Angola: IMF Executive Board Completes Sixth Review of the Extended Fund Facility Arrangement for Angola and Concludes 2021 Article IV Consultation

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Washington, DC : The Executive Board of the International Monetary Fund (IMF) today completed the sixth review of Angola's economic program supported by an extended arrangement under the Extended Fund Facility (EFF) and concluded the Article IV consultation [1] with Angola. The Board's decision allows for an immediate disbursement of SDR 535.1 million (about $748 million), bringing total disbursements under the arrangement to SDR 3.2134 billion (about $4.5 billion). In completing the review, the Executive Board also approved waivers of nonobservance of the performance criterion on net international reserves of the Banco Nacional de Angola.

Angola's three-year extended arrangement was approved by the Executive Board on December 7, 2018, in the amount of SDR 2.673 billion (about $3.7 billion at the time of approval). It aims to restore external and fiscal sustainability, improve governance, and diversify the economy to promote sustainable, private sector-led economic growth. At the time of the third review, the Executive Board also approved the authorities' request for an augmentation of access of SDR 540 million (about $765 million at the time of approval) to support the authorities' efforts to mitigate the impact of COVID-19 and sustain structural reform implementation.

The impact of the COVID-19 pandemic on the Angolan economy has begun to abate amid higher oil prices and less disruptive containment measures. Non-oil growth has started to recover and is expected to contribute to a broad stabilization of overall output in 2021. Inflation has reached over 25 percent, driven by supply-side factors. Continued fiscal restraint should deliver a substantial overall surplus in 2021, while higher oil prices are supporting a high current account surplus.

Angola's overall growth is projected to turn positive in 2022 and reach around 4 percent in the medium term, bolstered by the implementation of planned growth-enhancing structural reforms. Inflation should gradually ease starting in 2022 as global food inflation moderates and the central bank maintains a tight policy stance. A continued prudent fiscal stance, embedded in the 2022 budget plans, will support a rapid decline in the public debt-to-GDP ratio, while protecting key health and social spending.

At the conclusion of the Executive Board's discussion, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, made the following statement:

"The Angolan authorities' prudent policies have contributed to strengthening stability and sustainability under the program, despite difficult economic conditions. Aided recently by higher oil prices, this policy discipline and commitment to reforms, have also begun to improve economic performance, placing Angola on a path to recovery from the multiple shocks and multi-year recession it has endured.

"The authorities' disciplined fiscal policy is helping deliver a sharp drop in the public debt-to-GDP ratio in 2021, strengthening debt sustainability while protecting social spending amid the pandemic. The 2022 budget aims to consolidate the fiscal retrenchment. Sustaining the reduction in public debt towards the authorities' medium-term target will require continued fiscal discipline supported by structural fiscal reforms. Fiscal policy will also need to mitigate the impact of oil-price shocks. This could be achieved by saving future windfalls from high oil prices and protecting priority spending in downturns.

"The National Bank of Angola (BNA) has appropriately tightened the monetary policy stance to address persistently high inflation, which stems mostly from supply-side factors. With an increase in the policy rate and restrained money growth, this stance is expected to begin bringing down inflation next year. Nevertheless, going forward, the central bank needs to stand ready to further tighten monetary policy should inflation accelerate again, or expectations of high inflation become entrenched. The BNA's plans to transition toward an inflation-targeting monetary policy framework and commitment to a flexible exchange rate regime are welcome.

"Building on substantial progress on financial sector reforms, the authorities need to continue their efforts to ensure the health of the sector. Since the start of the program, they have reinforced the sector's capitalization, as well as the legal framework for its regulation and supervision. They now need to complete both the modernization of the regulatory framework and the restructuring and recapitalization of the two largest troubled public banks. Implementation of plans to address the still high level of non-performing loans is also important.

"Diversifying the economy through continued deep structural reforms is essential for achieving inclusive growth and consolidating economic sustainability. Rapid expansion of non-oil output requires the implementation of ongoing reforms to strengthen governance, improve the business environment, and to promote private investment and trade openness, as well as the development of human capital and infrastructure. The authorities should also promote the conditions for faster development of key economic sectors, such as agriculture, telecommunications, and finance."

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

Angola: Selected Economic Indicators, 2020-22

2020

2021

2022

Actual

Proj

Proj.

Real economy (percent change, except where otherwise indicated)

Real gross domestic product

-5.2

0.1

2.9

Oil sector

-8.0

-10.6

1.6

Non-oil sector

-4.0

3.9

3.4

Nominal gross domestic product (GDP)

9.7

39.1

23.0

Oil sector

-7.4

63.3

15.3

Non-oil sector

17.4

30.6

26.4

GDP deflator

15.8

39.0

19.5

Non-oil GDP deflator

22.3

25.7

22.2

Consumer prices (annual average)

22.3

25.7

22.2

Consumer prices (end of period)

25.1

26.8

18.0

Gross domestic product (billions of kwanzas)

33,832

47,071

57,892

Oil gross domestic product (billions of kwanzas)

8,815

14,391

16,592

Non-oil gross domestic product (billions of kwanzas)

25,017

32,680

41,299

Gross domestic product (billions of U.S. dollars)

58.5

73.7

89.0

Gross domestic product per capita (U.S. dollars)

1,885

2,307

2,704

Central government (percent of GDP)

Total revenue

20.8

22.1

21.6

Of which: Oil-related

10.7

12.8

12.7

Of which: Non-oil tax

8.8

8.2

7.8

Total expenditure

22.7

19.3

19.1

Current expenditure

17.5

15.6

15.8

Capital spending

5.2

3.7

3.3

Overall fiscal balance

-1.9

2.8

2.4

Non-oil primary fiscal balance

-5.5

-4.4

-5.2

Non-oil primary fiscal balance (percent of non-oil GDP)

-7.5

-6.3

-7.3

Money and credit (end of period, percent change)

Broad money (M2)

24.3

3.0

12.0

Percent of GDP

37.5

27.8

25.3

Velocity (GDP/M2)

2.7

3.6

4.0

Velocity (non-oil GDP/M2)

2.0

2.5

2.8

Credit to the private sector (annual percent change)

-7.7

13.0

12.5

Balance of payments

Trade balance (percent of GDP)

19.5

27.5

25.0

Exports of goods, f.o.b. (percent of GDP)

35.8

43.5

40.8

Of which : Oil and gas exports (percent of GDP)

33.5

40.9

38.3

Imports of goods, f.o.b. (percent of GDP)

16.3

15.9

15.8

Terms of trade (percent change)

-36.6

51.2

5.4

Current account balance (percent of GDP)

1.5

10.8

9.5

Gross international reserves (end of period, millions of U.S. dollars)

10,978

14,056

14,756

Gross international reserves (months of next year's imports)

7.4

8.1

8.1

Net international reserves (end of period, millions of U.S. dollars)

8,379

9,440

10,140

Exchange rate

Official exchange rate (average, kwanzas per U.S. dollar)

578

..

..

Official exchange rate (end of period, kwanzas per U.S. dollar)

656

..

..

Public debt (percent of GDP)

Public sector debt (gross)1

135.1

95.9

78.9

Of which : Central Government debt

125.3

89.5

72.9

Oil

Oil and gas production (millions of barrels per day)

1.388

1.258

1.282

Oil and gas exports (billions of U.S. dollars)

19.6

30.1

34.1

Angola oil price (average, U.S. dollars per barrel)

41.3

68.3

76.0

Brent oil price (average, U.S. dollars per barrel)

42.3

70.2

77.8

Sources: Angolan authorities; and IMF staff estimates and projections.

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