## cr18370 ## Source details **Canonical URL:** [cr18370](https://www.imf.org/-/media/files/publications/cr/2018/cr18370.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2018/cr18370.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2018/cr18370.pdf.json) --- ### Historic opportunity and reform context - Government launched a Macroeconomic Stabilization Program (MSP) and a National Development Plan (NDP) for 2018–22. - NDP objective: reduce extreme poverty to 25 percent by 2020. - Anti-corruption unit created in March 2018; high-profile dismissals and investigations occurred. - Authorities requested an Extended Arrangement (EA) under the Extended Fund Facility to support macroeconomic stabilization, economic diversification, and inclusive growth. ### Recent high-frequency macro outcomes (2009–18 highlights) - Growth: - Economy projected to contract for the third consecutive year in 2018 (negative growth in 2018). - Inflation: - Annual inflation expected to decline to 22 percent at end-2018. - External sector and reserves: - Current account projected to shift to a surplus of 2 percent of GDP in 2018. - Net international reserves (NIRs) declined by US$1.8 billion through October 2018. - Gross international reserves (end-2018 est.): 17,513 (Millions of U.S. dollars). - Foreign exchange market: - Spread between official and parallel exchange rates narrowed from 150 percent in December 2017 to 23.2 percent in September 2018 (early November referenced elsewhere: 24 percent). - Kwanza depreciation: 43.6 percent between January and September/November 2018 (sources vary by table/paragraph). - Liquidity and monetary conditions: - Net sales of foreign exchange drained liquidity of about 5 percent of GDP by end-September (year not specified). - Policy loosening in mid-2018 led to about 0.5 percent of GDP policy easing; overall liquidity remained tight. - Banking sector: - Banks’ average capital adequacy ratio: 24 percent at end-August (table: Regulatory capital/Risk-weighted assets 23.5 (Aug-18)). - Nonperforming loans (NPLs): 25.6 percent (Aug-18). - Some banks imposed deposit restrictions to manage FX liquidity constraints. ### Medium-term outlook and program projections (2018–21) - Growth and inflation: - Growth expected to resume in 2019 and firm up at around 3.2 percent toward the end of the program (program period 2018–21). - BNA objective: bring inflation to single digits over the program. - External balances and reserves: - After a temporary deficit in 2019 reflecting a one-off pickup in imports, current account projected to remain nearly balanced thereafter. - Gross international reserves projected to recover to 8 months of imports by 2021. - Fiscal sustainability: - Fiscal retrenchment and favorable oil prices expected to reverse the increase in the public debt-to-GDP ratio and bring it close to the 65 percent target. - Financial sector: - Program actions: tackle rising NPLs, restructure state-owned banks, bolster capital and liquidity, enhance AML/CFT laws, and strengthen crisis management. ### Fiscal outcomes and projections (selected exact figures) - 2018 fiscal outcome and composition: - Overall fiscal balance at projected Angolan oil export price (US$72/barrel) for 2018: surplus of 0.4 percent of GDP. - Improvement in the non-oil primary fiscal deficit (NOPFD) of 3.8 percent of GDP in 2018. - Fiscal aggregates (percent of GDP): - Revenue: 17.5 (2016), 17.5 (2017), 20.5 (Est. 2018), 20.5 (Proj.) - Oil revenue: 8.3 (2016), 9.9 (2017), 14.2 (Est. 2018) - Non-oil revenue: 9.2 (2016), 7.6 (2017), 6.4 (Est. 2018) - Total expenditures: 22.0 (2016), 23.8 (2017), 20.1 (Est. 2018) - Wages: 8.4 (2016), 7.4 (2017), 6.2 (Est. 2018) - Capital spending: 3.9 (2016), 6.5 (2017), 3.9 (Est. 2018) - Overall fiscal balance: -4.5 (2016), -6.3 (2017), 0.4 (Est. 2018) - Non-oil primary fiscal balance: -9.6 (2016), -12.5 (2017), -8.8 (Est. 2018) - General government projections (percent of GDP): - Revenue and grants: 17.5 (2017), 20.5 (2018), 21.3 (2019), 20.9 (2020), 20.0 (2021) - Oil tax revenue: 9.9 (2017), 14.2 (2018), 15.3 (2019), 13.9 (2020), 12.4 (2021) - Non-oil tax revenue: 5.9 (2017), 5.0 (2018), 4.7 (2019), 5.8 (2020), 6.4 (2021) - Expenditure: 23.8 (2017), 20.1 (2018), 20.1 (2019), 20.8 (2020), 20.6 (2021) - Overall deficit: 6.3 (2017), -0.4 (2018), -1.3 (2019), -0.1 (2020), 0.6 (2021) - NOPFD: 12.5 (2017), 8.8 (2018), 6.8 (2019), 8.2 (2020), 7.7 (2021) - Cumulative reduction in NOPFD from 2017: 3.8 (2018), 3.9 (2019), 4.3 (2020), 4.8 (2021) - Fiscal financing needs and gross financing needs (GFN, percent of GDP): - GFN: 2018 17.3; 2019 13.5; 2020 13.2; 2021 11.6 - Overall deficit: 2018 -0.4; 2019 -1.3; 2020 -0.1; 2021 0.6 - Debt amortization: 2018 15.0; 2019 11.0; 2020 11.9; 2021 10.1 - Domestic amortization: 2018 9.6; 2019 3.7; 2020 7.1; 2021 5.7 - External amortization: 2018 5.4; 2019 7.4; 2020 4.8; 2021 4.4 ### Fiscal measures, structural reforms, and arrears strategy - Upfront consolidation sources: - Compression of current expenditures: limiting wage increases, focusing hiring on priority areas, streamlining goods and services. - Calibrate capital expenditure to implementation capacity. - 2019 budget assumptions: - Oil price assumption: US$68/barrel. - VAT start for large taxpayers: July 1, 2019 (structural benchmark); bulk of net VAT yield expected from 2020; smaller taxpayers into VAT base by 2023. - Contingency measures identified amounting to 0.3 percent of GDP. - Contingency measures (2019 totals): - IEC special consumption tax and measures total: Kz 100.0; 0.29 percent of GDP (breakdown: Kz 36.2; Kz 27.3; Kz 23.9; Kz 12.6). - Arrears clearance: - Arrears recorded in SIGFE to be eliminated by end-2019 (structural benchmark). - Claims outside SIGFE to be audited and settled gradually; decree with deadline end-January 2019 for claims submission. - Arrears accumulated between end-2017 and program start to be cleared before end-June 2020. - Indicative toleration: small and constant amount of arrears during program (indicative target). ### Exchange-rate, monetary, and financial sector policies - Exchange rate and FX management: - Program objective: liberalize exchange rate regime and unwind exchange restrictions and multiple currency practices. - BNA to increase FX sales and frequency of auctions and publish monthly program for regular FX auctions (reform agenda item). - From January 2019: sell FX through un-constrained, bid-rate, daily auctions of preannounced amounts (structural benchmark). - Monetary policy: - Modernize monetary policy; operationalize base money targeting framework; balance inflation control with supporting recovery. - Financial sector reforms: - Asset Quality Reviews (AQRs) of eight systemic banks by end-September 2019 (structural benchmark). - Strengthen capital and liquidity buffers; restructure state-owned banks; submit new AML/CFT law; enact insolvency law; strengthen crisis management. - Increased minimum share capital requirement for banks threefold, effective December 31, 2018; banks submitted capitalization plans by July 31, 2018. - Any bank with capital shortfalls to submit recapitalization plan by end-2019 and complete recapitalization by June 2020. ### Medium-term debt target, debt path, and arrears clearance (selected exact figures) - Medium-term debt target: 65 percent of GDP (Central Government and Sonangol). - Program baseline public debt monitored under the program: projected to fall from 90 percent of GDP in 2018 to 65 percent of GDP by 2023. - Projected clearance of domestic payments arrears (Percent of GDP): - 2018Q4: Total 0.5; SIGFE 0.1; Non-SIGFE 0.4 - 2018: Total 1.0; SIGFE 0.3; Non-SIGFE 0.7 - 2019: Total 2.0; SIGFE 1.3; Non-SIGFE 0.7 - 2020: Total 0.6; SIGFE 0.0; Non-SIGFE 0.6 - 2021: Total 0.5; SIGFE 0.0; Non-SIGFE 0.5 - 2018–21 total: Total 4.5; SIGFE 1.6; Non-SIGFE 2.9 - Public debt projections (selected): - Public debt peaks in 2018 at 91 percent of GDP. - Debt converges under the program to about 72 percent of GDP by end of program, 66¼ percent of GDP by 2023. - Debt under perimeter monitored by the program (Central Government and Sonangol) projected to converge to 65¼ percent of GDP by 2023. ### Debt sustainability, vulnerabilities, and stress tests - Staff assessment: Angola’s public debt assessed as sustainable under the baseline (Annex IV). - Main driver of 2018 debt buildup: depreciation of the kwanza. - Vulnerabilities: - High exposure to oil-price and production shocks, currency risk (about four-fifths of public debt denominated in or indexed to foreign currency), high debt-service-to-revenue ratios, and large GFNs. - Stress-test outcomes (selected impacts): - 30-percent one-time real depreciation raises debt ratio to 95 percent of GDP on impact. - Combined shock raises debt ratio above 110 percent of GDP. - Oil-price shock (two-year drop averaging 32 percent for 2019–20) would push debt-burden-to-revenue ratio above 500 percent in 2020 and keep debt-to-GDP above high-risk benchmark. - Mitigating measures: - Rebuild buffers, strengthen debt management, refrain from new collateralized debt, restructure Sonangol, and improve transparency. ### Use of windfall oil revenue and gross financing needs - Government commitment: use windfall oil revenue (revenue in excess of budgeted oil revenue) to retire public debt and clear domestic payments arrears. - 2018 GFN: 17.3 percent of GDP. - GFN financing and sources: - 2018 GFN management: reducing government deposits, Eurobond issuance, and IMF support. - Debt issuance (GFN sources): 2018 17.0; 2019 13.1; 2020 13.4; 2021 11.8 (percent of GDP decomposition provided in program tables). - Eurobond issuance in 2018: US$3.5 billion (US$1.75 billion 10-year 8.25 percent; US$1.25 billion 30-year 9.375 percent; US$0.5 billion 30-year 9.1 percent). ### Access, phasing, reserve targets, and program financing - EA duration: three-year Extended Arrangement. - IMF financing within normal access limits: 361 percent of quota, US$3.8 billion (SDR 2,673 million). - Proposed sequencing of IMF purchases (SDR and U.S. dollars, selected): - Board approval (March 29, 2019): Purchase 715 Millions of SDRs (1,015 Millions of U.S. dollars) — 97 percent of quota. - Subsequent purchases across reviews summing to Total: 2,673 Millions of SDRs (3,784 Millions of U.S. dollars) — 361 percent of quota. - Angola's quota: 740.1 (Millions of SDRs). - Reserve target: accumulate reserves to raise gross international reserves to 8 months of prospective imports by 2021. - Expected supplementary financing: World Bank budget support of US$750 million through three Development Policy Operations. - Estimated financing gap for 2018Q4–2021: about US$4.5 billion. ### Program conditionality, monitoring, and data improvements - Monitoring: - Semi-annual reviews starting in December 2018; performance criteria and structural benchmarks detailed (e.g., NIRs floor, BNA claims ceiling, NOPFD ceiling). - Three prior actions completed on public guarantees and collateralized debt. - Performance and continuous criteria include: - NIRs of the BNA (floor), BNA claims on Central Government (ceiling), NOPFD (ceiling). - Continuous: non-accumulation of external debt payment arrears; no new contracting of collateralized external debt; exchange rate/import restrictions and MCPs. - Structural benchmarks include: - Eliminate backlog of foreign exchange demand by End-December 2018. - Publish Debt Management Strategy and Annual Borrowing Plan by End-March 2019. - Submit revised AML/CFT Law by End-March 2019. - Begin collecting VAT from large taxpayers by July 1, 2019. - Complete AQRs by End-September 2019. - Verify and settle domestic arrears and submit PFM legislation by End-December 2019. - Data and safeguards: - Need to improve quality and timeliness of statistics; implement e-GDDS and establish a National Summary Data Page (NSDP). - Safeguards assessment update to be completed before the first review (last safeguards assessment completed in 2010). ### External payments arrears (selected exact figures) - Total external arrears: US$3.7 billion: - US$2.1 billion to a foreign commercial creditor — preliminary agreement in place. - US$1.3 billion to a foreign state-owned supplier — funds secured to clear them fully in the near future. - US$0.3 billion to foreign private suppliers — mostly from time of civil conflict. - US$11.3 million in official bilateral arrears to the former Yugoslavia — authorities have approached Serbia. ### Technical assistance and TA priorities (2018–21, tentative) - Tax Policy and Administration: VAT design and implementation (IMF FAD, LEG, AFRITAC South); VAT implementation phases (IMF STX), revenue administration (AFRITAC South). - Expenditure Policy and Social Safety Nets: World Bank and UNICEF support for cash transfer programs and social safety net design. - PFM: Medium-term fiscal framework support (IMF FAD). - Monetary and financial sector: Monetary policy implementation (IMF MCM), AML/CFT (IMF LEG), e-GDDS and statistical help (IMF STA). - Business climate: World Bank support for access to finance, mobile payments, moveable asset registry. ### Sustainable Development Goals — social and poverty context (selected) - Review covers 99 of 244 SDA indicators for Angola due to data availability constraints. - Social protection system underdeveloped; share of expenditure on health, education, and social protection declined from 22 percent in 2014 to 18 percent in 2016. - Latest national poverty survey with coverage conducted in 2008–09 measured poverty rate around 37 percent and abject poverty decline from 20 percent (2000–01) to 6 percent (2008–09); a new survey matching international benchmarks planned to be finalized by February 2019. - Recommended actions: implement countrywide social program to protect vulnerable groups during reforms; develop indicators to meet 2030 SDA milestones; publish new survey results for policy design. ### Key risks and staff appraisal (selected recommendations) - Risks tilted to the downside: lower-than-projected oil prices, stronger-than-expected decline in oil production, tighter global financial conditions, capacity constraints, resistance to reforms, and contingent liabilities. - Staff policy recommendations: - Fiscal: complete upfront consolidation, approve prudent 2019 budget, use oil windfalls to reduce public debt and arrears, consolidate NOPFD, improve quality of spending, strengthen PFM. - Exchange rate and monetary: deepen exchange rate flexibility, eliminate FX market distortions, remove FX deposit withdrawal impediments, limit BNA FX interventions to volatility smoothing, build monetary instruments and set base money consistent with inflation objective. - Financial sector: enforce prudential regulations, revisit policies causing liquidity/FX mismatches, resolve capital shortfalls, complete AQRs, bolster crisis management, submit AML/CFT law. - Structural: restructure Sonangol, comprehensive SOE reform, enact insolvency framework, reduce red tape to diversify economy. - Overall judgment: risks manageable given strong policies and ownership; EA will support discipline, debt sustainability, and reforms. *International Monetary Fund — cr18370* ### 1. Selected High-Frequency Indicators, 2009–18 _________________________________________________ 20 ### 1. Selected High-Frequency Indicators, 2009–18 ### Historic opportunity and reform context - The Government launched a Macroeconomic Stabilization Program (MSP) and a National Development Plan (NDP) for 2018–22 to address macroeconomic imbalances and structural challenges. - NDP objective: reduce extreme poverty to 25 percent by 2020. - An anti-corruption unit was created in March 2018; high-profile dismissals and investigations into public entities took place. - Authorities requested an Extended Arrangement (EA) under the Extended Fund Facility to support macroeconomic stabilization, economic diversification, and inclusive growth. *Source: Angolan authorities; and IMF staff.