Cabo Verde Turned Debt Owed to Portugal Into Climate Spending
CABO VERDE · ECONOMY
Key Facts
—The instrument: Portugal expanded its debt-for-climate swap with Cabo Verde in January 2025, from US$13 million to US$45 million, through 2030.
—The fiscal turn: The IMF says Cabo Verde posted its first primary budget surplus in years.
—The growth: GDP grew about 7.3 percent in 2024 and slowed to 5.2 percent in 2025.
—The tourism engine: Tourism is estimated at a quarter to a third of GDP.
—The blue economy: Fisheries are only about 2 percent of GDP but carry the ocean strategy.
—The catch: The original swap with Portugal is smaller than often described, at US$45 million rather than far larger sums sometimes quoted.
Cabo Verde has turned part of its debt to Portugal into local climate spending. The programme was expanded in January 2025 to US$45 million, running through 2030.
That sits alongside the islands’ first budget surplus since 2007. Growth has slowed from a strong 2024, but debt is falling as a share of the economy.
How the Cabo Verde debt swap with Portugal works
A debt-for-climate swap cancels or reschedules part of a country’s debt. In exchange, the debtor commits to spend an agreed sum domestically on environmental goals, so no new money crosses a border.
In this case Portugal holds Cabo Verdean debt through a bilateral programme. In January 2025 Lisbon expanded that programme from US$13 million to US$45 million, running through 2030.
The money is meant for conservation and climate-resilient infrastructure once the fund’s operating rules are finalised. That makes it a growing, ongoing arrangement rather than a single one-off transaction.
Cabo Verde’s capital, Praia, sits on the island of Santiago. The archipelago’s ten islands are spread across the mid-Atlantic, a few hundred kilometres off the Senegalese coast.
For a country carrying debt above 100 percent of GDP, converting debt service into local spending is genuinely attractive. The obligation stays in the country as investment instead of leaving as interest paid abroad.
Why Portugal, and why now
The relationship is not a normal creditor arrangement. Portugal is the former colonial power, a major bilateral lender to Cabo Verde, and home to a large Cabo Verdean diaspora.
Lisbon has been an early mover on this kind of instrument elsewhere in the Portuguese-speaking world too. Forgiving debt is politically easier at home when the money is visibly spent on climate projects abroad.
Latin American readers will recognise the underlying idea. Ecuador’s Galapagos conversion and Belize’s marine debt swap used variants of the same logic, trading debt relief for conservation spending.
The difference here is the bilateral character. Most headline debt-for-nature swaps involve commercial creditors and specialist intermediaries, while this one runs directly between two governments.
That keeps the transaction costs low. There are no arranger fees, no insurance wrapper and no ratings opinion needed to restructure a bilateral government claim.
The fiscal story underneath
The International Monetary Fund (IMF) says Cabo Verde posted its first overall budget surplus since 2007 in 2025. Public debt fell to about 101 percent of GDP that year, down from around 112 percent in 2024.
That level would alarm lenders in most places, and it still needs context here. Much of the debt is concessional and long-dated, owed to development partners rather than to bond markets.
Real GDP grew about 7.3 percent in 2024, then slowed to roughly 5.2 percent in 2025 as growth normalised. The IMF projects it will ease further, to about 4.8 percent, in 2026.
Growth of that order still shrinks a debt ratio over time, even without extra repayment. Debt is expected to keep falling, towards the high 90s as a share of GDP by 2026.
Debt of this size still limits what the state can borrow for elsewhere. Every escudo spent on interest is an escudo not spent on the islands’ costly inter-island transport links.
The surplus was recorded under the government led by Ulisses Correia e Silva, prime minister from 2016. His party lost power in a June 2026 legislative election, and Francisco Carvalho succeeded him.
Whether the new government keeps the same fiscal targets is still an open question. Cabo Verde’s debt swap and budget discipline both predate that change of government.
Tourism has become the whole model
Tourism’s role in the economy has grown enormously since the 1990s, when it was a marginal earner. It is now estimated at somewhere between a quarter and a third of GDP.
Low-cost airlines have been adding routes, and officials hope arrivals could approach 1.3 million a year. Cabo Verde’s own population is under 600,000, so annual arrivals would be more than double that figure.
Concentration is the obvious vulnerability here. A European recession, an aviation disruption or a fuel price spike would hit the entire economy at once.
The government has been working on alternatives, including a push on digital identity and e-government services. The explicit goal is a less tourism-dependent economy over time.
The blue economy is the intended second leg
Fisheries contribute only around 2 percent of GDP today, which understates the ambition attached to them. The archipelago controls a very large exclusive economic zone in the mid-Atlantic.
A vehicle called Blue-X raised €14 million, about US$16.3 million, in late 2025. It aims to finance small and medium businesses working in ocean sectors, from aquaculture to shipping services.
That places Cabo Verde in similar strategic company to Seychelles and Mauritius. Both are small island states on the continent’s opposite side.
All three are trying to turn maritime territory into a financeable asset.
The obstacle is scale. Small island fisheries struggle to reach the volumes that justify processing plants, which is why regional cooperation keeps reappearing in the plans.
Cabo Verde’s own catch is mostly tuna, caught by both local boats and foreign fleets that pay for access. Turning that access fee into a processing industry has proved difficult so far.
Cabo Verde also sits near the mid-Atlantic’s shipping routes and undersea cables. Bunkering fuel for passing ships and hosting data landing stations are two other ocean businesses under discussion.
What to watch next
The first thing is how much further the Portugal swap grows beyond its current US$45 million. Also worth watching is how quickly the fund starts spending it.
The second is whether the budget surplus survives a slower growth rate, since 2024 and 2025 were unusually strong years by comparison.
The third is air connectivity, which is the single variable that most determines how many tourists actually arrive.
Frequently Asked Questions
What is the Cabo Verde debt swap with Portugal?
It is a debt-for-climate arrangement in which Portugal accepts lower debt payments from Cabo Verde in exchange for domestic spending on conservation and climate-resilient infrastructure.
How much debt is involved?
Portugal expanded the programme in January 2025 to US$45 million, about €38.7 million (US$45 million), running through 2030. That is smaller than some earlier reports suggested.
What is Cabo Verde’s debt level?
Public debt fell to about 101 percent of GDP in 2025, from around 112 percent in 2024. Much of it is concessional and long-dated, owed to development partners.
How important is tourism to Cabo Verde?
Tourism is estimated at roughly a quarter to a third of GDP. Arrivals may approach 1.3 million a year as low-cost airlines add routes.
Did Cabo Verde run a budget surplus?
Yes. The IMF says it was the islands’ first overall budget surplus since 2007, recorded in 2025.
Connected Coverage
The ratings backdrop is in our earlier coverage of Cabo Verde’s sovereign rating, and the diversification plan is in our piece on the digital identity push. The islands also sit inside the wider story we track in Africa: The New Scramble.
This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error
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