The Cape Verdean Deputy Prime Minister, Olavo Correia, said that “the conditions are already created” to launch the Guarantee Fund, as a mechanism to “recover potential losses and mitigate the risk” of guarantees issued by the State.
“With the legislative initiative regarding the Issuance and Management of State Guarantees, the intention was to better define the State’s commitment when granting guarantees, the general terms for activating guarantees, the procedures for processing the process for granting guarantees, as well as to define the existence of a Guarantee Fund fed by the guarantee fee charged to the entities receiving State guarantees,” said Olavo Correia, who is also Minister of Finance.
To this end, he explained, the guarantee commission rate was set, which represents “the conclusion of another stage in this ongoing process of improving management instruments for the State’s contingent liabilities, in order to manage its risk.”
“Thus, the adoption of a reserve fund of guarantees by setting guarantee commissions, which is in line with best international practices, is a mechanism to recover potential losses and mitigate the risk associated with credit activity, which is inherent in the probability of the beneficiary not meeting its financial responsibilities,” he added.
Olavo Correia argued that the granting of guarantees to public and private entities “is a tool used worldwide for the purpose of supporting the dynamization of the economy,” but “which may lead to potential losses for the State as guarantor, leading to the materialization of its contingent liabilities.
Total guarantees issued by the Cape Verdean state to guarantee loans requested by public companies increased 22% from 2020 to 2021, exceeding 178 million euros, equivalent to 10% of Cape Verde’s Gross Domestic Product (GDP), as reported last April.