* ### Recent macroeconomic performance and key high-frequency outcomes - Growth: - Economy projected to contract for the third consecutive year in 2018 (negative growth in 2018). - Inflation: - Annual inflation expected to decline to 22 percent at end-2018. - External sector: - Current account projected to shift to a surplus of 2 percent of GDP in 2018. - Net international reserves (NIRs) declined by US$1.8 billion through October 2018. - Foreign exchange market: - Spread between official and parallel exchange rates narrowed from 150 percent in December (year not specified) to 24 percent in early November (year not specified). - Liquidity and monetary conditions: - Net sales of foreign exchange drained liquidity of about 5 percent of GDP by end-September (year not specified). - Policy loosening in mid-2018 led to about 0.5 percent of GDP policy easing, but overall liquidity remained tight. - Banking sector indicators: - Banks’ average capital adequacy ratio: 24 percent at end-August (year not specified). - Nonperforming loans (NPLs) are sizable; insufficient provisioning at some banks noted. - Some banks imposed deposit restrictions to manage FX liquidity constraints. *Source: Angolan authorities; and IMF staff.* ### Medium-term outlook and program projections - Growth and inflation: - Growth expected to resume in 2019 and firm up at around 3.2 percent toward the end of the program (program period 2018–21). - BNA objective: bring inflation to single digits over the program. - External balances and reserves: - After a temporary deficit in 2019 reflecting a one-off pickup in imports, the current account projected to remain nearly balanced thereafter. - Gross international reserves projected to recover to 8 months of imports by 2021. - Fiscal sustainability: - Fiscal retrenchment under the program and favorable oil prices expected to reverse the increase in the public debt-to-GDP ratio and bring it close to the 65 percent target. - Financial sector: - Program actions to tackle rising NPLs, restructure state-owned banks, bolster capital and liquidity, enhance AML/CFT laws, and strengthen crisis management. *Source: Angolan authorities; and IMF staff.* ### Fiscal developments, consolidation, and key fiscal figures - 2018 fiscal outcome and composition: - Overall fiscal balance at the projected Angolan oil export price (US$72/barrel) for 2018: surplus of 0.4 percent of GDP. - Improvement in the non-oil primary fiscal deficit (NOPFD) of 3.8 percent of GDP in 2018 (described as reaching 3¾ percent of GDP improvement elsewhere). - Authorities compressed expenditures in 2018 to offset weaker-than-budgeted non-oil revenue. - Fiscal aggregates (selected, percent of GDP; table labeled “Angola: Fiscal Adjustment, 2016-18”): - Revenue: 17.5 (2016), 17.5 (2017), 20.5 (Est. 2018), 20.5 (Proj. — table context) - Oil revenue: 8.3 (2016), 9.9 (2017), 14.2 (Est. 2018) - Non-oil revenue: 9.2 (2016), 7.6 (2017), 6.4 (Est. 2018) - Total expenditures: 22.0 (2016), 23.8 (2017), 20.1 (Est. 2018) - Wages: 8.4 (2016), 7.4 (2017), 6.2 (Est. 2018) - Capital spending: 3.9 (2016), 6.5 (2017), 3.9 (Est. 2018) - Overall fiscal balance: -4.5 (2016), -6.3 (2017), 0.4 (Est. 2018) - Non-oil primary fiscal balance: -9.6 (2016), -12.5 (2017), -8.8 (Est. 2018) - 2017–21 general government operations projections (selected percent of GDP): - Revenue and grants: 17.5 (2017), 20.5 (2018), 21.3 (2019), 20.9 (2020), 20.0 (2021) - Oil tax revenue: 9.9 (2017), 14.2 (2018), 15.3 (2019), 13.9 (2020), 12.4 (2021) - Non-oil tax revenue: 5.9 (2017), 5.0 (2018), 4.7 (2019), 5.8 (2020), 6.4 (2021) - Expenditure: 23.8 (2017), 20.1 (2018), 20.1 (2019), 20.8 (2020), 20.6 (2021) - Overall deficit: 6.3 (2017), -0.4 (2018), -1.3 (2019), -0.1 (2020), 0.6 (2021) - Non-Oil Primary Fiscal Deficit (NOPFD): 12.5 (2017), 8.8 (2018), 6.8 (2019), 6.8? (2020 table shows 8.2 then 7.7) — table shows NOPFD 12.5, 8.8, 6.8, 8.2, 7.7 (2017–2021) - Cumulative reduction in NOPFD from 2017: 3.8 (2018), 3.9 (2019), 4.3 (2020), 4.8 (2021) - Memorandum item — Estimated break-even oil price (US$/barrel) as shown in table: 3 10270636767 *Source: Angolan authorities; and IMF staff estimates and projections.* ### Fiscal policy measures and structural reforms under the program - Upfront consolidation sources: - Compression of current expenditures: keeping wage increases below inflation; focusing new hiring on priority areas; streamlining spending on goods and services. - Calibrating capital expenditure to unwind past excesses and consider implementation capacity. - 2019 budget and assumptions: - 2019 draft budget uses conservative assumptions, including oil price of US$68/barrel. - Targets modest reduction in the NOPFD in 2019 following large upfront adjustment in 2018. - Conservative net yield from adopting a VAT in mid-2019; contingency measures of 0.3 percent of GDP identified. - VAT implementation: - Start collecting VAT from large taxpayers on July 1, 2019 (structural benchmark). - Bulk of net VAT yield expected to materialize from 2020; bringing smaller taxpayers into VAT base completed by 2023. - Subsidy and utility price reforms: - Water tariffs adjusted in August 2018. - Plans to adjust electricity and public transportation tariffs, and gasoline and diesel prices. - World Bank support to develop an automatic price-adjustment mechanism for domestic fuel prices (cost-recovery based on import-parity) and to scale up cash transfers to mitigate impact on vulnerable households. - Contingency measures for 2019 (table “Angola: Contingency Measures, 2019”): - Special consumption tax (IEC) introduce IEC with tax rates of 10 percent for soft drinks, guns and jewelry, and 16 percent for alcohol and tobacco: Kz 36.2; 0.10 percent of GDP. - Recovery of tax arrears program: Kz 27.3; 0.08 percent of GDP. - Special consumption tax (IEC) increase the tax rate by 9 p.p. on the goods mentioned above, if needed: Kz 23.9; 0.07 percent of GDP. - Real estate tax increase taxable base on leased buildings, increase tax rate on non-housing estate, and eliminate zero tax on certain properties: Kz 12.6; 0.04 percent of GDP. - Total: Kz 100.0; 0.29 percent of GDP. - Arrears clearance: - Arrears recorded in the Integrated Financial Management System (SIGFE) to be eliminated by end-2019 (structural benchmark). - Claims outside SIGFE to be audited and settled gradually during the program. - Decree published setting a deadline of end-January 2019 for creditors to submit claims on domestic payments arrears contracted in 2013–17. - Payments to be made in cash (targeting smaller and cash-constrained suppliers) and in local-currency-denominated Treasury securities. - A small and constant amount of arrears tolerated during the program (indicative target); arrears accumulated between end-2017 and the start of the program to be cleared before end-June 2020. - Public Financial Management (PFM) strengthening: - Publish detailed quarterly fiscal reports by end-2019. - Implement a medium-term fiscal framework (MTFF). - Submit PFM legislation to the National Assembly. - Design a fiscal stabilization fund to reduce procyclicality; capitalization to start only once budget surpluses arise and public debt falls below 60 percent of GDP. *Source: Angolan authorities; and IMF staff.* ### Exchange-rate, monetary, and financial sector policy measures - Exchange rate and FX management: - Program objective: liberalize the exchange rate regime and gradually unwind exchange restrictions and multiple currency practices. - BNA increasing FX sales and more frequent auctions to address FX backlog and reduce parallel market pressures. - Begin publication of monthly program for regular foreign exchange auctions (reform agenda item). - Monetary policy framework: - Modernize monetary policy; strengthen liquidity management by operationalizing the base money targeting framework. - Monetary policy to balance taming inflation and supporting economic recovery through enhanced financial intermediation. - Financial sector reforms: - Conduct an asset quality review of eight systemic banks. - Strengthen capital and liquidity buffers. - Restructure state-owned banks. - Enhance AML/CFT legislation; submit new AML/CFT law. - Enact an insolvency law. - Improve crisis management frameworks. *Source: Angolan authorities; and IMF staff.* *Source: Angolan authorities; and IMF staff.* ### 16. Fiscal policy, guided by the NOPFD and anchored by a medium-term debt target, will ### 16. Fiscal policy, guided by the NOPFD and anchored by a medium-term debt target, will ### Medium-term debt target and projected debt path - Medium-term debt target: 65 percent of GDP (Central Government and Sonangol). - Program baseline: public debt monitored under the program projected to fall from 90 percent of GDP in 2018 to 65 percent of GDP by 2023. - Debt reduction drivers: - Fiscal retrenchment under the NOPFD. - Higher oil revenues in kwanzas from favorable oil prices and currency depreciation. - Restructuring of Sonangol. ### Projected clearance of domestic payments arrears (2018–21) (Percent of GDP) - 2018Q4: Total 0.5; SIGFE 0.1; Non-SIGFE 0.4. - 2018: Total 1.0; SIGFE 0.3; Non-SIGFE 0.7. - 2019: Total 2.0; SIGFE 1.3; Non-SIGFE 0.7. - 2020: Total 0.6; SIGFE 0.0; Non-SIGFE 0.6. - 2021: Total 0.5; SIGFE 0.0; Non-SIGFE 0.5. - 2018–21 total: Total 4.5; SIGFE 1.6; Non-SIGFE 2.9. - Memorandum: - Percent SIGFE: 148600; 100 - Percent Non-SIGFE: 23272525100 - Sources: Angolan authorities; and IMF staff estimates and projections. - Note: Arrears accumulated up to end-2017. ### Debt sustainability assessment and vulnerabilities - Staff assessment: Angola’s public debt is assessed as sustainable under the baseline scenario (Annex IV). - Main driver of 2018 debt buildup: depreciation of the kwanza. - Vulnerabilities: debt remains high during the program and is vulnerable to macro-fiscal shocks, including growth, oil-price, and contingent liability shocks. - Mitigating actions recommended: - Rebuilding buffers. - Strengthening debt management during the program. - Adhering to fiscal and debt targets. - Transitioning to a more flexible exchange rate regime. - Risks to be assessed in first review: uncovering potential unrecorded public guarantees (prior action) and additional banking sector needs. ### Use of windfall oil revenue and gross financing needs (GFN) - Government commitment: use windfall oil revenue (defined as revenue in excess of budgeted oil revenue) to retire public debt and clear domestic payments arrears. - 2018 gross financing needs (GFN): 17.3 percent of GDP. - 2018 GFN management: reducing government deposits, Eurobond issuance, and IMF support. - Going forward: GFNs expected to be met by external project loans (while downsizing oil-collateralized borrowing), program financing, improved fiscal position, and domestic rollover rates. - As GFNs fall, room to rebuild buffers and clear domestic payments arrears. ### Fiscal financing needs and sources (2018–21) (Percent of GDP) - Gross financing needs (GFN): 2018 17.3; 2019 13.5; 2020 13.2; 2021 11.6. - Overall deficit: 2018 -0.4; 2019 -1.3; 2020 -0.1; 2021 0.6. - Recapitalizations: 2018 1; 2019 0.9; 2020 0.9; 2021 0.2; 2022 0.0. - Domestic arrears clearance: 2018 1; 2019 1.0; 2020 2.0; 2021 0.6; 2022 0.5. - Sonangol reimbursement: 2018 1,2 0.8; 2019 0.8; 2020 0.6; 2021 0.4. - Debt amortization: 2018 15.0; 2019 11.0; 2020 11.9; 2021 10.1. - Domestic amortization: 2018 9.6; 2019 3.7; 2020 7.1; 2021 5.7. - External amortization: 2018 5.4; 2019 7.4; 2020 4.8; 2021 4.4. - Gross financing sources: 2018 17.3; 2019 13.5; 2020 13.2; 2021 11.6. - Deposit drawdown (including estimated net changes in the balances of escrow accounts): 2018 1.3; 2019 0.4; 2020 -0.3; 2021 -0.2. - Escrow accounts deposits: 2018 -1.0; 2019 0.0; 2020 0.0; 2021 0.0. - Debt issuance: 2018 17.0; 2019 13.1; 2020 13.4; 2021 11.8. - Domestic issuance: 2018 9.1; 2019 6.8; 2020 7.4; 2021 5.7. - External issuance: 2018 7.9; 2019 6.3; 2020 6.0; 2021 6.1. - Of which: Eurobond: 2018 3.0; 2019 0.0; 2020 0.0; 2021 0.0. - Of which: Program financing: 2018 1.2; 2019 1.1; 2020 1.3; 2021 1.3. - Notes: - These items are not included in the DSA's standardized calculation of GFN (Annex IV). - Sonangol repayment refers to repayment of past expenses related to the National Urbanization and Housing Plan (PNUH). - Deposit drawdown includes estimated net changes in escrow accounts. - Sources: Angola authorities; and IMF staff estimates and projections. ### Conditionality, transparency, and debt management measures - Program will monitor debt trajectory of Central Government and Sonangol through quarterly indicative targets. - Prior actions provided by authorities: - Detailed information on collateralized debt of the Central Government and Sonangol. - Detailed information on recorded public guarantees. - Called for information on possibly unrecorded public guarantees. - Program prohibitions and benchmarks: - Prohibits contracting of new collateralized debt (performance criterion). - By end-March 2019: Debt Management Unit (UGD) to publish a Debt Management Strategy and start publishing an Annual Borrowing Plan (structural benchmark). ### Macro-financial context linked to fiscal outlook - 2018: Angola raised US$3.5 billion in Eurobonds: - US$1.75 billion with 10-year maturity and 8.25 percent coupon. - US$1.25 billion with 30-year maturity and 9.375 percent coupon. - $0.5 billion with 30-year maturity and 9.1 percent coupon. - Angola’s Eurobond yields comparable to other frontier market issuers in SSA. - Bank recapitalization in baseline: includes over 1 percent of GDP for bank recapitalization; forthcoming AQRs will inform further needs. ### Links to broader policy areas (high-level) - Monetary and exchange rate policies: reserve money targeting to achieve single-digit inflation in the medium-term; policy measures to control fiscal dominance; move toward market-determined exchange rate in January 2019 with continued BNA FX supply to intermediate oil sales and smooth volatility. - Financial sector reforms: AQRs for eight largest banks by end-September 2019 (structural benchmark); banks with capital shortfalls to submit recapitalization plans by end-2019 and complete recapitalization by June 2020; BPC restructuring and Recredit operationalization milestones. - SOE reform: ambitious SOE restructuring program starting 2019, Sonangol comprehensive restructuring beginning 2019Q1 with divestiture from non-core businesses by end-September 2019; Government commits not to use privatization receipts to finance current spending. - Sovereign wealth fund: management searching for new international fund manager and external auditor; legislation to strengthen governance and transparency; capitalized again only when budget generates surpluses and government debt is below 60 percent of GDP. ### Program duration and financing gap - EA duration: three-year Extended Arrangement is appropriate. - Estimated financing gap for 2018Q4–2021: about US$4.5 