IMF Executive Board Concludes 2008 Article IV Consultation with Angola

Public Information Notice (PIN) No. 09/51
April 30, 2009

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 March 27, 2009, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Angola.1


Angola has made progress in recent years in stabilizing and rebuilding the economy following decades of civil conflict. The strong growth during 2004–08 has on the back of high oil prices and increased oil output permitted Angola to increase its foreign exchange reserves substantially while embarking on a massive infrastructural development.

Growth prospects in the near term have diminished significantly. Real Gross Domestic Product (GDP) grew at about 15 percent in 2008. In addition to rising oil production, strong growth in the non-oil sector reflected the good performance of the diamond, agriculture and construction sectors. However, with the global slowdown, staff now project real GDP to contract in 2009 by about 3½ percent as falling oil output (reflecting OPEC production cuts and the recent technical delays in oil production) is expected to more than offset the mild growth of the non-oil sector.

The decline in inflation stalled in 2008. Inflation picked up modestly to 13.2 percent in December from 11.8 percent in the previous year largely due to higher food prices and strong domestic demand fueled by high liquidity, thus falling short of the government's objective of 10 percent. While the moderation of food prices will yield disinflationary impulse in 2009, capacity constraints are likely to lead to continued inflation inertia in the near term.

Fiscal policy was expansionary in 2008. It is estimated that the non-oil deficit increased substantially to about 61 percent as a percent of non-oil GDP (from 57 percent in 2007). This was largely due to an expansion in the wage bill and larger fuel subsidies financed by oil surpluses. Although in 2007/08 (April-March) the government also spent more on infrastructure and social sectors, due to lack of skilled labor, its capacity to administer these programs was also stretched. In January 2009, the cabinet approved spending limits for line ministries through March that are based on a reference oil price of US$35 per barrel (US$55 was assumed in the original 2009 budget) due to sharply lower oil revenues. The limits, if extended through the rest of the year, would entail a 29 percent reduction in expenditures with an overall budget deficit of about 14½ percent of GDP.

In the period January-September 2008, the external current account surplus remained high due to high oil prices. At end-September 2008, international reserves increased to close to US$20 billion from US$8.5 billion at end-2006, even after payment of principal and interest arrears to the Paris Club. However, reflecting the decline in oil revenues, reserves fell to about $17.7 billion by end-January 2009.

Steady progress continues under structural reforms. Angola’s most successful initiative on public financial management (PFM) and fiscal transparency continues to be the information system, SIGFE which has helped strengthen budget execution and fiscal reporting. In the private sector, however, a comparison with both regional economies and other oil exporters highlights areas for improvements in the business climate and cost of doing business.

Executive Board Assessment

Executive Directors commended the Angolan authorities for their strong efforts in rebuilding the economy since the end of the civil conflict in 2002. Robust growth in recent years has permitted Angola to pursue private-sector development and reduce poverty. The global economic downturn, particularly lower oil prices, has weakened Angola’s near-term growth prospects. Directors agreed with the authorities that the key policy challenges were to preserve macroeconomic stability through sound fiscal and monetary policies and to reduce the dependency on oil by promoting the non-oil private sector.

Directors commended the authorities’ planned 2009 supplementary budget that seeks to limit spending in line with lower oil revenues, while avoiding an excessive fiscal contraction that could worsen the domestic economic slowdown. They stressed the importance of measures to improve the quality and efficiency of public investment. Full adherence with the Extractive Industries Transparency Initiative (EITI) was also encouraged by a few Directors.

Directors considered that the authorities’ reliance on a reference oil-price-rule in budget formulation tends to promote procyclicality and spending fluctuations that hamper development and social objectives. They therefore encouraged the authorities to frame fiscal policy in the context of a medium-term fiscal framework (MTFF) to protect public investment and poverty reduction measures from sharp fluctuations in oil revenues. The fiscal plan for 2009–12 is a promising first step in this direction. Noting the moderate risk of debt distress and projected lower oil production, most Directors supported a gradual reduction over time in the non-oil primary deficit as a percentage of non-oil GDP, while addressing Angola’s infrastructure and social needs. While mindful of the need for fiscal sustainability, some Directors emphasized the need to increase productive public investment and meet the urgent needs of a post–conflict country.

