IMF Executive Board Concludes 2006 Article IV Consultation with Angola

Public Information Notice (PIN) No. 06/133
November 15, 2006

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On July 19, 2006, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Angola.1


Angola is now showing clear evidence of recovery from the effects of the civil war. For the second consecutive year, GDP growth reached double-digit rates. Oil production is rising strongly, agricultural production has rebounded, roads and railways are being rebuilt with financing from bilateral credit lines and from higher oil revenues, and extensive de-mining is restoring access to outlying provinces and natural resources.

Nevertheless, the challenges remain immense. The war destroyed much of the physical infrastructure. Poverty is dire, particularly in the predominant rural sector; wealth and income are heavily concentrated.

In 2005, the economy grew by over 20 percent, largely because of rising oil production. New deep-water platforms helped raise total oil production to 1.4 million barrels a day (mbpd) by the end of the year, compared with 1.1 mbpd the year before. The non-oil sector is estimated to have grown by about 14 percent. Construction was buoyant, particularly in the capital, Luanda. In agriculture, higher acreage cultivated by resettled farmers, supported by good weather in most of the country, is estimated to have increased output by nearly 16 percent Inflation continued to decline. Consumer prices increased by 18.5 percent in the 12 months to December 2005, compared with 31 percent a year earlier; the inflation target for 2005 was 15 percent. Although the exchange rate depreciated gradually for most of the year, towards the end of 2005 it appreciated sharply against the US dollar, to about 7 percent above its 2004 level. This implied a rise in the real effective exchange rate of over 40 percent in two years. Despite the improved fiscal position, base money rose by 66 percent, more than double the central bank's initial target. This partly reflected insufficient sterilization of rising oil revenues. Yields on 3-month treasury bills fell below the rate of inflation.

The government's accounts moved into substantial surplus in 2005; the surplus is estimated at about 7 percent of GDP. Total spending increased by 14 percent in real terms, somewhat below budget projections. While outlays on goods and services and on current transfers exceeded the revised 2005 budget ceilings, total expenditure was contained by a large under-execution of the public investment program. The civilian payroll expanded because more health and education workers were added.

The external current account surplus is estimated to have risen to about 13 percent of GDP, reflecting significant increases in the prices and volumes of oil and diamond exports. Gross international reserves are estimated to have reached the equivalent of just over 4 months of non-oil-related imports by the end of 2005. At the same time, the government prepaid about US$600 million in outstanding commercial oil-backed loans. The government drew only a small amount of new credit, but the national oil company, Sonangol, raised US$3 billion through a new oil-backed commercial loan. External public debt (including borrowing by Sonangol) is projected to have fallen as a share of GDP to below 39 percent by the end of 2005; a quarter of this is in arrears, nearly all to the Paris Club.

The statistical system is still weak. Although no recent social indicators have been produced, conditions in Angola for most of the population still appear to compare poorly with African countries of similar per capita income in such areas as infant and maternal mortality, literacy, sanitation, and access to clean water. The recorded prevalence of HIV/AIDS is, however, lower than elsewhere in southern Africa.

There has been little recent progress on structural or governance issues. Angola has stayed low on international surveys of the business climate and investor perceptions. Many sectors remain subject to substantial government involvement; and conflicts of interest within the national diamond company, Endiama, and the national oil company, Sonangol, have not been resolved. A significant agenda is still outstanding on transparency in the extractive sectors.

Executive Board Assessment

Executive Directors commended the Angolan authorities on the decline in inflation, the double-digit growth rates in the oil and non-oil sectors, and the substantive fiscal and external surpluses, which benefited from rising oil revenues. Looking ahead, Directors noted that Angola's favorable economic prospects—underpinned by growing oil revenues—provided an opportunity to tackle deeply entrenched poverty and consolidate macroeconomic stability, while putting in place an enabling environment for the non-oil private sector through urgently needed structural and governance reforms.

Directors expressed concern that the 2006 budget was excessively expansionary, particularly in light of the limited absorptive capacity of the economy. Most Directors recommended the adoption of a supplementary budget with tighter spending ceilings to bring the projected fiscal accounts close to balance.

Directors urged the authorities to tighten monetary policy to achieve their inflation target for 2006. They stressed that, with foreign exchange reserves rising swiftly, the National Bank of Angola (BNA) should use sales of foreign currency and official securities to help mop up excess liquidity. They also recommended a recapitalization of the central bank, in light of its continued operating losses. Directors also noted the importance of maintaining flexibility in the exchange rate and advised the authorities not to resist some further nominal appreciation of the kwanza.