billion. - Treasury actions in 2018: issued US$3.5 billion in Eurobonds; partially rolled over a US$1.5 billion domestic dollar-denominated bond in August; requested a BNA advance (1.3 percent of GDP). - Usable cash buffers projected to fall below safe levels by late 2018; covering the financing gap would bring usable cash buffers to at least 2.5 months of expenditure by 2021. - Balance of payments implication: fiscal financing gap gives rise to a BOP need of equivalent amount; low international reserves below the IMF’s ARA metric floor. *Source: cr18370 - 16. Fiscal policy, guided by the NOPFD and anchored by a medium-term debt target, will* ### 37. Access and phasing. The authorities are keen on rebuilding international reserves ### 37. Access and phasing. The authorities are keen on rebuilding international reserves ### Access, reserve targets, and financing composition - Program target: accumulate reserves to raise gross international reserves to 8 months of prospective imports by 2021. - Target relative to metrics: reserves would be just above 100 percent of the ARA metric, but still below the threshold applicable to oil exporters. - IMF financing within normal access limits: 361 percent of quota, US$3.8 billion. - In-year frontloading during the first year intended to prevent cash balances from falling to unsafe levels. - Expected supplementary financing: World Bank budget support of US$750 million through three Development Policy Operations. - Counterfactual without the EA: gross international reserves would decline to US$12.6 billion in 2021, equivalent to 73 percent of the ARA metric or 4.7 months of import cover. ### Rationale for reserve rebuilding and recent pressures - Drivers of reserve depletion: the oil-price shock, unsustainable policies before the elections in 2017, and FX sales to clear the backlog. - Policy objective: rebuild external buffers to restore import cover and align reserves with ARA metric guidance (subject to oil-exporter threshold constraints). ### Financing assurances and burden sharing - Firm commitments: full program financing in place for the first year; good prospects for the remainder of the program. - IMF and World Bank expected to cover the financing gap (Table 8 referenced). - Potential additional support: African Development Bank (AfDB) could consider budget support in the second half of the program (not included in the baseline). - Project loans from several sources (including China, Germany, United Kingdom, France, and Afreximbank) to support Angola’s public investment program during the EA. - EA expected to help Angola secure more favorable terms in financial markets. ### Capacity to repay the IMF and debt mitigation measures - Total IMF exposure limited at most to 3½ percent of GDP, or about 18 percent of gross international reserves. - Measured by credit outstanding: exposure in line with other upper-credit tranche arrangements. - Measured by repayment flows: at the upper end of the range for recent EAs, but not exceptionally high. - Risk mitigation measures: - Non-contracting of new collateralized debt (performance criterion; MEFP, ¶21). - Repayments of collateralized debt before the start of the EA’s repayment period. - Debt burden indicators: expected to remain contained after adjusting for collateralization. - Repayment and exposure peaks: - Repayments to the IMF would peak at 1½ percent of non-pledged exports of goods and services. - IMF credit outstanding would peak at 12 percent of the stock of non-collateralized debt (Table 9). - Staff assessment: Angola’s capacity to repay the IMF is adequate, but appears subject to elevated risks under a plausible adverse scenario (Table 10). ### Program monitoring, targets, and data improvements - Review cadence: semi-annual reviews starting in December 2018 (Table 11). - Monitoring modalities (MEFP, Tables 1a, 1b, and 2): - Three prior actions on public guarantees and collateralized debt, all met. - Three performance criteria on: NIRs of the BNA; BNA claims on the Central Government; and NOPFD of the Central Government. - Two continuous performance criteria on: non-accumulation of external debt payments arrears by the Central Government and the BNA; and no new contracting of collateralized external debt. - Continuous standard performance criteria on: exchange rate/import restrictions and multiple currency practices. - Four indicative targets on: public debt; social spending; net accumulation of domestic payments arrears; and disbursements of collateralized debt. - Structural benchmarks to gauge progress in key structural reforms. - Data needs and improvements: - Need to improve quality and timeliness of statistics for successful program implementation. - Creation of a dedicated team and ongoing IMF TA, including implementation of the enhanced General Data Dissemination System (e-GDDS). - Authorities undertook to establish a National Summary Data Page (NSDP) under the e-GDDS. - Improved data transparency may contribute to a reduction in sovereign borrowing costs. - Safeguards: the last safeguards assessment was completed in 2010; a safeguards assessment update will be completed before the first review. ### External payments arrears - Total external arrears: US$3.7 billion, broken down as: - US$2.1 billion to a foreign commercial creditor — a preliminary agreement is in place. - US$1.3 billion to a foreign state-owned supplier — funds are secured to clear them fully in the near future. - US$0.3 billion to foreign private suppliers — mostly from the time of the civil conflict; the authorities have contacted the relevant embassies to help identify them. - Authorities are making good-faith efforts to reach a collaborative agreement with private sector creditors. - Additional note: US$11.3 million in official bilateral arrears to the former Yugoslavia — the authorities have approached Serbia as the likely successor to the claims and are waiting for a response. ### Risks to the medium-term outlook - Risks tilted to the downside (Annex V referenced). Key risk factors include: - Lower-than-projected international oil prices. - Stronger-than-expected decline in oil production. - Sharper-than-envisaged tightening of global financial conditions. - Capacity constraints and resistance to reforms from vested interests. - Shocks to the debt trajectory, including materialization of contingent liabilities. - Financial sector specific risks: - Negative spillovers from the transition to a more flexible exchange rate regime. - Losses from currency depreciation. - Potential capital flight from lifting exchange rate restrictions. - Deviations from the debt path because of contingent liabilities. - Mitigation: IMF and development partner TA to help address capacity constraints (Table 12). ### Staff appraisal and policy recommendations - General assessment: authorities have demonstrated strong commitment to reforms and taken measures to strengthen governance and support human development under a five-year NDP. - Fiscal policy: - Complete upfront consolidation and approve a prudent budget for 2019 to strengthen fiscal sustainability. - Use oil revenue windfalls to reduce public debt and arrears where possible. - Gradual fiscal consolidation in the medium term to put public debt on a downward path and create space for infrastructure and social spending. - NOPFD consolidation, improved quality of public spending, and strengthened PFM controls recommended to scale up public investment and social programs. - Exchange rate and monetary policy: - Exchange rate flexibility critical to improve external competitiveness and promote private sector activity. - Eliminate FX market imbalances and provide FX in regular and unconstrained auctions. - Remove impediments to FX deposit withdrawals and eliminate exchange restrictions that give rise to multiple currency practices. - After achieving a continuously adjusting, market-clearing rate, BNA interventions should be limited to smoothing excessive volatility. - Modernization of monetary policy should proceed with caution: build capacity for a full array of instruments, target base money growth consistent with the inflation objective, and bring interest rates above inflation. - Financial sector reforms: - BNA should enforce prudential regulations, including capital and liquidity positions. - Revisit policies that exacerbated liquidity and FX mismatches; eliminate banks’ informal restrictions on FX deposits. - Bolster governance and credit-risk management at state-owned banks and accelerate their restructuring. - Complete AQRs, buttress crisis management, and submit the new AML/CFT law to Parliament. - Structural reforms: - Restructuring Sonangol to limit future recapitalization needs and catalyze investments in the oil sector. - Comprehensive SOE reform to curb fiscal risks, improve efficiency, and reduce corruption opportunities. - Introduce an adequate insolvency framework, improve governance, and reduce red tape to foster economic diversification. - Overall judgment: risks are tilted to the downside but appear manageable given strong policies and ownership; the EA will support policy discipline, entrench fiscal and debt sustainability, eliminate financial and FX distortions, and support the authorities’ reform agenda. *International Monetary Fund — cr18370, “37. Access and phasing. The authorities are keen on rebuilding international reserves”* ### 53. Staff supports the authorities’ request for an EA. IMF financial support will provide an ### cr18370 - 53. Staff supports the authorities’ request for an EA. IMF financial support will provide an ### IMF support and program access - Staff supports a three-year arrangement for Angola in an amount equivalent to SDR 2,673 million. - IMF financial support is expected to provide an impetus to the implementation of Angola’s reform program given Angola’s fiscal and BOP needs, the policy actions taken so far, and the authorities’ commitment to reforms. - Proposed Access and Phasing under the Extended Arrangement (2018–21): - Board approval (March 29, 2019): Purchase 715 Millions of SDRs (1,015 Millions of U.S. dollars) — 97 percent of quota. - Observance of end-December 2018 performance criteria, completion of first review (Sept 30, 2019): Purchase 179 Millions of SDRs (252 Millions of U.S. dollars) — 24 percent of quota. - Observance of end-June 2019 performance criteria, completion of second review (Mar 31, 2020): Purchase 179 Millions of SDRs (252 Millions of U.S. dollars) — 24 percent of quota. - Observance of end-December 2019 performance criteria, completion of third review (Oct 30, 2020): Purchase 400 Millions of SDRs (566 Millions of U.S. dollars) — 54 percent of quota. - Observance of end-June 2020 performance criteria, completion of fourth review (Apr 30, 2021): Purchase 400 Millions of SDRs (566 Millions of U.S. dollars) — 54 percent of quota. - Observance of end-December 2020 performance criteria, completion of fifth review (Nov 1, 2021): Purchase 400 Millions of SDRs (566 Millions of U.S. dollars) — 54 percent of quota. - Observance of end-June 2021 performance criteria, completion of sixth review: Purchase 400 Millions of SDRs (567 Millions of U.S. dollars) — 54 percent of quota. - Total: 2,673 Millions of SDRs (3,784 Millions of U.S. dollars) — 361 percent of quota. - Angola's quota: 740.1 (Millions of SDRs). ### Macroeconomic conditions and high-frequency indicators (selected) - Confidence indicators point to a weak recovery. - Yields are improving with reforms (Eurobond yields and Brent oil price shown in Figure 1). - Consumer price inflation has been decelerating, but it remains high (National Consumer Price Inflation, food and non-food components displayed). - Wholesale price inflation has also decelerated. - Improved terms of trade are supporting the trade balance. - The kwanza depreciation has shored up money supply (contribution to M3 growth from Net Foreign Assets and Net Domestic Assets). ### Fiscal developments (2007–18 highlights and projections) - Staff presents central government aggregates (Table 1 and Tables 2a–2c) with historicals and projections (2018–21). - Key fiscal aggregates (percent of GDP, Table 2b): - Total revenue: 20.5 (2018), projected 21.3 (2019), 20.9 (2020), 20.0 (2021). - Of which: Oil-related revenue: 14.2 (2018), 15.3 (2019), 13.9 (2020), 12.4 (2021). - Total expenditure: 20.1 (2018), 20.1 (2019), 20.8 (2020), 20.6 (2021). - Overall fiscal balance: 0.4 (2017), 1.3 (2018), 0.1 (2019), -0.6 (2021) (Table 1). - Non-oil primary fiscal balance: -8.8 (2018), -8.6 (2019), -8.2 (2020), -7.7 (2021) (Table 1). - Statement of Central Government Operations (Table 2a, billions of local currency): - Revenue (2018 est.): 5,625; projected 7,424 (2019), 8,188 (2020), 8,565 (2021). - Expenditure (2018 est.): 5,517; projected 6,985 (2019), 8,153 (2020), 8,835 (2021). - Net lending/Net borrowing (2018 est.): 108; projected 439 (2019), 35 (2020), -271 (2021). - Fiscal financing needs and sources (Table 7, billions of U.S. dollars): - Financing needs: 7.2 (2018Q4), 13.2 (2019), 13.3 (2020), 12.5 (2021). - Financing sources (2019): 12.4; financing gap (2019): 0.8; program financing equals the financing gap (2019): 0.8. - External rollover rate (in percent) projections: 54 (2019), 56 (2020), 64 (2021), 69 (2022). - Domestic rollover rate (in percent) projections: 44 (2019), 70 (2020), 70 (2021), 66 (2022). ### Monetary and financial sector developments - Monetary trends (Figure 3 and Table 3): - Broad money (M2) percent change: 39.6 (2018), 14.5 (2019 projection), 11.5 (2020 projection). - Reserve money (percent change, memorandum): 39.6 (2018), 14.5 (2019), 11.5 (2020). - Credit to private sector (percent change): 18.5 (2018), 13.9 (2019), 10.8 (2020). - Foreign currency deposits (share of total deposits): 36.7 (2018), 34.5 (2019), 33.5 (2020), 32.4 (2021) (Table 3). - Financial soundness indicators (Table 6, selected August 2018 figures): - Regulatory capital/Risk-weighted assets: 23.5 (Aug-18). - Nonperforming loans to gross loans: 25.6 (Aug-18). - Return on Assets (ROA): 3.9 (Aug-18). - Return on Equity (ROE): 22.6 (Aug-18). - Liquid Assets/Total Assets: 42.8 (Aug-18). ### External sector and balance of payments - Balance of payments (Table 4, Millions of U.S. dollars): - Current account: 2,050 (2018 est.), -2,004 (2019), -341 (2020), -497 (2021) (projections). - Trade balance (percent of GDP): 24.0 (2018), 22.7 (2019), 22.7 (2020), 21.0 (2021). - Exports, f.o.b. (2018 est.): 42,216 (Millions of U.S. dollars); Imports, f.o.b. (2018 est.): 17,157. - Gross international reserves (end of period, Millions of U.S. dollars): 15,760 (2014), 17,513 (2018 est.), projected 19,644 (2019), 21,279 (2020). - Official exchange rate (average, kwanzas per U.S. dollar): 98.3 (2014), 120.1 (2015), 163.7 (2016), 166 (2017). - External financing requirements and sources (Table 8, Millions of U.S. dollars): - Gross financing requirements: 10,724 (2018 est.), 7,248 (2019), 7,485 (2020), 8,188 (2021). - Gross sources of financing: 7,423 (2018 est.), 8,497 (2019), 8,485 (2020), 8,688 (2021). - Change in reserves: -3,300 (2018), 1,250 (2019), 1,000 (2020), 500 (2021). ### Public debt - Public debt (Table 5): - Total public debt (billions of U.S. dollars): 55.4 (2014), 58.9 (2015), 75.5 (2016), 83.7 (2017), 75.5 (2018 est.), projected 76.1 (2019), 74.9 (2020), 75.9 (2021). - Total public debt (percent of GDP): 39.8 (2014), 57.1 (2015), 75.7 (2016), 68.5 (2017), 91.0 (2018 est.), 79.1 (2019), 73.8 (2020), 71.9 (2021). - External debt (percent of GDP): 24.9 (2014), 35.0 (2015), 45.0 (2016), 37.5 (2017), 57.9 (2018 est.), 48.5 (2019), 45.6 (2020), 44.6 (2021). - Of which: Sonangol share (percent of GDP): 10.9 (2014), 12.5 (2015), 9.4 (2016), 4.0 (2017), 6.0 (2018 est.), 4.6 (2019), 2.4 (2020), 2.1 (2021). ### IMF credit—Baseline and Adverse Oil-Price Shock scenarios (selected) - Baseline scenario (Table 9, indicators of IMF credit, selected): - Stock of existing and prospective Fund credit: - 715.0 (2018), 1,073.0 (2019), 1,873.0 (2020), 2,673.0 (2021), then declining to 2,538.9 (2022–23) and further in later years. - Fund credit outstanding, relative to quota: 96.6 (2018), 145.0 (2019), 253.1 (2020), 361.2 (2021). - Fund credit outstanding, relative to Gross international reserves: 6.4 (2018), 8.6 (2019), 13.5 (2020), 17.9 (2021). - Fund credit outstanding, relative to Gross domestic product: 1.0 (2018), 1.5 (2019), 2.5 (2020), 3.5 (2021). - Adverse Oil-Price Shock scenario (Table 10, scenario assumptions and indicators): - Scenario assumptions: - Angolan oil price falls by 28 percent in 2019 and 36 percent in 2020 relative to baseline. - External borrowing costs increase on average by 300 basis points in 2019–20. - Domestic financing remains the same as baseline; financing gaps covered by collateral buffers and/or non-collateralized external borrowing. - Other key macro assumptions including baseline fiscal and reserves path remain unchanged. - Stock of existing and prospective Fund credit under adverse scenario: same sequencing to reach 2,673.0 (2021) then similar decline pattern as baseline. - Fund credit outstanding, relative to quota: 96.6 (2018), 145.0 (2019), 253.1 (2020), 361.2 (2021) (same levels reported under adverse scenario table). - Under the adverse scenario, Gross domestic product and exports of goods and services are lower in 2019–20 compared to baseline (e.g., exports of goods and services: 31,287 (2019) and 28,322 (2020) in adverse vs. baseline 42,287 (2019) and 42,873 (2020)). ### Technical assistance under the Extended Arrangement (tentative, 2018–21) - Tax Policy and Administration: - VAT design and implementation (first phase). IMF (FAD, LEG, and AFRITAC South). 