GOVERNMENT OF ANGOLA
Memorandum of Economic and Financial Policies
1. This memorandum describes the government's economic program for 2001,
which was formulated in consultation with the staff of the International
Monetary Fund. The government has requested the continued monitoring of
its program by Fund staff during the first semester of 2001. By publishing
this memorandum, the government intends to keep the public informed about
its policies and objectives and reaffirm its commitment to an irreversible
process of economic reform, transparency, and poverty reduction.
II. Recent Developments and Performance in 2000
2. In April 2000, the government formulated an economic program to be
monitored by the staff of the International Monetary Fund (IMF). The execution
of this program, however, was hindered by inadequate expenditure control
mechanisms, delays in the compilation of fiscal, monetary, and external
debt data, and insufficient coordination among government agencies. In
addition, performance under the program is likely to have been affected
by difficulties in the timely mobilization of technical assistance, which
was partly related to insufficient implementation of previous recommendations.
While pending balances on oil-related transactions among the treasury,
the National Bank of Angola (BNA), and the state oil company (SONANGOL)
were eliminated, a number of unbudgeted transactions (mainly security-related)
as well as advances from the BNA have been made without prior authorization
from the treasury. Other remaining problems are the continued accumulation
of large intra-public sector arrears, primarily those between the government
and SONANGOL on account of oil revenues and fuel subsidies.
3. The 12-month rate of inflation fell from its recent peak of 437 percent
in May 2000 to 268 percent in December 2000 (Table
1). The difficulties in reducing inflation reflect a fragile security
situation, insufficient expenditure controls, and an overly expansive
monetary policy. Moreover, with interest rates significantly lower than
inflation, the functioning of the financial system continued to be impaired
and dollarization further promoted.
4. Notwithstanding the aforementioned problems, the government has made
progress in implementing a number of important structural reforms during
2000 (Table 2). Preparatory work for the diagnostic
study of the oil sector, including signing of the contract with KPMG (winner
of the international tender), was completed in November 2000. A similar
process was undertaken in relation to an independent audit of the National
Bank of Angola (BNA). The government has also signed a five-year contract
with Crown Agents for the management of customs, with the goal of modernizing
customs administration, improving transparency in the collection of trade
taxes, and providing additional government revenue. The decree abolishing
restrictive import licensing has been published, and a preliminary analysis
of the privatization plan for state-owned enterprises and banks was prepared.
An inventory of domestic public debt was completed in November 2000, and
the large stocks of intra-public sector arrears were identified and quantified
earlier in the year.
5. Based on results for the first three quarters of 2000, the overall
fiscal deficit in 2000 is estimated to be 2 percent of GDP, compared with
a 2 percent surplus planned under the program. Higher oil prices increased
government revenue, but outlays on defense, transfers, and other nonprogrammed
expenditures were higher than projected. In addition, accelerated payments
on oil-guaranteed loans exerted significant pressure on the financing
side. It should be noted, however, that weaknesses in the debt statistics
and fiscal accounts has made it difficult to fully assess fiscal developments
6. The government is keenly aware of the serious deficiencies in key
macroeconomic data that complicate timely and accurate policy analysis.
Technical assistance from the Fund in recent months in government finance
statistics addressed important shortcomings in the compilation methodology,
coverage, and consistency of the fiscal accounts. Similarly, a follow-up
mission in money and banking statistics provided assistance to improve
the quality of monetary data. The government has been following up on
the recommendations made by those missions, and expects to implement them
fully by February 2001.
7. Foreign assets of the banking system increased rapidly during the
year, which, coupled with the financing of large, sporadic, fiscal imbalances
during the second quarter of 2000, provided the background to an excessive
monetary expansion and a rapid increase in prices and the exchange rate.
As a result, some of the key quantitative targets for June 2000 were missed
(Table 3). The disbursement of a US$500 million
oil-guaranteed bank loan in September 2000 facilitated the achievement
of the targets on net international reserves, net domestic assets, government
deposits, and external debt arrears for end-September 2000, but it led
to the nonobservance of the program ceiling on nonconcessional debt.
