## cr18156 ## Source details **Canonical URL:** [cr18156](https://www.imf.org/-/media/files/publications/cr/2018/cr18156.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2018/cr18156.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2018/cr18156.pdf.json) --- ### Background - Angola is the third largest economy and second largest oil exporter in sub-Saharan Africa, with oil reserves estimated at 9½ billion barrels in 2016. - The economy is highly dependent on oil for both exports (over 95 percent) and fiscal revenue (about half). - Policy reaction to the 2014 oil price shock included significant fiscal tightening, exchange rate adjustments, and quantitative restrictions to foreign exchange (forex) purchases. - Unsustainable policy mix before August 2017 elections—fiscal expansion and pegged exchange rate—led to erosion of fiscal and external buffers. - Political transition: MPLA retained a two-third majority; General João Lourenço elected President replacing José Eduardo dos Santos. - New administration actions: high-profile dismissals, investigations into public entities, announcement of a specialized anti-corruption unit. - Government implementing a Macroeconomic Stabilization Program (MSP) with objectives including: - limit overall fiscal deficit to 3½ percent of GDP in 2018 under a conservative oil price assumption; - greater exchange rate flexibility; - reduce public debt-to-GDP ratio to 60 percent over the medium term; - improve public debt profile through liability management; - settle domestic payments arrears; - ensure effective implementation of AML/CFT legislation. ### Recent economic developments, outlook and risks (2017–2018) — key findings - Growth and composition (2017): - Growth recovered slightly to an estimated 1 percent in 2017. - Non-oil GDP grew 1¼ percent in 2017. - Business confidence improved since early 2017. - Inflation: - Inflation receded to 26¼ percent (y/y) in 2017. - Fiscal sector (2017): - Underlying overall fiscal deficit worsened to 7 percent of GDP in 2017 (excluding 1 percent of GDP one-off revenue). - Non-oil primary fiscal balance deteriorated by ¾ percent of GDP in 2017. - Public debt, including Sonangol’s debt, reached 64 percent of GDP in 2017. - Domestic payments arrears about 4½ percent of GDP. - External sector (2017): - Current account deficit narrowed to 4½ percent of GDP in 2017. - Exports increased by 19½ percent in 2017. - Imports constrained by forex allocation system. - Monetary sector and reserves: - Reserve money contracted by 9 percent (y/y) in 2017. - BNA sold an additional 17¼ percent of forex to the market in 2017; NIR declined by almost 40 percent to US$13¼ billion at end-year. - Parallel-official exchange rate spread about 150 percent in 2017; narrowed to about 90 percent in March 2018 after exchange rate reform. - Banking sector: - NPLs reached 28¾ percent of total credit at end-2017 (four-fifths concentrated in state-owned BPC). - System-wide capitalization remained significantly above minimum requirement of 10 percent. - All banks migrated to the IFRS accounting system. - 2018 staff projections: - Growth projected to accelerate to 2¼ percent in 2018. - Inflation projected to remain high at 24¾ percent at end-year in 2018. - Current account deficit projected to narrow to 3½ percent of GDP in 2018. - NIR expected to decline by US$3½ billion in 2018 to mitigate exchange rate overshooting. - Medium-term outlook: - With structural reforms, annual growth could pick up to about 5 percent over the medium term. - BNA objective: bring inflation to single digits over the medium term. ### Fiscal policy: frontloading adjustment and debt management - 2018 budget stance and financing: - Under conservative oil price assumption (US$50/barrel), 2018 budget targets overall fiscal deficit of 3½ percent of GDP and a 2 percent of GDP improvement in the non-oil primary fiscal deficit. - With higher projected oil prices, overall fiscal deficit could be reduced to 2 percent of GDP in 2018. - Expected financing sources include domestic borrowing, bilateral creditors (China and others), multilaterals (World Bank and AfDB), commercial banks, and a new Eurobond issuance of US$2 billion. - Debt and consolidation path: - MSP objective: lower public debt-to-GDP ratio to under 60 percent over the medium term. - Non-oil primary fiscal consolidation averaging ¾ percent of GDP annually until 2023, achieved mostly via adopting a VAT (about half of the effort) and streamlining wage bill and goods and services (other half). - DSA: public debt sustainable under baseline but vulnerable to growth and exchange rate shocks; exposed to financial sector contingent liability shocks. - Recommended fiscal measures and structural reforms: - Clear domestic payments arrears during 2018 and avoid recurrence. - Improve debt profile via market-based liability management; develop domestic debt market; broaden investor base; replace foreign-currency and foreign-currency-indexed securities with local-currency government bonds with longer maturities. - Condition BPC’s next recapitalization on advancing its restructuring plan. - Introduce a VAT on January 1, 2019; draft legislation, define tax parameters, adjust AGT systems, and communicate to taxpayers. - Broaden non-oil tax base and strengthen tax compliance; enforce real estate taxation. - Reduce the wage bill (share of GDP) over the medium term by reforming public administration and aligning wage increases with productivity and performance. - Adjust domestic fuel prices: staff estimate gasoline and diesel prices would need a 100 percent pump adjustment to eliminate Sonangol-absorbed subsidies; propose phased adjustment over eight months; 2018 budget allocated ¾ percent of GDP for subsidies. - Improve public investment quality: compliance with public investment legislation, prioritization, monitoring, and project evaluation. - Expand social programs: transform Cartão Kikuia into a targeted conditional cash transfer with national coverage. - Implement a medium-term fiscal framework (MTFF) with spending rules and a fiscal stabilization fund. ### Monetary policy and exchange rate management - Recent changes: - BNA adopted base money as the monetary policy anchor in November 2017. - Exited the kwanza peg to the U.S. dollar in early 2018 and adopted a more flexible regime; kwanza depreciated by 30 percent to the U.S. dollar and by 42 percent against the euro since early 2018 in nominal terms (staff notes). - Forex auctions reactivated with revised rules: bids could fluctuate within plus/minus 2 percentage points around previous average, de facto capping depreciation at 2 percent per auction. - Forex increasingly supplied through auctions in Q1 2018; plans to phase out direct forex sales to priority sectors. - Assessment: - EBA indicated REER was overvalued by 20 percent at end-2017; staff assessment broadly estimated REER overvalued by about 20 percent in 2017. - Parallel-official exchange rate spread remained elevated at 90 percent in March 2018. - Recommendations: - Aim for a market-clearing exchange rate and fully functioning forex market. - Eliminate exchange restrictions and multiple currency practices. - Eliminate excess liquidity via open market operations. - Target base money growth consistent with inflation objective and bring three-month T-bill rates to positive real territory. - Develop robust liquidity and inflation forecasting frameworks; lengthen liquidity forecasting horizon. - Improve communication and provide forward guidance on reserve money. ### Financial sector: vulnerabilities and corrective actions - System status and vulnerabilities: - Banking system generally stable but with lingering vulnerabilities and forex liquidity mismatches for some banks. - BNA introduced a liquidity requirement curbing banks’ daily net forex liquid position to plus/minus 20 percent of regulatory capital by March and plus/minus 10 percent by June, impacting six banks negatively. - BNA increased minimum regulatory capital requirement threefold for commercial banks to be met by end-2018. - Recredit agreed to acquire about one-third (Kz300 billion) of BPC’s distressed assets and is working to acquire an additional Kz180 billion NPLs. - Sector linkages and risks: - Banks’ business models closely linked to oil sector; contingent liabilities from government ownership in six banks peaked at about 4 percent of GDP in 2014 and declined to about 1 percent of GDP. - Loss of direct U.S. dollar correspondent banking relationships in October 2016 forced use of euro and nested U.S. dollar CBRs. - Recommended supervisory and resolution measures: - Complete second phase of asset quality reviews to gauge capitalization needs and pursue swift NPL resolution. - For BPC, condition further recapitalization on demonstrable restructuring actions; BPC should not resume lending until liquidity and restructuring progress are evident. - Revert Recredit to original mandate and include a sunset clause. - Monitor bank liquidity closely and take prompt corrective action; strengthen crisis management and emergency liquidity assistance frameworks. - Sustain efforts to maintain or regain CBRs and fully enforce AML/CFT regulation ahead of the next mutual evaluation. ### External sector, reserves, and debt dynamics - External position and reserves: - NIR fell to US$13¼ billion at end-2017 (about 4¼ months of next year’s imports); gross reserves about US$17¾ billion (6¾ months of imports). - Backlog of forex purchase orders estimated at US$2.5 billion. - FSDEA assets about US$5 billion provide additional buffers. - Current account and trade: - CA shifted from averaged surpluses of 10 percent of GDP during 2010–2013 to deficits peaking at 10 percent of GDP in 2015 and narrowing to 5¼ percent of GDP in 2017 (staff table also reports 4½ percent of GDP for 2017 in some places). - Between 2014–17: imports contracted by 40¼ percent; exports declined by 44½ percent. - EBA-lite estimates cyclically adjusted CA norm about minus 1.6 percent of GDP; CA gap about 3 1/3 percent of GDP (including a policy gap of about 2.2 percent of GDP). - Public debt developments: - Public debt rose by almost 25 percentage points of GDP between 2014 and 2017. - At end-2017: external debt accounted for over half of total debt; FX-denominated or linked debt about 80 percent of total debt; net public debt 59 percent of GDP; NPV of debt about 55¾ percent of GDP. - Baseline projection: public debt projected to peak at about 73 percent of GDP in 2018 and converge to about 60 percent of GDP over the medium term under consolidation assumptions. - Debt dynamics (public debt change, 2018 projection components, percent of GDP): - Debt at end-2017: 64.1 - Impact of nominal depreciation: 31.2 - Impact of nominal GDP growth: -29.0 - Overall deficit: 2.0 - Other: 4.6 - Debt at end-2018: 72.9 - Nominal GDP growth (in percent): 40.8 - Real growth: 2.1 - GDP deflator: 37.9 - Non-oil GDP deflator: 27.9 - Oil GDP deflator: 78.3 - Stress tests and vulnerabilities: - One-time real depreciation of 30 percent would raise debt ratio to over 80 percent of GDP on impact. - Combined macro-fiscal shocks could keep debt ratio close to 100 percent of GDP. - Financial sector contingent liability shock (non-interest expenditures = 10 percent of banking sector assets) would keep debt and GFN elevated. - Financing strategy for 2018: - Greater reliance on domestic sources and financing from bilateral creditors, multilaterals, commercial banks, and issuance of a US$2 billion Eurobond. ### Structural reforms to support diversification and private-sector-led growth - Constraints to private