Most Directors called for the adoption of a medium-term framework to promote fiscal discipline and minimize the risk of procyclical spending. They noted that non-oil fiscal deficits should be set on a firm downward trend once post-conflict needs are addressed and increases in public spending should take into account the country's limited administrative and absorptive capacity. Finalizing the PRSP would complement the medium-term framework and set a roadmap towards meeting the MDGs. To accommodate additional pro-poor spending, Directors recommended eliminating unproductive public expenditure, most notably on the public payroll and gasoline subsidies. They also advised the authorities to build up financial reserves to protect against adverse external shocks, reduce the risk of Dutch disease, and preserve some of the oil windfall for future generations.

Directors pointed to the need to improve Angola's capacity to plan, execute, monitor, and audit public expenditure. Directors urged the authorities to pay close regard to the recommendations of the forthcoming report on the observance of standards and codes (ROSC) on fiscal transparency, which would help the authorities to focus on priority areas for public financial management reform. They also noted with concern that progress on the public financial management and information system, and on the fiscal programming unit in the Ministry of Finance had fallen behind schedule, and that information on capital spending is particularly unreliable. Directors underscored the need to subject Sonangol's quasi-fiscal operations to full budget scrutiny.

Directors recommended a restructuring of Angola's portfolio of external financial assets and liabilities to take advantage of strengthening external balances. They urged the authorities to speedily address arrears in public debt and to be cautious about further external borrowing. Directors welcomed Angola's intention to reach agreement with the Paris Club. In this context, some Directors encouraged the authorities to consider the potential role of an arrangement with the Fund.

Directors urged the authorities to tackle deep-rooted governance and corruption issues in the extractive sectors and expressed serious concern that progress on these issues is stalled. Most Directors regretted that the authorities had so far failed to transfer Sonangol's functions as regulator and government concessionaire to other agencies; that audit reports of Sonangol had not yet been published; and that the activities of Endiama remained prone to conflicts of interest.

Directors noted that the recovery of the small private sector is hindered both by deficient infrastructure and by an inadequate regulatory environment and poor business climate. They noted the importance of flexibility in the economy for job creation, particularly given the recent sharp appreciation of the real exchange rate. Directors urged institutional reforms to help enforce contracts and property rights, reduce bureaucracy, and eliminate privileged access. Directors cautioned that the planned new development bank raises concerns about governance and inefficient use of resources.

Directors urged the authorities to improve economic and social statistics and to be much more forthcoming in providing information to the Fund, including on public enterprises.

Directors welcomed the authorities' intention to move toward accepting obligations under IMF Article VIII Sections 2, 3, and 4 and in this context urged them to remove the remaining exchange restrictions

Angola: Selected Economic Indicators, 2002-06

  2002 2003 2004 2005 2006







  (Annual percentage change, unless otherwise indicated)

National accounts and prices


Real GDP

14.5 3.3 11.2 20.6 14.6

Oil sector

20.8 -2.2 13.1 26.0 15.0

Non-oil sector

7.9 10.3 9.0 14.1 13.8

Consumer prices (end of period)

106 77 31 19 10

Real effective exchange rate (end of period)1

2 18 20 25 ...

Money and credit


Broad money (end of period)

158 67 50 60 43

Interest rate (end of period, in percent )2

109 81 57 11 ...
  (Percent of GDP, unless otherwise indicated)

Fiscal accounts


Total revenue

38.3 37.9 36.9 38.0 38.0

Of which: oil

29.4 27.9 28.4 30.1 30.0


0.0 0.8 0.5 0.2 0.3

Total expenditure

47.3 44.3 38.5 31.2 35.7

Overall balance3

-8.9 -6.4 -1.6 6.8 2.3

External sector


Current account balance (including transfers)

-2.7 -5.1 3.5 12.9 8.8

External debt (billions of U.S. dollars)

9.4 10.2 10.8 12.6 15.0

External debt-to-GDP ratio

82.4 73.1 54.5 38.5 34.1

Public debt service-to-exports ratio4

21.4 16.5 16.4 10.5 4.8
  (Millions of US$, unless otherwise indicated)

Memorandum items:


Gross domestic product (current prices)

11,386 13,956 19,800 32,810 44,103

Gross national income per person (U.S. dollars)

692 848 1,157 1,866 2,449

Oil production (thousands of barrels per day)

894 875 989 1,247 1,434

Price of Angola's oil (U.S. dollars per barrel)

23.7 28.2 36.4 50.1 56.6

Gross international reserves (end of period)5

399 800 2,034 4,147 9,331

Equivalent in months of non-oil imports6

0.9 1.9 3.2 4.2 7.5

Sources: Angolan authorities and IMF staff estimates and projections.

1 A positive sign denotes appreciation.

2 For three-month central bank bills.

3 On a commitment basis, excluding grants.

4 In percent of exports of goods and services.

5 Includes government deposits in overseas accounts, up to end-2005.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds discussions with individual 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 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.


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