8. Since December 2000, the government has implemented a number of actions
designed to address these problems and bring the program in line with
its original objectives. The actions include: (i) establishing an agreement
between the treasury and the BNA under which no more payments will be
effected on behalf of the government without the issuance of the corresponding
payment order ; (ii) stepping up the control of cash payments from the
treasury to prevent unbudgeted and unauthorized expenditures; (iii) formulating
a quarterly budget for 2001 consistent with a monetary program designed
to bring about a rapid deceleration of inflation; (iv) formulating a timetable
for adjusting fuel prices with a view to drastically reducing transfers
to the refinery and the distributor; (v) adjusting water and electricity
tariffs to bring them to cost recovery levels by mid-2001; (vi) formulating
a plan for imposing strict guidelines and objectives on the management
of the two state-owned banks and for the privatization of the Banco de
Comércio e Indústria (BCI) by June 2002 (section III.D below);
and (vii) preparing actual data on debt stock and arrears for end-June
and end-September 2000 and projections of debt flows for the next four
III. The Program for 2001
9. The government recognizes that inflation increases poverty and is
a fundamental barrier to economic development. It also believes that the
problem can only be solved through a prudent monetary policy and an efficient
management of public resources. The program for 2001 aims at reducing
the12-month rate of inflation from 268 percent in December 2000 to no
more than 150 percent in June 2001 and to 75 percent in December 2001
(Table 4). The program also contemplates an increase in real GDP growth
from 2 percent in 2000 to 3.4 percent in 2001. Oil output is expected
to fall slightly in 2001 as a result of the slowing down of production
in older fields, but such a decline will be more than compensated by a
large increase in the output of diamonds and a recovery of agricultural
10. The program for the period January-June 2001 to be monitored by the
Fund staff is anchored on the 2001 budget and the corresponding financial
program for the whole year. The monitoring of the implementation of the
program will be based on quarterly quantitative benchmarks for the first
half of the year (Table 5), a set of structural
and transparency-related benchmarks (Table 6),
and a list of structural measures (Table 7).
A. Monetary Policy
11. The BNA will conduct an active and independent monetary policy focused
on lowering inflation and meeting the financial targets under the program.
It will use a monetary anchor to achieve the inflation target and will
continue to allow the exchange rate to be determined by market forces.
The program's ceiling on net domestic assets (NDA) of the banking system,
which is the operative intermediate target for monetary control, will
be enforced through ceilings on the NDA of individual banks. The program
targets an increase in net international reserves during the first half
of the year, and a small withdrawal of government deposits of the banking
system. Broad money is expected to grow by 75 percent during 2001 (Table
12. While commercial bank interest rates have been liberalized since
1998, they have remained highly negative in real terms. To encourage financial
savings, improve the allocation of resources and help contain the dollarization
of the Angolan economy, it is important that banks become more sensitive
to interest rates and that the level of interest rates in kwanza-denominated
loans and deposits become higher than the rate of inflation. To this end,
the BNA will begin in January 2001 to sell central bank bills through
competitive bidding by commercial banks and private sector agents. To
prepare the ground for an eventual move to indirect instruments of monetary
control, the BNA will gradually increase its placements of central bank
bills. Furthermore, the BNA will encourage commercial banks to freely
transact with their clients the level of interest rates on loans and deposits,
and will adjust the discount rate as necessary to ensure that it remains
consistent with the objectives of the program.
13. The BNA will strengthen coordination with the treasury to prevent
damaging bursts of liquidity and take immediate actions to adjust monetary
policy as needed to achieve the inflation objectives under the program.
The BNA and the Ministry of Finance will also work to establish a framework
for preparing liquidity forecasts and monitoring treasury flows and liquidity
conditions in the banking system. Lastly, the BNA will take appropriate
action against banks that fail to comply with prudential regulations and
incur delays in the submission of their balance sheets.
