Public Information Notices
Angola and the IMF
IMF Concludes Article IV Consultation with Angola
On July 19, 2000, the Executive Board concluded the Article IV consultation with Angola.1
BackgroundDespite a surge in oil prices, economic conditions did not improve significantly in 1999. Real GDP growth is estimated at 2.7 percent, but non-oil output grew by only 1.8 percent due to the disruptions caused by the intensification of the domestic conflict. Inflation rose from about 135 percent during 1998 to about 330 percent during 1999 and 360 percent in the year ended April 2000, owing to major realignments in the exchange rate and public utility tariffs and an accommodating monetary policy.
In the fiscal area, the government balance, both on a commitment and on a cash basis, improved in 1999, but there was a significant further accumulation of domestic and external arrears. Government revenue was buoyed by higher oil receipts and the floating of the kwanza, while spending also increased rapidly, especially on defense and transfers to the state oil and power companies to cover domestic subsidies. The government has implemented several structural reforms since early 1999, especially in the financial, exchange, trade, and tax systems, and early this year it raised fuel and electricity prices sharply to reduce subsidies.
The staff-monitored program (SMP) for the period April – December 2000 aims at deepening these reforms and creating the basis for improved social conditions and sustained economic growth. (An SMP does not represent a formal endorsement of the member’s program by the Fund’s Executive Board.) Fiscal consolidation and a tightening of monetary policy are expected to help secure a decline in inflation to 120 percent by the end of the year and a buildup in net foreign reserves, while real GDP is expected to grow by 3.8 percent in 2000. The program features an intensification of efforts to increase transparency and efficiency in government operations (including a diagnostic study of the oil sector to be conducted by independent foreign experts, civil service reform, and a pilot privatization program), a reorientation of public spending toward the social sectors and infrastructure, and steps to improve the statistical database. Moreover, the government will prepare an interim poverty reduction strategy paper (I-PRSP) by the end of 2000. The authorities expect these initiatives to improve investor confidence and facilitate an eventual normalization of relations with external creditors.
Executive Board Assessment
Executive Directors underlined that protracted internal strife has been a major cause of the deterioration in economic and social conditions in Angola. They stressed, however, the crucial importance of improved macroeconomic policies and normalization of Angola’s relations with external creditors. Directors considered that lowering inflation, fostering a recovery of non-oil economic activity, and improving social conditions remain the main challenges facing the authorities. Against this background, they welcomed the government’s initiatives with regard to economic reform since 1999, and the recent formulation of a staff-monitored program (SMP) for the period April – December 2000.
Directors welcomed the program’s focus on fiscal consolidation and the reorientation of public spending toward priority social sectors and infrastructure. They underscored the need to support these actions by a tight credit policy, broad-based structural reforms, and greater efforts to improve coordination among key economic agencies. They stressed that a strong track record of policy implementation will be essential to rebuild confidence and set the stage for sustained economic growth.
Directors underscored the importance of improving the transparency and efficiency of public sector operations. In this connection, they welcomed the authorities’ intention to launch by year-end audits of the oil sector and of the National Bank of Angola, to be followed by an audit of the diamond sector. They also stressed the importance of ensuring that all receipts and expenditures are included in the national budget so as to facilitate a comprehensive and transparent fiscal analysis.
Directors encouraged the authorities to broaden the tax base and strengthen tax administration so as to improve non-oil revenue mobilization, noting in this context the considerable revenue potential of determined efforts to reduce customs duty evasion. They also stressed the importance of adhering to a prudent wage policy, keeping overall public spending in check, and improving its composition by implementing the steps planned to improve budget monitoring and control, as well as by strengthening the absorptive capacity of the executing agencies. In addition, they noted that success in improving the composition of spending will depend critically on a further improvement in the overall security situation, which will enable the government to curtail defense spending substantially and allow room for higher social and infrastructure spending.
Directors were encouraged by the recent bold adjustments to public utility prices, and urged the authorities to persevere in adjusting them regularly in line with the criteria set out under the staff-monitored program. Continued progress in this area should ensure cost recovery and a further strengthening of the financial position of the parastatals. The importance of expediting privatization and civil service reform and securing significant managerial improvements in the major parastatals was also emphasized. Directors noted the importance of addressing capacity constraints in the civil service and shortcomings in the statistical database, which will require making more effective use of technical assistance from the Fund and other sources.
Directors considered that monetary expansion must be kept in check through more active open market operations and the introduction of a reserve requirement on foreign currency deposits. They added that strict adherence to the fiscal program will help ease the burden on monetary policy. More generally, Directors noted that achieving positive real interest rates will contribute to restoring macroeconomic balance and enhancing resource efficiency and financial intermediation. Directors also noted the importance of enforcing prudential regulations and recommended an early privatization of the state-owned commercial banks.
Directors welcomed the authorities’ plans to eliminate nontariff trade barriers and the remaining export taxes, and suggested that the recent steps to streamline import tariffs and reduce customs duty evasion be supported by a phased reduction in tariff rates over the medium term. They encouraged Angola to eliminate as soon as possible the exchange restriction subject to approval under Article VIII, as well as to reduce reliance on the exchange restrictions maintained under the transitional arrangements of Article XIV.
Directors welcomed the government’s commitment to eliminate public sector arrears to multilateral institutions during the program period, and stressed that normalization of relations with other external creditors will be essential to reduce reliance on oil-guaranteed borrowing. They recommended that the authorities work closely with bilateral creditors to reconcile debt figures, so as to lay the groundwork for a future request for debt relief.
Directors were encouraged by the authorities’ commitment to the reform program. They looked forward to its successful implementation, which should pave the way for rebuilding confidence and mobilizing much needed financial support, including from the Fund’s Poverty Reduction and Growth Facility. They took note of the government’s intention to begin preparing a comprehensive poverty reduction strategy in consultation with civil society.
|Angola: Selected Economic Indicators, 1996-2000|
|Domestic economy||(Annual percentage change)|
|Consumer prices (average)||4,146||111||107||248||220|
|External economy||(In millions of U.S. dollars) 1/|
|Current account balance 2/||-249||-869||-2,023||-1,797||-816|
|(in percent of GDP)||-3.8||-11.3||-31.4||-32.1||-11.3|
|Capital account balance||24||91||-22||1,552||399|
|Gross official international reserves||558||392||201||481||539|
|(in months of imports of goods and nonfactor services)||1.3||1.0||0.4||0.9||0.9|
(in percent of exports of goods and nonfactor services)
|Change in real effective exchange rate (in percent) 3/||-51||100||-3||-65||...|
|Financial variables||(In percent of GDP) 1/|
|Total government revenue and grants||46.7||39.5||28.2||50.4||47.9|
|Total government expenditure and net lending||58.2||55.8||41.8||57.7||43.3|
|Overall government balance 4/||-15.8||-17.8||-15.1||-13.1||1.8|
|Change in broad money (in percent)||2,551||90||126||574||128|
|Interest rate (in percent) 5/||129||35||38||55||...|
|Sources: Angolan authorities; and IMF staff estimates and projections.
1/ Unless otherwise indicated. 2/ Including transfers. 3/ Trade-weighted period average. 4/ Commitment basis (include errors and omissions). 5/ For 3-month time deposits.
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. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. In this PIN, the main features of the Board’s discussion are described.
IMF EXTERNAL RELATIONS DEPARTMENT