February 2009 prem 4 Africa Region

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Efficiency of Spending

When rationalizing Cape Verde’s scarce fiscal resources, identification and quantification of implicit and/or ad-hoc financial transfers to State-owned enterprises are necessary steps. While SOEs sometimes cover their own financial inefficiencies by postponing maintenance or reducing quality of service, more frequently than not, they do it by inducing financing transfers, for instance, by defaulting or accumulating debts. From the fiscal viewpoint, well-functioning SOEs would create at worst limited––at best no––fiscal costs. Given that the central government is a main (when not the only) stakeholder of SOEs, it bears all risks of inefficient financial behavior. Cumulative debts and triggered contingent liabilities would lead to periodic capitalization and debt swaps with important fiscal implications. In a macroeconomic context, this implies that fiscal resources are very inefficiently allocated, essentially because they are allocated without any economic and/or strategic rationale. These lumpy and ad-hoc fiscal interventions deviate funds from priority infrastructure (and non-infrastructure) projects, instead throwing scarce resources to zero- or negative-return uses.

Table 5.52: Financial Indicators for SOEs^⁹⁹

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