## 1agoea2021001 ## Source details **Canonical URL:** [1agoea2021001](https://www.imf.org/-/media/files/publications/cr/2021/english/1agoea2021001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1agoea2021001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1agoea2021001.pdf.json) --- ### Executive summary — context and current outlook - Angola remains heavily dependent on oil and has suffered a fifth straight year of recession. - Oil and gas production dropped by about 6 percent in 2020. - Staff expect non-oil output to contract by 2.9 percent for the year. - Non-oil GDP output plunged 9.2 percent y/y in Q2 2020. - Inflation is expected to end 2020 at 25 percent; food inflation was 31 percent y/y in October. - World Bank estimates a poverty headcount ratio of 52 percent (2018, based on income of less than $1.90 a day). - Staff estimates that GDP per capita on a PPP basis has declined by 23 percent over 2014–2020, including a 7 percent drop in 2020 alone. - Public debt-to-GDP ratio rose to very elevated levels, expected to peak at over 130 percent of GDP at end-2020, driven primarily by exchange rate depreciation. - Reserve import coverage declined 2 months to 9.9 months. - Goods export receipts are projected to drop by 40 percent in 2020. - Current account balance projected to shift from a large surplus to a small deficit (¾ percent of GDP). ### Recovery from the COVID-19 pandemic — key findings - Containment measures, including a country-wide lockdown, depressed domestic activity and caused large terms-of-trade and balance-of-payments shocks. - The number of COVID infections was lower than initially feared but has risen recently. - The non-oil economy recovered only gradually in the second half of 2020; resilient agriculture growth provided a modest counterbalance. - Banks face high levels of nonperforming loans (NPLs) and weakened asset quality, though capital levels remain adequate for all but two banks. - Despite recession, strong fiscal consolidation continued: the non-oil primary fiscal deficit (NOPFD) in 2020 is projected to narrow to 4.3 percent of GDP (below 5.7 percent recorded in 2019 and 5.9 percent projected at the time of the Third Review). - 2021 outlook: - Non-oil growth expected to recover. - Oil production may decline further in 2021 before a slow return to trend. - Inflationary pressures expected to abate as monetary policy tightens, VAT impacts are absorbed, and exchange rate depreciation moderates. - Risks to the outlook are tilted to the downside (lower oil prices, persistent non-oil weakness, reform fatigue) with upside possibilities (faster oil price recovery, smaller-than-expected oil production decline, faster normalization). ### Program performance, conditionality, and financing - Program performance since the Third Review has been adequate. - All but two end-September 2020 indicative targets were met; exceptions: central bank claims on the Central Government and the stock of public debt. - Authorities expect to meet all end-December 2020 PCs except for central bank claims on the Central Government. - Of eight structural benchmarks up to end-December 2020, two will likely be met; progress continued toward actions on the six unmet SBs. - Gross financing needs (GFNs) are expected to decline from 17 percent of GDP in 2020 to around 9 percent of GDP in 2021. - Program financing: - Fully financed for the next 12 months through existing bilateral external credit lines, prospective domestic banking system financing, program support (including the IMF access augmentation), and the extension of the DSSI to the first half of 2021. - Fiscal financing gap for 2020–21 revised down to $4 billion (from $4.6 billion at the time of the Third Review). - Delayed multilateral support from other IFIs will cover around 30 percent of Angola’s financing gap in the course of 2021. ### Fiscal policy: actions, targets, and reforms - 2021 budget projects broadly stable non-oil revenue relative to GDP; planned non-oil revenue is slightly lower at 7.3 percent of GDP in 2021 (based on conservative budget projections). - New revenue measures approved in the 2020 budget are projected to yield additional non-oil revenue in 2021 equivalent to 0.4 percent of GDP (Text Table 1, MEFP ¶7). - Specific revenue and tax measures (Text Table 1 totals as presented in source): - Total: 0.09 0.53 0.18 - 2021 budget includes a 2.5 percent VAT withholding levy on sales at automatic payment terminals. - Continued expenditure restraint and constrained public investment plans keep the NOPFD roughly stable at 4.4 percent of GDP in 2021, aiming to improve the non-oil primary balance toward around 3 percent of GDP in the medium term. - Settlement of historical domestic payment arrears is mostly completed; settlement of 2018 arrears anticipated with slight delay relative to end-December 2020 SB. - Program limits on accumulation of new domestic arrears met with comfortable margin (June 2020 IT). ### Debt sustainability, reprofiling, and management - Public debt is considered sustainable but subject to very high risks. - Public debt-to-GDP ratio projected to peak at 134 percent of GDP at end-2020 (Annex I) and to decline steadily from 2021 with tight fiscal policy and growth recovery; projected to reach authorities’ long-term target of 60 percent of GDP by 2028 in staff projections. - Debt reprofiling and agreed relief provide substantial cash-flow savings: - Debt reprofiling operations, including DSSI, provide cumulative cash flow relief of $6.9 billion in 2020-22 and reduce average annual GFNs in 2021–25 to 8.7 percent of GDP; average annual GFNs in 2026–2030 decline to 7.3 percent of GDP. - Financing assumptions: - Budget support in 2021: about $500 million from the World Bank, $200 million from the