Cape Verde Deficit to Double in 2026 Budget Revision
Cape Verde’s Public Finance Council (CFP) has voiced cautious optimism regarding the nation’s 2026 Amending State Budget, describing the government’s macroeconomic targets as “plausible” despite a looming spike in the national deficit.
Deficit Projections Double Under New Budget
In its latest report, the fiscal watchdog warned that the budget amendment will see the fiscal deficit widen significantly, jumping from an initial projection of 0.9% to 1.9% of Gross Domestic Product (GDP). In monetary terms, the deficit is set to swell from 2.9 billion escudos (€26.6 million) to over 6 billion escudos (€54.9 million).
This fiscal shift follows a change in leadership. The original 2026 budget was drafted by the Movement for Democracy (MpD) government, but the new executive, led by the African Party for the Independence of Cape Verde (PAICV) following their May election victory, introduced the amendment to reflect new policy priorities.
Spending Surge Driven by Social Programs
The revised budget outlines a total expenditure of 103.9 billion escudos (€942 million), an 8.6% increase over the original plan. Much of this growth is fueled by aggressive social spending, including:
- Subsidies: Set to skyrocket by 153.3%.
- Education: Implementation of free tuition for the first cycle of higher education.
- Healthcare: Introduction of free medical services and reinforced health protections.
- Energy: Compensations to mitigate the high costs of electricity and fuel.
While the CFP acknowledged these social goals, it warned that the government has not sufficiently explained the long-term, multi-year costs of these permanent measures.
Public Debt and Economic Risks
One bright spot in the report is the continued downward trajectory of Cape Verde’s public debt. The debt-to-GDP ratio is expected to fall from 101.1% in 2025 to 94.1% in 2026. However, the CFP cautioned that a shrinking primary surplus—plunging from 1.2% to a mere 0.3% of GDP—leaves the economy vulnerable. Any dip in growth or unfavorable changes in financing conditions could derail this recovery.
The council also identified several high-stakes risks that could undermine the budget, including potential shortfalls in tax revenue, persistent energy shocks, and the risk of reducing public investment to cover rising operational costs.
A Call for Transparency
To ensure long-term stability, the CFP is urging the government to provide more rigorous justifications for its revenue forecasts. The watchdog recommended that the executive perform detailed sensitivity analyses and present alternative scenarios to prepare for macro-budgetary risks.
The Amending Budget was approved by the National Assembly on July 30 and officially promulgated by the President on August 12, setting the stage for a year of significant public spending and structural social changes in the Atlantic archipelago.
Image: Pexels – damien Saillet