investment: - Weak insolvency framework, weak protection of minority investors, weak contract enforcement. - Poor access to finance, large state footprint, governance issues. - Authorities’ reform efforts: - National Assembly approved a Law on Competition (first-round vote) and a draft Private Investment Law to remove FDI entry barriers. - President created a specialized anti-corruption unit. - Launched PRODESI program with World Bank support focusing on six priority areas. - Staff estimates and recommendations: - Reforms improving governance to the SSA average could increase real GDP per capita growth by up to 2 percentage points annually. - Additional measures: strengthen property rights and contract enforcement; simplify work visa/residence permit procedures; pass private investment legislation; facilitate trade procedures; strengthen anti-corruption agencies; improve SOE accountability and transparency; mitigate firms’ access to finance constraints. - Authorities’ views: - Broad agreement that structural reform agenda would diversify the economy, improve the business environment, and attract FDI. ### Exchange restrictions, multiple currency practices, and Article-level issues - Measures maintained under Article XIV transitional arrangements: - Limits on availability of foreign exchange for travel expenses: adults limit Kz 25 million/year (about US$116,500/year); minors limit Kz 6 million/year (about US$28,000/year). Authorities view: unlikely to be removed in near term. - Limits on unrequited transfers: Kz 12 million/year (about US$55,900/year). Authorities view: unlikely to be removed in near term. - Exchange restrictions under Article VIII, Section 2(a): - Discriminatory application of the 0.1 percent stamp tax on foreign exchange operations. - Operation of the priority list for access to U.S. dollars at the official exchange rate. - Special tax of 10 percent on transfers to non-residents under contracts for foreign technical assistance or management services. - Multiple currency practices (MCPs) issues related to BNA auction spread constraints (plus/minus 2 percentage points) and discriminatory stamp tax. - Staff views: - Staff believes priority list could be removed by end-2018 if forex market reforms implemented. - Staff recommends eliminating spread caps as part of shift toward a market-clearing exchange rate. ### Data, transparency, and technical assistance - Data adequacy: broadly adequate for surveillance but substantial improvements needed in fiscal data, national accounts, balance of payments, and monetary statistics. - National accounts: INE published annual national accounts for the first time in 2014 but has yet to disseminate updated annual and quarterly national accounts; INE nominal GDP about 10–15 percent higher than Ministry of Economy and Planning estimates — adopting INE data would lower ratios to GDP by roughly that amount (example: at end-2017 overall fiscal deficit, public debt, and current account deficit would be about 5¼, 57, and 4, respectively). - Statistical improvements and TA activity across MCM, FAD, STA, AFRITAC South, ICD, and Legal Department cited (missions and topics listed in the chapter). - Recommended publication improvements: Ministry of Finance to publish consolidated and detailed fiscal data regularly (at least quarterly) and publish non-oil fiscal revenues monthly; fiscal data in electronic format rather than PDF images. ### Staff appraisal: outlook, risks, and policy sequencing - Recent context: Lower oil prices and prior unsustainable policies stressed the economy; new government focused on restoring macro stability and improving governance. - Outlook and risks: - Growth modestly accelerating in 2018; inflation expected to continue declining despite depreciation and price adjustments. - A benign oil price outlook for 2018 would support fiscal consolidation and mitigate debt sustainability and financing risks. - Upside risk: broader structural reforms could yield higher growth; downside risks: lower oil prices, production declines, policy slippages, slower NPL resolution, incomplete forex adjustment. - Policy sequencing and recommended priorities: - Fiscal: use windfalls to clear domestic arrears and/or reduce public debt; introduce VAT on January 1, 2019; implement non-oil primary consolidation averaging ¾ percent of GDP annually until 2023. - Monetary/exchange rate: target base money consistent with inflation objective; keep interest rates above inflation; phase out direct forex sales; establish pre-announced forex auctions; remove exchange restrictions and MCPs. - Financial sector: complete AQRs; strengthen governance and restructure state-owned banks; set sunset clause for Recredit. - Structural: anti-corruption, governance improvements, business environment reforms; build implementation capacity with TA. *Prepared by the staff of the International Monetary Fund; April 25, 2018.* ### 1. Selected High Frequency Indicators, 2008–18 _________________________________________________ 19 ### 1. Selected High Frequency Indicators, 2008–18 ### Background - Angola is the third largest economy and second largest oil exporter in sub-Saharan Africa, with oil reserves estimated at 9½ billion barrels in 2016. - The economy is highly dependent on oil for both exports (over 95 percent) and fiscal revenue (about half). - Policy reaction to the 2014 oil price shock included significant fiscal tightening, exchange rate adjustments, and quantitative restrictions to foreign exchange (forex) purchases. - An unsustainable policy mix in the run-up to the August 2017 elections—fiscal expansion and pegged exchange rate—led to erosion of fiscal and external buffers. - Political transition: MPLA retained a two-third majority; General João Lourenço elected President replacing José Eduardo dos Santos (who stepped down after 38 years but continues to yield some influence as MPLA party head). - New administration actions: high-profile dismissals, investigations into possible malfeasance at public entities, and announcement of a specialized anti-corruption unit. - The Government is implementing a macroeconomic stabilization program (MSP) with objectives including: - upfront fiscal consolidation limiting the overall fiscal deficit to 3½ percent of GDP in 2018 under a conservative oil price assumption; - greater exchange rate flexibility; - reducing the public debt-to -GDP ratio to 60 percent over the medium term; - improving the public debt profile through liability management; - settling domestic payments arrears; - ensuring effective implementation of AML/CFT legislation. ### Recent economic developments, outlook and risks — key findings (2017 and 2018) - 2017 growth and composition: - Growth recovered slightly to an estimated 1 percent in 2017. - Non-oil GDP grew 1¼ percent in 2017, supported by additional forex availability and higher public spending. - Business confidence indicators improved steadily since early 2017. - Inflation: - Inflation receded to 26¼ percent (y/y) in 2017. - Fiscal sector (2017): - Underlying overall fiscal deficit worsened to 7 percent of GDP in 2017 (excluding 1 percent of GDP one-off fiscal revenue from settlement of disputed tax liabilities with oil companies). - Non-oil primary fiscal balance deteriorated by ¾ percent of GDP in 2017. - Public debt, including Sonangol’s debt, reached 64 percent of GDP in 2017. - Limited progress clearing domestic payments arrears (4½ percent of GDP). - External sector (2017): - Current account deficit narrowed to 4½ percent of GDP in 2017. - Exports increased by 19½ percent in 2017 owing to better oil prices. - Imports were constrained by an inefficient and intrusive forex allocation system by the BNA. - Monetary sector and reserves: - Reserve money contracted, on average, by 9 percent (y/y) in 2017, driven by NIR losses. - BNA sold an additional 17¼ percent of forex to the market in 2017, leading NIR to decline by almost 40 percent, to US$13¼ billion at end-year. - Parallel-official exchange rate spread remained high at 150 percent in 2017. - In early 2018, BNA exited the exchange rate peg to the U.S. dollar and adopted a more flexible regime; the kwanza depreciated by 30 percent to the U.S. dollar and the spread narrowed to about 90 percent in March. - Banking sector: - NPLs reached 28¾ percent of total credit at end-2017 (four-fifths of system NPLs concentrated in state-owned BPC). - System-wide capitalization improved and remained significantly above the minimum requirement of 10 percent. - All banks migrated to the IFRS accounting system. - 2018 outlook (staff projections): - Growth projected to accelerate to 2¼ percent in 2018, driven by a more efficient forex allocation system, additional forex from higher oil prices, LNG production inching up to full capacity, and improved business sentiment. - Inflation projected to remain high at 24¾ percent at end-year in 2018, reflecting kwanza depreciation and expected adjustments to domestic fuel prices and utilities’ tariffs. - Current account deficit projected to narrow to 3½ percent of GDP in 2018. - NIR expected to decline by US$3½ billion in 2018 to mitigate exchange rate overshooting pressures. - Medium-term outlook: - With structural reforms implemented, annual growth would gradually pick up to about 5 percent over the medium term. - Key supports: private sector credit, clearance of domestic payments arrears, NPL resolution at state-owned banks, scaling up public investment, structural reforms to improve governance and business environment, legislation to support competition and attract FDI. - BNA objective: bring inflation to single digits over the medium term with prudent fiscal and monetary policies and elimination of production bottlenecks. - Risks: - Upside: broader structural reforms could yield higher-than-projected growth. - Downside: lower international oil prices, decline in crude oil production, slippages in macroeconomic policy and reform implementation, slower NPL resolution, incomplete forex market adjustment. ### Spillovers - Outward spillovers from Angola to the region are generally limited. - Countries with stronger cross-border trade exposure (DRC, Namibia) have been more affected; DRC announced a temporary ban in August 2017 on imports of several products from Angola to protect local industries. - Angola is Portugal’s largest export market outside the EU and hosts several Portuguese bank joint-ventures, but the magnitude of these interests is relatively small relative to Portugal’s economy. - Inward spillovers from China and Europe could be tangible through lower oil prices if their growth slows. ### Authorities’ views - Authorities largely agreed with staff’s assessment of the outlook and risks. - Authorities’ 2018 growth forecasts, initially more optimistic, have broadly converged toward staff’s forecasts. - Authorities expect a faster disinflation pace, citing limited devaluation pass-through in the first two months of 2018. - Over the medium term, authorities believe staff’s projections provide a lower bound to growth potential and an upper bound to the disinflation path. ### Policy discussions — overarching themes - The policy adjustment starting in early 2018 centers on upfront fiscal consolidation and greater exchange rate flexibility to restore macroeconomic stability and enable sustainable, inclusive growth. - MSP is broadly in line with Fund advice; full implementation is likely to address the economy's imbalances. - Key policy priorities discussed: - gradual fiscal consolidation over the medium term while protecting social safety nets; - upgrading the monetary policy