2018–19. - VAT implementation (following phases). IMF (STX), under discussion with EU. 2019–20. - Revenue administration. IMF (AFRITAC South). 2018–19. - Tax policy diagnostic assessment. IMF (FAD), under consideration. 2019. - World Bank: Small and medium enterprises taxation, risk-based audits, communication strategies for VAT implementation. Ongoing. - Expenditure Policy: - Elimination of subsidies and social safety nets. World Bank. 2018–19. - Support basic functions of a social safety net system: targeting, registration and payments. World Bank. 2018–21. - Implement and develop a pilot child cash transfer program. UNICEF. 2018–19. - Public Financial Management: - Full-fledged medium-term fiscal framework. IMF (FAD), under discussion with EU. 2019–21. - Monetary and Exchange Rate Policies: - Monetary policy implementation and operations. IMF (MCM). 2018–19. - Financial Sector Stability: - AML/CFT framework. IMF (LEG). 2018–20. - Economic Statistics: - e-GDDS. IMF (STA). 2018. - Government Finance Statistics. IMF (STA). 2018–19. - National accounts, and external and monetary statistics. IMF (STA) and World Bank. 2018–19. - Business Climate: - Promote access to finance through mobile payments, moveable asset registry, and a financial inclusion survey. World Bank. Ongoing. *Source: IMF staff report and supporting tables and figures (Angolan authorities; and IMF staff calculations).* ### Annex I. Sustainable Development Goals ### Annex I. Sustainable Development Goals ### Overview - Reviews progress in Angola toward implementation of the global sustainable development agenda set by the United Nations in 2015. - Covers social and economic development milestones entrenched in the 2030 SDA, inter alia, poverty, health, education, and inequality. - From the 244 indicators covered in the agenda, the report covers only 99 indicators for Angola, as other indicators are not available. - Prepared by Pedro Munguambe, formerly with the IMF, and based on a report prepared by the National Institute of Statistics. - Note: The Sustainable Development Agenda (SDA) is designed to be implemented by all countries, as opposed to the Millennium Development Goals. ### Social protection and public spending - Angola’s social protection system is underdeveloped. - No data on the percentage of the population covered by the national protection system, including those who are contributing to the social security system and those receiving benefits. - The share of expenditure on health, education, and social protection in total expenditure declined from 22 percent in 2014 to 18 percent in 2016. - Decline largely driven by a steep reduction in expenditure on social protection in the aftermath of the oil-price shock. - The Government’s National Development Plan for 2018–22 (NDP2018–22) social priorities are consistent with the global agenda, including: - planned extension of the cash transfer program to vulnerable groups; - small-scale income generation initiatives; and - enhanced access to basic education and health. ### Poverty data and surveys - No recent data on poverty are available and the existing ones do not meet international standards. - The latest Integrated Population Welfare Survey with national coverage was conducted in 2008–09. - It measured a poverty rate of around 37 percent (in line with data in the NDP2018–22). - It measured a decline of the percentage of the population living in abject poverty from 20 percent in 2000–01 to 6 percent in 2008–09. - These figures could potentially be underestimated, as the benchmark income level considered in the survey (US$1 a day) is below the international standard (US$1.9 a day). - A new survey, which matches the international benchmark, is underway and is planned to be finalized by February 2019. ### Remaining social challenges and policy recommendations - Several social challenges remain to be addressed despite some progress. - Key needs and recommended actions: - Develop and implement a countrywide social program to mitigate the adverse impact of the ongoing macroeconomic reforms on the most vulnerable groups. - Devote more efforts to developing new indicators to meet the 2030 SDA milestones, particularly those related to poverty, eradication of hunger, and reduction in income inequality. - Conclude and publish the results of the new survey on poverty to help devise a strategy to tackle poverty, reduce inequality, and promote inclusive growth in the medium term. *Source: Annex I. Sustainable Development Goals (content unit: cr18370).* ### Annex IV. Debt Sustainability Analysis ### Annex IV. Debt Sustainability Analysis ### Public Debt Sustainability Analysis — scope and baseline - Debt perimeter covers: domestic and external debt of the Central Government; external debt of Sonangol and TAAG; public guarantees; identified external liabilities of other state entities, including external arrears. - Perimeter is wider than in the last Article IV consultation because of inclusion of the latter two components. - Baseline scenario based on the companion Staff Report (SR) for the Extended Arrangement. - Fiscal path assumptions: - Large upfront improvement in the non-oil primary fiscal deficit (NOPFD) in 2018: 3¾ percent of GDP. - Additional reductions in the NOPFD of about 1 percent of GDP during the rest of the program. - Small overall surpluses in 2018–20 supported by favorable oil revenues. ### Budget financing and debt rollover assumptions (selected) - 2018: - Issued US$3.5 billion in Eurobonds. - Rolled over two-thirds of a US$1.5 billion domestic bond denominated in foreign currency. - Depleted cash buffers and requested budget support from the IMF. - Low domestic rollover rates (about 50 percent) during the year. - 2019–21: - Gross financing needs (GFNs) projected to fall below the IMF’s high-risk benchmark for emerging economies (15 percent of GDP). - Improved domestic rollover rates, program financing, and access to project loans and bilateral/commercial lenders. - Project financing sources include oil-collateralized credit lines (within program ceilings) and uncollateralized loan agreements with Credit Agricole, KFW, Commerzbank, UKEF, Afreximbank, ICBC, and Eximbank. - Financing from these sources (about US$7 billion) would cover the bulk of funding needs to be raised without oil guarantees. - World Bank expected to fund a cash transfer program for poor families. - Medium term: - Baseline assumes international market access resumes only in the post-program period. - Baseline assumes rollover of about US$2.5 billion in dollar-denominated domestic debt coming due in 2022–23. - Sonangol: - US$10 billion recapitalization in 2016–17 led to a reduction in external debt from US$12.9 billion at end-2015 to about US$5 billion at end-2018 (projected). - Sonangol held cash balances averaging 4-6 percent of GDP. - Baseline assumes more conservative Sonangol debt path than company projects and continued Treasury reimbursement to Sonangol until 2021 for past quasi-fiscal expenses. ### Key projections and statistics - Public debt peaks in 2018 at 91 percent of GDP, driven mostly by large kwanza depreciation and contraction of the economy (downward revision of nominal GDP) and widening of the debt perimeter. - Public debt converges under the program: - About 72 percent of GDP by end of the program. - 66¼ percent of GDP by 2023, below the IMF high-risk benchmark for emerging economies (70 percent of GDP). - Debt under the perimeter monitored by the program (Central Government and Sonangol) projected to converge to 65¼ percent of GDP by 2023 (close to the program medium-term target of 65 percent of GDP). - Debt service burden: - Projected to peak at about 100 percent of fiscal revenues in 2018. - Average 81½ percent of revenues during the program. - Pledging of oil revenue to service collateralized debt reduces availability for uncollateralized debt service and other needs. - Debt composition (breakdown, in percent of GDP): - Domestic debt: 2017 Est. 30.8; 2018 Proj. 35.2 - Of which: Linked to or denominated in FC: 2017 Est. 16.0; 2018 Proj. 18.8 - External debt: 2017 Est. 37.1; 2018 Proj. 55.1 - General Government: 2017 Est. 32.7; 2018 Proj. 49.1 - Sonangol and TAAG: 2017 Est. 4.0; 2018 Proj. 6.0 - Public guarantees: 2017 Est. 0.6; 2018 Proj. 0.7 - Total public debt: 2017 Est. 68.5; 2018 Proj. 91.0 ### Vulnerabilities and mitigating measures - Principal vulnerabilities: - Currency risk: about four-fifths of public debt denominated in or indexed to foreign currency. - High debt-service-to-revenue ratios and sizable GFNs. - Exposure to macro-fiscal shocks: growth, oil-price, contingent liability shocks. - Market sentiment risks, short domestic maturities, investor base concentration, and currency composition. - Mitigating factors and policy commitments: - Government committed to prudent debt management and development of primary domestic debt market: - Create benchmark securities. - Reduce frequency of primary auctions. - Increase share of domestic financing through competitive auctions. - Strategy aims to replace foreign-currency-linked domestic securities with local currency bonds with longer maturities to improve debt profile and contain GFNs. - Restructuring of Sonangol, SOE privatization program (proceeds could be used to reduce debt), and improved transparency in public debt statistics (including guarantees, prior action). - Ongoing restructuring of BPC and enhanced banking supervision to mitigate contingent liability risks from the banking sector. ### Stress tests and shock scenarios - Growth shock: - Lowering projected real GDP growth by one standard deviation keeps the debt ratio significantly above the MAC-DSA high-risk benchmark for emerging economies in the foreseeable future. - Real exchange rate shock: - A 30-percent one-time real depreciation of the kwanza increases the debt ratio to 95 percent of GDP on impact and keeps debt significantly above the high-risk benchmark over the projection horizon. - Note: standardized shock does not consider that further depreciation would improve the kwanza value of oil fiscal revenues. - Combined shock: - A combination of growth, inflation, primary balance, exchange rate shocks and a 200 basis points increase in the effective interest rate would raise the debt ratio above 110 percent of GDP and GFNs well above the high-risk benchmark for emerging economies; debt servicing would become challenging. - Contingent liability (CL) shock: - Baseline includes over 1 percent of GDP for BPC bank recapitalization (about half of currently estimated needs). - CL-shock scenario assumes a one-time increase in non-interest expenditures equivalent to 10 percent of banking sector assets (about 2 percent of GDP), plus lower GDP growth and higher borrowing cost. Under this scenario, debt and GFN ratios remain elevated. - Oil-price shock (customized): - Two-year drop averaging 32 percent in the projected price of the Angolan oil basket for 2019–20. - Under this scenario, the debt-burden-to-revenue ratio would exceed 500 percent in 2020 and the debt-to-GDP ratio would remain above the high-risk benchmark over the projection horizon. - Asymmetric risk profile: - The asymmetric fan chart indicates that systematically unfavorable macroeconomic shocks (e.g., fiscal and exchange rate shocks) would make the debt trajectory exceed the high-risk benchmark for emerging economies with high likelihood. ### External Debt Sustainability Analysis - Coverage: external debt of the Central Government, Sonangol, TAAG, and foreign-currency public guarantees. No private sector external debt included due to lack of data. - External debt projected to remain stable at 45 percent of GDP. - Share of external debt in total debt remains elevated as public investment continues to be financed mainly with foreign loans; this reduces domestic debt rollover risks. - External financing requirements projected to decline from 11 percent of GDP in 2019 to single digits toward the end of the program. - External vulnerabilities: - Exposure to adverse current account developments and large exchange rate depreciations. - A 30-percent depreciation in the real effective exchange rate could raise external debt to about 70 percent of GDP absent countervailing policies. - Structural reforms to diversify the economy and boost FDI (e.g., new Private Investment Law enacted in 2018) would mitigate these risks. - Transition to a more flexible exchange rate regime has lessened the likelihood of a large exchange rate shock. *Source: Annex IV. Debt Sustainability Analysis (cr18370).