The International Monetary Fund (International Monetary Fund, IMF) warned on Thursday of the risks that falling fertility rates and emigration pose to the sustainability of Cape Verde’s defined-benefit pension system, issuing a series of recommendations.
“The population decline in Cape Verde over the past decade and a half — driven by lower fertility and emigration — represents a significant challenge to the sustainability of the defined-benefit pension scheme” of the Instituto Nacional de Previdência Social (INPS), the IMF said in a country report.
The risks are compounded by low returns on most INPS assets, the expansion of benefits and the rapid growth in expenditure, the fund noted.
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The IMF said that “the solvency of the INPS defined-benefit social security scheme is more precarious than previously assessed”, as the institute’s latest data are based on overly optimistic population growth projections.
The population of the archipelago fell to around 483,000 inhabitants, according to the Instituto Nacional de Estatística (INE) in August 2021, a decline of 1.6% compared with the 2010 census.
Social security figures should be updated “with realistic population projections that incorporate not only the final results of the 2021 Census but also the most recent emigration data”, which point to growing outward migration.
The IMF recommends that INPS implement cost controls, avoiding “the introduction of new benefits” beyond its mandate, and that it gradually shift assets from low-yield bank deposits to higher-return instruments abroad.
“This change should be made gradually, in close coordination with the Banco de Cabo Verde (BCV) to avoid a liquidity crisis,” and as part of a broader plan supported by “external financial advisers”, similar to those assisting the central bank in reserve management in partnership with the World Bank.
If these measures prove insufficient, “a parametric reform should be considered to gradually increase the retirement age, in line with rising life expectancy,” the IMF added.
An annual expenditure growth rate of 12% at INPS between 2023 and 2024 means that, “if not controlled, spending will double in nominal terms in less than six years,” the fund warned.
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In all scenarios, the IMF argues that the government should avoid increasing contribution rates for employers or employees. On the one hand, the current rate “is already high (24.5% in total)”; on the other, raising it “would harm job creation and economic formalization”.
In another annex to the report, the IMF said that “Cape Verde’s social protection system is solid and continues to evolve, but achieving the goal of eliminating extreme poverty by 2026 requires overcoming fragmentation, improving adequacy and increasing resilience to shocks”.
The document suggests greater integration of the social registry of vulnerable households with public services such as health, education, finance and employment, ensuring sustainable financing mechanisms and expanding productive inclusion reforms.
“Although challenges persist, the country’s strategies and strong partnerships suggest a path toward a more inclusive, equitable and resilient future,” the report concluded.
In 2024, around 67% of Cape Verde’s population benefited from some form of social protection, and total social spending currently represents about 13% of GDP, according to the document.
The IMF analysis is part of a report published following a mission to the country three months ago, reaffirming an overall positive assessment of Cape Verde’s performance, despite risks linked to external exposure, loss-making state-owned enterprises and the 2026 electoral cycle.
“Losses persist in state-owned enterprises, especially the airline (TACV), putting pressure on public finances, increasing non-performing loans and diverting resources from other areas,” the IMF said, recommending timely publication of audited financial statements.
For this year, the IMF forecasts 5.1% real GDP growth for Cape Verde, 2% inflation, a primary budget surplus of 1.3% of GDP, public debt falling to 97% of GDP and import cover of seven months.