B. Fiscal Policy
14. The success of monetary policy in lowering inflation requires the
pursuit of a tight fiscal policy. The general government balance (on a
commitment basis) would improve from a deficit of 2 percent of GDP in
2000 to a surplus of 3 percent in 2001, thus providing room to reduce
the heavy burden of external financing on commercial terms (Tables 9a-c).
15. The program assumes an average price of Angola's oil of US$25 per
barrel in 2001. Total government revenues are expected increase slightly
in terms of GDP in 2001, but to decrease slightly in dollar terms. Oil
revenues would fall from US$3,260 million in 2000 to US$3,180 million
in 2001 on account of lower production and prices. Non-oil revenues are
expected to increase by 0.5 percent of GDP as a result of tax measures
introduced this year and new measures to be introduced in 2001. These
measures include a broadening of the sales tax, the rationalization of
the sales tax structure, and an increase in the maximum personal income
tax rate from 20 percent to 35 percent to match the corporate tax rate.
In 2001, the government will start regular audits of large taxpayers and
will expedite the process for the outsourcing of customs management to
16. During 2001, total expenditures will be reduced by about 4.5 percent
of GDP. There is also a need to improve the quality of expenditure, moving
toward an efficient allocation on selected poverty-reducing outlays. The
budget envisages that a reduction of expenditure on defense and security
and other expenditures will be partially compensated by increases of expenditures
on health, education, and the public investment program.1
The reduction of defense expenditures is related to an expected decline
in military activity now that the government controls over 90 percent
of the national territory. Transfers will decline during the year, owing
to the reduction of fuel subsidies and periodic adjustments in water and
electricity tariffs (Appendix I). To alleviate the
impact of fuel price adjustments on vulnerable groups, the program contains
specific subsidies to liquified petroleum gas (LPG), gas oil, and kerosene,
which weigh heavily in the consumption basket of the poorest segments
of the population. Public sector wages will increase gradually during
2001, with increases based on the program inflation target plus 10 percent
in real terms.
17. To improve the effectiveness of fiscal policy, the government has
decided to carry out a more rigorous control of expenditure authorizations,
including the elimination of payments on behalf of the treasury without
payment orders; ensure that all revenue, expenditure, and financing are
processed through the treasury account; and ensure that all ministries
and government entities adhere strictly to their budget allocations. In
addition, the government is committed to begin implementing an integrated
budgeting and accounting system during 2001, and to evaluating existing
expenditure programs in order to eliminate unnecessary expenditure. The
program also includes the repayment of US$250 million of arrears to domestic
suppliers, out of which US$100 million will be paid in cash and US$150
million in the form of an indexed bond. Each repayment will consist of
the same proportion of cash to bonds (1:1.5). Moreover, since January
2001, the government will no longer incur payment arrears on its domestic
obligations including, inter alia, salaries, expenditures on goods and
services, capital expenditures, and transfers.
C. External Sector Policies
18. The stock of public and publicly guaranteed debt amounted to US$8.3
billion (95 percent of GDP) at end-September 2000, of which US$4 billion
was in arrears. Despite an unexpected delay, the government has cleared
all arrears to multilateral creditors by January 2001, including the African
Development Bank and the Arab Bank for Economic Development in Africa.
Given the massive scale of resources needed for economic and social rehabilitation,
a reduction of Angola's heavy external debt burden remains an essential
objective of the government's strategy. Accordingly, the government has
decided to limit the cumulative amount of new or refinanced medium-and
long-term public and publicly guaranteed external debt to no more than
US$269 million during 2001, and to avoid incurring any additional short-term
external debt. For budgetary and balance of payments reasons, only part
of the oil-guaranteed debt and a small amount of bilateral debt falling
due can be serviced in 2001.
