/ 108 109 107 102 97 90 84 79 73 68 63 B6. One-time 30 percent nominal depreciation 108 136 130 124 117 110 103 97 90 85 79 B6. Combination of B1-B5 108 111 114 109 104 98 92 87 82 77 73 C. Tailored Tests C1. Combined contingent liabilities 108 134 130 124 117 110 103 97 91 85 80 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Public debt benchmark 70 70 70 70 70 70 70 70 70 70 70 PV of Debt-to-Revenue Ratio Baseline 369 365 356 339 317 289 273 254 237 219 203 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2040 1/ 369 372 381 391 395 395 406 413 420 426 433 0 31 37 38 37 37 40 42 42 41 38 36 B. Bound Tests B1. Real GDP growth 369 380 392 381 364 339 328 313 300 286 273 B2. Primary balance 369 377 390 371 348 318 302 282 264 245 229 B3. Exports 369 388 418 399 375 343 326 306 286 263 243 B4. Other flows 2/ 369 373 372 354 332 303 286 267 249 230 213 B6. One-time 30 percent nominal depreciation 369 465 451 428 402 368 349 327 306 286 267 B6. Combination of B1-B5 369 380 393 375 354 327 312 294 277 260 244 C. Tailored Tests C1. Combined contingent liabilities 369 459 449 428 402 369 350 328 308 288 270 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Debt Service-to-Revenue Ratio Baseline 31 40 46 47 48 49 51 48 45 41 38 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2040 1/ 31 40 47 52 57 63 70 72 73 73 73 0 31.42353 37.48262 38.32512 37.03571 37.37982 40.19297 41.70269 42.26706 40.54338 38.06277 36.38356 B. Bound Tests B1. Real GDP growth 31 41 49 52 54 56 59 58 56 52 50 B2. Primary balance 31 40 48 52 53 54 56 54 50 45 42 B3. Exports 31 40 46 49 49 51 52 50 48 46 42 B4. Other flows 2/ 31 40 46 47 48 50 51 49 46 42 39 B6. One-time 30 percent nominal depreciation 31 43 54 57 58 60 62 61 59 56 53 B6. Combination of B1-B5 31 40 48 52 53 55 58 56 54 49 47 C. Tailored Tests C1. Combined contingent liabilities 31 40 61 62 63 65 67 65 56 51 47 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sources: Country authorities; and staff estimates and projections. 1/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 2/ Includes official and private transfers and FDI. 19