framework to support exchange rate flexibility and contain inflation; - developing and deepening the forex market; - tackling financial sector vulnerabilities; - accelerating structural reforms. ### Fiscal policy: frontloading adjustment followed by gradualism — measures and recommendations - 2018 budget stance: - Under a conservative oil price assumption (US$50/barrel), the 2018 budget targets reducing the overall fiscal deficit to 3½ percent of GDP, consistent with a reduction of 2 percent of GDP in the non-oil primary fiscal deficit. - Given higher projected international oil prices, the overall fiscal deficit could be reduced to 2 percent of GDP in 2018. - Gross financing needs (GFN) and financing mix (2018): - GFN are substantial but appear manageable given benign external environment. - Expected financing sources include domestic borrowing and external sources: China and other bilateral creditors, multilaterals (World Bank and AfDB), commercial banks, and a new Eurobond issuance of US$2 billion. - External financing linked to public investment projects in the approved budget is mostly secured. - Authorities’ financing mix tilted to domestic bank borrowing might be difficult as commercial banks report being close to internal exposure limits to sovereign risk. - Exploring further Eurobond placements could diversify financing, relieve domestic market pressures, and lengthen average maturity of public debt. - Debt and consolidation path: - MSP objective: lower public debt-to-GDP ratio to under 60 percent over the medium term. - Non-oil primary fiscal consolidation path averaging ¾ percent of GDP annually until 2023, achieved mostly via adopting a VAT (about half of the fiscal effort) and streamlining the wage bill and spending on goods and services (the other half). - DSA: public debt is sustainable under baseline but exposed to vulnerabilities including real GDP growth and exchange rate shocks; DSA shows vulnerability to financial sector contingent liability shocks. - Recommended additional policies and structural reforms (selected): - Design and implement a credible strategy to clear domestic payments arrears during 2018 and avoid recurrence (in line with FAD TA recommendations). - Improve debt profile and reduce GFN via market-based liability management operations to lengthen average maturity; develop domestic debt market per joint Bank-Fund TA recommendations; broaden investor base; gradually replace foreign-currency and foreign-currency-indexed securities with local-currency government bonds with longer maturities; implement a robust privatization program. - Contain contingent liability risks from state guarantees to large infrastructure projects and financial sector, including conditioning BPC’s next recapitalization on advancing its restructuring plan. - Introduce a VAT on January 1, 2019, as planned; actions required include drafting legislation, defining tax parameters, adjusting AGT systems, and taxpayer communication. - Broaden the non-oil tax base and strengthen tax compliance: improve tax inspections, taxpayer registry reliability, enforce real estate taxation, and incentivize formalization. - Reduce the wage bill (share of GDP) over the medium term by reforming public administration and aligning wage increases with productivity and performance. - Adjust domestic fuel prices to reflect international fuel prices and exchange rate changes, and introduce an automatic price adjustment mechanism. - Staff estimate: gasoline and diesel prices would need to be adjusted at the pump by 100 percent to eliminate subsidies currently absorbed by Sonangol. - Proposed phased implementation: gradual adjustment over the next eight months to smooth inflation impact; remaining fuel subsidies in 2018 partially absorbed by Sonangol and partly by the 2018 budget (which allocated ¾ percent of GDP for subsidies). - Improve quality of public investment: enhance compliance with public investment legislation, prioritize and monitor execution, conduct project evaluations, strengthen appraisal/selection/monitoring/evaluation capacity. - Expand social programs for vulnerable populations: transform Cartão Kikuia into a targeted conditional cash transfer with national coverage linked to productive inclusion; improve education access/quality; strengthen primary health care delivery. - Implement a medium-term fiscal framework (MTFF) focusing on spending rules and a fiscal stabilization fund to reduce spending pro-cyclicality; ensure public investment projects are approved only when fiscal space exists for future recurrent costs and properly reflected in MTFF. - Strengthen budget formulation and execution: enforce budget ceilings and avoid reallocation across recurrent and capital spending without National Assembly approval. - Downsize public corporate sector to reduce Treasury burden and increase efficiency: close insolvent SOEs; restructure/privatize economically viable but inefficient SOEs. - Accelerate Sonangol’s restructuring to focus on core oil and gas activities: rationalize workforce and divest non-core businesses to limit future capital injection needs. *Source: IMF staff report excerpts (Angola) contained in the provided content.* ### 17. The authorities broadly agreed with staff’s recommendations. They are committed to ### cr18156 - 17. The authorities broadly agreed with staff’s recommendations. They are committed to ### Fiscal policy and use of windfalls - Authorities committed to using any revenue windfalls in 2018 to retire debt and/or clear domestic payments arrears, aiming to conclude the latter by 2019 at the latest. - Agreed need for gradual fiscal consolidation over the medium term and to mitigate debt sustainability risks by: - Bringing public debt to lower levels through fiscal consolidation. - Improving the debt profile through market-based liability management operations. - Working toward launching a privatization program; a high-level inter-ministerial commission has been formed to study and make proposals. - Sonangol’s new management expressed willingness to review and divest some non-core assets and, possibly, some participation in oil fields to refocus on core businesses and strengthen liquidity. - Authorities agreed domestic fuel prices need adjustment but noted Sonangol’s profit and commercialization margins were large and needed to be reduced prior to adjusting fuel prices; preference for phased domestic fuel price adjustments to mitigate inflationary impact. - Staff welcome of the 2 percent of GDP targeted improvement in the non-oil primary fiscal balance enshrined in the budget for 2018. - Recommendation: use fiscal revenue windfalls to clear domestic arrears and/or reduce public debt to mitigate impact of kwanza depreciation on the debt-to-GDP ratio. ### Monetary and exchange rate policies: modernizing frameworks - BNA actions taken: - Adopted base money as the new anchor for monetary policy in November 2017. - Tightened domestic monetary conditions by about 1 percent of GDP by reducing kwanza reserve requirements from 30 percent to 21 percent while eliminating the option for banks to meet this obligation via T-bills and/or loans to priority sectors. - Exited from the kwanza peg to the U.S. dollar. - Adopted a regime of (unannounced) bands for the kwanza against the euro in early 2018 and conducted two auctions that led to significant depreciation of the kwanza. - Reactivated forex auctions under revised rules where bids could fluctuate within a plus/minus 2 percentage point band around the average exchange rate of winning bids of the previous auction, de facto capping maximum depreciation at 2 percent per auction. - Forex increasingly supplied through auctions in Q1 2018; expects to phase out direct forex sales to priority sectors soon. - Assessment and developments: - External balance assessment (EBA) indicated REER was overvalued by 20 percent at end-2017. - Since beginning of the year, the kwanza has depreciated by 42 percent against the euro, in nominal terms, correcting the estimated REER overvaluation. - Parallel-official exchange rate spread remained elevated at 90 percent in March, reflecting short-term pressures as backlog of forex purchase orders is addressed. - Recommendations for further action: - Aim over time at a market-clearing exchange rate and a fully functioning forex market (per MCM TA mission recommendations). - Design and implement a strategy to eliminate existing exchange restrictions and multiple currency practices. - Eliminate excess liquidity in the banking system through active use of open market operations. - Target base money growth in line with the inflation objective while bringing and maintaining three-month T-bill rates to positive territory in real terms. - Develop robust frameworks for forecasting liquidity and managing inflation, including lengthening the horizon of (currently daily) liquidity forecasts and enhancing the inflation forecasting model. - Improve communication of monetary policy actions and objectives to anchor expectations and facilitate BNA objectives. - Authorities’ views: - Agreed greater exchange rate flexibility would help preserve external buffers and improve competitiveness. - Noted monetary policy should maintain a tightening bias with inflation expected to remain relatively high in 2018. - Expected NIR loss in 2018 would be unavoidable to mitigate possible exchange rate overshooting and address backlog of forex purchase orders. - Indicated communication with markets had already improved; agreed further work needed to provide forward guidance on reserve money as the new operational target. ### Financial sector: tackling vulnerabilities - System-wide status and vulnerabilities: - Banking system generally stable but with lingering vulnerabilities; some banks struggle with forex liquidity mismatches. - BNA introduced a new liquidity requirement to curtail banks’ daily net forex liquid position (excluding forex indexed bonds and loans) to plus/minus 20 percent of regulatory capital by March and plus/minus 10 percent by June, which impacted six banks negatively. - BNA increased threefold the minimum regulatory capital requirement for commercial banks to be met by end-2018, potentially leading to consolidation. - Banks suffer from subdued lending and, for state-owned banks, very high NPLs: BPC remains weakly capitalized, dependent on the BNA for liquidity, and operational restructuring has been slow. - Recredit (state-funded asset management company) agreed to acquire about one-third (Kz300 billion) of BPC’s distressed assets and is working with other banks to acquire an additional Kz180 billion NPLs. - Oil dependence and systemic linkages: - Banks’ business models are closely linked to the oil sector; oil price volatility and pro-cyclical public spending create feedback loops for liquidity and credit. - Government majority or minority ownership in six banks leads to contingent liabilities that peaked at about 4 percent of GDP in 2014 but have since declined to about 1 percent of GDP. - AML/CFT context: - FATF identified Angola in February 2010 as having strategic AML/CFT deficiencies; removed from FATF monitoring in February 2016 after progress. - Angola scheduled for its second mutual evaluation in 2020 against revised 2012 FATF standards. - Loss of direct U.S. dollar correspondent banking relationships (CBRs) in October 2016 made addressing AML/CFT issues imperative. - Banking system mitigated loss of CBRs using euro and nested U.S. dollar CBRs that are costly and suboptimal; further efforts warranted. - Recommended actions to strengthen the banking system: - Intensify