Africa-Press – Cape verde. Criticized for its overspending, the Government is now forced to reduce current expenditures and better contain budgetary risks. It is in this sense that, in 2023, an agency (or a tax authority) will be created to provide a “qualitative leap” in tax revenue collection. This new entity, appointed by the International Monetary Fund (IMF) and the World Bank, should dictate the end of the National Directorate of State Revenue (DNRE). The idea is to prevent a certain political “leadership” in matters related to taxation.
The State Budget (OE) for 2023 is being prepared within the framework of an agreement with the IMF. In order for the contracted US$60 million in loan to be made available, the country will have to introduce several reforms in the next SO.
Government forced to cut spending
The Government will have to cut expenses, avoiding the creation of structures (institutes, agencies and public companies), as it has done in recent years.
In order to lower the public debt ratio, the Government will be forced to contain current expenditures and there will be a greater concern with social expenditures.
The Government is also subject to a World Bank program to restructure public companies to reduce fiscal risks and also to raise revenue.
It is in this new context that tax revenues gain particular focus in the OE guidelines for 2023. In the document, which A NAÇÃO had access, the Government proposes measures to “improve the levels of efficiency and effectiveness of the Tax Administration”.
Improved efficiency of the Tax Administration
Along with fiscal competitiveness, the target for 2023 is to increase tax revenues to approximately 19% of Gross Domestic Product (GDP).
Of the guidelines for improving the efficiency of the Tax Administration, in the same period, the institution of a tax agency or authority model stands out.
According to the guidelines of the OE 2023, “it is crucial to make a qualitative leap towards an organizational model and structure, with administrative and financial autonomy, with full management powers and with well-defined attributions and responsibilities, supported by performance indicators, both quantitative and , as qualitative”.
Avoid “excessive” intervention by politicians in fiscal matters
That is, with this, the National Directorate of State Revenues (DNRE) will be extinguished, transferring its attributions to this tax agency/authority which, according to a well-positioned source, has been working for some time and which has been an imposition of the IMF and the World Bank, in order to avoid “excessive” intervention by politicians in fiscal matters, as has been the case until now.
With the creation of this entity, its managers will be appointed by competition and, to ensure their financial autonomy and a certain independence from the Government, the revenues for its operation will be guaranteed through a percentage of the taxes collected.
Rationalization of tax benefits
The guidelines for the OE 2023 also advocate a rationalization of tax benefits, a mechanism widely used over the last few decades to promote business dynamics.
Having found that “there is no very clear relationship” between tax benefits and foreign direct investment, this document highlights that “after the massive attribution of tax benefits in recent years, a process of refocusing benefits began in 2021”. tax”.
“With a view to its rationalization and the progressive elimination of the total exemption, materializing the principle that everyone must pay taxes, even if reduced. This process will continue in 2023”, he emphasizes.
It should be remembered that, recently, Cabo Verde Airports, created by Vinci and owned by the Portuguese ANA to manage Cape Verdean airports, was exempt from paying various taxes for 15 years.
As it exists a vast network of companies, particularly in the tourism sector, exempt from taxation.
Review of the national tax system
The OE 2023 should also provide the reinforcement of Cape Verde’s fiscal competitiveness, in order to promote national business, facilitate foreign direct investment and improve the living conditions of the population.
“Therefore, in 2023, policy measures will be adopted, both at the legislative and organizational level of the tax administration, as well as the qualification of human resources, in order to create increasingly efficient and innovative solutions”.
In this context, it is intended, in 2023, to review the national tax system, “with a view to achieving a better balance in the distribution of the tax burden, the macroeconomic objectives of the country and the trend of international taxation, that is, reviewing the tax benefits, the reform of the customs code, the revision of the VAT code and the revision of the IUP”.
External debt: Diversification of funding sources
The Government intends to continue, in 2023, the negotiation and implementation of new modalities of external debt management.
The idea aims, among other objectives, “to reduce the stock and service of the debt and the creation of fiscal space for the new indebtedness necessary for the expansion of public investment”.