* ### 14. Despite significant vulnerabilities, Angola’s public debt is assessed as sustainable ### 14. Despite significant vulnerabilities, Angola’s public debt is assessed as sustainable ### Assessment of sustainability and key conclusion - Under the baseline (program) scenario, Angola’s public debt is assessed as sustainable despite significant vulnerabilities. - The program scenario’s key assumptions are: - fiscal consolidation, - growth recovery, - favorable oil prices (as projected in the WEO). - Risk-mitigating factors noted: - efforts to reduce contingent-liability (CL) risks and rebuild international buffers, - diminished likelihood of further large adjustments in the exchange rate. ### Baseline debt and macro-fiscal projections (selected figures from the Public DSA) - Total Nominal gross public debt (in percent of GDP): - 2016: 36.9 - 2017: 75.7 - 2018: 68.5 - 2019: 91.0 - 2020: 79.1 - 2021: 73.8 - 2022: 71.9 - 2023: 68.8 - 2023 (last entry): 66.3 - Debt of General Government and Sonangol (in percent of GDP): - 2016: 27.8 - 2017: 75.6 - 2018: 67.9 - 2019: 90.3 - 2020: 78.3 - 2021: 72.8 - 2022: 70.7 - 2023: 67.7 - 2023 (last entry): 65.2 - Public gross financing needs: - 2016: 8.7 - 2017: 16.5 - 2018: 20.2 - 2019: 14.6 - 2020: 9.8 - 2021: 11.8 - 2022: 10.7 - 2023: 11.4 - 2023 (last entry): 14.7 - Sovereign spreads and market indicators: - EMBIG (bp) (as referenced in the DSA): 533 (also table shows EMBIG (bp) 3/537) - Real GDP growth (in percent): - 2016: 6.0 - 2017: -2.6 - 2018: -0.2 - 2019: -1.7 - 2020: 2.5 - 2021: 3.2 - 2022: 3.2 - 2023: 3.7 - 2023 (last entry): 3.8 - Inflation (GDP deflator, in percent): - 2016: 8.9 - 2017: 21.8 - 2018: 22.6 - 2019: 37.5 - 2020: 24.0 - 2021: 9.2 - 2022: 5.8 - 2023: 5.1 - 2023 (last entry): 4.9 - Nominal GDP growth (in percent): - 2016: 15.6 - 2017: 18.6 - 2018: 22.4 - 2019: 35.2 - 2020: 27.1 - 2021: 12.7 - 2022: 9.2 - 2023: 9.0 - 2023 (last entry): 8.9 - Effective interest rate (in percent): - 2016: 4.9 - 2017: 5.9 - 2018: 5.4 - 2019: 9.1 - 2020: 6.8 - 2021: 7.4 - 2022: 7.3 - 2023: 7.1 - 2023 (last entry): 7.0 ### Contributions to changes in public debt (selected flows) - Change in gross public sector debt (cumulative contributions, percent of GDP): - 2016: 4.3 - 2017: 18.6 - 2018: -7.1 - 2019: 22.4 - 2020: -11.9 - 2021: -5.3 - 2022: -2.0 - 2023: -3.1 - 2023 (last entry): -2.5 - Identified debt-creating flows (percent of GDP): - 2016: 0.6 - 2017: 11.6 - 2018: -6.1 - 2019: -18.6 - 2020: -20.1 - 2021: -8.5 - 2022: -5.3 - 2023: -4.9 - cumulative (to 2023): -61.8 - Primary deficit (percent of GDP): - 2016: -1.1 - 2017: 1.7 - 2018: 3.0 - 2019: -5.0 - 2020: -6.1 - 2021: -5.2 - 2022: -4.3 - 2023: -3.6 - cumulative (to 2023): -27.3 - Primary (noninterest) revenue and grants (percent of GDP): - 2016: 38.8 - 2017: 17.5 - 2018: 17.5 - 2019: 20.5 - 2020: 21.3 - 2021: 20.9 - 2022: 20.0 - 2023: 19.4 - cumulative (to 2023): 120.8 - Primary (noninterest) expenditure (percent of GDP): - 2016: 37.7 - 2017: 19.2 - 2018: 20.5 - 2019: 15.6 - 2020: 15.2 - 2021: 15.6 - 2022: 15.7 - 2023: 15.7 - cumulative (to 2023): 93.5 - Automatic debt dynamics (percent of GDP): - 2016: -1.1 - 2017: 0.9 - 2018: -10.5 - 2019: -13.2 - 2020: -14.5 - 2021: -3.7 - 2022: -1.3 - 2023: -1.3 - cumulative (to 2023): -35.2 ### Composition of public debt and alternative scenarios (selected assumptions) - Baseline underlying assumptions (examples): - Real GDP growth (percent): 2018: -1.7; 2019: 2.5; 2020: 3.2; 2021: 3.2; 2022: 3.7; 2023: 3.8 - Inflation (percent): 2018: 37.5; 2019: 24.0; 2020: 9.2; 2021: 5.8; 2022: 5.1; 2023: 4.9 - Primary Balance (percent of GDP): 2018: 5.0; 2019: 6.1; 2020: 5.2; 2021: 4.3; 2022: 3.6; 2023: 3.1 - Effective interest rate (percent): 2018: 9.1; 2019: 6.8; 2020: 7.4; 2021: 7.3; 2022: 7.1; 2023: 7.0 - Alternative scenarios analyzed include: - Historical scenario, - Constant Primary Balance Scenario. ### Stress tests and external debt sensitivity - The Public DSA includes multiple stress tests: primary balance shock, real GDP growth shock, real interest rate shock, real exchange rate shock, contingent liability shock, combined shock, and oil price shock. - Stress test outputs are presented as trajectories of Gross Nominal Public Debt (in percent of GDP and in percent of revenue) and Public Gross Financing Needs (in percent of GDP) under baseline and shocks (charts and ranges shown in the DSA). - External debt-bound tests and External Debt Sustainability Framework (2014–2023) present: - Baseline external debt (percent of GDP) and identified external debt-creating flows, - Gross external financing need (in billions of US dollars and in percent of GDP): - Examples: Gross external financing need (in billions of US dollars) by year includes 6.8, 12.9, 7.3, 4.1, 5.3, 10.8, 6.7, 6.1, 6.1, 7.1 (corresponding to 2014–2023 sequence shown). - External debt-to-exports ratios (percent): examples include 57.0, 105.1, 158.7, 127.9, 110.8, 110.4, 107.9, 117.4, 122.3, 129.4 (2014–2023 sequence shown). ### Key vulnerabilities identified - High exposure to oil price shocks and production declines (affecting growth, oil tax revenues, and foreign exchange availability). - Elevated gross public financing needs in recent years (e.g., 20.2 percent of GDP in 2018). - Large shifts in public debt levels between 2016–2019, indicating sensitivity to policy, exchange rate, and oil-related shocks. - External debt vulnerabilities reflected in external financing needs and external-debt-to-exports ratios. ### Policy recommendations and contingency responses (from DSA and RAM) - Fiscal and macro policy: - Implement fiscal consolidation and mobilize non-oil tax revenues. - Calibrate monetary, exchange rate, and fiscal policy responses according to shocks. - Rebuild international buffers and reduce contingent-liability risks. - Debt management and financing: - Strengthen public debt management, state-owned enterprise oversight, and transparency of public debt statistics. - Mobilize financing from development partners at affordable terms. - Refrain from issuing Eurobonds until international capital markets stabilize. - Continue developing domestic and alternative external financing sources. - Financial stability and banking sector: - Address gaps in prudential regulations. - Assess potential fiscal contingent liabilities from weak banks. - Ensure resources are earmarked/budgeted to minimize risks to financial stability. - Structural and sectoral reforms: - Streamline administrative procedures to attract investment to the oil sector. - Move expeditiously with Sonangol's restructuring. - Accelerate reforms to diversify the economy. *Source: IMF staff (Public Sector Debt Sustainability Analysis and Risk Assessment for Angola, as presented in the referenced DSA material).* ### 1. For a period of three years from the date of approval of this arrangement, Angola will ### cr18370 - 1. For a period of three years from the date of approval of this arrangement, Angola will ### Extended Arrangement: access, currencies, and repurchase - Right to make purchases from the Fund in an amount equivalent to SDR 2,673 million for a period of three years from date of approval, subject to paragraphs 2, 3, 4, and 5. - Purchases shall be made in the currencies of other members selected in accordance with the policies and procedures of the Fund, unless Angola requests and the Fund agrees to provide SDRs at the time of the purchase. - Angola shall pay a charge for this extended arrangement in accordance with the decisions of the Fund. - Repurchase obligations: - Angola shall repurchase the amount of its currency that results from a purchase under this extended arrangement in accordance with the Articles of Agreement and decisions of the Fund. - Any reductions in Angola’s currency held by the Fund shall reduce the amounts subject to repurchase in accordance with Fund principles. ### Conditionality and purchasing limits - Temporal and cumulative purchase limits (without Fund consent): - Not to exceed the equivalent of SDR 715 million until March 29, 2019; - Not to exceed the equivalent of SDR 894 million until September 30, 2019; - Not to exceed the equivalent of SDR 1,073 million until March 31, 2020; - Not to exceed the equivalent of SDR 1,473 million until October 30, 2020; - Not to exceed the equivalent of SDR 1,873 million until April 30, 2021; - Not to exceed the equivalent of SDR 2,273 million until November 1, 2021. - Purchases are prohibited if any of the following program performance criteria (as set out in Table 1a of the MEFP and specified in the TMU) are not observed: - Floor on the net international reserves of the Banco Nacional de Angola (BNA); - Ceiling on the claims of the BNA on the Central Government; - Ceiling on the non-oil primary fiscal deficit of the Central Government. - Purchases are also prohibited if, at any time: - The ceiling on accumulation of new external payment arrears by the Central Government and the BNA is not observed; or - The ceiling on contracting or guaranteeing of oil-collateralized external debt by the Central Government, the BNA and Sonangol is not observed. - Additional purchase suspensions: - After March 28, 2019; September 29, 2019; March 30, 2020; October 29, 2020; April 29, 2021; and October 31, 2021, until the respective program reviews contemplated in paragraph 27 of the MEFP are completed. - If Angola at any time: (i) imposes or intensifies restrictions on payments and transfers for current international transactions; (ii) introduces or modifies multiple currency practices; (iii) concludes bilateral payments agreements inconsistent with Article VIII; or (iv) imposes or intensifies import restrictions for balance of payments reasons. - Until the Fund has determined for each purchase, while Angola has outstanding sovereign external payments arrears to private creditors, that a financing assurances review has been completed. - Purchases will also be suspended during any period in which Angola: (i) has an overdue financial obligation to the Fund or is failing to meet a repurchase expectation in respect of a noncomplying purchase pursuant to Decision No. 7842-(84/165); or (ii) is failing to meet a repayment obligation to the PRG Trust established by Decision No. 8759-(87/176) PRGT, as amended, or a repayment expectation pursuant to Appendix I to the PRG Trust Instrument. - Suspension of Angola’s right to engage in transactions under the arrangement can occur only with respect to requests received after (a) a formal ineligibility, or (b) a decision of the Executive Board to suspend transactions or to consider a proposal to suppress or limit Angola’s eligibility; purchases resume only after consultation and agreed understandings. ### Consultation, reporting, and safeguards - Angola shall remain in close consultation with the Fund through correspondence, visits, and provision of information at intervals or dates requested by the Fund to monitor progress on objectives and policies set out in the Letter, MEFP, and TMU. - The Government recognizes the importance of completing a safeguards assessment before completion of the first review under the EFF, expected for end-March 2019. The BNA will provide the information required to complete the assessment. - Angola will consult with the Fund on adoption of any measures at the initiative of the government or whenever the Managing Director requests consultation because criteria have not been observed or consultation is considered desirable. After the arrangement period, while Angola has outstanding purchases under the arrangement, the Government will consult from time to time concerning Angola’s balance of payments policies. ### Macroeconomic context, outlook, and program objectives (Letter of Intent and MEFP) - Background and recent developments: - The economy has been severely impacted by the decline in international oil prices since mid-2014. - Economic activity contracted in 2016–17; inflation accelerated; fiscal revenues and exports declined; overall budget deficit widened; public debt in relation to GDP nearly doubled between 2013 and 2016. - Net international reserves (NIRs) halved between 2014 and 2017. - The Government reduced the non-oil primary fiscal deficit (NOPFD) by almost 15 percent of GDP in 2015–16. - Near-term projections and developments for 2018: - Growth: Economic activity is projected to contract by 1.7 percent in 2018. - Non-oil GDP is expected to stagnate. - Inflation: Annual inflation is projected to reach 22 percent by year-end 2018. - Fiscal position: Budget execution was slow in H1 2018; US$3.5 billion in Eurobonds issued in May and July 2018; domestic financing needs remain high; government likely to deplete BNA deposit buffers and continue cutting current expenditure to meet financing needs while committing not to accumulate new payment arrears. - External position: Current account projected to record a surplus of 2 percent of GDP in 2018. - Reserves: NIRs projected to decline to US$10 billion and gross reserves to US$15.7 billion (equivalent to 5.3 months of prospective imports) by end-2018. - Monetary and financial: Reserve money declined by 6.4 percent between January and September 2018; NPLs reached 25.6 percent in August 2018. - Medium-term outlook and risks: - Overall growth expected to start recovering in 2019 and firm up at around 3.25 percent over the program period. - Non-oil potential growth expected to reach 4.5 percent toward the end of the program. - Risks include lower oil prices, faster-than-expected decline in oil production, and tighter global financial conditions. - Program objectives: - Stabilize the economy and lay the ground for structural and development reforms to transform the economy, reduce dependence on oil, promote diversification, inclusive growth, and reduce poverty and inequality. - Two pillars: (i) adopt sound policies for macroeconomic and financial stability; (ii) implement structural reforms to diminish oil dependence and promote diversification. ### Fiscal policy measures and targets (2018–21) - Medium-term fiscal objective: - Reduce public debt of the Central Government and Sonangol (excluding public guarantees) to 65 percent of GDP by 2023. - 2018 policies and targets: - Reduce the NOPFD to 8.8 percent of GDP in 2018. - Overall fiscal deficit projected to narrow from 6.3 percent in 2017 to a surplus of about 0.4 percent of GDP in 2018. - Non-oil primary fiscal consolidation of 3.8 percent of GDP in 2018. - Public debt projected to peak at about 91 percent of GDP in 2018. - Oil revenue windfall to be used to pay down domestic public debt and slow depletion of government deposits. - Medium-term consolidation path: - NOPFD to be reduced on average by 0.3 percent of GDP annually until 2023. - Consolidation to be primarily achieved by non-oil revenue mobilization (including introducing VAT in 2019) and rationalization of current expenditure. - 2019 draft budget assumptions and targets: - Targets NOPFD reduction to 8.6 percent of GDP. - Assumptions: GDP growth of 2.5 percent; oil price of US$68/bbl; oil production of 1.57 mbbl/d. - Social spending of about 6.5 percent of GDP; development of a social safety net. - Specific expenditure measures: - Wage bill: total wage bill will not exceed 5.2 percent of GDP in 2019; hiring preference to priority sectors; limit wage increases; eliminate wasteful spending. - Goods and services: spending capped at 4 percent of GDP; payments to adhere to expenditure execution rules, public procurement law, and internal control systems. - Transfers and subsidies: keep subsidies below 1 percent of GDP through SOE efficiency improvements, privatization program, and tariff adjustments (water adjusted in August 2018), electricity tariffs and transportation fares, and strategy for gradual domestic fuel price adjustment. *Source: cr18370 - 1. For a period of three years from the date of approval of this arrangement, Angola will* ### 9. Entrenching medium-term fiscal sustainability requires the successful implementation ### 9. Entrenching medium-term fiscal sustainability requires the successful implementation ### Fiscal reforms — objectives and timeline - Focus areas: creating a broad-based and stable revenue base; increasing the efficiency of public expenditure, including rationalizing current expenditure; strengthening debt management; gradually eliminating domestic payments arrears; reducing the procyclicality of public spending; and improving fiscal transparency. - Implementation horizon: reforms to be implemented in the next three years. ### Non-oil revenue mobilization - Main element: introduction of a VAT. - VAT rollout: Government intends to start collecting VAT payments from large taxpayers—as defined periodically by the tax authority (AGT) based on Presidential Decree 147/13—starting on July 1, 2019, as the first phase of implementing a comprehensive VAT. - TA and benchmarks: AGT is working, with the support of IMF technical assistance (TA), to ensure timely implementation of this key reform (structural benchmark). - Contingency measures in 2019 budget to meet NOPFD target amounting to about 0.3 percent of GDP, including: - (i) applying a special consumption tax on certain categories of goods including luxury, alcohol, and tobacco goods; - (ii) introducing measures to strengthen the revenue collection from the real estate tax; and - (iii) recovering tax arrears. - Further TA: requested from the IMF for 2019 to identify options to strengthen non-oil revenue collection further in the medium term. - AGT commits to strengthen tax administration procedures to reduce risks to the VAT regime applied to oil sector operators, such as tax evasion. ### Subsidies - Rationale: general price subsidies are a heavy burden on public finances and mostly benefit the wealthiest segments of society. - Actions taken and planned: - August 2018: started addressing subsidies by adjusting water tariffs. - Will adjust electricity tariffs and transportation fares. - Ministry of Finance, in coordination with Sonangol and other stakeholders, will reduce fuel-related subsidies by adjusting pump prices of refined fuel products. - Develop a comprehensive strategy for fuel pricing with an automatic pricing mechanism once subsidies have been eliminated (expected completion by end-June 2020). - Initial focus: adjustment of gasoline and diesel prices. - LPG and kerosene price adjustments to be covered later if needed due to disproportionate impact on the most vulnerable. - Electricity sector strategy: measures to improve the operational efficiency of state-owned enterprises (SOEs) in this sector. - Social mitigation: working with the World Bank and UNICEF to develop an appropriate social safety net, including a cash transfer program, to mitigate the impact on the most vulnerable. ### External payments arrears - Situation: accumulated external arrears with private and official bilateral creditors; bulk owed to a foreign supplier with a preliminary agreement to resolve arrears. - Actions: - Ministry of Finance working to resolve arrears to private creditors and commits to clear arrears to bilateral sovereign creditors. - August action: contacted the Paris Club to request verification of possible claims on Angola from its members, as well as commercial creditors and suppliers through their embassies. - Requested Serbian authorities to verify possible legacy arrears transferred from the former Yugoslavia; will inform Serbian authorities of intention to resolve confirmed claims. - Constraint: Ministry of Finance and the BNA commit to not accumulate any further external arrears during the program (performance criterion). ### Domestic payments arrears - Problem: stock of domestic payments arrears accumulated during the crisis is a major burden and a weakness in the public financial management (PFM) system. - Clearance and certification schedule for arrears accumulated up to end-2017: - By end-2019: Ministry of Finance will eliminate the domestic payment arrears recorded in the Integrated Financial Management System (SIGFE; structural benchmark). - By end-2019 and end-2020: certify and eliminate at least 50 percent and 75 percent, respectively, of domestic payments arrears accumulated up to end-2017 that have not been recorded in SIGFE (structural benchmark and expected completion end-December 2020, respectively). - Verification and clearance of non-SIGFE arrears to be fully completed by end-June 2021 (expected completion by end-June 2021). - Claims submission deadline: Government decree set January 31, 2019 for creditors to submit claims on domestic payments arrears contracted in 2013–17. - Arrears accumulated between end-2017 and start of the program: will be verified and cleared no later than end-June 2020 (expected completion by end-June 2020). - Accumulation ceiling: accumulation of new domestic arrears will not exceed 100 billion kwanzas during the program period (indicative target). - Measures to prevent new arrears: - (i) improving capacity of budget and internal control units to monitor execution and take corrective measures; - (ii) operationalizing and scaling up monitoring of budget units by the recently created budget controller; - (iii) ensuring all budget expenditures comply with rules and are properly and timely recorded in SIGFE; - (iv) holding budget unit officers of the Ministry of Finance and other line ministries accountable for breaching internal controls, including authorization of spending outside SIGFE. - Enforcement: Ministry of Finance will rely on auditing, administrative, and judicial tools, including support of the Inspector General of Finance and the Audit Court. - Transparency: by end-2019, start publishing detailed quarterly reports on the stock of all outstanding arrears (originated inside and outside SIGFE), amounts paid, payment modalities (e.g., in cash, in Government securities), and average payment periods from accrual date or invoice, within six weeks of the end of each quarter. ### Other PFM reforms - Adopt a medium-term fiscal framework (MTFF) to internalize medium-term fiscal targets and implications of public investment decisions, as envisaged in the NDP18–22. - By end-2019: submit PFM legislation to the National Assembly, in line with IMF staff advice (structural benchmark). - Design a fiscal stabilization fund to reduce procyclicality of spending: - Capitalization will start once the budget generates surpluses and Central Government debt is below 60 percent of GDP. - Legal framework to be consistent with the MTFF and PFM legal reform. - Improve government statistics quality and timeliness; by end-2019 start publishing detailed quarterly fiscal reports. - Public investment management: - Large investment projects (projectos estruturantes) subject to proper ex ante evaluation, rigorous governance (project management office, close monitoring by line ministry), and ex post evaluations. - New public investment projects will only start if financing, including external sources, is fully secured. - Starting in 2019, Government will not use capital expenditure to finance current expenditure, except on an exceptional basis up to 10 percent of capital expenditure could be reallocated to current expenditure. - Hold senior officials accountable for proposing/committing spending that would breach approved budget ceilings. - Arrears across entities: - By end-2019, Ministry of Finance, in coordination with Sonangol and Prodel, will finalize identification of arrears across these entities and start implementing a time-bound plan to clear them. - Intra-year advances: during the program, Government commits to settle, at the end of each calendar year, any outstanding intra-year advances by the BNA in cash, not by issuing securities. ### Monetary and Exchange Rate Policies — operational framework - Monetary policy anchor: target reserve money during the program; path set to achieve inflation objective. - Liquidity and tools: strengthen liquidity management and forecasting; rely on standing facilities, foreign exchange operations, discount window, and mandatory reserve requirements. - Intra-year lending limit: limited to the legal limit of 10 percent of previous year’s current revenue. ### Exchange rate liberalization and foreign exchange operations - Regime change: January 2018 abandoned the peg to the U.S. dollar (peg in place since April 2016). - Exchange rate and spread developments: - Kwanza depreciated by 43.6 percent between January and September 2018. - Spread between official and parallel exchange rates declined from 150 percent in December 2017 to 23.2 percent in September 2018. - Foreign exchange backlog and operations: - Conducted assessment and cleared outstanding arrears with airline and telecommunication companies. - Provided US$1.9 billion to commercial banks to reduce their backlog; full amount not utilized and unused part returned to the BNA. - Belief that targeted interventions eliminated the backlog of unmet foreign exchange demand accumulated up to December 2017. - Sold US$10.2 billion during January–September 2018, largely through sales to commercial banks and some direct sales for food imports. - Liberalization objectives and benchmarks: - Reduce exchange rate spread between formal and informal markets to below 20 percent. - Eliminate unmet foreign exchange demand backlog by end of 2018. - Gradually increase share of foreign exchange provided to commercial banks through regular auctions, eliminate direct sales and remove the priority list for access to foreign exchange (end-September). - Use regular auctions at prevailing market rates to eliminate backlog (structural benchmark). - Starting January 2019: sell foreign exchange through un-constrained, bid-rate, daily auctions of preannounced amounts to allow price determination by the market; IMF TA requested to implement these reforms. - BNA publishing one month ahead the broad amounts expected to be sold based on approved Treasury cash plans. - Once imbalances are eliminated, ensure customers can withdraw their foreign exchange deposits on demand by end-2019 (structural benchmark). - Use bank-by-bank assessments and stress tests to inform measures to cushion impact of potential further depreciation. - Elimination of exchange rate restrictions (ERs) and multiple currency practices (MCPs): - Implement strategy in collaboration with fiscal authorities to progressively eliminate ERs and MCPs. - Eliminate discriminatory application of the 0.1 percent stamp tax on foreign exchange operations (ER, Article VIII, 2a and MCP, Article VIII, 3) and the special tax of 10 percent on transfers to non-residents under contracts for foreign technical assistance or management services (ERs, Article VIII, 2a) by end-March 2021. ### Reserves and NIRs - NIRs projected to decline by up to US$3.3 billion in 2018 (performance criterion), largely due to market interventions to eliminate the foreign exchange backlog. - Rebuilding NIRs: goal to start rebuilding the NIRs of the BNA starting in 2019. - 2019 reserve target: bring gross official reserves to US$17.5 billion (equivalent to 6.2 months of prospective imports) by year-end. ### Communication - Strengthen communication: BNA will continue to communicate intentions in advance to eliminate the element of surprise. - Monetary Policy Committee will continue publishing statements explaining policy decisions on the BNA’s website. - Role in oil revenues: BNA will continue to intermediate oil revenues but limit role to smoothing excessive fluctuations. ### Financial Sector Policies — stability and supervision - Systemic stability: banking system broadly stable despite significant increase in NPLs. - Bank-by-bank analysis: carried out with IMF assistance; results suggest risks from depreciation pressures. - Supervisory actions: - Intensify supervision of institutions with weak foreign currency asset positions. - After market-determined exchange rate consolidation, ensure banks satisfy deposit obligations and meet open net position requirements. - Unwind progressively the compulsory conversion of banks’ foreign exchange reserve requirement into government securities issued in 2015. - Prudential measures: - Increased minimum share capital requirement for banks threefold, effective December 31, 2018; most banks falling short submitted capitalization plans to the BNA by July 31, 2018. - Asset quality reviews (AQRs) of loan portfolios of the eight largest banks to be conducted by external experts in collaboration with the BNA; AQRs to be completed by end-September 2019 (structural benchmark). - Develop terms of reference for AQRs in consultation with IMF staff. - Prepare a plan to deal with AQR findings, prioritizing public banks, to maintain financial stability and protect taxpayers. - Any bank with capital shortfalls required to submit a plan to raise capital from existing shareholders or new private investors by end-2019 and complete recapitalization by June 2020. - Banks unable to raise sufficient capital will be resolved. - Strengthening regulatory framework: - Amend the Financial Institutions Law and corresponding changes to the BNA Law in line with IMF staff advice to ensure effective recovery planning, enhanced corrective actions, and resolution framework before finalizing AQRs (structural benchmark). - Upgrades to Financial Institutions Law to cover credit-risk management, collateral registry and execution enforcement, internal controls, and corporate governance. - Introduce a deposit guarantee scheme and make it operational in the coming months. - A working group finalizing a report with recommendations on the role of the State in the banking system. ### Banco de Poupança e Crédito (BPC) restructuring and Recredit - BPC restructuring progress: - Restructuring plan approved March 2017; new Board appointed. - Branch and agency closures and staff retrenchment mainly through attrition. - Strengthening risk-management via credit and risk committees and IT upgrades. - BPC capitalization and viability: - Update BPC’s restructuring plan in consultation with IMF staff to ensure sufficient capitalization by June 2020 and viability after restructuring completion. - Conditionality for future reviews will consider the updated restructuring plan. - NPL management: - Repair of BPC’s loan portfolio mainly via transfer of NPLs to state-owned asset recovery company, Recredit. - Implement BPC operational restructuring: efficiency improvements, cost reductions, overhauled risk-management processes. - Recredit governance and mandate: - Government will ensure proper governance arrangements and operational procedures (asset valuation, transfer pricing, and workout) at Recredit to maximize recoveries and minimize fiscal costs by end-March 2019 (structural benchmark). - Government will limit Recredit’s mandate to purchase NPLs from only BPC and will introduce a sunset clause to its operations. _ITALICS: IMF staff report text provided in the source content._ ### 20. Strengthening the AML/CFT framework is part of the Government’s commitment to ### 20. Strengthening the AML/CFT framework is part of the Government’s commitment to ### AML/CFT framework and related benchmarks - Angola was removed from the FATF monitoring process in February 2016 and from ESAAMLG monitoring in April 2018. - The Government is working with ESAAMLG in preparation for the next peer assessment, expected in 2021, to address pressures on correspondent banking relations and ensure a positive outcome of the next FATF mutual evaluation. - National Risk Assessment on AML/CFT issues: expected completion by end-2018; it will serve as the basis for the AML/CFT