IMF Executive Board Concludes 2007 Article IV Consultation with Angola

Public Information Notice (PIN) No. 07/115
September 13, 2007

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 August 27, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Angola.1


Angola's recent macroeconomic performance has been good. Output growth has been robust since 2001 both in the oil and non-oil sectors (diamonds, manufacturing, construction, processing, and services). Inflation has fallen considerably from high levels. However, poverty remains deeply entrenched with infant and maternal mortality, literacy, sanitation, and access to clean water for most of the population comparing poorly with other African countries of similar per capita income.

Real GDP growth in 2006 reached 18.6 percent, supported by double-digit growth in both the oil and non-oil sectors. Oil production increased by 13 percent mainly from new deepwater oilfields while diamonds production rose on the back of increased production from kimberlite mines. The manufacturing sector benefited largely from the better economic environment and construction from ongoing rehabilitation of infrastructure. Good weather, timely availability of inputs, and an increase in the cultivated area, helped agricultural production although this was partly offset by drought conditions in some central and southern provinces.

Inflation fell to 12 percent from 19 percent during 2006. The nominal exchange rate held steady throughout 2006 while the real exchange rate appreciated by about 6 percent. Interest rates adjusted for inflation have been negative. The growth of monetary aggregates remained high in 2006 except for base money, which was flat following the National Bank of Angola's (BNA's) interventions in the market to mop up liquidity.

The fiscal balance has moved to a surplus, but on average Angola has saved a smaller portion of its oil windfall than other African oil-producers. The fiscal surplus in 2006 reached 15 percent of GDP, against a deficit of 6 percent of GDP in the budget. This was a direct result of the government's weak capacity to execute fully the capital budget. Excluding oil revenues, Angola saw a large decline in the non-oil primary deficit.

The external current account surplus widened to 23 percent of GDP in 2006, and official reserves doubled and reached US$8.5 billion in the year, equivalent to about four months of imports of goods and services. This is partly because Angola's two main exports, crude oil and diamonds, have experienced large volume increases. Export revenues have also been boosted by the rise in crude oil export prices. During late 2006 and early 2007, Angola paid the bulk (US$2.3 billion) of its principal and interest arrears to Paris Club creditors. Angola also plans to pay the remaining arrears (US$49 million) and has begun making payments on maturities falling due. The outstanding issue concerns the late interest for which Angola is seeking favorable treatment from the Paris Club. The external debt-to-GDP ratio declined to about 20 percent in 2006 from 40 percent in 2005. Progress under structural reforms has been modest. Angola's most successful initiative on public financial management (PFM) and fiscal transparency continues to be the information system, SIGFE. This system covers all provinces and will be extended in 2007 to include some autonomous bodies and new modules. The SIGFE has helped strengthen budget execution and reporting and the sharing of information on PFM issues. In the private sector, however, a comparison with other regional economies highlights areas for improvements in the business climate.

Executive Board Assessment

Directors commended the Angolan authorities for the recent good macroeconomic performance, characterized by double-digit growth rates, a fall in inflation, large fiscal and external surpluses, and a reduction in the debt-to-GDP ratio. They noted that both prudent policies and rising oil production and prices have led to these achievements.

Looking ahead, Directors underscored that major challenges remain. A key challenge will be to reduce inflation further, boost external competitiveness, and achieve medium-term fiscal and external debt sustainability while accommodating Angola's large infrastructure and social needs. Also, a strong effort will be required to develop the non-oil sectors of the economy. This is crucial for reducing the dependence on oil production and achieving the Millennium Development Goals. Directors encouraged the authorities to take advantage of the present favorable economic environment to advance quickly with structural reforms.

Directors urged the authorities to exercise caution in implementing the planned scale-up of government capital spending. They were sympathetic to the pressures for scaled-up spending as a "peace dividend" and to help re-build the country following the end of the civil war. Nevertheless, they stressed that the scaling up should be consistent with the country's implementation and absorptive capacity, and should not undermine the competitiveness of the non-oil sectors through upward price pressures. Furthermore, care should be taken to ensure that only economically sound investment projects are undertaken. Most Directors urged adoption of a medium-term fiscal framework to guide government spending, with fiscal policy anchored on further reducing the non-oil primary fiscal deficit as a share of non-oil GDP and on a conservative oil price rule. However, a few Directors felt it would be important to wait until the economy has achieved a more stable trajectory before adopting a medium-term fiscal framework. The establishment of an oil fund based on well-defined, flexible, and transparent rules, and fully integrated into the budget process, would enhance management of the oil wealth. Directors also supported a gradual phase-out of fuel subsidies, in conjunction with targeted measures to offset the impact on low-income households, and tax reform to strengthen the non-oil revenue base.