efforts to complete the second phase of banks’ asset quality reviews to gauge capitalization needs and pursue swift NPL resolution. - Raise efficiency of state-owned banks by fully implementing restructuring plans; for BPC, the third tranche of recapitalization envisaged for 2018 should only be completed after demonstrable actions to reduce branches and personnel; in the meantime BPC should not resume lending and should focus on improving liquidity. - Revert Recredit to its original mandate of supporting BPC while adding a sunset clause to its operations. - Monitor banks closely (liquidity in foreign and local currency) and take prompt corrective action; require banks to align forex availability to potential forex deposit outflows; strengthen crisis management and emergency liquidity assistance frameworks; ensure enforcement of loan provisioning and monitoring loan restructuring; certify banks respond promptly to capital shortfalls. - Sustain efforts to monitor pressures, maintain existing CBRs, and eventually regain CBRs by aggregating metrics, engaging parent jurisdictions, advocating global actions at international fora, and fully enforcing AML/CFT regulation including risk-based supervision and addressing corruption-related risks. - Strengthen the AML/CFT framework in collaboration with other state agencies ahead of next mutual evaluation. - Authorities’ views: - Broadly agreed with staff recommendations. - BNA confirmed some banks faced temporary liquidity challenges due to the new regulation but corrective actions are being implemented. - Agreed on need to speed up portfolio cleaning but noted resolving NPLs would be contingent on Recredit, which is not under BNA supervisory purview. - Agreed on urgency in resolving BPC’s challenges, including dependence on the BNA rediscount window, and making additional support contingent on tangible restructuring progress. ### Supporting private sector–led growth and economic diversification - Constraints to private investment include: - Weak insolvency framework, weak protection of minority investors, weak contract enforcement. - Poor access to finance, large state footprint in the economy, and governance issues. - Angola scores very poorly in most measures of governance and corruption perceptions relative to SSA peers. - Authorities’ reform efforts: - National Assembly approved in a first-round vote a Law on Competition to introduce a framework to support competition and address monopolistic practices; will establish an anti-trust authority. - A draft Private Investment Law would remove FDI entry barriers and establish sunset clauses for tax incentives. - President João Lourenço created a specialized anti-corruption unit as the executive branch’s main agency for preventing and repressing corruption crimes. - With World Bank support, launched PRODESI program focusing on six priority areas, including easing constraints to doing business and seeking greater private sector participation. - Growth dividends from governance improvements: - Staff estimates suggest reforms that improve Angola’s governance to the SSA average could increase real GDP per capita growth by up to 2 percentage points annually; targeting the SSA frontier could yield larger gains. - Additional recommended measures: - Strengthen property rights and contract enforcement. - Simplify procedures and expedite issuance of work visas and residence permits. - Pass new legislation supporting private investment and strengthen government agencies for export promotion and FDI attraction. - Facilitate trade by simplifying licensing, customs and other procedures for exports and imports. - Strengthen anti-corruption agencies by building capacity, increasing material and human resources, and improving cross-agency coordination; effectively enhance and enforce anti-corruption and AML/CFT laws. - Improve SOE accountability, transparency, and oversight, including strengthening the SOEs oversight agency and ensuring audited financial statements of SOEs are produced timely and regularly published. - Mitigate constraints to firms’ access to finance by strengthening property rights and improving insolvency system efficiency. - Authorities’ views: - Broadly agreed implementation of the Government’s structural reform agenda would improve the business environment, diversify the economic and export base, and achieve higher and more inclusive growth. - Stressed that efforts to strengthen governance and fight corruption, and upgrade competition and private investment legislation, would attract FDI and foster a business-friendly environment. ### Data issues - Assessment: Data provided to the Fund are broadly adequate for surveillance but substantial improvements needed in: - Fiscal data, national accounts, balance of payments and monetary statistics. - Operational balance of SOEs and coverage of non-financial corporations for monetary statistics. - Monitoring of domestic payments arrears. - National accounts specifics: - National Institute of Statistics (INE) published annual national accounts data for the first time in 2014 but has yet to disseminate updated annual and quarterly national accounts. - Ministry of Economy and Planning issued estimates up to 2017 and these estimates remain used by authorities and staff. - INE’s nominal GDP is about 10-15 percent higher than the ministry’s. Staff estimates that adopting INE’s national accounts data would lower ratios to GDP by roughly that amount; for instance, at end-2017 the overall fiscal deficit, public debt, and current account deficit, as a percent of GDP, would be about 5¼, 57, and 4, respectively. ### Staff appraisal: outlook, risks, and policy priorities - Recent context: - Lower oil prices and an unsustainable policy mix before August 2017 elections placed the economy under stress. - Government of President João Lourenço is focused on restoring macroeconomic stability and improving governance and the business environment. - Outlook and risks: - Growth expected to accelerate modestly in 2018 and inflation to continue declining despite currency depreciation and adjustments to domestic fuel prices and utilities’ tariffs. - A relatively benign oil price outlook for 2018 would support fiscal consolidation and mitigate debt sustainability and budget financing risks. - Risks to the medium-term outlook appear balanced. - Policy priorities and recommendations: - Use fiscal revenue windfalls to clear domestic arrears and/or reduce public debt. - Gradually adjust domestic fuel prices to reflect international fuel prices and exchange rate movements to ease Sonangol’s burden. - Risks associated with large financing needs are manageable in 2018 and expected to decline through gradual fiscal consolidation, market-based liability management operations, and deepening domestic debt markets. *IMF staff report (chapter content).* ### 36. Gradual fiscal consolidation over the medium term is needed to put public debt on a ### 36. Gradual fiscal consolidation over the medium term is needed to put public debt on a ### Fiscal consolidation and public debt - Non-oil primary fiscal consolidation averaging ¾ percent of GDP annually until 2023 would be needed to reduce public debt to about 60 percent of GDP—the authorities’ medium-term fiscal anchor under the MSP—by that year. - As oil prices are expected to gradually decline over the medium term, consolidation should be underpinned by mobilizing additional non-oil revenue and rationalizing expenditure. - Main revenue policy action: introducing a VAT on January 1, 2019, as planned. - Objectives of consolidation and spending rationalization: - Create space for scaling up public investment. - Support well-targeted programs for the poor. - Improve the quality of public spending. ### Monetary policy and exchange rate management - The BNA has formally moved to base money targeting and transitioned into greater exchange rate flexibility. - Key policy levers and guidance: - Target base money growth at a level consistent with the inflation objective. - Maintain interest rates above inflation to secure monetary stability. - Gradually phase out direct forex sales, as planned. - Set up pre-announced forex auctions to guide markets. - Eliminate exchange restrictions and arrangements that can give rise to multiple currency practices. - Improve liquidity forecasting capabilities and enhance instruments and analytical toolkits. - Improve communication on the direction of monetary policy. ### Financial sector vulnerabilities and supervisory actions - Continued vigilance through banks’ monitoring and tackling vulnerabilities, including through strong safety nets, remains a priority. - Recommended supervisory and resolution measures: - BNA should intervene preemptively to reinforce capital and liquidity buffers in relatively weaker pockets of the banking system. - Strengthen governance at state-owned banks and accelerate their restructuring processes. - Complete asset quality reviews (AQRs). - Strengthen crisis management and emergency liquidity assistance frameworks. - Strengthen AML/CFT frameworks. - Set a sunset clause for Recredit operations given the concentration of NPLs in a single bank. - Recent and planned recapitalization/restructuring actions: - A new Board of Directors appointed at BPC; Government injected an additional Kz67 billion into BPC in 2017. - Government created Recredit to deal with legacy NPLs at BPC; Recredit recently acquired Kz300 billion (or a third of BPC’s NPLs). - A new capital injection is envisaged in the 2018 budget. ### Structural reforms and implementation risks - Reform focus: - Improve governance and fight corruption. - Improve the weak business environment to foster private sector-led growth and economic diversification. - Implementation considerations: - Strong political ownership at the highest levels supports reforms. - Implementation risks arise from weak institutional and implementation capacity. - Recommendation: continue building institutions with technical assistance from like-minded reformers. ### Data, transparency, and exchange restrictions - Macroeconomic data are broadly adequate for surveillance, with progress made in compilation and dissemination. - Gaps remain in fiscal and national accounts, balance of payments, and monetary and financial statistics. - Staff encouraged authorities to set a clear timetable for the removal of measures giving rise to exchange restrictions and multiple currency practices. - The authorities have not requested and staff is not recommending approval of any exchange restrictions or MCPs. ### Key outcomes and projections highlighted in supporting material - Inflation is expected to decline to 24.7 percent in 2018, assuming tight monetary conditions despite the kwanza depreciating. - The wage bill-to-GDP ratio decline: from 11.3 percent in 2015 to 7.3 percent in 2017 (adjustment of nominal wages below inflation). - The transition to base money targeting was adopted in November 2017. - Status of VAT adoption: authorities are working to ensure the adoption of a VAT on January 1, 2019, with Fund FAD TA support. ### Policy sequencing and recommended priorities - Fiscal: implement non-oil primary consolidation averaging ¾ percent of GDP annually until 2023; introduce VAT on January 1, 2019; rationalize expenditure; improve public spending quality. - Monetary/exchange rate: maintain base money targeting consistent with inflation objective; keep interest rates above inflation; phase out direct forex sales; establish pre-announced forex auctions; remove exchange restrictions and MCPs. - Financial sector: preemptive BNA intervention to bolster buffers; complete AQRs; strengthen governance and restructure state-owned banks; set sunset clause for Recredit. - Structural: pursue anti-corruption, governance improvements, and business environment reforms while strengthening implementation capacity with technical assistance. *International Monetary Fund staff summary based on the referenced consultation chapter.