19. It is the government's expectation that an eventual arrangement with
the Fund could help catalyze fresh disbursements from multilateral creditors
and donors, as well as the establishment of normal relations with all
creditors. The government will begin the process of reconciling the debt
with Paris Club and other creditors, with a view to eventually making
a request for debt rescheduling. Once relations with creditors have been
normalized, the government intends to stop borrowing on nonconcessional
20. During the program period, the government does not intend to (i)
introduce multiple currency practices; (ii) impose new restrictions or
intensify existing restrictions in the area of payments and transfers
for current international transactions; (iii) introduce new restrictions
on imports or intensify existing restrictions for balance of payments
purposes; or (iv) enter into new bilateral payments arrangements that
are inconsistent with Article VIII of the Articles of Agreement of the
D. Structural and Other Measures
21. The government will continue its efforts to implement a sound medium-term
framework for poverty reduction, including structural and social reforms
as well as a public investment program, in order to enhance the economy's
supply response. To give new impetus to the implementation of economic
reforms, the government will be taking decisive action in five key areas:
governance and transparency of public sector operations; the divestiture
of state assets, the strategy for public banks; fuel prices and public
utility tariffs; and poverty reduction.
22. Governance and transparency. The independent audit of the
BNA, conducted by Ernst & Young, will be finalized by March 2001.
At the same time, the diagnostic study of the oil sector was initiated
in January 2001, and a first report on its findings will be submitted
in April 2001. An audit of the diamond sector companies associated with
ENDIAMA (Empresa Nacional de Diamantes de Angola, the state's diamond
sector concessionaire) by Ernst & Young is under way, and the government
has launched a public tender for a diagnostic study of ENDIAMA in January
2001. Based on the outcome of these initiatives, the government and the
staffs of the IMF and the World Bank will reach understandings on whether
a more comprehensive diagnostic study of the sector needs to be conducted.
As part of the ongoing efforts to tackle corruption, the government has
decided to undertake a complete review of the public procurement system.
Terms of reference for the review will be agreed with the staffs of the
IMF and the World Bank in May 2001.
23. In addition to its commitments to eliminate unauthorized payments
outside the budgetary process and to implement a modern and integrated
system of budgeting and accounting, the government will begin implementing,
in early 2001, a plan for the clearance of intra-public sector arrears,
and it will institute procedures for the full recording of grants in the
budget. The government will also ensure that SONANGOL eliminates all of
its arrears by December 2001 and that the delays in transfers of fuel
subsidies are minimized.
24. Institutional and legal framework for privatization. The
government will reach understandings with the staffs of the IMF and the
World Bank on a revised privatization program for the period 2001-05,
that will include public enterprises as well as banks. As part of the
required institutional and legal framework for a sound implementation
of its privatization program, the government will strengthen the privatization
unit—Gabinete de Redimensionamento Empresarial (GARE)—and formalize
its reporting responsibilities vis-à-vis the Ministry of Finance.
It will also review the related legislation (particularly Law 10/94 and
Law 13/94), with a view to ensuring full consistency between the legal
framework and the privatization program.
25. State-owned banks. The process of liquidating the Caixa de
Crédito Agropecuário e de Pescas (CAP) bank has been delayed
because of difficulties encountered in identifying remaining assets and
liabilities, given the lack of a reliable accounting system. The government
has included in the budget for 2001 the estimated remaining losses of
the CAP bank, and will proceed to complete its liquidation by April 2001.
26. In order to create the conditions for the development of a competitive
and modern financial system and to improve the efficiency of operation
of the two active state-owned banks—Banco de Comércio e Indústria
(BCI) and Banco de Poupança e Crédito (BPC)—, the government
will initiate a process by which at least 51 percent of its participation
in the capital of the BCI will be sold to a strategic investor by June
2002. A financial advisor will be hired by June 2001 to assist in preparing
the BCI for privatization. Other important measures related to the banking
system include an assessment of the recapitalization needs of both the
BCI and the BPC by February 2001, and the signing of performance contracts
between the government and the boards of administrators of these two banks.
The objectives of these contracts are to provide better incentives to
the management of these banks to prevent the dissipation of their assets
through loans made at subsidized interest rates or under conditions in
which repayment would not be expected and/or demanded. Lastly, the government
will analyze the BPC's staff redundancies and their associated costs,
as well evaluate its branch network in the provinces.