Directors commended the progress in strengthening public financial management and enhancing governance and transparency in the extractive industries. They urged further action to address remaining weaknesses in the capacity to execute and monitor public expenditures. They also encouraged the authorities to rapidly implement the recommendations of the Fiscal Report on the Observance of Standards and Codes, to phase out the state oil company's quasi-fiscal operations, and to join the Extractive Industries Transparency Initiative.

Directors commended the central bank's prudent conduct of monetary policy. Given the extensive dollarization, shallow financial markets, and instability of money velocity, Directors emphasized that monetary policy should continue to be pragmatic and flexible. They supported the use of a target range for the monetary aggregate in conjunction with a broad set of inflation indicators, and recommended that the choice of intermediate policy target be evaluated continuously. Directors considered the Financial Sector Assessment Program (FSAP) planned for 2008 to be an important step toward deepening and strengthening the financial sector, and thereby increasing the effectiveness of monetary policy.

Directors welcomed the authorities' revaluation of the nominal exchange rate earlier this year. A number of Directors encouraged a gradual shift to a more flexible exchange rate to support a reduction in inflation and to accommodate appreciation pressures on the currency. Several other Directors, however, felt that the authorities' strategy of managing the exchange rate without a pre-determined path is appropriate in view of the extensive dollarization and under-developed financial sector, and the possible adverse impact of a currency appreciation on the development of the non-oil sectors.

Directors encouraged the authorities to eliminate the remaining exchange restrictions, so that Angola could accept the obligations under Article VIII, Sections 2, 3, and 4 of the IMF's Articles of Agreement.

Directors commended the authorities' progress in clearing Angola's arrears to Paris Club creditors, and encouraged the authorities to continue their efforts to resolve the issue of overdue arrears.

Directors called for faster structural reform to develop the non-oil sectors of the economy. Institutional and legal reforms to improve the business environment would increase productivity, reduce the cost of doing business, and enhance legal protection of businesses. This would stimulate private investment and enhance external competitiveness.

Angola: Selected Economic Indicators, 2003-07
  2003 2004 2005 2006 2007





Est. Proj.
  (Annual percentage change, unless otherwise indicated)

National accounts and prices


Real GDP

3.3 11.2 20.6 18.6 23.4

Oil sector

-2.2 13.1 26.0 13.1 22.3

Non-oil sector

10.3 9.0 14.1 27.5 25.1

Consumer prices (end of period)

77 31 19 12 10

Real effective exchange rate (end of period)1

18 20 25 6 ...

Money and credit


Broad money (end of period)

67 50 60 60 29

Interest rate (end of period, percent )2

81 57 11 8 ...
  (Percent of GDP, unless otherwise indicated)

Fiscal accounts


Total revenue

37.9 36.9 40.7 46.4 34.5

Of which: oil

27.9 28.4 32.3 37.2 26.6


0.8 0.5 0.2 0.0 0.1

Total expenditure

44.3 38.5 33.3 31.6 33.6

Overall balance3

-6.4 -1.6 7.3 14.8 0.9

External sector


Current account balance (including transfers)

-5.2 3.5 16.8 23.3 6.4

External debt (billions of U.S. dollars)

10.2 10.8 12.2 9.2 9.5

External debt-to-GDP ratio

73.1 54.5 39.9 20.3 16.3

Public debt service-to-exports ratio4

23.7 16.5 10.9 8.7 4.5

Memorandum items:


Gross domestic product (current prices, millions of U.S. dollars)

13,956 19,800 30,632 45,167 58,696

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

848 1,157 1,740 2,506 3,180

Oil production (thousands of barrels per day)

875 989 1,247 1,427 2,018

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

28.2 36.1 50.0 61.4 59.7

Gross international reserves (millions of U.S. dollars, end of period) 5

790 2,034 4,147 8,609 10,533

Equivalent in months of imports 6

1.9 3.1 5.6 7.1 6.3

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 net of oil-related expenses such as oil-related imports of goods and services and oil companies' remittances.
5 Includes government deposits in overseas accounts.
6 In months of imports of non-oil goods and services.

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.


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