- A record-breaking year, but momentum is softening: Real GDP grew 6.3% in 2025, driven by booming tourism and record reserves, but growth is projected to ease to 4.8% in 2026 as spillovers from the conflict in the Middle East and post-pandemic normalization take hold.
- A historic fiscal outturn but pressures remain: Cabo Verde posted its first overall budget surplus since 2007, with public debt declining to 100.7% of GDP — yet debt service still consumes 34.2% of revenues, rising to 46.3% if SOE obligations are included.
- Weak inter-island connectivity constrains private sector growth, tourism diversification, and domestic value chains — limiting Cabo Verde’s ability to generate more, better, and more inclusive jobs across the archipelago. The state’s overlapping role as owner, regulator, and operator further exacerbates the problem.
Cabo Verde’s economy performed strongly in 2025. Real GDP expanded by 6.3%, or 5.8% in per capita terms, driven largely by strong tourism activity. Record arrivals from European markets, expanded flight capacity, and surging demand led the services sector to contribute 4.1 percentage points of total growth. Private consumption added 2 percentage points, reflecting the contribution of tourism to household incomes and spending across the islands.
Unemployment fell to 6.2%, poverty dropped from 53.8% in 2024 to 51.2% in 2025 (estimated using the UMIC poverty line of $8.3/day (2021PPP). The challenge now is to translate this strong growth performance into more durable jobs gains — not only more jobs, but better-quality and more inclusive employment opportunities across islands, sectors, and population groups.
On the external front, the current account recorded a surplus of 3.6% of GDP — the second in a row — buoyed by service exports reaching 30.5% of GDP and remittances contributing a steady 10.3%. International reserves reached a record EUR 975 million, covering 7.1 months of prospective imports. The escudo peg remained stable, the banking system remained well-capitalized, and the fiscal position recorded a budget surplus of 1% of GDP – the first since 2007- supported by strong tax collection and a one-off airport concession payment.
Public debt declined to 100.7% of GDP, continuing its downward trajectory since the post-pandemic peak. However, vulnerabilities remain. Debt service absorbs 34.2% of revenues, a figure that would rise to 46.3% if state-owned enterprise (SOE) obligations were included. The national airline remains a significant source of fiscal risk, with domestic guarantees contracted at rates well above the government’s own borrowing costs.
A fuller account of these trends is presented in the Cabo Verde Economic Update 2026, which takes stock of the country’s growth trajectory, fiscal risks, SOE vulnerabilities, and the policy priorities needed to build a more diversified and resilient economy.
Behind the record numbers lies a more complicated story. Cabo Verde’s growth continues to rest on a narrow foundation. Tourism — concentrated overwhelmingly in two islands, Sal and Boa Vista, and sourced almost entirely from European markets — accounts for the bulk of export earnings and employment. Europe represents 93% of all arrivals. A demand shock from the continent, or an escalation of conflicts redirecting tourist flows, would land hard and fast.
The deeper constraint, however, is one that rarely makes headlines: inter-island connectivity. In an archipelago economy where production, population, and tourism are unevenly spread across ten islands, the ability to move people, goods, and ideas reliably and affordably is not a logistical detail — it is the architecture of growth itself. Connectivity is therefore a foundational constraint to more, better and inclusive jobs.
Connectivity is also a jobs issue. Reliable and affordable transport affects job creation, job access and job quality. It determines where firms invest and expand, whether small producers can reach larger markets, and whether workers can access employment opportunities across the archipelago. Better connectivity would allow tourism to spread beyond Sal and Boa Vista, strengthen domestic supply chains in fisheries, agriculture, and services, and create more and better jobs, particularly for young people and women. In this sense, improving connectivity is not only about moving passengers and goods—it is about expanding economic opportunities and supporting more inclusive growth.
The current system is marked by chronic underperformance. Domestic air services are thin, expensive, and unpredictable, marked by repeated operator failures and high fiscal costs tied to state-supported airlines. Maritime transport — the backbone of freight and passenger movement — suffers from aging fleets, opaque compensation arrangements, and limited incentives to improve performance. Ferries run irregularly. Freight costs reduce profit margins for fisheries and agribusiness. High fares relative to incomes effectively raise transport costs for firms and households, fragmenting markets and reducing productivity.
The state’s multiple roles — as policymaker, regulator, owner, and financier — create conflicting incentives, discourage private investment, and concentrate fiscal risks that are hard to mitigate under current institutional arrangements.
Outlook: Navigating a Narrowing Path
Growth is expected to moderate to 4.8% in 2026, with inflation picking up to 3.2% as the conflict in the Middle East pushes energy prices higher and erodes household purchasing power. The current account is projected to slip back into deficit of approximately 1.5% of GDP reflecting costlier imports. Reserves, however, are expected to remain comfortable, supported by steady FDI inflows — projected at 2.7% of GDP — and diaspora remittances.
Risks are skewed to the downside: weaker European growth, delayed SOE privatizations, climate shocks, and tighter global financing conditions all pose genuine threats.
To sustain its progress, Cabo Verde needs to broaden the base of its growth — diversifying tourism across islands, deepening domestic value chains in fisheries and agriculture, and reducing its exposure to single-source demand. None of that is possible without addressing the connectivity challenge. Rules-based, performance-linked contracts for air and maritime services, transparent subsidy frameworks, and greater space for private operators are key reforms that could transform growth and opportunities across the archipelago.
The 2025 performance demonstrates what is possible, but sustaining progress will require addressing the connectivity bottleneck. Without it, tourism-led growth is likely to remain concentrated and its benefits less evenly shared across the archipelago and thus limit shared prosperity. Connectivity is therefore not only a transport priority; it is central to Cabo Verde’s jobs and shared prosperity agenda.
read more: https://www.worldbank.org/en/country/caboverde/publication/cabo-verde-2026-economic-update-inter-island-connectivity-for-inclusive-growth