27. Fuel prices and public utility tariffs. The government is
committed to promoting the good use of the country's natural resources
and to avoiding the fiscal and inflationary imbalances that arise from
unduly large and misdirected subsidies. To this end, the government will
adjust periodically the domestic prices of petroleum products in order
to ensure convergence to target prices, quoted in U.S. dollars, as described
in Appendix I. Water (in the province of Luanda) and
electricity tariffs will also be periodically adjusted so as to converge,
within the time frame of the staff-monitored program, to the U.S. dollar
equivalents of their respective cost recovery levels, as agreed with the
World Bank staff. Once convergence has been achieved, fuel prices and
public utility tariffs will be periodically adjusted to prevent the erosion
of their value as a result of exchange rate depreciation and inflation.
The adjustment mechanisms for water and electricity tariffs are described
in Appendix I.
28. Poverty reduction strategy. The government will complete
a draft interim poverty reduction strategy paper (interim PRSP) by March
2001. Preliminary consultations with the donor community and civil society
representatives, both in Luanda and in the provinces, on different parts
of the draft interim PRSP will take place between December 2000 and March
2001. The government prepared a preliminary work program for the full
PRSP (encompassing also activities pertaining to the preparation of the
interim PRSP), describing its activities, cost estimates, government resources
available, and the existing financing gap, which will be presented to
the donor community to seek their support in a coordinated way.
IV. Program Monitoring
29. Quantitative and structural benchmarks. To monitor progress
in policy implementation under the program, quarterly quantitative benchmarks
have been established (as set out in Table 3)
with respect to net international reserves of the BNA, medium-and long-term
liabilities of the BNA; net domestic assets of the banking system, net
credit to the government from the banking system, medium-and long-term
nonconcessional debt and short-term debt, external payments arrears of
the public sector, and arrears to multilateral institutions. The quantitative
targets under the program will be adjusted for deviations according to
the mechanisms described in the technical memorandum of understanding.
Structural benchmarks and measures (Tables 5
and 6) have been established to serve as guideposts for the process
of economic reform.
30. Technical assistance. In order to increase its capacity to
implement the program, the government has underscored the need for further
technical assistance, and the Fund, the World Bank, and other bilateral
and multilateral sources have been approached with requests to help secure
the resources needed for that purpose. The highest priority is being attached
to issues related to transparency and control of government operations.
Draft terms of reference for a complete overhaul of expenditure management
and the integrated public accounting systems have been submitted to the
donor community. The Fund has also been approached to provide technical
assistance in the areas of tax and customs administration; balance of
payments and debt statistics; liquidity management and control; monetary
operations and monetary policy; and bank supervision. It is also critical
to obtain technical assistance on external debt management and on the
analysis of the public procurement system. The government stands ready
to provide the needed resources to supplement those made available by
the international community and to take the necessary steps, including
legal and institutional measures and the provision of adequate resources,
to maximize the effectiveness of technical assistance and follow up expeditiously
on the experts' recommendations.
Government of Angola: Technical Memorandum
1. This memorandum defines the quantitative targets and selected structural
measures that will be used in the monitoring of the program described
in the memorandum of economic and financial policies for the period January
I. Quantitative Benchmarks
2. The floor on net international reserves, and the ceilings on net domestic
assets of the banking system, net credit to the government, and medium-
and long-term liabilities of the central bank will be end-of-period stocks,
while the ceilings on external and internal arrears and on nonconcessional
borrowing will be computed as cumulative changes from end-September 2000.