According to the guidelines of the OE 2023, “the public debt policy will continue to be based on budget consolidation and the creation of an economic environment that stimulates private, domestic and foreign investment, with the purpose of ensuring the dynamism of economic growth”.
In order to cover the financing needs of the OE 2023, “with fluidity and in a better relationship of cost and financing risk”, the goal is to diversify the sources of financing, which “goes through the reinforcement of dialogue and partnerships with external development partners” .
This strategy also involves the implementation of the project to boost the domestic capital market, especially the secondary market, “to make it more liquid and attractive”.
It is also recommended the involvement, on a larger scale, of the diaspora in the financing of the Cape Verdean economy and the profitability of State assets, establishing public-private partnerships
Lower public debt from around 150% of GDP to 100%
The Government intends to combine economic policies that bring, in the medium term, the stock of debt in relation to GDP at a level equal to or less than 100%, and that will keep the risks and costs associated with indebtedness adequate to the level of sustainability required by international standards.
“Concessional” Financing
In order to achieve these objectives, the Government still proposes to maintain the financing with the “concessional” component, coming from multilateral and bilateral creditors, willing to grant the country credits under these conditions.
On the other hand, the Euro will continue to be the priority currency in contracts with the Euro zone, and the US dollar in contracts with other creditors, “aimed at diversifying the debt portfolio”.
Treasury bond issues
Also according to the OE 2023 guidelines, domestic indebtedness will be through short, medium and long-term bond issues, “always respecting the maximum established by the budget law for each year”.
“Medium and long-term Treasury bills (OT) will be issued to finance investment and/or development projects and Treasury Bills (BT) will be issued to maintain treasury balance”.
“The management of public sector debt will be guided by principles of rigor, efficiency and quality of expenditure, ensuring the availability of the required funding for the budget year and aiming at the objectives of minimizing direct and indirect costs in a medium and long-term perspective. and the promotion of a balanced and efficient functioning of the secondary and financial market”, highlights the document.
Public debt management in the period 2023-2025
However, public debt management, in the period 2023-2025, “will continue to be active, maintaining strategies aimed at financing the State Budget in the best possible relationship between the cost and risk of the public debt portfolio and providing its sustainability term”.
Thus, “the medium-term indebtedness strategy, in line with the Debt Law and other laws that regulate factors with an impact on indebtedness and public debt management, will guide the contracting of financial resources to cover the expected financing needs. , in accordance with the macroeconomic assumptions assumed within the horizon of the multiannual State budget”.
Miscellaneous budgetary risks
In addition to the risk associated with debt service, arising from exogenous variables, such as exchange rate fluctuations that impact the repayment and payment of interest, 0.4% of GDP, the State Business Sector, which was aggravated in the pandemic context, constitutes a high risk for SO 2023.
According to the OE 2023 guidelines, with a view to reducing this risk, next year “special attention” will be given to the revitalization of public company reforms, including improving the framework for monitoring the financial performance of public companies to reduce risks. and, consequently, support medium-term debt sustainability.
These risks, arising from contingent liabilities, represented, until 31 March of this year, around 12% of GDP.
“It is observed that this responsibility has been aggravated following the measures to respond to the pandemic crisis adopted by the Government”.
Risks of the impacts of climate change and natural disasters
The document also highlights the risks arising from the direct and indirect impacts of climate change and natural disasters, which, in addition to constituting a “strong challenge” for economic activity, especially agriculture and fisheries, “constitute a high fiscal risk”. , whose materiality has been verified in the last six years, namely in terms of prolonged droughts, volcanic eruptions, heavy rains and floods, cyclones and coastal erosion”.
Public expenditures, with special emphasis on health and pensions, which, together with the problem of rigidity of expenditure versus the reduction of the space for investment expenditure, “have been increasing due to demographic changes, in particular the increase in life expectancy and the emergence of continuum of new diagnostics and treatments.
“It is imperative to carry out an assessment of the adequacy of future benefits granted by pension systems, in order to ensure an adequate sharing of risks and returns between generations”, he underlines.
The risks associated with judicial decisions that may charge the State with the payment of compensatory damages or other pecuniary charges are also concerns for the OE 2023.
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