Praia, March 11, 2026 (Lusa) - The International Monetary Fund (IMF) proposals for VAT reform in Cabo Verde predict that a review or elimination of exemptions will be sufficient to finance an increase in public investment and a reduction in poverty.
"Simplifying VAT exemptions generates fiscal space of around 1.2% of gross domestic product (GDP), while keeping VAT rates unchanged," is considered a "realistic" scenario, according to the IMF study, consulted on Wednesday by Lusa.
"The fiscal space generated by the elimination of exemptions would be sufficient to finance the expansion of public investment" in "infrastructure and education", increase "production potential and support the gradual creation of jobs in the formal sector, despite the modest short-term adjustment in consumption", the document reads.
This adjustment, caused by the end of exemptions, could be offset in the medium and long term with direct subsidies to the population (cash transfers) supported by increased revenue from "productivity gains".
"Inequality and poverty would decrease significantly, with the Gini coefficient falling to 0.378 and the number of people living in poverty [falling from 14.6% in 2015] to below 2%," the IMF document predicts.
Targeted cash transfers "are essential to protect income during periods of adjustment," the study adds.
Overall, "the analysis of three scenarios studied indicates that the long-term distributional benefits outweigh the short- and medium-term concerns associated with broadening the tax base."
"In the long term, revenue gains are widespread," it concludes.
The latest IMF document is part of the technical assistance provided to Cabo Verde, a country with which the fund also has ongoing financial support programmes, the implementation of which has received generally positive evaluations.
Cabo Verde is estimated to have a population of around 500,000.
According to the latest official data, the absolute poverty rate in Cabo Verde fell from 35.5% in 2015 to 24.75% in 2023.
Another indicator shows that extreme poverty has been halved, falling from 4.56% in 2015 to 2.28% in 2023, using the international threshold of US$2.15 per day per person.
The concept of absolute poverty refers to those who do not have the resources to meet basic needs (food, clothing, shelter and health), using universal criteria, while poverty in a more generic and relative sense applies to those who have fewer resources compared to others in the same society, according to local criteria.
Extreme poverty is a more severe form of absolute poverty.
The Cabo Verdean Government has made a commitment to "eradicate extreme poverty by 2026, within the framework of the United Nations (UN) 2030 Agenda to leave no one behind".
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