* ### 1. Limits on the ### 1. Limits on the availability of foreign exchange for certain invisible transactions ### 1. Limits on the availability of foreign exchange for certain invisible transactions i.e. travel expenses - Diagnosis: Potential restrictions on current account outflows. - Details: Limits apply only to travel expenses and are currently differentiated by adults (limit of Kz 25 million/year or about US$116,500/year) and minors (limit of Kz 6 million/year or about US$28,000/year). - Authorities’ view: Unlikely to be removed in the near term. - Staff comments: - Staff believes this should be removed, if forex market reforms are implemented as envisaged, although timing may depend on reinforcing mechanisms to prevent capital flight via circumvention of the current account. ### 2. Limits on unrequited transfers to foreign-based individuals and institutions - Diagnosis: Potential restrictions on current account outflows. - Details: Currently, the limit on unrequited transfers is Kz 12 million/year or about US$55,900/year. - Authorities’ view: Unlikely to be removed in the near term. - Staff comments: See number 1 above. - Legal note: Exchange restrictions under Art VIII, Section 2(a). ### 3. Discriminatory application of the 0.1 percent stamp tax on foreign exchange operations - Diagnosis: Very small fiscal impact. - Details: The total revenue from stamp taxes on banking operations, which includes the stamp tax on foreign exchange operations, represents less than 0.5 percent of total non-oil tax revenues and 0.2 percent of the general government total revenue. - Authorities’ view: Change will depend on amendments to the tax code. - Staff comments: - Staff believes that change could be implemented in the near term, but this will depend on amendments to the tax code, which requires parliamentary approval. ### 4. Operation of the priority list for access to forex at the official exchange rate - Diagnosis: Potentially large restrictions on current account outflows. - Economic impact: The economic impact might be high due to misallocation of resources. - Authorities’ view: Could be removed once the demand backlog in the forex market is reduced significantly. - Staff comments: - Staff believes this could be done by end-2018, if forex market reforms are implemented as envisaged. ### 5. Special tax of 10 percent on transfers to non-residents under contracts for foreign technical assistance or management services - Diagnosis: Fiscal impact might be important. - Authorities’ view: Change will depend on amendments to the tax code, and finding an alternative source of revenue. - Staff comments: - Staff believes that this special tax could be replaced, with no fiscal revenue loss, with an income tax (same rate) on non-residents income from technical assistance and management services (same scope), which requires parliamentary approval. ### 6–7. Lack of a mechanism to prevent potential spreads in excess of 2 percent emerging - Scope: - 6. between successful bids within the BNA’s foreign exchange auction; and - 7. for transactions that take place at the reference rate in place and the rate at which transactions take place in the foreign exchange auction on that day. - Diagnosis: Limiting the marginal rate within a two-percentage point range could result in a less-than-full allotment of the forex the central bank intends to auction and may undermine the price-discovery function of the auction. - Authorities’ view: Unlikely to be addressed in near future. - Staff comments: - Staff believes these measures should be temporary and eliminated as part of the envisaged shift toward a market-clearing exchange rate. *Source: cr18156 - 1. Limits on the* ### 0.1 percent stamp tax on ### 0.1 percent stamp tax on foreign exchange operations. ### Macroeconomic overview and growth - Real gross domestic product: 3.5 3.9 5.2 6.8 4.7 3.0 -0.8 1.0 2.2 2.5 3.6 4.2 4.7 4.9 (2010–2023) - Oil sector real GDP: -2.8 -5.6 4.3 -0.9 -2.6 6.5 -1.7 0.5 2.3 0.1 0.3 -0.3 0.0 0.0 (2010–2023) - Non-oil sector real GDP: 7.6 9.5 5.6 10.8 8.0 1.6 -0.4 1.2 2.1 3.5 5.0 6.0 6.0 6.5 (2010–2023) - Nominal gross domestic product (billions of kwanzas): 7,585 9,780 10,876 12,056 12,458 12,321 15,603 20,656 29,073 34,348 39,537 44,904 50,630 56,653 (2010–2023) - Gross domestic product (billions of U.S. dollars): 82.5 104.1 113.9 124.9 126.7 102.6 95.3 124.5 119.1 121.0 126.4 133.7 142.7 153.0 (2010–2023) - GDP per capita (U.S. dollars): 3,602 4,412 4,687 4,989 4,914 3,863 3,485 4,418 4,102 4,048 4,105 4,214 4,367 4,547 (2010–2023) - Consumer prices (annual average): 14.5 13.5 10.3 8.8 7.3 10.3 32.4 31.7 27.8 17.1 12.2 9.4 7.6 6.5 (2010–2023) - Consumer prices (end of period): 15.3 11.4 9.0 7.7 7.5 14.3 41.9 26.3 24.7 15.0 10.0 9.0 6.5 6.5 (2010–2023) ### Fiscal accounts — central government (levels and shares) - Total revenue (percent of GDP): 43.4 48.8 46.5 40.2 35.3 27.3 18.6 15.8 18.2 18.1 17.6 17.2 17.0 16.7 (2010–2023) - Oil-related revenue (percent of GDP): 33.0 39.0 37.7 30.1 23.8 15.4 8.8 8.4 11.7 10.8 9.4 8.6 8.0 7.4 (2010–2023) - Non-oil tax (percent of GDP): 7.8 7.3 6.6 8.1 9.1 9.3 7.9 5.8 5.6 6.4 7.3 7.6 8.0 8.2 (2010–2023) - Total expenditure (percent of GDP): 40.0 40.2 41.8 40.5 41.9 30.6 23.4 21.8 20.2 20.5 20.1 20.0 19.6 19.1 (2010–2023) - Current expenditure (percent of GDP): 28.6 30.0 29.4 28.5 29.4 24.7 19.2 16.2 16.2 15.6 15.2 14.9 14.4 13.7 (2010–2023) - Capital spending (percent of GDP): 11.4 10.2 12.5 12.0 12.5 6.0 4.1 5.5 4.0 5.0 5.0 5.2 5.3 5.5 (2010–2023) - Overall fiscal balance (percent of GDP): 3.4 8.7 4.6 -0.3 -6.6 -3.3 -4.8 -6.0 -2.0 -2.4 -2.5 -2.8 -2.7 -2.4 (2010–2023) - Non-oil primary fiscal balance (percent of GDP): -26.2 -26.9 -29.5 -28.2 -28.1 -15.9 -10.2 -10.8 -8.8 -8.3 -7.2 -6.7 -6.1 -5.5 (2010–2023) - Non-oil primary fiscal balance (Percent of non-oil GDP): -47.4 -51.1 -54.5 -47.0 -42.9 -20.8 -12.8 -13.4 -11.8 -10.8 -9.2 -8.3 -7.5 -6.7 (2010–2023) ### Central government operations (billions of local currency; 2010–2019) - Revenue (billions of local currency): 3,295 4,776 5,054 4,849 4,403 3,367 2,900 3,271 5,284 6,226 (2010–2019, partial series) - Taxes (billions of local currency): 3,094 4,528 4,826 4,602 4,098 3,042 2,599 2,933 5,019 5,904 (2010–2019, partial series) - Oil revenue (billions of local currency): 2,500 3,817 4,103 3,630 2,970 1,898 1,373 1,739 3,401 3,700 (2010–2019, partial series) - Non-oil revenue (billions of local currency): 594 711 723 972 1,128 1,144 1,227 1,194 1,618 2,205 (2010–2019, partial series) - Net acquisition of nonfinancial assets (billions of local currency): 868 993 1,356 1,449 1,555 736 645 1,145 1,163 1,700 (2010–2019) - Net incurrence of liabilities (billions of local currency): 261 849 505 -40 -819 -407 -748 -1,230 -594 -824 (2010–2019) - Memorandum: Non-oil primary fiscal balance (billions of local currency): -1,984 -2,627 -3,212 -3,400 -3,500 -1,965 -1,587 -2,226 -2,561 -2,840 (2010–2019) - Angola oil price (average, U.S. dollars per barrel): 77.8 108.7 110.9 107.7 96.9 50.0 40.9 51.6 62.5 58.5 (2010–2019) ### Monetary accounts and credit - Broad money (M3) (billions of local currency): 2,678 3,673 3,853 4,398 5,110 5,712 6,529 6,522 7,458 9,046 (2010–2019) - Money and quasi-money (M2) (billions of local currency): 2,628 3,566 3,848 4,396 5,104 5,704 6,525 6,518 7,454 9,042 (2010–2019) - Reserve money (billions of local currency): 803 989 1,007 1,160 1,238 1,631 1,515 1,618 1,837 2,212 (2010–2019) - Net foreign assets (billions of local currency, end of period): 1,731 2,927 3,166 3,115 3,097 3,570 3,861 2,609 3,209 3,883 (2010–2019) - Claims on private sector (billions of local currency): 1,532 1,974 2,451 2,820 2,852 3,354 3,296 3,337 4,245 5,211 (2010–2019) - Credit to the private sector (12-month percent change): 19.2 28.8 24.2 15.0 1.1 17.6 -1.8 1.3 27.2 22.8 (2010–2019) - Foreign currency deposits (share of total deposits): 53.3 52.3 50.0 42.5 35.5 33.8 32.4 32.8 36.7 34.5 (2010–2019) - FX credit to the private sector (share of total claims to private sector): 62.8 52.6 43.7 37.0 26.0 27.6 19.4 17.4 21.8 20.0 (2010–2019) ### Balance of payments and external sector - Current account (millions of U.S. dollars): 7,506 13,085 13,853 8,348 -3,748 -10,273 -4,833 -5,574 -4,151 -3,028 (2010–2019, partial series) - Trade balance (millions of U.S. dollars): 33,928 47,082 47,376 41,903 30,590 12,489 14,048 16,802 20,682 19,937 (2010–2019) - Exports, f.o.b. (millions of U.S. dollars): 50,595 67,310 71,093 68,247 59,170 33,181 27,589 32,600 39,785 37,511 (2010–2019) - Crude oil exports (millions of U.S. dollars): 48,629 64,539 68,871 65,611 56,364 31,394 25,791 30,733 37,642 35,233 (2010–2019) - Imports, f.o.b. (millions of U.S. dollars): 16,667 20,228 23,717 26,344 28,580 20,693 13,541 15,798 19,103 17,574 (2010–2019) - Services (net, millions of U.S. dollars): -17,897 -22,938 -21,339 -21,531 -23,276 -16,020 -13,168 -14,927 -15,735 -14,389 (2010–2019) - Primary income (net, millions of U.S. dollars): -8,087 -9,697 -10,422 -9,900 -8,850 -5,908 -5,259 -6,444 -8,125 -7,591 (2010–2019) - Financial account (millions of U.S. dollars): 1,646 4,019 8,886 8,203 487 -6,902 -1,373 1,939 -549 -3,925 (2010–2019) - Direct investment (millions of U.S. dollars): 4,568 5,116 9,639 13,164 2,331 -8,235 -1,357 -1,603 -1,804 -2,200 (2010–2019) - Gross international reserves (millions of U.S. dollars, end of period): 19,679 27,517 32,156 32,231 27,795 24,419 24,353 17,938 14,338 15,238 (2010–2019) - Gross international reserves (months of next year's imports): 5.4 7.2 7.8 7.2 8.8 10.7 9.2 6.0 5.2 5.8 (2010–2019) - Current account (percent of GDP): 9.1 12.6 12.2 6.7 -3.0 -10.0 -5.1 -4.5 -3.5 -2.5 (2010–2019) ### Public and external debt, oil sector indicators - Total public sector debt (gross, percent of GDP): 44.3 33.8 29.9 32.9 40.7 64.6 79.6 64.8 72.9 69.9 (2010–2019, partial series) - Sonangol debt (percent of GDP): 9.1 9.5 7.9 10.9 12.5 14.2 9.9 3.9 4.5 4.2 (2010–2019, partial series) - Oil and gas production (millions of barrels per day): 1.758 1.660 1.730 1.716 1.672 1.780 1.744 1.757 1.798 1.800 1.800 1.800 1.800 1.800 (2010–2023) - Oil and gas exports (billions of U.S. dollars): 49.4 65.6 69.7 66.9 57.6 31.9 26.2 31.2 38.3 36.0 34.6 33.6 33.3 33.3 (2010–2023) - Angola oil price (average, U.S. dollars per barrel): 77.8 108.7 110.9 107.7 96.9 50.0 40.9 51.6 62.5 58.5 56.0 54.5 54.0 54.0 (2010–2023) - Brent oil price (average, U.S. dollars per barrel): 79.6 111.0 112.0 108.8 98.9 52.4 44.0 54.4 64.7 60.7 58.0 56.6 56.2 56.2 (2010–2023) ### Financial sector indicators (selected) - Regulatory capital/Risk-weighted assets (percent): 19.5 19.9 19.8 19.4 18.2 18.7 19.2 20.6 22.0 23.7 23.5 23.3 18.9 (Dec-13 to Dec-17 series) - Core Capital (Tier 1)/Risk-weighted assets (percent): 14.3 13.9 13.8 13.7 12.8 13.4 14.3 15.4 16.4 18.2 18.1 17.8 17.6 (Dec-13 to Dec-17 series) - Nonperforming loans to gross loans (percent): 9.7 11.7 11.6 12.9 13.3 15.2 13.1 15.3 27.6 26.3 27.8 28.5 28.8 (Dec-13 to Dec-17 series) - Return on Assets (ROA): 1.4 0.6 1.7 0.7 1.2 1.7 2.2 0.4 0.6 1.7 2.0 1.9 2.1 (Dec-13 to Dec-17 series) - Return on Equity (ROE): 10.9 5.0 12.9 5.2 9.8 13.1 15.6 2.9 4.2 11.1 12.4 12.3 14.5 (Dec-13 to Dec-17 series) - Liquid Assets/Total Assets (percent): 30.1 33.9 39.7 38.2 41.2 41.3 46.3 41.3 40.0 42.4 40.6 40.8 33.8 (Dec-13 to Dec-17 series) - Total Credit/Total Deposits (percent): 63.3 59.9 59.0 57.0 56.1 57.6 51.6 50.9 50.6 50.5 51.8 52.0 49.3 (Dec-13 to Dec-17 series) *Source: Angolan authorities and IMF staff estimates and projections.