Directors supported the authorities’ objective of moving over the medium term to a low-single-digit inflation rate, converging to the Southern African Development Community (SADC) criterion, which will reinforce confidence in the kwanza and help reduce dollarization. In this connection, they supported the National Bank of Angola’s decision to use a monetary target to anchor its inflation objective. They recommended that the central bank review regularly the monetary transmission process and the intermediate policy target to ensure that the inflation reduction goal is on track.

Directors observed with satisfaction that so far, Angola’s financial sector has not been directly affected by the global financial crisis. Noting the rapid private credit growth, they encouraged the authorities to improve risk-based bank supervision and to monitor closely foreign currency loans. They welcomed the authorities’ intention to undertake a Financial Sector Assessment Program (FSAP) and considered that the soundness of the financial sector would also benefit from the enactment of a new law to combat money laundering and the financing of terrorism.

Directors noted the staff assessment that the real effective exchange rate is broadly in line with fundamentals. Over the medium term, they considered that in order to make the non-oil sector a source of sustained growth, its competitiveness will need to be enhanced including by improving the business climate, lowering the cost of doing business, and eliminating supply-side bottlenecks. Directors encouraged a gradual move to a more flexible exchange rate regime as the economy diversifies, dedollarization occurs, domestic financial markets deepen, and monetary instruments are developed.

Directors encouraged the authorities to remove all the remaining exchange restrictions to allow Angola to accept the obligations of Article VIII, Sections 2 (a) and 3 of the Fund’s Articles of Agreement.

Angola: Selected Economic Indicators, 2004–08

  2003 2004 2005 2006 2007 2008
  (Annual percentage change, unless otherwise indicated)

National accounts and prices


Real GDP

3.3 11.2 20.6 18.6 20.3 14.8

Oil sector

-2.2 13.1 26.0 13.1 20.4 11.9

Non-oil sector

10.3 9.0 14.1 27.5 20.1 18.4

Consumer prices (end of period)

77 31 19 12 12 13

Real effective exchange rate (end of period) 1

18 20 25 6 8 22

Money and credit


Broad money (end of period)

67 50 60 60 49 79

Interest rate (end of period, percent )2

81 57 11 6 15 15
  (Percent of GDP, unless otherwise indicated)  

Fiscal accounts


Total revenue

37.9 36.9 40.7 46.4 46.7 47.6

Of which: oil

27.9 28.4 32.3 37.2 37.9 39.8


0.8 0.5 0.2 0.0 0.0 0.0

Total expenditure

44.3 38.5 33.3 31.6 35.2 35.2

Overall balance 3

-6.4 -1.6 7.3 14.8 11.5 12.4

External sector


Current account balance (including transfers)

-5.2 3.5 16.8 25.2 15.9 21.2

External debt (billions of U.S. dollars)

10.2 10.8 12.2 7.6 9.6 13.4

External debt-to-GDP ratio

73.1 54.5 39.9 16.8 16.2 16.1

Public debt service-to-exports ratio 4

23.7 16.5 10.9 8.7 9.5 4.1

Memorandum items:


Gross domestic product (current prices)

13,956 19,800 30,632 45,168 59,263 83,384

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

848 1,157 1,728 2,489 3,078 4,206

Oil production (thousands of barrels per day)

875 989 1,247 1,427 1,717 1,901

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

28.2 36.1 50.0 61.4 67.0 90.9

Gross international reserves (end of period) 5

790 2,034 4,147 8,609 11,330 18,351

Equivalent in months of imports 6

1.5 2.1 4.5 7.1 6.8 15.3

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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