February 2009 prem 4 Africa Region
Download 3.98 Mb.
|
- Navigate this page:
- Monetary Policy In Line with the Peg
External PositionThe exchange rate has served Cape Verde well as an anchor for price and financial stability. The anchor currency, the Euro, also is the currency of its main trading partners (76 percent of exports, 80 percent of imports, and more than 70 percent of total remittances).2 The appreciation of the Euro (and hence the CVE) against the dollar does not appear to have affected Cape Verde’s external competitiveness, reflecting the country’s relatively stronger links to Europe with respect to trade, tourism, and remittance flows. In addition, the sharp increase in oil prices could have had a much larger impact if it had not been partially offset by the appreciation of the Euro against the US dollar. According to the IMF CGER-type analysis, the REER is in line with fundamentals and policies. Furthermore, the strong performance of FDI suggests improved competitiveness. The external current account deficit has narrowed over recent years, falling from over 14.4 percent of GDP in 2004 to approximately 5 percent of GDP in 2006. The improvements in the external position reflect primarily increasing revenues from tourism, effective demand management, and a more diversified import source base. Exports are estimated to have grown by 35 percent in 2006, compared to 24 percent in 2005. In contrast, imports grew by 23.4 percent in 2006 compared to 0.5 percent in 2005.3 The increase in imports has been largely driven by FDI-related imports (investment goods). Table 1.3: Balance of Payments, 2000–06 (US$ million)
Source: Central Bank of Cape Verde and IMF. Monetary Policy In Line with the PegMonetary policy was consistent with the goal of strengthening the sustainability of the exchange rate pegged to the Euro by steadily building up reserves during the entire analysis period. In the context of the fixed exchange rate regime, monetary policy is subordinated to the target level of international reserves deemed appropriate to support the peg. The Central Bank of Cape Verde (BCV) has successfully fulfilled its objective: reserve coverage has increased steadily over the last years (figure 1.4). However, in the first semester of 2008, the accumulation of reserves declined due to the reduction of current transfers and private debt re-payments. The decrease of remittances from emigrants is due to the depreciation of the dollar against the Euro and the global economic slowdown. Furthermore, the global financial crisis, which is affecting some of the countries that invest in Cape Verde, has a repercussion in the degree of the foreign investment. To prevent capital inflows from leading to inflationary pressures, the BCV has intervened since 2006 by selling bank securities. Emigrant deposits (stock) continue to grow but at a decreasing rate, which is largely explained by the narrowing spread between Euro and domestic deposit rates. BCV is closely monitoring interest rate differentials with the Euro area and the US and is targeting external interest rates differentials to prevent the outflow of emigrant deposits (which represent 40 percent of the total bank deposits). Furthermore, remittances flows fell in 2004 and 2007. In 2007 they dropped by CVE 179 million, which may be related to the depreciation of the dollar and to the raised living standards in Cape Verde. Even so, remittances in 2006 represented 10 percent of the GDP. Figure 1.2: Reserve Coverage (Months of Prospective Imports of Goods and Services), 2000–06 
Source: Central Bank of Cape Verde. Figure 1.3: Evolution of Emigrants’ Deposits (Stock) and Remittances (flows), 2000–07 
Directory: curated curated -> Concept stage curated -> Concept stage curated -> Republic of Côte d'Ivoire Urbanization Review curated -> Report No: aus11011 Central America curated -> Report No. 94474-pk fiscal Disaster Risk Assessment Options for Consideration curated -> Environmental and Social Management Framework for the Costa Rica Telecommunications Sector Modernization Project curated -> Environment Impact Assessment For Jiangxi Shangrao Sanqingshan Airport Beijing Guohuantiandi Environmental Technology Development Center. Ltd. Oct. 2012 Content curated -> Growth through Innovation An Industrial Strategy for Shanghai By Shahid Yusuf Kaoru Nabeshima April 22nd, 2009 curated -> Report No: 70178. People's Republic of China Download 3.98 Mb. Share with your friends:
|