According to Fitch Ratings, the Cape Verdean state’s revenues “are below budget forecasts,” and, as a result, the budget deficit will likely be “more than 7% of GDP” this year, considerably more than the 5% mentioned by the government.

The American risk classification agency released its latest report on Cape Verde this week. In it, Fitch Ratings rose the country’s short-term perspective for public finances from “stable” to “positive.”

This improvement came despite the fact that Charles Seville, the group’s associate director for International and State Public Finances, acknowledged that “the emerging tourism industry in Cape Verde has been hit by the global recession.”

It added that “an ambitious public investment program will keep the economy growing – and should increase long term growth potential.” On the other hand, however, “it will cause an increase in public debt and increase pressure on external finances,” warned Seville.

The increase in infrastructure spending is accounted for in the 2009 State Budget, which forecasts a 5% budget deficit.

The government has guaranteed financing from foreign entities for “most” of the projects, acknowledges Fitch Ratings. But revenues in the first trimester “are below budget forecasts,” and, as such, the agency is predicting a deficit of more than seven percent of GDP for 2009.

Foreign debt to increase

Cape Verde’s foreign debt “fell to below 60% of GDP in 2008,” according to Fitch Ratings, due to “several years of rapid economic growth.” However, the agency predicted that the foreign debt would begin going up again in 2011, as “the government took out new loans, mainly in foreign institutions.”

“Cape Verde will eventually face higher costs” in these loans due its graduation from the group of Least Developed Countries, says Seville.

In another important point, the agency recognizes that “the remittances of the 500,000 Cape Verdeans abroad, the second-largest source of foreign currency, have so far proved resistant to the crisis,” and that “émigrés’ deposits have been a stable source of funds for the banking system.”