3. Net international reserves (NIR) of the National Bank of Angola
(BNA) are defined as gross international reserves of the BNA net of its
short-term external liabilities. Gross reserves of the BNA are those that
are readily available (i.e., liquid and marketable and free of any pledges
or encumberments), controlled by the BNA, and held for the purposes of
meeting balance of payments needs and intervening in foreign exchange
markets. They include gold, holdings of SDRs, the reserve position at
the IMF, holdings of foreign exchange and traveler's checks, demand and
short-term deposits at foreign banks abroad, fixed-term deposits abroad
that can be liquidated without penalty, and any holdings of investment
grade securities. External liabilities of the BNA comprise liabilities
to nonresidents contracted by the BNA with an original maturity of less
than a year, any net off-balance-sheet position of the BNA (futures, forwards,
swaps, or options) with either resident and nonresidents, and any arrears
on principal and interest to external creditors and suppliers. The net
foreign assets of the banking system comprise the net international reserves
of the BNA, as defined above, and the net foreign assets of the commercial
banks. The latter are net of short-term liabilities vis-à-vis nonresidents.
4. The net domestic assets (NDA) of the banking system
are defined as the difference between M3 (money, quasi money, and other
liabilities, including bonds in the hands of the nonbank public) and the
net foreign assets of the banking system. NDA is defined to include the
medium- and long-term liabilities of the BNA and of commercial banks.
To compute NDA, the foreign currency components of NDA and the net foreign
assets of the banking system will be valued at the program exchange rates
agreed with the authorities.
5. The general government covers the state budget (central and provincial),
autonomous funds, and social security. Net credit to the government
(NGC) by the banking system is defined as gross credit to the general
government minus government deposits in domestic and foreign currency.
Gross credit to the government includes implicit credits in the form of
BNA advances, such as for government debt service, open foreign exchange
operations, or credits to the treasury account for unsettled tax liabilities
(under the "oil account" or otherwise). The monetary accounts
will register transactions in foreign currency deposits at the market
exchange rate of the day of deposit or redemption. For evaluating performance
under the program, the foreign currency component of NCG will be valued
at the program exchange rates.
6. External debt will be understood to mean a current, that is, noncontingent,
liability, created under a contractual arrangement or a guarantee, by
the government of Angola, the BNA, and state-owned enterprises, with a
nonresident party through the provision of value in the form of assets
(including currency) or services, and which requires the obligor to make
one or more payments in the form of assets (including currency) or services,
at some future point(s) in time; these payments will discharge the principal
and/or interest liabilities incurred under the contract. Debt can take
a number of forms, the primary ones being as follows:
- Loans. Advances of money are made to obligor by the lender
on the basis of an undertaking that the obligor will repay the funds
in the future (including deposits, bonds, debentures, commercial loans,
and buyers' credits) and temporary exchanges of assets that are equivalent
to fully collateralized loans under which the obligor is required to
repay the funds, and usually pay interest by repurchasing the collateral
from the buyer in the future (such as repurchase agreements and official
- Suppliers' credits. Under these contracts, the supplier permits
the obligor to defer payments until some time after the date on which
the goods are delivered or services are provided.
- Leases. Under these arrangements, property is provided that
the lessee has the right to use for one or more specified period(s)
of time that are usually shorter than the total expected service life
of the property, while the lessor retains the title to the property.
For the purpose of the guideline, the debt is the present value (at
the inception of the lease) of all lease payments expected to be made
during the period of the agreement, excluding those payments that cover
the operation, repair, or maintenance of the property. This definition
includes debt contracted or guaranteed (regardless of whether the values
have been received), arrears, penalties, and judicially awarded damages
arising from the failure to make payment under a contractual obligation
that constitutes debt; it excludes rescheduling operations.
