IMF Executive Board Concludes First Post Financing Assessment Discussions with Angola
September 5, 2023
Washington, DC : On August 29, 2023, the Executive Board of the International Monetary Fund (IMF) concluded the Post Financing Assessment (PFA)[1], and endorsed the Staff Appraisal on a lapse-of-time basis[2]. Angola’s capacity to repay the Fund is adequate, despite elevated risks.
Successful reforms coupled by firmed oil prices supported the Angola’s economic recovery in 2021–22, however, declined oil production has led to significant challenges to the economy. Towards the end of 2022 and the first half of 2023, the oil sector weakened due to the extension of temporary maintenance operations. With declines of both oil prices and production in the first half of 2023, exports and oil revenues declined, resulting in a weakness in the fiscal and external sectors, and a significant depreciation in the nominal exchange rate in June 2023. Following the strong nominal exchange rate depreciation and the partial removal of fuel subsidies, inflation increased in June, to 11.3 percent (from 10.6 percent); for the first time in 15 consecutive months; whereby the BNA (Banco Nacional de Angola) responded by tightening liquidity conditions.
Growth is expected to slow down to 0.9 percent in 2023 (due to an estimated weak oil production this year), before stabilizing at around 3.4 percent in the medium term, aided by the authorities’ structural reform and diversification agenda. Inflation is expected to increase temporarily in 2023/24 due to higher energy prices related to the fuel subsidy reform, and to ease thereafter.
A moderate fiscal adjustment is expected in 2023, in line with the budget, with a more significant adjustment expected in 2024 with the planned fuel subsidy reform. Although the near-term fiscal outlook has worsened since the Article IV, the authorities would reach their medium-term fiscal targets under the baseline with a full implementation of their subsidy reform. Downside risk to the outlook include a larger-than-expected decline in global oil prices, continued weakness of the oil production and failure to fully implement the planned fuel subsidy reform in 2024.
Executive Board Assessment
Angola’s economic recovery in the near term remains dependent on the oil sector and is largely dependent on the materialization of the diversification plans in the medium term. Despite the weaker outturns for oil production in 2023 H1, growth momentum is expected to continue, once temporary maintenance operations are complete. Risks to the outlook remain high, given the continued high reliance on the oil sector, and the medium term is largely dependent on the recovery of the non-oil sector, and the authorities’ progress with the diversification plan.
Angola’s capacity to repay the Fund is adequate, despite elevated risks, and appears to be resilient to shocks. Under the baseline, Angola’s projected repayments to the Fund will increase over the medium term but would peak in 2026 at broadly comfortable levels. Under a significant and prolonged shock scenario, the projected capacity to repay indicators would remain manageable. Steps to mitigate this shock, including allowing the exchange rate to function as a shock absorber and rationalization of some expenditure, would be important in such a scenario.
Fiscal slippage has reduced buffers and a sustained adjustment is required to mitigate risks. The authorities should continue to act swiftly to reverse the large fiscal slippage of 2022. To do so, it is critical to fully implement the subsidy reform announced on June 1 (with mitigation measures to support the vulnerable population). In parallel, the authorities should also pursue tax policy measures to mobilize non-oil domestic revenue and make further progress on the fiscal structural agenda, including public financial management and public investment management reforms.
Continued efforts are needed to bolster financial stability. Ongoing prudential reforms should continue to improve banking sector oversight and health. To safeguard market confidence and reduce contingent fiscal risks, the DGF needs to strengthen its financial and operational capacity, and the BNA should prepare for the decisive resolution or liquidation of problem banks, as necessary, while protecting only small depositors.
Maintaining focus on medium-term structural reforms is critical to maintaining growth in the context of a declining oil production. Lessening the dependence on the oil sector is critical and should remain the authorities’ medium-term focus, to reduce vulnerabilities arising from the increased volatility of this sector. Accordingly, continued efforts to strengthen governance, improve the business environment, and promote private investment are needed, guided by the authorities’ diversification plans, as well as strengthened macroeconomic and financial policies under the new National Development Plan (2023–27).
[1] After completing an IMF lending program , a country may be subject to a Post Financing Assessment (PFA). It aims to identify risks to a country’s medium-term viability and provide early warnings on risks to the IMF’s balance sheets. For more details click here
[2] The Executive Board takes decisions under its lapse-of-time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.