strategy. - Structural benchmarks and legal actions: - Submit a revised AML/CFT Law and other related legal and regulatory amendments to the National Assembly, in line with FATF standards and IMF staff advice, by end-March 2019 (structural benchmark). - The new law will address issues with politically exposed persons (PEPs), in line with IMF staff advice (structural benchmark). - Interim measures under the current AML/CFT Law: restrict non-compliant off-shore trade operations and operations by PEPs on a risk analysis basis. ### Public debt management — actions and transparency measures - Objective: reduce financing needs through lower borrowing cost and improve the debt service profile. - Debt Management Unit (UGD) commitments: - Start publication of a Debt Management Strategy and an Annual Borrowing Plan by end-March 2019, envisaging creation of benchmark securities, reduced frequency of primary auctions, and increased share of domestic financing through competitive auctions (structural benchmark). - Start publishing weekly calendars of actions, auction results, public debt statistics, and quarterly debt bulletins on its website by end-2018. - Collateral policy: refrain from pledging oil revenues as collateral for new external contracts during the program period (performance criterion). - Transparency prior actions completed: - Ministry of Finance fully disclosed information on all recorded public guarantees as of October 31, 2018, broken down by currency (prior action). - Clarified terms of escrow accounts overseas serving as collateral for part of external debt service obligations and provided information on Sonangol’s collateralized debt (prior action). - Published a decree calling all guarantors and creditors to inform the Government by January 31, 2019 of the existence of a public guarantee on external or domestic debt (prior action). - Policy stance: assess need for further fiscal adjustments if public guarantees pose a risk to achieving the medium-term debt target. ### Structural reforms and privatization program - Reform goals: stimulate economic diversification, promote growth, reduce poverty and inequality; focus on private sector as main growth engine; restructure corporate public sector; foster business environment; improve governance; fight corruption. - NDP18–22 social objective: reduce incidence of poverty from 36 percent in 2017 to 25 percent in 2022. - Social policy: NDP18–22 envisages a significant increase in social spending (indicative target) and development of a social safety net. - Corporate public sector reforms: - Created a new oversight agency (IGAPE) to improve SOE monitoring and transparency. - Government intends to evaluate economic viability of SOEs to close insolvent ones and restructure or privatize economically viable but inefficient ones. - Draft Privatization Law (Lei de Bases das Privatizações) submitted to the National Assembly; privatization process to adhere to strict transparency norms. - Government will approve a new privatization program within 90 days. - Finalize privatization of financially viable SOEs within two years after approval of the law by the National Assembly. - Use privatization receipts primarily for infrastructure financing, cleaning up viable SOEs to be privatized under the same program, and Central Government debt repayments; proceeds will not finance current expenditure. - Sonangol restructuring: - Implement “regeneration” program by end-March 2019, including divesting from non-core businesses. - Public offering or auction sale of the first set of such assets by end-September 2019 (structural benchmark). - Program envisages reducing some stakes in oil blocks and streamlining labor force; successful reform expected to eliminate need for future capital injections and increase efficiency. - Some Sonangol objectives may be included in later structural benchmarks if necessary. ### Business environment, investment policy, and insolvency framework - NDP18–22 target: gain 15 positions in the World Bank’s Ease of Doing Business ranking by 2022. - Competition and investment reforms: - Enacted a Law on Competition to support competition and address monopolistic practices in key sectors (telecommunications, cement). - Envisaged regulation and establishment of an anti-trust authority by end-2019 to enforce the law. - Enacted a Private Investment Law removing FDI entry barriers, guaranteeing repatriation of profits and dividends, removing minimum investment requirements and need for a local partner to qualify for fiscal incentives. - AIPEX will expedite registration and licensing and guarantee that FDI proposals are registered within 72 hours. - Launched PRODESI program for export diversification and import substitution focusing on six priority areas and greater private sector participation. - With World Bank support: create a one-stop window for investors; simplify licensing and business startup procedures (including online formal business registration); facilitate access to electricity; simplify tax payment procedures; reduce transaction costs for businesses. - Insolvency reform: - Preparing a draft Law on the Recovery of Enterprises and Insolvency, and related regulations, to strengthen credit guarantees and improve insolvency efficiency. - The law and regulations will be enacted by end-June 2020 (expected completion by end-October 2020). - A preliminary draft law will be submitted to public consultation ahead of submission to the National Assembly. - Before rollout, with World Bank help, strengthen capacity of the Ministry of Justice and Human Rights. ### Governance and anti-corruption measures - Anti-corruption actions and institutions: - Government removed several senior public officials and started investigations on possible malfeasance at several public entities. - National Assembly debating a new Penal Code with stronger provisions against corruption; approval expected by early 2019. - Attorney-General’s Office (PGR) National Directorate for Preventing and Fighting Corruption strengthened; initiated 50 investigations compared to only 2 investigations in 2017. - Two high-level cases are already being prosecuted in the courts. - PGR preparing a comprehensive anticorruption strategy to be finalized by year end; strategy will include new laws on assets recovery, protection of victims, witnesses and collaborating defendants, and video surveillance; strengthening material and human resources of courts and law enforcement institutions. - New management appointed in the State Administration Inspector General’s office (IGAE); about 40 inspections ongoing. - Created a specialized anti-corruption unit as the Executive Branch’s main agency for preventing and repressing corruption crimes. - Public administration controls: commitment to ensure agencies supporting anticorruption efforts are adequately funded and cooperation with other jurisdictions is strengthened. - Financial management: reduce opportunities for corruption including non-execution of expenditure outside SIGFE; expected improvement in budget execution and transparency. ### Program monitoring, performance criteria, and timing - Monitoring framework: semi-annual reviews, performance criteria (PCs), and structural benchmarks (SBs). - Review schedule: first and second reviews tentatively planned for end-March 2019 and end-September 2019, based on quantitative targets for end-December 2018 and end-June 2019, respectively, and corresponding structural benchmarks. - Program test dates for reviews (TMU): first, second, and third reviews will assess end-December 2018, end-June 2019, and end-December 2019 test dates, respectively. - Selected quantitative program figures (as stated in MEFP Table 1a): - Net international reserves (NIRs) of the Banco Nacional de Angola (BNA), floor (millions of U.S. dollars): 10,000; 10,100; 10,300; 10,700; 11,250. - BNA claims on the Central Government, cumulative ceiling (billions of kwanzas): 355; 150; 250; 300; 0. - Non-oil primary fiscal deficit of the Central Government, cumulative ceiling (billions of kwanzas): 2,488; 484; 977; 1,734; 3,147. - Indicative target — Stock of Central Government debt and debt of Sonangol, ceiling (billions of kwanzas): 24,733; 27,348; 27,348; 27,348; 27,348. - Indicative target — Social spending, cumulative floor (billions of kwanzas): 848; 200; 400; 750; 1,100. - Indicative target — Net accumulation in the stock of domestic payments arrears by the Central Government, ceiling (billions of kwanzas): 100; 100; 100; 100; 100. - Indicative target — Disbursements of oil-collateralized external debt by the Central Government, cumulative ceiling (millions of U.S. dollars): 200; 711; 1,111; 1,422; 2,133; 2,843 (as shown). - Structural benchmarks timeline highlights (MEFP Table 2): - Eliminate backlog of foreign exchange demand: End-December 2018. - Start yearly publication of a Debt Management Strategy and Annual Borrowing Plan: End-March 2019. - Submit revised AML/CFT Law and related amendments to National Assembly: End-March 2019. - Ensure governance arrangements at Recredit to maximize recoveries and minimize fiscal costs: End-March 2019. - Amend Financial Institutions Law and corresponding BNA Law for recovery and resolution framework for weak banks: End-June 2019. - Begin collecting VAT from large taxpayers (Presidential Decree No. 147/13, of October 1): July 1, 2019. - Public offering of first set of Sonangol’s non-core assets: End-September 2019. - Complete an Asset Quality Review (AQR) for the eight largest banks by external experts with BNA collaboration: End-September 2019. - Verify and settle at least 50 percent of verified domestic payments arrears accumulated by the Central Government up to end-2017 and not recorded in SIGFE, as well as all arrears recorded in SIGFE: End-December 2019. - Submit to the National Assembly public financial management (PFM) legislation in consultation with IMF staff: End-December 2019. - Eliminate informal restrictions on foreign exchange deposit withdrawals: End-December 2019. ### Technical Memorandum highlights (TMU) - Program exchange rates (set for program accounting): - AOA 295 per US$1. - EUR 1.15760 - GBP 1.30410 - CNY 0.14531 - ZAR 0.07050 - SDR 1.39525 - Definition of Net International Reserves (NIRs) of the BNA: U.S. dollar value of official reserve assets of the BNA minus reserve liabilities of the BNA; valuation and exclusions specified (e.g., exclude pledged/collateralized assets, claims on residents, derivatives claims, precious metals other than gold). *Source: IMF staff report text (cr18370).* ### 4. The floor on NIRs will be adjusted relative to the program assumptions given in Text ### 4. The floor on NIRs will be adjusted relative to the program assumptions given in Text ### Adjustments to the floor on net international reserves (NIRs) - The floor on NIRs will be adjusted upward by: - The excess in oil revenue, net of Sonangol’s oil-related expenditure, on behalf of the Central Government, received by the Treasury. - The shortfall in external debt service of the Central Government. - The excess of external disbursements received by the Central Government. - The floor on NIRs will be adjusted downward by: - The shortfall in oil revenue, net of Sonangol’s oil-related expenditure, on behalf of the Central Government, by the Treasury. - The excess in external debt service of the Central Government. - The shortfall in external disbursements by the Central Government. ### Text Table 1 — Angola: Oil Revenue, External Debt Service, and External Disbursements (Baseline Scenario) - Cumulative flows from the beginning of the year (in US$ million, unless otherwise stated) - 2018 — Oil revenues, net of Sonangol's oil related expenditure on behalf of the Government: - December: 14,762 - March: 3,581 - June: 7,132 - September: 10,823 - December: 14,605 - 2018 — External debt service of the Central Government: - 8,037 - 2,611 - 5,130 - 7,139 - 9,706 - 2018 — External disbursements to the Central Government: - 8,483 - 1,819 - 3,268 - 4,712 - 6,237 - Sources: Angolan authorities; and Fund staff estimates and projections. ### B. Banco Nacional de Angola (BNA) claims on the Central Government (Cumulative Ceiling) - Definition: - BNA claims on the Central Government are the cumulative change, from the beginning of the calendar year, in the stock of all outstanding claims on the Central Government held by the BNA less revaluation gains/losses. - Revaluation gains/losses are changes in domestic currency terms of the value of BNA’s claims because of a change in the exchange rate. - These claims include loans, securities, shares, financial derivatives, settlement accounts, advances, and arrears. ### C. Non-Oil Primary Fiscal Deficit of the Central Government (NOPFD) (Cumulative Ceiling) - Definition: - The NOPFD is defined as the non-oil primary expenditure of the Central Government plus clearance of domestic payments arrears in cash, less Central Government non-oil revenue. - Central Government covers entities of Central and Local Administrations, Public Institutes, Autonomous Services and Funds, and Social Security. - Non-oil primary expenditure = total expenditure less payment of interest on domestic and external debt, and Sonangol’s oil-related expenditure on behalf of the Government, measured on a cash basis. - Clearance of domestic payments arrears in cash = cash component of repayments of domestic arrears accumulated up to December 31, 2017, per repayment timetable in paragraph 9 of the MEFP. - Central Government non-oil revenue = Central Government total revenue less oil revenue, both on a cash basis. - Central Government oil revenue = proceeds from IPP, IRP, ITP, total revenue from the concessionaire (100 percent, without netting out Sonangol’s oil related expenditure on behalf of the Central Government), and any applicable charges on oil and gas, all on a cash basis. - The performance criterion (PC) for the NOPFD is calculated as the cumulative deficit since the start of the calendar year, based on the projected exchange rates for the program period, and measured in kwanzas. ### D. Non-Accumulation of External Debt Payments Arrears by the Central Government and the BNA (Continuous Ceiling) - Definition: - External debt payments arrears = total external debt service obligations (principal and interest) of the Central Government and the BNA falling due after program approval that have not been paid by the time they are due, taking into account contractual grace periods. - Arrears from nonpayment for which a clearance framework has been agreed or a restructuring agreement is sought are excluded from this PC. - Payments that are not considered debt under paragraph 13 (e.g., payment on delivery) are excluded from this PC. - The PC applies on a continuous basis throughout the Extended Arrangement. ### E. New Oil-Collateralized Debt Contracted by or on behalf of the Central Government, the BNA, and Sonangol (Continuous Ceiling) - Definitions and rules: - Oil-collateralized external debt = external debt contracted by or on behalf of the Central Government, the BNA, and Sonangol by giving an interest in oil. - Prefinancing = an oil-collateralized loan repaid by the sale of oil in a calendar year different from the year it was contracted. - The contracting of new oil-collateralized debt, pledging of oil revenue, and/or prefinancing by or on behalf of the Central Government, the BNA, and Sonangol on a gross basis is not permitted under