Press Release: Statement by IMF Staff Mission to Angola
July 21, 2004
"An IMF mission conducted discussions in Luanda with the Angolan authorities for the 2004 Article IV consultation during July 7-21, 2004.
"Angola faces daunting economic challenges during the current decade, following the return of over 4 million refugees and internally displaced persons, the destruction of infrastructure, continuing mine clearance requirements and the decline in human capital.
"Significant progress has been made towards macroeconomic stability over the last year, although the policy mechanisms adopted have resulted in some distortions to the domestic economy. The 12-month rate of inflation has declined to below 50 percent and the rate of depreciation of the kwanza exchange rate has slowed markedly. However, external debt levels have continued to rise in dollar terms, international reserves are low, and the potential cost competitiveness of Angola goods has been reduced.
"It is estimated that GDP grew by about 3½ percent in 2003 and that the current account of the balance of payments registered a deficit of about US$800 million (6 percent of GDP). With higher oil production and prices, the rate of GDP growth in 2004 may increase to over 10 percent and there could be a current account surplus of 3 percent of GDP.
"Recent improvements in transparency, particularly regarding oil revenues, external debt, and transactions involving Sonangol, resulted in some commendable clarification of the government's overall fiscal position in 2003, but major deficiencies remain in fiscal information. Weak monitoring and control of public expenditure is inhibiting assessment of the current fiscal position.
"Reliance on expensive oil-backed loans from commercial banks has burdened the economy with heavy debt servicing commitments and Angola's external position will continue to be very difficult for the remainder of this decade.
"To address Angola's pressing social and infrastructure needs, very high rates of GDP growth will be needed for a sustained period. This will require macroeconomic stability. One possible policy scenario discussed by the mission envisaged a rapid reduction in inflation to single-digit levels, based on improved fiscal control, together with resolute action by the central government and the central bank to control liquidity through the management and issue of domestic debt.
"Revenues from oil will finance the greater part of the government's growing current expenditure this year. However, the underlying trend in the government's share of gross oil revenue has been declining, and oil prices are some way above their long-term trend. In this uncertain environment, the government's expenditure plans must be based on a conservative view of medium-term prospects, including the possibility that oil revenue flows to the government may not show further gains for some time to come.
"To direct additional resources to urgent social priorities, reductions will be needed in other spending commitments, notably the very large payrolls of both the civilian and military sectors and continuing subsidies to consumers. These can be achieved through measures to eliminate `ghost workers', cut numbers of personnel, and bring energy and water prices this year into line with costs.
"The achievement of high rates of economic growth also requires a conducive business and investment environment. This requires that firm measures are taken to ensure that regulations, property rights and contracts are transparent and uniformly enforced; and to limit corruption and anti-competitive privileges.
"Noting progress in the provision of essential information, and in the expectation that further important data on recent fiscal transactions and oil-related production costs will be made available, the mission looked forward to commencing detailed discussions within the next few months on a clear specification of policy objectives for the Angolan economy, in the context of preparation for the 2005 budget, which could form the basis for consideration of a staff-monitored program."