7. The limits on newly contracted or refinanced medium- and long-term
nonconcessional public and publicly guaranteed external debt apply
to debt contracted or guaranteed by the state, the BNA, the state oil
company SONANGOL, or other state-owned companies. For purposes of the
quantitative benchmarks, external debt will be valued in U.S. dollars
at the exchange rate prevailing at the time the contract or guarantee
becomes effective. External debt with a maturity longer than one year
will be classified as medium and long term; debt will be considered
concessional if it has a grant element equivalent to 35 percent
or more using the available country-specific commercial interest reference
rate (CIRR) and following the methodology set out in staff paper SM/96/86
(4/8/96) as approved by the IMF Executive Board on April 15, 1996. It
is understood that short-term debt will exclude regular import-related
credits. The government of Angola, the central bank, or SONANGOL will
not guarantee any external debt contracted by private sector banks or
8. The limits on short-term external debt apply to debt contracted
by the government, the BNA, SONANGOL, or other state-companies with an
original maturity of one year or less. Excluded from the limit are changes
in indebtedness resulting from rescheduling and normal import-related
credits. Debt falling within the limit shall be valued in U.S. dollars
at the exchange rate prevailing at the time the contract or guarantee
9. The limits on the accumulation of external payment arrears
apply to overdue interest and amortization payments on all types of public
and publicly guaranteed debt. The limits exclude the accumulation of arrears
arising from interest on the stock of arrears.
10. The quantitative benchmarks under the program will be subject to
the following adjusters:
The adjustment for each quarter will be US$20.4 million for each deviation
of 100 cents of U.S. dollars per barrel from the program reference prices.
In the case of a shortfall in oil export prices from the program reference
prices, the adjustment will be limited to a maximum difference of US$4
per barrel. The adjustment for each quarter on NDA and NCG will be obtained
by converting the above-mentioned dollar amounts into kwanzas using the
program exchange rates.
- Foreign financing. The quantitative targets are set on the
assumptions for new or refinanced loans and arrears accumulation specified
in Table 5 of the memorandum of economic and financial policies. In
cases where these amounts exceed (fall short of) the assumed amounts,
the NIR target will be adjusted upward (downward), and the NDA and NCG
ceiling will be adjusted downward (upward) by converting this difference
into kwanzas using the program exchange rates.
- Domestic arrears. The NDA and the NCG ceiling will be adjusted
downward (upward) by any flow of domestic arrears in excess (short of)
the amounts assumed in the program.
- Oil bonuses. The program for 2001 assumes an amount of US$250
million in the second quarter of 2001 related to signature bonuses for
oil exploration rights. In case the actual amount exceeds (fall short
of) the projected amount, the NIR target will be adjusted upward (downward),
and the NDA and NCG ceiling will be adjusted downward (upward) by converting
this difference into kwanzas using the program exchange rates.
II. Structural Measures Under the Program
11. Fuel prices. Domestic petroleum prices will be adjusted by
the 15th day of the months of March, May, July, September,
and November 2001 to the dollar equivalents specified in table A2 below
using the actual exchange rate prevailing at the end of the preceding
Table A2. Calendar for Fuel Prices
(in U.S. dollars per liter, unless otherwise specified)
Light Fuel (1%)*
Heavy Fuel (3.5%)*
* In kilograms.
12. Water and electricity tariffs. This section describes the
process of water tariff adjustments that will be practiced by the Empresa
Provincial de Águas de Luanda (EPAL), and the process of electricity
tariff adjustments that will be practiced by the Empresa Nacional de Electricidade
(ENE) and the Empresa de Electricidade de Luanda (EDEL) during 2001. For
EPAL, the process of adjustment will be as follows:
- In the months of January, March, and May 2001, tariffs will be raised
both in real terms and in accordance with the observed inflation rate
in these months, with the objective converging to the kwanza equivalent
of the cost recovery average tariff level in U.S. dollars (US$ 0.87
per cubic meter by end-May 2001, according to the following formula:
TMt: average tariff in month t;
TMt-1: average tariff in month t-1;
FRAt: average real tariff adjustment factor;
IPCt: Consumer Price Index (CPI) in month t (as
calculated by INE); and
IPCt-1: CPI in month t-1 (as calculated by INE).
- The average real tariff adjustment factor (FRA) is designed
to achieve convergence between the current tariff and the cost-recovery
level by May 2001.
