Angola -- 2002 Article IV Consultation, Preliminary Conclusions of the IMF mission
February 19, 2002
Angola - 2002 Article IV Consultation
Preliminary Conclusions of the IMF mission
February 19, 2002
During February 5-14, an International Monetary Fund (IMF) mission completed the 2002 Article IV discussions with the Angolan authorities.1 The mission reviewed economic developments in 2001 and prospects for 2002, as well as progress made in the implementation of measures contemplated in the lapsed staff-monitored program for January-June 2001 and other measures agreed during a staff visit in July 2001. The discussions did not involve the formulation of an economic program that could be monitored by Fund staff. A report on the Article IV consultation will be submitted for consideration by the Fund's Executive Board in March 2002.
Despite a massive increase in oil and diamond-related income over the past three years, Angola continues to face pressing economic and social problems. In 2001, the 12-month rate of inflation fell to 116 percent (from 268 percent in 2000), and this is an important achievement. Nevertheless, underlying large fiscal deficits—in the order of seven percent of GDP just for the combined central government and central bank accounts—and insufficient controls on public spending prevented the authorities from achieving their inflation target of 75 percent and will, unless they are tackled, compromise the stabilization effort.
The fiscal position—with significant payment arrears and high levels of indebtedness—is the most immediate concern and has been at the center of recent discussions with the authorities. The discussions also covered the need to address issues of governance, including necessary improvements in budget execution, external borrowing decisions, and public accounting, as these problems have contributed to fiscal instability and discouraged investment and saving in recent years.
The budgetary situation appears to have deteriorated further during the last quarter of 2001 and in early 2002, when the government used almost all of its deposits at the central bank, and the bank itself lost about half of its foreign exchange reserves. Therefore, the staff supports the authorities' intention to present a revised 2002 budget to Parliament based on realistic quarterly projections. Ongoing efforts to reform tax and customs administration are expected to yield further increases in non-mining revenues in 2002, and the monitoring of budget execution is expected to improve as a result of recent changes in the recording and control of expenditures by budgetary units. There is also a need to curtail non-priority expenditures at all levels of government, as this will be the only way to achieve a sustained reduction in inflation and minimize the use of destabilizing internal or external borrowing. Given that poverty indicators have shown no improvement in recent years and the humanitarian situation has reached dire proportions, there is an urgency to reallocate expenditures in favor of the social sectors, including humanitarian assistance. More broadly, cost-benefit analyses and public information would also help to ensure that major financial transactions (such as debt refinancing operations) and large infrastructure projects are both economically efficient and socially desirable.
In relation to the transparency of government operations, the discussions centered on the need to identify and eliminate or include in the treasury account all extrabudgetary and quasi-fiscal expenditures; record and transfer to the treasury all revenues, including the total amount of signature oil bonuses; ensure that all foreign currency receipts and government revenues, including Sonangol receipts, are channeled through the central bank as mandated by the law; eliminate all subsidy and tax arrears to and from Sonangol; publish data on oil and other government revenues and expenditures, as well as on external debt; and conduct independent financial audits of the 2001 accounts of Sonangol and of the central bank. Lastly, the mission also discussed with the authorities the need for improvements in the availability and quality of fiscal and external debt data in order to facilitate the formulation and monitoring of a viable economic program.
1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with each member country, 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. At the country's option, this report may be made public. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors in a Press Information Notice that is released to the public.