Fitch Upgrades Cape Verde Outlook: Tourism and Debt Improve
The international rating agency Fitch has upgraded Cape Verde’s credit outlook from “stable” to “positive,” signaling growing confidence in the archipelago’s economic recovery and fiscal management. While maintaining the country’s credit rating at ‘B’, the agency highlighted a favorable trajectory for public debt and a flourishing tourism sector.
Tourism Boom Drives Growth
Fitch attributed the upgrade to continued fiscal consolidation and “robust growth” powered by tourism. Geopolitical instability elsewhere may actually work in Cape Verde’s favor; the agency noted that the country could see an influx of European travelers seeking safer, more affordable, and shorter flight options amid tensions in the Middle East.
However, analysts warned that these gains are not without risk. A prolonged global conflict or disruptions in petroleum supplies could increase flight costs and stifle international travel, which remains the backbone of the Cape Verdean economy.
Debt on a Downward Trend
One of the most significant takeaways from the Fitch report is the rapid reduction of national debt. After peaking at 147% of GDP in 2021, public debt is projected to fall to 100% by 2025 and reach approximately 85% by 2027.
This improvement is bolstered by a shift in the government’s budget balance. Fitch estimates a budget surplus of 1.3% of GDP for 2025—a notable swing from the 0.7% deficit recorded in 2024. This fiscal health is driven by revenue mobilization reforms, including an airport concession fee and a tax revenue increase resulting from a broader tax base and reduced exemptions.
Strong Indicators and Future Risks
Compared to its peers, Cape Verde boasts strong governance indicators and adequate international reserves, which are expected to cover nearly 11 months of external payments through 2027. Real GDP growth is forecasted to remain steady, averaging 5.4% over the next two years.
Despite the optimism, structural challenges remain. “There are still high levels of public and external debt, although falling, and persistent external vulnerabilities,” Fitch warned. The agency specifically pointed to state-owned enterprises (SOEs) as a primary risk. The debt held by these entities accounted for nearly 48% of GDP at the end of 2024, representing a significant contingent liability for the state.
Election Outlook
With legislative and presidential elections scheduled for May and November of this year, Fitch remains confident in the country’s stability. The agency does not anticipate a shift in fiscal or growth trajectories regardless of the election outcome, though it cautioned that any reversal of reforms within state-owned enterprises could pose a risk to the current positive momentum.
Image: Pexels – Thomas Schwaak
