Cape Verdean government asks for increase in debt limit in 2021

“During the year 2021, the deficit of the State Budget financed with internal resources can go up to the limit of 4,5% of GDP at market prices”, reads the draft law, which will allow the Government to increase emissions of public debt.

The Cape Verdean government is going to ask the parliament to increase the limit on domestic indebtedness fixed annually at 3% of GDP to 4,5% in 2021, according to a law proposal to which Lusa had access this Monday.

In the document, which the National Assembly is expected to discuss at the second ordinary parliamentary session that runs from Wednesday to Friday, the Government recalls that the health and economic crisis caused by the covid-19 pandemic has forced the adoption of “a set of measures” "exceptional character" to "control the country's epidemiological situation" and "mitigate the effect of the economic crisis", with the reinforcement of social inclusion measures and support for companies.

This Government law proposal establishes "a temporary measure to increase the limit of internal indebtedness, within the context of covid-19". This is because, in order to guarantee the sustainability of public finances, the Basic Law of the State Budget establishes a specific limit of annual indebtedness of the central administration, namely “the annual limit of financing with internal resources up to 3% of the Gross Domestic Product at prices of Marketplace".

“During the year 2021, the deficit of the State Budget financed with internal resources can go up to the limit of 4,5% of GDP at market prices”, reads the draft law, which will allow the Government to increase emissions of public debt.

The Government of Cape Verde estimates a GDP of 194.320 million escudos (1.755 million euros) for 2021 in the archipelago, so that domestic debt, with a weight of 4,5% of GDP, could be worth up to almost 8.745 million escudos ( EUR 78,9 million) next year.

"It is necessary to establish a temporary measure that aims to increase internal indebtedness, within the scope of covid-19, as a preventive measure, in case it is not possible to adopt other financing measures, especially external and donations, or to reduce the need for financing" , justifies the Government, in the same law proposal.

At issue, we also read, are measures of “exceptional character” that “stem from short-term fiscal policies, translating into an expansionary policy on the expenditure side, which will give greater pressure on the need for financing by the Budget of the State ”, combined with“ the structural rigidity of State expenditure, the uncertainty of the evolution of the pandemic and, consequently, the collection of tax revenues ”.

“However, despite the State Budget for the 2021 economic year, taking into account the challenges presented above, the latest data regarding the evolution of the country's epidemiological situation and worldwide, accentuate the uncertainty of the macroeconomic framework and fiscal risks, making it is imperative and prudently to identify and make flexible other sources of financing, namely through internal indebtedness ”, warns the Government.

In the 2021 State Budget law proposal, which will also be discussed and voted on in general in this week's parliamentary session, the Government entered the forecast of reaching 76.813 million escudos (693 million euros) of 'public debt' issued internally - in Treasury Bonds and Treasury Bills -, an increase of 8,3% compared to the expected amount to reach in 2020.

The stock of external debt is expected to exceed 2021 million escudos (206.730 million euros) in 1.867, an increase of 5,2% in the space of one year.

Overall, Cape Verde's public debt is expected to reach 145,9% of GDP in 2021, with a weight of almost 40% in the domestic market.

Next year, debt disbursements foreseen by the Government amount to 16.059 million escudos (149 million euros), with a 63,5% share of external financing.

The State Budget proposal for 2021 amounts to 77.896 million escudos (706,4 million euros), which corresponds to an increase of 27,3 million euros in relation to the amending Budget.

After a historic recession, between 6,8% and 8,5% this year, the minister said that forecasts point to 4,5% economic growth next year, but only if the country manages to control the pandemic and check for a mismatch around the world.

For the next economic year - marked by the holding of legislative and presidential elections - the Cape Verdean government also predicts inflation of 1,2%, a budget deficit of 8,8% and an unemployment rate to be reduced by 19,2% to 17,2%.

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