- In the months of February, April, June, July, August, September,
October, November and December 2001, water tariffs will be raised in
accordance with the inflation rate observed in these months, as per
the following formula:
13. For ENE, the process of adjustment of tariffs on electricity will
take place as follows: in the months of January, February, and March 2001,
tariffs will be raised both in real terms and in accordance with the observed
inflation rate in these months, with the objective of reaching convergence
to the kwanza equivalent of the cost recovery average tariff level in
U.S. dollars (US$ 0.06 per Kwh) by end-March 2001, also according to formula
(1) above; and in the months of April, May, June, July, August, September,
October, November, and December 2001, tariffs will be raised in accordance
with the inflation rate observed in these months, also as per formula
14. For EDEL, the process of adjustment of tariffs on electricity will
take place as follows: in the months of February, April, and June 2001,
tariffs will be raised both in real terms and in accordance with the observed
inflation rate in these months, with the objective of reaching convergence
to the kwanza-equivalent of the cost-recovery average tariff level in
U.S. dollars (US$ 0.14 per Kwh) by end-June 2001, also according to formula
(1) above; and in the months of January, March, May, July, August, September,
October, November, and December 2001, tariffs will be raised in accordance
with the inflation rate observed in these months, also as per formula
15. Payments on behalf of the treasury. Beginning December 1,
2000, these payments can be made only after the corresponding payment
order has been issued. Any expenditure not conforming to this requirement
made by a government entity, a state-owned company or by the central bank
will be subject to penalties as stipulated in current laws and regulations.
16. Liquidation of CAP. The government will assume the remaining
financial losses of the CAP bank by February 2001. It will assume the
temporary payment of salaries of its staff and will begin offering a compulsory
separation package with severance payments. The separation process will
end on April 2001.
17. Integrated system of budgeting and accounting. The schedule
for this measure will be adjusted for any delay incurred on the arrival
of the technical assistance experts to Luanda, expected by April 2001.
The technical assistance activities will include provision of training
to Ministry of Finance staff.
18. Audit of the central bank. The complete audit report, including
the management letter, will be submitted simultaneously by the auditor
to the government, the IMF, and the World Bank.
19. Performance management contracts between the Ministry of Finance
and the Boards of Directors of BPC and BCI. These contracts will establish
specific, stringent controls on the management and activities of BPC and
BCI, and will determine schedules for the privatization process of BCI.
20. Contract with a financial advisor for the privatization of BCI.
The terms of contract will include at least the following responsibilities
for the financial advisor: (i) to articulate a privatization strategy
for BCI (with objectives, sequencing, and timing, as well as the approach
to sales options); (ii) to provide an asset valuation of BCI; (iii) to
solicit interest, by establishing prequalification criteria and organizing
bidding; (iv) to help with investors' due diligence; (v) to evaluate final
bids and finalize terms and conditions; and (vi) to execute documentation
and close the process.
21. Privatization of state-owned enterprises. The document entitled
"Memorando sobre Política, Estratégia e Programa de
Privatizações 2000 - 2005," describing the government
policy toward privatization, will be modified in light of the recommendations
made by the staffs of the World Bank and the IMF during the October 2000
IMF mission to Angola.
22. Reporting requirements. The following information will be
communicated to the Fund by e-mail according to the following frequency:
- Within 15 days of each month's end: daily exchange rates, consumer
price index, international reserves of the BNA, and domestic bank financing
of the government for the previous month.
- Within 30 days of each month's end: monetary survey, including balance
sheet of the central bank and deposit money banks.
- Within 45 days (60 days) of each month's end: preliminary (final)
quarterly fiscal execution and external debt data, with the exception
of fiscal data for the fourth quarter of the year, which will take an
additional of 30 days. External debt data will be compiled on both stocks
and flows (disbursements, amortization, interest, and overdue payments)
in regard to the debt used by the government, SONANGOL, and other state
companies, and the authorities will provide Fund staff with complete
records of debt contracts and payments.
Expenditure on defense and internal security is expected to fall by 6 percentage
points of GDP in 2001. Expenditure on health and education is budgeted 3.1
and 3.2 percent of GDP, respectively, compared with an estimated 2.1 and
2.6 percent of GDP in 2000.
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