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Fitch upgrades Cape Verde's 'rating' to B
The financial rating agency Fitch Ratings has today improved the assessment of Cape Verde's sovereign credit quality to level B, due to the prospects of strong economic growth and good budget performance.
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Economia Fitch
"The upgrade reflects the forecast of robust economic growth and strong fiscal performance, which should support fiscal consolidation and a declining debt trajectory," Fitch Ratings analysts write in the note that reports the upgrade from B- to B, still well below the investment recommendation, with a stable outlook.
The continued positive performance of the tourism sector, which accounts for about a third of Cape Verde's economy, returned to pre-covid-19 pandemic levels in 2023, "which will support both improved economic activity and external finances, as well as a narrower current account deficit and adequate international reserve levels".
In addition to economic growth, which Fitch estimates should expand by 4.7% this year and next, slowing slightly from 5.1% in 2023, analysts also expect private consumption to "benefit from the strong performance of the tourism sector, as it accounts for around 40% of employment, and from the decline in inflation to around 2% this year and next, down from 3.7% in 2023".
In its analysis of Cape Verde's finances, Fitch Ratings also estimates that public debt, one of the highest on the African continent, albeit mostly concessional, will continue to decline in the coming years.
"We forecast Cape Verde's general government debt to decline to around 104% of GDP by 2025, after 115% in 2023 and 126% in 2022, which compares with a 'B' median of 52%, reflecting a combination of strong nominal GDP growth and a shift to positive primary fiscal balances," the analysts say.
The strong concessional component of this Portuguese-speaking African country's debt is also reflected in the low debt burden, as these values represent only 3% of external revenues and 8% of tax revenues, unlike most African countries, where this ratio exceeds double digits in both cases.
"Cape Verde's rating is also supported by a relatively high share of concessional financing and governance indicators that are stronger than those of peers, but these factors are balanced by a very high level of government debt, large sovereign external debt vulnerabilities, and a high dependence on tourism," Fitch Ratings concludes.
With this upgrade, Cape Verde becomes the African Portuguese-speaking country with the best assessment of its credit quality, as Fitch assigns a rating of B- to Angola and CCC+ to Mozambique, not classifying the others (Equatorial Guinea, Guinea-Bissau and São Tomé and Príncipe).
Read Also: Fitch predicts that housing difficulties will persist in Portugal and Spain (Portuguese version)
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