* ### Annex I. External Sector Balance Assessment ### Annex I. External Sector Balance Assessment ### Overview - Angola’s external position in 2017 was weaker than implied by medium-term fundamentals. - Significant imbalances persisted in the foreign exchange (forex) market, due largely to an unsustainable kwanza peg to the U.S. dollar and inefficient allocation of forex by the National Bank of Angola (BNA). - The BNA announced a new flexible exchange rate regime. Strict implementation of the new exchange rate system alongside supportive fiscal and monetary policies should address forex market imbalances; structural reforms will be needed to address competitiveness issues. ### A. External Balance Sheets - Net international investment position (NIIP) at end-2017: near-balance but negative position of about 1 percent of GDP. - Significant decline in official reserve assets following a re-pegging of the kwanza to the U.S. dollar in April 2016 and pre-election actions contributed to the drop. - Outlook: With better prospects for the oil price, greater exchange rate flexibility, and supportive fiscal and monetary policies, NIIP should recover in the medium term. ### B. Current Account - Prior to the oil price fall, CA surpluses averaged 10 percent of GDP during 2010–2013, underpinned by large trade surpluses. - Since mid-2014, the CA shifted into deficits, peaking at 10 percent of GDP in 2015 and narrowing to 5¼ percent of GDP in 2017. - Between 2014–17: - Imports contracted by 40¼ percent. - Exports declined by 44½ percent owing to lower oil prices. - Trade surpluses declined from an average of 40¼ percent of GDP during 2010–2013 to 13¾ percent in 2017. - EBA-lite estimates: - Cyclically adjusted CA norm: about minus 1.6 percent of GDP. - CA gap: about 3 1/3 percent of GDP (including a policy gap of about 2.2 percent of GDP). - Staff assessment: 2017 external position weaker than medium-term fundamentals and desirable policies but improved relative to last Article IV. ### C. Real Exchange Rate (REER) - Nominal official exchange rate against the U.S. dollar depreciated by over 40 percent since mid-2014; most depreciation occurred in 2015 through Q1 2016. - BNA repegged the currency to the U.S. dollar in April 2016. - On a REER basis: - Kwanza depreciated cumulatively by only 4.1 percent during 2014–16 (high domestic inflation offset nominal moves). - Average REER appreciated by 30½ percent in 2017 (significant above-trend appreciation). - Parallel market: - Average nominal exchange rate in the parallel market depreciated by 73½ percent since September 2014. - Parallel-to-official exchange rate spread about 150½ percent at end-2017. - After adoption of a flexible exchange rate and a 30 percent depreciation of the kwanza to the U.S. dollar, the spread narrowed to 90 percent in March 2018. - REER valuation estimates: - EBA-lite REER regression: REER overvalued by 26¼ percent in 2017. - CA regression approach: REER overvaluation of about 16 percent. - Staff assessment (broad range): REER overvalued by about 20 percent in 2017. - Other indicators: - A panel regression of PPP prices vs. the U.S. indicates Angola’s PPP price remains higher by 7½-13½ percent than predicted by its per capita income relative to the U.S. ### D. Capital Flows and Policy Measures - Angola’s CA deficit was financed mainly by a depletion of foreign exchange reserves in 2017. - Lower oil prices led to a standstill in upstream investment; deeper-water developments require higher oil prices for break-even. - A large share of FDI flows reflect liquidity management by oil companies in the context of lack of local capital markets. - Overall risk of reversal of capital flows assessed as very limited. - Other financial flows (portfolio investment, trade credits, currency and deposits) mainly reflect investments of public sector funds abroad and banking sector trade facilitation. - Non-residents’ investment in Angola is largely limited to FDI and recently purchases of long-term government securities issued abroad due to a closed capital account for other flows. ### E. Foreign Exchange Intervention and Reserves Adequacy - Net international reserves (NIR) fell to US$13¼ billion, equivalent to 4¼ months of next year’s imports in 2017. - Gross reserves reached US$17¾ billion, equivalent to 6¾ months of imports (90¾ percent—ARA metric). - Existence of capital controls is generally consistent with reserves below the 100 percent threshold; restrictions on current transactions indicate underlying weak reserve dynamics. - BNA sold an additional 17¼ percent of forex to the market in 2017 compared to 2016, prioritizing strategic imports ahead of the elections. - Despite interventions reducing official reserves, buffers remain substantial given sovereign wealth fund (FSDEA) assets of about US$5 billion. - Even at the peak of the crisis, the BNA refrained from transferring buffers from the Fund. *Source: cr18156 - Annex I. External Sector Balance Assessment* ### 22.6 percent in the first four months of 2016, the kwanza was stabilized vis-à-vis the U.S. dollar since ### cr18156 - 22.6 percent in the first four months of 2016, the kwanza was stabilized vis-à-vis the U.S. dollar since ### Exchange rate developments and exchange/forex regime - The kwanza was stabilized vis-à-vis the U.S. dollar since mid-April 2016; the de facto exchange rate arrangement was reclassified to stabilized arrangement from other managed arrangement, effective April 15, 2016. - In January 2018, the BNA adopted a regime of (unannounced) bands for the fluctuation of the kwanza against the euro and conducted two auctions under that system that led to significant depreciation of the kwanza. - To stem exchange rate overshooting, the BNA set a new forex auction system in which bids could fluctuate within a plus/minus 2 percentage point band around the average exchange rate of winning bids of the previous auction, de facto capping the maximum depreciation of the exchange rate at 2 percent per auction. - While the kwanza has depreciated around 30 percent against the U.S. dollar since early January 2018, more observations are necessary to determine its new trend. - Until the next review, the de facto exchange rate arrangement remains classified as a stabilized arrangement. ### Exchange restrictions, multiple currency practices, and Article XIV/Article VIII measures - Angola continues to maintain restrictions on the making of payments and transfers for current international transactions under the transitional arrangements of Article XIV, Section 2. - Measures maintained pursuant to Article XIV: - (i) limits on the availability of foreign exchange for invisible transactions i.e. travel expenses; and - (ii) limits on unrequited transfers to foreign-based individuals and institutions. - Three exchange restrictions subject to Fund jurisdiction under Article VIII, Section 2(a): - (i) the discriminatory application of the 0.1 percent stamp tax on foreign exchange operations by natural persons; - (ii) the operation of the priority list for access to U.S. dollars at the official exchange rate; and - (iii) a special tax of 10% on transfers to non-residents under contracts for foreign technical assistance or management services. - Three multiple currency practices subject to approval under Article VIII, Section 3 arising from the lack of a mechanism to prevent potential spreads in excess of 2 percent emerging: - (i) between successful bids within the BNA’s foreign exchange auction; - (ii) for transactions that take place at the reference rate in place and the rate at which transactions take place in the foreign exchange auction on that day; and - (iii) the discriminatory application of the 0.1 percent stamp tax on foreign exchange operations by natural persons. ### Article IV consultation and IMF representation - Article IV Consultation: Angola is on the standard 12-month cycle. The next Article IV Consultation is scheduled to be completed by May 2019. - Resident Representative: Mr. Max Alier has been the IMF Resident Representative in Angola since May 2015. ### Technical assistance (selected activities and years) - Monetary and Capital Markets (MCM): - Technical Assistance on FX Market Operations 2018 - Basel II Implementation 2018 - Technical Assistance on Correspondent Banking Relationships 2016 - AFRITAC South: Liquidity Management (various missions) 2015–2018 - AFRITAC South: Inflation Forecasting Framework (various missions) 2015–2018 - AFRITAC South: Macro-Prudential Analysis 2016, 2017 - Capital Account Liberalization Workshop 2015 - Technical Assistance Needs Assessment 2014 - Technical Assistance Following the FSAP 2013 - AFRITAC South: Risk-Based Supervision Framework 2013 - Fiscal Affairs Department (FAD): - VAT Implementation 2016, 2017 - MTFF (incl. FRL and Fiscal Rules) 2014, 2016 - Public Investment Management 2015 - Subsidy Reform 2014 - Tax Policy and Administration 2014, 2015 - AFRITAC South missions 2014–2018 (various topics) - Statistics Department (STA): - Government Finance Statistics 2017 - External Sector Statistics 2015 - Monetary and Financial Statistics (various missions) 2014, 2016, 2017 - AFRITAC South: Price Statistics 2017 - AFRITAC South: National Accounts (various missions) 2015–2018 - Institute for Capacity Development (ICD): - Financial Programming and Policies for Angolan Officials 2014 - Legal Department: - AML/CFT Framework 2017, 2018 ### Statistical issues, data adequacy, and publication - General: Data provision has shortcomings but is broadly adequate for surveillance; concerns remain about data quality and timeliness. - Improvements and gaps: - BNA and INE have made considerable progress in providing more extensive and timely data; the Ministry of Finance’s data delivery and publication could be significantly improved. - National Accounts: INE has yet to resume dissemination of annual and quarterly national accounts after resolving quality issues noted in May 2017; annual GDP at current prices and volumes use chained-linking based on 2002 benchmarks; INE is updating benchmarks and finalizing non-observed economy estimates with Fund TA. - Household survey on employment, expenditure and income is expected to be concluded by 2019Q1. - Price statistics: INE publishes monthly CPI and WPI reports; the CPI index was expanded to include consumer prices in all 18 provinces. - Government Finance Statistics: Timeliness and quality need substantial improvement; Ministry of Finance should publish consolidated and detailed fiscal data regularly (at least quarterly) and publish non-oil fiscal revenues monthly; fiscal data should be published in electronic format instead of PDF images. - Monetary and Financial Statistics: Depository corporation survey and BNA balance sheet data revised based on SRFs; BNA delivers data to the IMF on a timely basis and publishes monthly comprehensive data. - Financial Sector Surveillance: BNA’s Financial Soundness Indicators are published monthly but not reported to STA for publication (latest submitted data: 2015Q4); the Financial Stability Report was last published in mid-2017. - External Sector Statistics: BOP and IIP compiled in line with BPM6 recommendations; compiled and disseminated annually with a lag of about nine months; quarterly reporting of IIP and BOP started in January 2017 but is only done