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Angola: Selected Economic Indicators, 2022–24 |
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2022 |
2023 |
2024 |
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Proj. |
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Real economy (percent change, except where otherwise indicated) |
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|
Real gross domestic product |
3.0 |
0.9 |
3.1 |
|
Oil sector |
0.5 |
-6.1 |
0.5 |
|
Non-oil sector |
4.2 |
3.4 |
3.8 |
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Nominal gross domestic product (GDP) |
20.1 |
12.5 |
27.0 |
|
Oil sector |
5.9 |
-3.9 |
26.8 |
|
Non-oil sector |
26.4 |
18.5 |
27.0 |
|
GDP deflator |
16.6 |
11.5 |
23.2 |
|
Non-oil GDP deflator |
21.4 |
14.6 |
22.3 |
|
Consumer prices (annual average) |
21.4 |
14.6 |
22.3 |
|
Consumer prices (end of period) |
13.8 |
18.8 |
25.6 |
|
Gross domestic product (billions of kwanzas) |
56,778 |
63,851 |
81,078 |
|
Oil gross domestic product (billions of kwanzas) |
15,330 |
14,732 |
18,687 |
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Non-oil gross domestic product (billions of kwanzas) |
41,447 |
49,119 |
62,391 |
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Gross domestic product (billions of U.S. dollars) |
122.8 |
96.9 |
94.6 |
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Gross domestic product per capita (U.S. dollars) |
3,438 |
2,635 |
2,497 |
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Central government (percent of GDP) |
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Total revenue |
23.2 |
21.8 |
21.5 |
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Of which: Oil-related |
13.6 |
11.8 |
11.3 |
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Of which:Non-oil tax |
7.9 |
7.8 |
7.8 |
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Total expenditure |
22.5 |
23.9 |
20.7 |
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Current expenditure |
16.4 |
19.0 |
16.5 |
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Capital spending |
6.1 |
4.9 |
4.2 |
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Overall fiscal balance |
0.7 |
-2.1 |
0.8 |
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Non-oil primary fiscal balance |
-8.5 |
-8.3 |
-5.4 |
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Non-oil primary fiscal balance (percent of non-oil GDP) |
-11.6 |
-10.8 |
-7.0 |
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Money and credit (end of period, percent change) |
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Broad money (M2) |
-1.4 |
12.5 |
24.7 |
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Percent of GDP |
20.0 |
20.0 |
19.6 |
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Velocity (GDP/M2) |
5.0 |
5.0 |
5.1 |
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Velocity (non-oil GDP/M2) |
3.6 |
3.8 |
3.9 |
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Credit to the private sector (annual percent change) |
-4.8 |
6.3 |
16.6 |
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Balance of payments |
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Trade balance (percent of GDP) |
26.7 |
21.7 |
22.2 |
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Exports of goods, f.o.b. (percent of GDP) |
40.8 |
36.2 |
36.4 |
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Of which: Oil and gas exports (percent of GDP) |
38.7 |
33.5 |
33.3 |
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Imports of goods, f.o.b. (percent of GDP) |
14.1 |
14.5 |
14.2 |
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Terms of trade (percent change) |
35.6 |
-27.0 |
-6.0 |
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Current account balance (percent of GDP) |
9.6 |
2.3 |
3.2 |
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Gross international reserves (end of period, millions of U.S. dollars) |
14,661 |
13,701 |
14,034 |
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Gross international reserves (months of next year's imports) |
7.2 |
7.1 |
7.0 |
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Exchange rate |
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Official exchange rate (average, kwanzas per U.S. dollar) |
462 |
… |
… |
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Official exchange rate (end of period, kwanzas per U.S. dollar) |
504 |
… |
… |
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Public debt (percent of GDP) |
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Public sector debt (gross) 1 |
65.2 |
83.2 |
75.6 |
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Of which: Central Government debt |
60.8 |
77.1 |
71.7 |
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Oil |
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Oil and gas production (millions of barrels per day) |
1.250 |
1.206 |
1.234 |
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Oil and gas exports (billions of U.S. dollars) |
47.5 |
32.5 |
31.5 |
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Angola oil price (average, U.S. dollars per barrel) |
100.3 |
76.7 |
72.1 |
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Brent oil price (average, U.S. dollars per barrel) |
99.0 |
78.4 |
73.6 |
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Sources: Angolan authorities; and IMF staff estimates and projections. |
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1Includes debt of the Central Government, external debt of state oil company Sonangol and state airline company TAAG, and guaranteed debt. |
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