Cabo Verde - Macroeconomic outlook for 2025-2030

Cape Verde's Economic Plan: Getting the Country's Finances Back on Track

Cape Verde is working hard to fix its money problems after the COVID-19 pandemic left the country deeply in debt. The government borrowed heavily during the crisis, and by 2021, the country owed 147% of everything its economy produces in a year. Now they're trying to get that down to below 95% by 2027.

At the same time, they want to keep prices stable—aiming for about 2% inflation per year through 2030. Their currency, the Cape Verdean escudo, is tied to the euro at a fixed rate, which helps control inflation but also limits what the government can do with interest rates.

Prices Are Coming Down

The good news is that inflation has dropped dramatically. Prices only went up 1% in 2024, compared to 7.9% in 2022 when the world was dealing with expensive food and fuel. Experts think inflation will stay around 2% for the next few years.

The currency peg is key here. Since 1998, Cape Verde has kept its escudo fixed to the euro at the same exchange rate. This gives people and businesses confidence that prices won't spiral out of control. The central bank has also raised interest rates three times in 2024 to help keep inflation in check.

The Debt Is Falling—Fast

Cape Verde's debt has come down much faster than expected. It dropped from 147% of GDP in 2021 to 111% in 2024—a huge improvement in just three years.

The plan is to keep reducing it: down to 105% in 2025, then 100% in 2026, and finally to 94% by 2027. Some optimistic forecasts even suggest it could drop below 70% by 2030, though that depends on everything going right.

Most of this debt is owed to foreign lenders, but fortunately it comes with low interest rates and long repayment periods, which makes it easier to manage.

How Are They Doing It?

Three main things are helping Cape Verde reduce its debt:

Strong economic growth: The economy grew 7.3% in 2024, mainly thanks to tourism bouncing back after the pandemic. More growth means the economy gets bigger while the debt stays the same (or shrinks), making the ratio better.

Tighter spending: The government is bringing in more tax revenue and cutting unnecessary expenses. They're also reforming or selling off some government-owned companies, which should save money.

Careful borrowing: They're borrowing as little as possible from domestic sources to avoid disrupting the currency peg and monetary policy.

Why Experts Are Optimistic

In August 2025, the credit rating agency S&P Global upgraded Cape Verde's outlook from "stable" to "positive." This is a vote of confidence that the country is on the right track.

The rapid debt reduction has impressed many observers. If Cape Verde hits its 2027 target, it will have cut its debt ratio by 53 percentage points in just six years—a remarkable achievement.

What Could Go Wrong?

Despite the progress, there are real risks:

Tourism dependence: About 20-25% of Cape Verde's economy comes from tourism. If another crisis hits—like a recession in Europe—tourist numbers could plummet and take tax revenues with them.

Government-owned companies: The debt projections assume these companies will be successfully reformed or privatized. If that doesn't happen, the government might have to bail them out, adding to the debt.

Import dependence: Cape Verde imports 80% of its energy and 75% of its food. If global prices spike again due to wars or supply chain problems, inflation could come roaring back.

Climate change: As an island nation, Cape Verde faces droughts, water shortages, and rising sea levels. Dealing with these problems requires expensive infrastructure investments that could conflict with debt reduction goals.

Political will: Sticking to tough budget cuts and reforms over multiple election cycles is hard for any government. Even with good intentions, political pressures can derail fiscal discipline.

Can They Pull It Off?

The targets are ambitious but not impossible. Cape Verde has a track record of success—it reached middle-income status in 2007 and upper-middle-income status in 2025. The currency peg has held steady for 27 years, showing the country can maintain discipline.

The fact that they've already cut debt by 36 percentage points in three years shows they're serious. But the next phase will be harder. The initial gains came partly from the post-pandemic economic rebound. Going forward, they'll need sustained effort on taxes, spending, and reforms.

What It All Means

Cape Verde's strategy is straightforward: keep inflation low, grow the economy, and reduce debt. This creates a positive cycle where stability encourages investment, which drives growth, which makes the debt more manageable.

For the country, success means more flexibility to respond to crises and invest in the future. Right now, they spend over a third of their revenue just paying interest on debt—money that could otherwise go to schools, hospitals, or roads.

The crucial test comes in 2026-2027. If the government hits its targets, it will prove that Cape Verde's approach works. If it misses them, credibility will suffer and borrowing could become more expensive.

For now, the signs are positive: inflation is under control, debt is falling, and the economy is growing. The next few years will show whether Cape Verde can maintain this momentum or whether external shocks and political pressures will knock it off course.

The country has a solid plan. Now it's all about execution.