once in a year; data coverage and consistency issues remain, including gaps in private sector external debt transactions and positions. ### Public debt and Debt Sustainability Analysis (DSA) — key findings and baseline assumptions - Recent debt trajectory: - Public debt increased from 41 percent of GDP in 2014 to 64 percent of GDP in 2017. - Public debt is expected to peak at 73 percent of GDP in 2018. - Public debt is projected to decline to about 60 percent of GDP over the medium term under the baseline. - Drivers of debt increases: - Exchange rate depreciation, fiscal deficit, and recapitalization of state-owned enterprises and banks. - Vulnerabilities and mitigating factors: - Stress tests show high vulnerability to growth, exchange rate, oil price, and contingent liability shocks. - Risks mitigated by availability of buffers (government deposits and international reserves), financing on semi-concessional terms, and strong ownership of ongoing reforms. - Angola’s gross external debt (public and publicly-guaranteed) is projected to remain roughly stable at around 40 percent of GDP over the medium term. - Baseline macro assumptions in the DSA: - Growth is expected to recover modestly to 2¼ percent in 2018 and pick up over the medium term to about 5 percent. - Inflation is expected to remain high at 24½ percent (y/y) in 2018, and gradually decline to single digits over the medium term. - Fiscal consolidation entails frontloading in 2018: 2 percent of GDP improvement in the non-oil primary fiscal balance in 2018. - Fiscal consolidation thereafter averages ¾ of one percent of GDP improvement per year. - External current account deficit would remain modest at about 3 percent of GDP over the medium term. - Financing strategy for 2018: - Greater reliance on domestic sources and financing from bilateral creditors like China, multilaterals, commercial banks, and issuance of a US$2 billion Eurobond. - Angola’s Eurobond was placed at a 9½ percent annual yield in November 2015 and is trading close to historically low yields. *Prepared by the staff of the International Monetary Fund; April 25, 2018.* ### 4. Public debt increased by almost 25 percentage points of GDP between 2014 and 2017, ### 4. Public debt increased by almost 25 percentage points of GDP between 2014 and 2017 ### Overview - Public debt rose by almost 25 percentage points of GDP between 2014 and 2017, reflecting: - impact of exchange rate depreciation in 2015-16, - primary fiscal deficit, - recapitalization of state-owned enterprises and banks. - At end-2017: - external debt accounted for over half of total debt; - FX-denominated or linked debt amounted to about 80 percent of total debt; - net public debt—gross debt minus government’s cash deposits—stood at 59 percent of GDP; - NPV of debt was estimated at 55¾ percent of GDP, reflecting external financing on semi-concessional terms. ### Baseline projections - Under the baseline scenario: - public debt is projected to peak at about 73 percent of GDP in 2018 and would gradually converge to the authorities’ target over the medium term. - the projected increase in 2018 is mostly driven by exchange rate adjustment and clearance of about 4½ percent of GDP in domestic payments arrears. - envisaged fiscal consolidation and stronger nominal GDP and fiscal revenues in local currency—boosted by higher oil prices and currency depreciation—would contain the increase in debt-to-GDP ratios. - additional fiscal consolidation assumed for the medium term would gradually improve the non-oil primary fiscal balance and bring public debt to the authorities’ target of 60 percent of GDP at the end of the projection horizon. - Public Debt Dynamics, 2018 (In percent of GDP): - Debt at end-2017: 64.1 - Impact of nominal depreciation: 31.2 - Impact of nominal GDP growth 1/: -29.0 - Overall deficit: 2.0 - Other 2/: 4.6 - Debt at end-2018: 72.9 - 1/ Nominal GDP growth (in percent): 40.8 - Real growth: 2.1 - GDP deflator: 37.9 - Non-oil GDP deflator: 27.9 - Oil GDP deflator: 78.3 - 2/ Recapitalization needs, arrears clearance, deposit drawdown. ### Stress tests and vulnerabilities - Angola’s elevated debt burden indicators and unfavorable debt profile expose debt dynamics to macroeconomic shocks and pose risks to debt sustainability: - In 2018, Angola’s debt-to-GDP ratio and gross financing needs (GFN)-to-GDP ratio would exceed the Fund’s MAC-DSA high-risk benchmarks for emerging economies. - Debt profile features short-term domestic debt maturities and large share of FX-denominated or linked instruments. - Baseline debt path is vulnerable to the following macroeconomic shocks: - Growth shock: - If projected real GDP growth rates are lowered by half standard deviation, the debt ratio would remain above the high-risk benchmark of 70 percent of GDP until 2020 and above 65 percent of GDP over the medium term. - Real exchange rate shock: - A one-time real depreciation of 30 percent would increase the debt ratio to over 80 percent of GDP on impact and debt would remain above the high-risk benchmark for emerging economies over the entire projection horizon. - Note: a large exchange rate depreciation would boost fiscal revenue and nominal GDP—factors not considered in this standardized shock scenario. - Combined shock: - A combination of various macro-fiscal shocks would persistently keep the debt ratio close to 100 percent of GDP and GFN well above the high-risk benchmark for emerging economies. - Financial sector contingent liability shock: - A one-time increase in non-interest expenditures equivalent to 10 percent of banking sector assets would also keep both debt and GFN ratios elevated over the next few years. - Oil price shock: - A customized scenario featuring a one-time 30 percent drop in the projected price of the Angolan oil basket in 2019 was considered. - Under this scenario, debt burden-to-revenue and GFN-to-GDP ratios would jump in 2019 and debt-to-GDP ratio would remain persistently elevated. - The oil price under this scenario is US$42 per barrel. - Heat map and fan charts: - Show debt and GFN breach their corresponding high-risk benchmarks in both baseline and stress test scenarios. - Flags risks stemming from short maturities of domestic debt and external debt. - Fan charts depict debt-to-GDP evolution under symmetric and asymmetric risk distributions; asymmetric distribution illustrates debt would exceed the high-risk benchmark with high likelihood. ### Mitigating factors and policy directions - Risks to debt sustainability are mitigated by: - availability of buffers (liquid government deposits and international reserves), - ability to tap financing on semi-concessional terms, - government’s willingness to implement structural reforms. - With Fund-Bank TA support, the government is committed to a prudent debt management strategy and developing the domestic debt market to: - replace gradually government domestic securities denominated in/linked to foreign currency with local currency government bonds with increasingly longer maturities, - improve the debt profile and contain GFN, thus mitigating risks to debt sustainability. - Notes and caveats: - Part of government deposits at the BNA, which include the oil funds, could be used to reduce financing needs but under strict conditions and with the approval of the President of the Republic. - The residuals from the contribution to changes in public debt mainly reflect exchange rate depreciation. ### External debt analysis - Debt coverage in the external DSA includes external debt of the general government and debt of SOEs Sonangol and TAAG. No information is yet available on private sector external debt. - Under the baseline scenario: - Angola’s external debt is projected to remain at around 40 percent of GDP over the projection years. - Its share on total debt would remain elevated over the medium term, as the government would continue financing the bulk of public investment with external credit lines. - This strategy would reduce domestic debt rollover risks. - The baseline scenario also assumes Sonangol and TAAG would not accumulate new external debt. - External financing requirements are projected to remain manageable at about 6–7 percent of GDP over the medium term. ### Key statistics and breakdown (2014–2017, in percent of GDP) - Domestic debt: - 2014: 12.0 - 2015: 24.9 - 2016: 32.5 - 2017 Prel.: 28.8 - Loans: 2.0; 1.1; 1.1; 0.8 - Treasury bills: 3.0; 3.5; 6.0; 5.6 - Treasury bonds: 7.0; 20.4; 25.4; 22.4 - Of which: local currency: 6.6; 8.1; 7.6 - Of which: FX denominated or linked: 13.8; 17.2; 14.8 - External debt: - 2014: 28.6 - 2015: 39.7 - 2016: 47.3 - 2017 Prel.: 35.2 - Of Which: general government: 16.1; 25.5; 37.4; 31.3 - Of which: Sonangol: 12.5; 14.2; 9.9; 3.9 - Total public debt: - 2014: 40.7 - 2015: 64.9 - 2016: 79.8 - 2017 Prel.: 64.1 - Memorandum items: - Debt denominated / indexed to FC (share of total): 82.8; 80.9; 78.1 - Net public debt: 31.0; 53.4; 69.1; 59.2 - NPV of public debt 1/: 55.7 - 1/ Discount rates: average Eurobond yield for external debt and projected non-oil GDP growth for domestic debt in local currency. *Source: Angolan authorities and IMF staff calculations.* ### 13. Angola’s external debt remains vulnerable to shocks, especially to unfavorable current account ### 13. Angola’s external debt remains vulnerable to shocks, especially to unfavorable current account ### Key vulnerabilities and risks - External debt is vulnerable to shocks, especially unfavorable current account developments (e.g., unforeseen export losses or spikes in imports) and large exchange rate depreciations. - These risks would be mitigated by the government’s efforts to implement structural reforms to diversify the economy, boost FDI, and strengthen external buffers. - Gross international reserves: backlog of foreign exchange purchase orders presently estimated at US $2.5 billion; reserves projected to decline from 6 months to 5.2 months of import cover at end-2017. - Current account deficit narrowed from 10.0 percent of GDP in 2015 to 4.5 percent of GDP in 2017. - Real GDP growth: 0.1 percent in 2016; recovered to 1.0 percent in 2017; projected to edge up to 2.2 percent in 2018. - Inflation (y-o-y): average of 41.2 percent in 2016; 26.3 percent in 2017; forecast to further decline to 23 percent in 2018. - Policy rate: Banco Nacional de Angola raised policy rate by 200 basis points to 18 percent at end-November 2017. - Exchange rate policy: BNA abandoned exchange rate peg to the U.S. dollar in early 2018 and introduced a more flexible exchange rate regime. ### Debt dynamics, indicators, and baseline projections (selected figures) - Public sector definition: Central government plus public companies. - Nominal gross public debt (percent of GDP), baseline projections (as of March 27, 2018): 2016: 33.5; 2017: 79.8; 2018: 64.1; 2019: 72.9; 2020: 69.9; 2021: 67.3; 2022: 65.4; 2023: 62.5; 2023 (another column) 60.1. - Nominal gross public debt excluding Sonangol: 24.0 (2016) and 69.9 (2017) then 60.1 (2018) etc. (figures reported in the source table). - Net public debt (percent of GDP): 22.1 (2016); 69.1 (2017); 59.2 (2018); 69.5 (2019); 67.4 (2020); 65.0 (2021); 63.2 (2022); 60.5 (2023); 58.2 (2023, other column in table). - Public gross financing needs (percent of GDP): 2016: 9.1; 2017: 17.5; 2018: 19.0; 2019: 16.5; 2020: 14.3; 2021: 13.6; 2022: 13.8; 2023: 12.9; 2023 (other column) 11.9. - Effective interest rate (in percent): 2016: 6.6; 2017: 5.9; 2018: 5.4; 2019: 10.0; 2020: 7.4; 2021: 7.2; 2022: 7.5; 2023: 7.4; later 7.3 (as in table). - Change in gross public sector debt (cumulative, percent of