the program, except where the debt is used for financing of oil-extraction equipment. - Disbursements under credit lines contracted before the program start should not exceed the program ceilings. - The PC on contracting new oil-collateralized external debt applies continuously throughout the Extended Arrangement. ### Indicative targets and debt definitions - Public debt definition: - Domestic and external debt contracted or guaranteed by the Central Government, and external debt contracted by Sonangol. - Debt is as defined: a current liability created under contract requiring future payments of assets or services to discharge principal and/or interest. - Debt forms include: loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swaps), suppliers’ credits, and leases (present value at inception of lease payments expected, excluding operation/repair/maintenance). - Central Government Social Expenditure (Cumulative Floor): - Social expenditure = Central Government spending on education (budget line 04), health (05), social protection (06), and housing and community services (07) as specified in the General State Budget (OGE). - This indicative target is set in kwanzas. - Non-Accumulation of Domestic Payments Arrears by the Central Government (Cumulative Ceiling): - Domestic payments arrears = contractual obligations unpaid within 90 days after due date or delivery date, meeting criteria including recording in SIGFE. - The IT is calculated as the net change in the stock of domestic payments arrears reported between program approval and each test date, excluding claims authorized outside SIGFE (reported separately). - Disbursements of Oil-Collateralized External Debt by the Central Government (Cumulative Ceiling): - Refers to disbursements to the Central Government from credit lines contracted before the program start (paragraph 9). - This IT will be monitored quarterly. ### Reporting requirements (selected highlights) - BNA: - Stock of the NIRs — Daily — No later than one week after the end of each day. - Decomposition of daily variation of NIRs into foreign exchange sales/purchase — Weekly — No later than one week after the end of each week. - Any off-balance sheet position denominated or payable in foreign currency — Weekly — No later than one week after the end of each week. - Exports and imports (nominal values) — Quarterly — No later than 6 weeks after the end of each quarter. - Balance of payments — Biannually — No later than 6 weeks after the end of the relevant semester. - BNA claims on the Central Government — Monthly — No later than 6 weeks after the end of month. - Accumulation of external debt service arrears by the BNA — Monthly — No later than 6 weeks after the end of each month. - Bank-by-bank financial data (balance sheets, income statements, financial soundness indicators) — Annually — No later than 8 weeks after the end of the year; quarterly for banks identified as presenting significant vulnerabilities. - MINFIN (selected): - Accumulation of external debt service arrears by the Central Government — Quarterly — No later than 8 weeks after the end of each quarter. - Oil revenue by category (including concessionaire 100 percent; IRP, IPP, ITP; average oil price US$/barrel; crude oil exports barrels) — Quarterly — No later than 8 weeks after the end of each quarter. - Non-oil revenue by category — Monthly — No later than 2 weeks after the end of each month. - Expenditure by category (wages; goods and services including Sonangol’s expenditure on behalf of the Central Government; interest payments; current transfers; capital expenditure PIP and others; domestic and externally financed) — Quarterly — No later than 8 weeks after the end of each quarter. - Domestic borrowing and debt service (principal and interest) including Treasury bonds and bills and loans — Monthly — No later than 2 weeks after the end of each month. - External borrowing and debt service as recorded in the DMFAS system — Quarterly — No later than 8 weeks after the end of each quarter. - External disbursements not yet confirmed by lenders but validated by the Ministry of Finance — Quarterly — No later than 8 weeks after the end of each quarter. - Stock of domestic debt of the Central Government — Monthly — No later than 2 weeks after the end of each month. - Stock of external debt of the Central Government, Sonangol and TAAG — Quarterly — No later than 8 weeks after the end of each quarter. - Debt service projection, quarterly for 2018-21 and annually from 2022 onwards — Quarterly — No later than 8 weeks after the end of each quarter. - Stock of public guarantees — Quarterly — No later than 8 weeks after the end of each quarter. - New oil-collateralized debt by or on behalf of the Central Government, the BNA, and Sonangol — Quarterly — No later than 8 weeks after the end of each quarter. - Stock, new accumulation, and clearance of domestic payments arrears — Quarterly — No later than 8 weeks after the end of each quarter. - Bonds issued in settlement of domestic payment arrears, and for recapitalizations — Quarterly — No later than 8 weeks after the end of each quarter. - Bonds issued in settlement of loans by the BNA to the Central Government — Quarterly — No later than 8 weeks after the end of each quarter (authorities should report zero issuances). - Recapitalizations — Quarterly — No later than 8 weeks after the end of each quarter. - Stock and the change in balances of escrow accounts — Quarterly — No later than 8 weeks after the end of each quarter. - Social spending — Quarterly — No later than 8 weeks after the end of each quarter. - Quarterly reviews of the BPC’s restructuring plan — Quarterly — No later than 6 weeks after the end of each quarter. ### Statement by Mr. Dumisani Hebert Mahlinza and Mr. Jorge Essuvi on Angola (December 7, 2018) — key points and macro projections - Authorities’ stance: - Authorities appreciate engagement with staff during EFF program negotiations and broadly agree with staff’s assessment and key policy recommendations. - Launched the Macroeconomic Stabilization Plan (MSP) and National Development Plan (NDP 2018-2022) in January and April 2018, respectively. - Request a three-year Extended Fund Facility (EFF) arrangement to anchor reforms, promote policy discipline, and provide positive signals; prior actions for the EFF covering public guarantees and collateralized debt have been completed. - Recent economic developments and outlook: - The Angolan economy has commenced a cycle of gradual recovery from low oil prices since mid-2014; growth expected to gather momentum in 2019-2021. - Real GDP growth: - Projected to contract by 1.7 percent in 2018 from -0.2 percent in 2017. - Non-oil GDP expected to record a slight recovery driven by agriculture, construction, and the energy sector. - Over the near term, real GDP growth is projected to edge-up to 3.2 percent, supported by faster recovery in the oil and non-oil sectors and gradual fiscal and external rebalancing. - Inflation: - Annual inflation declined to 18.04 percent (end-October; year-on-year) from 29 percent. - Projected to reach about 22 percent by end-December 2018 as a result of exchange rate pass-through. *Source: IMF staff and Angolan authorities as presented in Text Table 1 and accompanying TMU and statement excerpts.* ### 7. The local currency depreciated against the U.S. dollar by 43.6 percent between ### 7. The local currency depreciated against the U.S. dollar by 43.6 percent between ### Exchange rate developments and external balances - The local currency depreciated against the U.S. dollar by 43.6 percent between January and November 2018. - The spread between the official and parallel market exchange rate declined to 24 percent from 150 percent from December 2017. - Current account projection: - Projected surplus of 2.0 percent of GDP in 2018, owing to improvements in terms of trade. - Financial account and reserves: - Balance on the financial account projected to remain negative, with declines in foreign direct investment liabilities and nonresident deposits more than offsetting the impact of the Eurobond issuance and higher foreign loans. - Net international reserves (NIRs) are expected to decline to 3.5 months of prospective imports of goods and services by end 2018. ### Risks and macroeconomic outlook - Medium-term outlook: - Remains favorable owing to firming oil prices, improved global financial conditions, and renewed business confidence. - Downside risks: - Crystallization of downside risks including lower-than-anticipated international oil prices, and a faster-than-anticipated tightening in global financial conditions, could slow down recovery prospects. - Policy response: - Authorities will vigorously implement the MSP with a view to rebuild fiscal and reserve buffers. ### Fiscal policy and debt management - Fiscal stance and objectives: - Committed to a moderate fiscal retrenchment stance focused on a reversal in the public debt-to-GDP ratio, targeting close to 65 percent. - Determined to reduce the primary non-oil deficit as a percentage of non-oil GDP, eliminate domestic payments arrears, reduce pro-cyclicality of public spending, and improve fiscal transparency. - Fiscal policy measures to be deployed: - i) Non-oil revenue mobilization: - Introduction of value added tax (VAT) during the second half of 2019. - 2019 Budget Law provides measures to mitigate the delay in the implementation of VAT, previously anticipated for January 2019. - Introduction of a special consumption tax for soft drinks, jewelry, alcohol and tobacco; an increase in the tax rate on the non-housing estate; and the recovery of tax arrears. - ii) Rationalization of current expenditure: - Focus on containment of wage growth and expenditure control, while prioritizing education and health. - Measures to contain growth in spending on goods and services; streamline transfer expenses; phase out subsidies for refined oil products, electricity, water and public transportation tariffs. - iii) PFM reforms: - Design of a Fiscal Stabilization Fund (FSF) to reduce pro-cyclicality of public spending. - Adoption of a Medium Term Fiscal Framework (MFFF) to enhance fiscal transparency and internalize implications of public investment decisions on current expenditure over the medium term. - Debt management actions: - Debt Management Unit (UGD) to publish a Debt Management Strategy and an Annual Borrowing Plan by end-March 2019. - Objectives: establish benchmark securities, reduce frequency of primary auctions, increase share of domestic financing through competitive auctions. - UGD to start publishing weekly calendars of actions, auction results, public debt statistics, and quarterly debt bulletins on its website, by end-2018. - Commitment to refrain from pledging oil revenues as collateral for new external borrowing. ### Monetary, exchange rate, and financial sector policies - Monetary framework: - Banco Nacional de Angola (BNA) adopted reserve money as the new monetary policy anchor in November 2017. - Authorities committed to setting the path for reserve money growth to achieve single-digit level inflation in the medium term. - Strengthen liquidity management and forecasting frameworks to better grasp liquidity conditions in the banking system. - Monetary instruments and constraints: - Monetary policy to rely on standing facilities, foreign exchange operations, the discount window, and mandatory reserve requirements. - Well-communicated monetary policy conduct. - To control fiscal dominance, intra-year direct lending to the Government will be limited to the legal limit of 10 percent of the previous year’s revenue. - Exchange rate policy: - In January 2018, BNA abandoned the peg to the U.S. dollar which was adopted in April 2016. - This contributed to improved predictability and efficiency in allocation of foreign exchange resources, thereby protecting NIRs. - Authorities plan to eliminate distortions posed by foreign exchange restrictions and multiple currency practices. - Financial sector measures: - Increased minimum share capital requirement for banks threefold, effective from December 31, 2018. - Banks falling short submitted capitalization plans to the BNA on July 31, 2018. - Asset quality reviews (AQRs) of portfolios of the eight largest banks, with external expert assistance, to gauge possible recapitalization needs. - Banco de Poupança e Crédito (BPC) restructuring: - New board appointed in November 2017; cost cutting and branch consolidation initiated. - Restructuring plan extended until 2020; NPLs to be transferred to Recredit (mandate confined exclusively to acquire NPLs from BPC). ### Structural reforms - Economic transformation and diversification: - Priority to mobilization of revenues for infrastructure investments to accelerate economic diversification and promote a business-friendly environment, improve governance and fight corruption. - National Assembly approved the Competition Law in April 2018, and the new Private Investment Law in May 2018. - Business environment and insolvency: - Government to submit a Draft Law on the Recovery of Enterprises and Insolvency, and related regulations, to the National Assembly. - Launch of Program for Export Diversification and Import Substitution (PRODESI) to simplify licensing procedures, register property, enforce contracts, and facilitate export procedures. - State-owned enterprises (SOEs) and privatization: - Approved SOE restructuring programs; expected approval of the privatization law by the National Assembly before the end of the year. - Program envisages closure of insolvent SOEs and privatization of a total of 126 SOEs (including 52 non-core assets of Sonangol and 10% of TAAG – Angola Airlines). - Some SOEs to be privatized through the stock exchange; process to observe strict standards of transparency and international best practice. - AML/CFT and anti-corruption: - Removed from FATF watch list in February 2016 and removed from ESAAMLG monitoring process in April 2018. - Continue working with ESAAMLG for the next peer assessment expected in 2021 and the next FATF mutual evaluation scheduled for 2021. - National Risk Assessment on AML/CFT issues expected to be completed by end-2018; will serve as basis for AML/CFT strategy. - Revised AML/CFT Law and related legal and regulatory amendments to be submitted to the National Assembly by end-March 2019. - Anti-corruption actions: - Dismissal of several senior staff and investigations into possible illegal acts in various public entities. - National Assembly discussing a new Penal Code with stricter anti-corruption provisions, expected to be approved in early 2019. - Comprehensive anti-corruption strategy to be finalized by the end-2019. - New law passed to recover assets previously taken outside the country illegally. ### Conclusion and program support - Authorities’ commitment: - Steadfast commitment to advancing far-reaching structural reforms to achieve durable macroeconomic stability, tackle longstanding structural challenges to broad-based growth, and improve institutions. - Determination to implement an appropriate policy mix of prudent fiscal and monetary policies, complemented by structural reforms. - Request for support: - Authorities look forward to the Executive Directors’ support for the approval of a new EFF arrangement to anchor the implementation of reforms. *IMF staff report content (cr18370).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18370.pdf_