GDP): 2016: 5.1; 2017: 15.2; 2018: -15.8; 2019: 8.8; 2020: -3.0; 2021: -2.6; 2022: -1.9; 2023: -2.8; cumulative through 2023: -4.0. - Identified debt-creating flows (percent of GDP): 2016: 1.6; 2017: 16.5; 2018: -13.2; 2019: -17.9; 2020: -9.5; 2021: -6.7; 2022: -5.2; 2023: -4.7; cumulative: -4.2; cumulative total shown -48.2 (per table row). - Primary (noninterest) revenue and grants (percent of GDP): 41.4 (2016); 18.6 (2017); 15.8 (2018); 18.2 (2019); 18.1 (2020); 17.6 (2021); 17.2 (2022); 17.0 (2023); cumulative 16.7; total 104.8. - Primary (noninterest) expenditure (percent of GDP): 40.2 (2016); 20.4 (2017); 18.5 (2018); 15.7 (2019); 16.0 (2020); 15.7 (2021); 15.6 (2022); 15.3 (2023); cumulative 15.0; total 93.3. - Primary balance (percent of GDP): 2016: -1.3; 2017: 1.8; 2018: 2.7; 2019: -2.5; 2020: -2.1; 2021: -1.9; 2022: -1.6; 2023: -1.6; cumulative -1.7; cumulative primary balance -11.4 (table row). - Public debt composition: by maturity—projection shows medium and long-term and short-term shares over 2016–2023; by currency—local currency-denominated and foreign currency-denominated shares shown in projection figures (figures in the source depict trends). - Public debt held by non-residents, short-term debt share, and foreign-currency denominated debt are tracked against risk-assessment benchmarks in the heat map (benchmarks include 15 and 45 percent for public debt held by non-residents; 20 and 60 percent for foreign-currency denominated debt; 0.5 and 1 percent for change in share of short-term debt). ### External debt sustainability and stress tests (selected outcomes) - External debt (percent of GDP), baseline and scenarios: baseline shown as 38 (in figures), historical scenario higher (examples: historical scenario peaks shown above baseline in figures). - External debt vulnerabilities highlighted in bound tests: non-interest current account shock shows large increases in external debt under adverse scenarios. - Table 1, External Debt Sustainability Framework, 2013–2023 (selected numbers): - Baseline external debt: 2013: 23.6; 2014: 27.4; 2015: 35.3; 2016: 46.7; 2017: 35.2; 2018: 39.8; 2019: 40.5; 2020: 40.1; 2021: 39.6; 2022: 38.9; 2023: 38.4. - Change in external debt (percent of GDP): 2013: 4.6; 2014: 3.8; 2015: 7.9; 2016: 11.4; 2017: -11.4; 2018: 4.6; 2019: 0.7; 2020: -0.4; 2021: -0.5; 2022: -0.7; 2023: -0.4. - Identified external debt-creating flows (percent of GDP): -18.9 (2013); 0.8 (2014); 24.5 (2015); 9.2 (2016); -5.2 (2017); 4.2 (2018); 3.4 (2019); 2.5 (2020); 2.6 (2021); 3.5 (2022); 3.5 (2023). - Current account deficit, excluding interest payments (percent of GDP): 2013: -7.0; 2014: 2.4; 2015: 9.2; 2016: 3.6; 2017: 3.0; 2018: 2.0; 2019: 0.7; 2020: 0.2; 2021: 0.5; 2022: 0.8; 2023: 0.9. - Exports (percent of GDP): 2013: 55.7; 2014: 48.0; 2015: 33.6; 2016: 29.7; 2017: 27.1; 2018: 34.5; 2019: 32.1; 2020: 29.7; 2021: 27.5; 2022: 27.5; 2023: 27.5. - Imports (percent of GDP): 2013: 39.4; 2014: 42.2; 2015: 37.0; 2016: 28.8; 2017: 25.5; 2018: 30.3; 2019: 27.5; 2020: 25.0; 2021: 23.5; 2022: 22.5; 2023: 21.5. - External debt-to-exports ratio (percent): 2013: 42.4; 2014: 57.0; 2015: 105.1; 2016: 157.3; 2017: 130.3; 2018: 115.4; 2019: 126.2; 2020: 135.2; 2021: 144.0; 2022: 150.0; 2023: 156.7. - Gross external financing need (in billions of US dollars): -6.2 (2013); 6.8 (2014); 12.9 (2015); 7.3 (2016); 9.2 (2017); 11.7 (2018); 10.0 (2019); 9.0 (2020); 8.3 (2021); 9.1 (2022); 10.1 (2023). - Gross external financing need (percent of GDP): -5.0 (2013); 5.4 (2014); 12.6 (2015); 7.7 (2016); 7.4 (2017); 9.8 (2018); 8.3 (2019); 7.1 (2020); 6.2 (2021); 6.4 (2022); 6.6 (2023). - Stress tests reported: Primary Balance Shock; Real GDP Growth Shock; Real Interest Rate Shock; Real Exchange Rate Shock; Combined Shock; Contingent Liability Shock; Oil Price Shock. Charts indicate gross nominal public debt responses under these shocks (visuals in source). ### Forecast track record and realism of baseline assumptions - Forecast errors (actual-projection) distributions shown for Real GDP Growth, Primary Balance (percent of GDP), and Inflation (GDP deflator). Angola median forecast errors (2007–2015): Real GDP growth median forecast error: -2.80 (percent), percentile rank 5 percent; Primary Balance median forecast error: -5.37 (percent of GDP), percentile rank 3 percent; Inflation (Deflator) median forecast error: -4.52 (percent), percentile rank 0 percent. - Assessment of projected fiscal adjustment: 3-year CAPB adjustment and 3-year average level of CAPB distributions reported; Angola has a percentile rank of 23 percent for 3-year CAPB adjustment and 49 percent for 3-year average CAPB level. ### Policy actions and recommendations noted in the content - Authorities launched the Macroeconomic Stabilization Plan (MSP) in January 2018 and the second National Development Plan (NDP 2018-2022) in April 2018. - MSP objectives: address macroeconomic imbalances, insulate the fiscal position from volatile oil revenues, accelerate external adjustment through greater exchange rate flexibility. - NDP objectives: restore macroeconomic stability, foster sustainable inclusive growth, boost competitiveness in the non-oil sector, stabilize public debt, and improve governance and institutions. - Recommended mitigation measures (implicit in staff appraisal and scenario analysis): - Implement structural reforms to diversify the economy and boost FDI. - Strengthen external buffers to reduce vulnerability to current account shocks. - Preserve fiscal space to support priority infrastructure investments needed to boost non-oil GDP growth. - Continue monetary policy stance and exchange rate flexibility to dampen inflationary pressures. *Source: IMF staff and Angola authorities, as presented in the chapter "Angola’s external debt remains vulnerable to shocks, especially to unfavorable current account" (as of March 27, 2018 and May 18, 2018 statements).* ### 3. Fiscal Policy and Debt Management ### 3. Fiscal Policy and Debt Management ### Fiscal developments and outlook - Following considerable fiscal adjustment efforts made in 2016, the fiscal stance was loosened in 2017, mostly reflecting expenditure pressures in the run-up to the August 2017 elections. - Non-oil primary fiscal deficit: - 2016: 10.2 percent of GDP - 2017: 10.8 percent of GDP - Public and publicly guaranteed debt: - 2017: 64 percent of GDP - Buildup of payments arrears currently estimated at 4 percent of GDP - 2018 budget and medium-term strategy: - 2018 budget contemplates measures to scale back public spending, intensify non-oil revenue mobilization, and boost public expenditure efficiency. - Targeted reduction of the non-oil primary deficit equivalent to 2 percentage points of GDP in 2018. - MSP objective: lower the public debt-to-GDP ratio to nearly 60 percent over the medium term. - Authorities committed to use windfall oil revenues to clear domestic arrears and reduce public debt. ### Revenue mobilization and VAT implementation - Strategy to diversify and intensify non-oil revenue sources to create fiscal space and insulate the fiscal position from oil price volatility. - Measures to widen the tax base and enhance tax compliance include: - Introducing a VAT on January 1, 2019 - Improving tax inspections - Enforcing real estate taxation - Creating incentives to unlock tax potential from the informal sector - VAT preparatory actions: - Drafting legislation - Defining tax parameters - Putting in place appropriate systems and IT infrastructure with the support of Fund Technical Assistance (TA) ### Expenditure-side reforms and efficiency - Policy priorities: - Rebalance expenditures towards productivity-lifting sectors - Streamline recurrent expenditures, notably the wage bill and goods and services - 2018 budget provides for elimination of subsidies in the energy and water sectors. - Other priorities: - Strengthen capacity for improved public investment efficiency - Enhance oversight of fiscal risks emanating from state-owned enterprises (SOEs) - Fully implement a medium-term fiscal framework (MTFF) by 2019 to reduce pro-cyclicality of spending ### Debt management and arrears clearance - Use of windfall oil revenue earmarked to clear domestic arrears and reduce public debt. - Public and publicly guaranteed debt reached 64 percent of GDP in 2017 with arrears at 4 percent of GDP. - Commitment to fiscal consolidation measures targeted to reduce debt ratio toward nearly 60 percent of GDP over the medium term. ### Monetary, exchange rate, and financial sector linkages (as reported in the same unit) - BNA actions and monetary policy adjustments: - November 2017: BNA adopted base money as the new monetary policy anchor. - January 2018: adoption of a flexible exchange rate regime. - Resulting depreciations of the kwanza: 30 percent against the U.S. dollar and 42 percent against the Euro. - Spread between parallel and official exchange rates narrowed from 150 percent in 2017 to nearly 85 percent in April 2018. - Ongoing priorities affecting fiscal and debt dynamics: - Rebalance the foreign exchange market and increase reliance on exchange rate flexibility as a shock absorber. - Strengthen capacity for liquidity forecasting and management, and for inflation modeling and forecasting. - Develop strategies to eliminate exchange restrictions and multiple currency practices. - Upgrade macro-prudential regulations and strengthen the AML/CFT framework. - Shift to risk-based supervision and address high NPLs and rebuild balance sheets of state-owned banks. - Financial sector support measures with fiscal implications: - 2018 budget envisages injecting a third tranche of the recapitalization funds for Banco de Poupança e Crédito (BPC). - Recredit to continue acquiring NPLs of BPC and other banks. - Continued efforts to mitigate loss of correspondent banking relationships (CBRs) with international engagement and supervisory improvements. ### Structural reforms with fiscal relevance - Priorities to improve competitiveness, mobilize non-oil revenues for infrastructure, and incentivize private sector development. - Legislative and programmatic actions: - National Assembly approved a Competition Law and a new Private Investment Law in April and May 2018, respectively. - Launch of a program for export diversification and import substitution (PRODESI) to simplify business licensing, property registration, and contract enforcement; facilitate export processing; and enhance investment-promotion capacity. - Other measures to boost economic activity and revenues: - Expedited visa procedures for citizens of 61 countries and visa exemptions for 5 others to boost tourism and FDI. - Governance and anti-corruption: - Series of investigations into possible mismanagement in several public entities, with dismissals of high-level officials. - Establishment of a specialized anti-corruption unit in March 2018. - Institutional capacity and data improvements: - Efforts to improve timeliness and quality of data, including enhanced recording of debt statistics and coverage of non-financial corporations in monetary statistics. ### Concluding observations - Authorities remain committed to advancing far-reaching structural reforms to achieve durable macroeconomic stability, tackle structural challenges to broad-based growth, and improve institutions. - Reform implementation guided by the MSP and the NDP (2018-2022). - Continued Fund engagement and policy advice seen as essential to support the authorities’ reform agenda going forward. *Source: cr18156 - 3. Fiscal Policy and Debt Management* --- _Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18156.pdf_