AfDB, and $120 million from a bilateral official development agency. - Baseline assumes issuance of $1.4 billion and $0.8 billion of Eurobonds in 2025 and 2026, respectively, with assumed spreads of 750 basis points. - Sonangol baseline external borrowing: $2 billion in 2020, cumulative $6.3 billion in 2021–25. - Key DSA projections (selected rows, percent of GDP unless otherwise indicated): - Financing Needs (GFN as in the DSA): 2020: 17.0; 2021: 9.2; 2022: 8.0; 2023: 8.1; 2024: 8.7; 2025: 10.3; 2026: 7.2; 2027: 5.6; 2028: 10.8; 2029: 8.6; 2030: 4.5. - Overall deficit: 2020: 1.7; 2021: -0.3; 2022: -1.4; 2023: -1.4; 2024: -1.7; 2025: -1.7; 2026: -1.9; 2027: -2.1; 2028: -2.1; 2029: -2.1; 2030: -2.3. - Debt amortization: 2020: 15.3; 2021: 9.5; 2022: 9.4; 2023: 9.6; 2024: 10.4; 2025: 12.0; 2026: 9.1; 2027: 7.8; 2028: 12.9; 2029: 10.7; 2030: 6.8. - Debt issuance (total): 2020: 12.6; 2021: 9.5; 2022: 7.3; 2023: 9.4; 2024: 9.4; 2025: 10.1; 2026: 7.0; 2027: 5.5; 2028: 10.6; 2029: 8.3; 2030: 3.3. - Public nominal gross debt trajectory (selected series, percent of GDP): 2018: 47.2; 2019: 89.0; 2020: 107.1; 2021: 134.2; 2022: 119.9; 2023: 106.7; 2024: 97.2; 2025: 87.2; 2026: 78.2; 2027: 70.3; 2028: 62.6; 2029: 56.0; 2030: 49.6. - External public debt projected to peak at 101 percent of GDP in 2020 and converge to 62 percent of GDP in 2025. ### Monetary policy and exchange rate stance - Monetary policy shifted from accommodation early in 2020 to gradual tightening in the second half of the year to curb rising inflation. - Actions included enhanced open market operations to drain excess liquidity and an increase in September in the reserve requirement on banks’ FX deposits (to be settled in domestic currency). - Despite tightening, inflation remains high and interbank lending rates are negative in real terms; maintaining a tightening stance in 2021 is critical. - Staff recommends increasing the BNA’s policy rate to support a shift toward positive real interest rates; authorities agree on gradual real rate increases but are concerned about risks to activity from rapid increases. - Exchange rate dynamics: - Sharp depreciation beginning with the shock in March continued through much of the rest of 2020 (totaling 33 percent in nominal terms). - BNA actions to enhance FX market functioning: extension of the electronic trading platform to the Treasury and initiation of FX futures contracts auctions (MEFP ¶12). - Policy objective: further remove the BNA from the spot FX market so it intervenes only to reduce excessive volatility. - TMU arrangement exchange rate: AOA 295 per US$1 for the duration of the arrangement (TMU). ### Financial sector stability and bank restructuring - Credit and asset quality: - Credit to the private sector remained flat during the third quarter. - NPLs was above 20 percent at end-September 2020 (although in decline thanks to the restructuring of one of the two troubled public banks). - Public bank restructurings: - AQRs in December 2019 identified important capital shortfalls in two public banks. - Restructuring of the largest public bank is underway, including recapitalization, transfer at fair value of NPLs to Recredit, and governance improvements. - Restructuring plan for the other troubled public bank missed end-June SB, reset for end-March 2021, awaiting passage of the Financial Institutions Law. - Recredit: - Expected to finalize agreed governance and transparency arrangements by end-February 2021 (missed end-August SB). - Scaling up operations to resolve the second batch of NPLs received in June 2020 and committed to improve operational capacity, including hiring external experts. - Emergency Liquidity Assistance (ELA): - BNA will develop a new ELA framework and secondary legislation to operationalize it, benefiting from IMF capacity development. - Safeguards and governance: - Authorities implementing 2019 safeguards assessment recommendations, including finalization of the revised BNA Law and ELA framework, progress on IFRS implementation, strengthening internal audit capacity, and rebalancing foreign reserves assets portfolio. ### Structural reforms, governance, and social protection - Tax administration: - AGT enhancing capacity to implement newly introduced tax policy reforms, focusing on taxpayer databases, improving VAT monitoring, and adopting an invoice-based compliance strategy. - AGT developing a post-pandemic collection recovery plan, with IMF technical assistance. - Cash transfer program and fuel subsidy reforms: - Cash transfer program registered 80,000 households by mid-November and aims to reach 1.6 million households by end-2023. - Authorities plan gradual fuel subsidy reforms once the cash transfer program reaches a critical mass of households. - Presidential decree adopted in October to publish monthly market reference fuel prices to move toward an automatic retail fuel pricing mechanism. - SOEs and privatization: - By end-October, 30 SOEs were privatized for Kz 55 billion and 6 non-core assets of Sonangol were sold for $17 million. - Six national companies are in the privatization process, expected to be finalized by end-2021, with estimated proceeds of Kz 330 billion. - By September, 59 SOEs (including the 15 largest by assets) had published their audited financial statements on IGAPE’s website. - Public financial management: - Fiscal Responsibility Law (FRL) approved in August 2020. - A pilot Medium-Term Fiscal Framework (MTFF) and a fiscal strategy completed in September to anchor the 2021 budget. - 2021 budget commits to publish initial project appraisal reports for all large projects undertaken from January 2021 onward (SB, reset for end-June 2021). ### Risks, stress tests, and contingency measures - Principal risks identified (RAM, July 24, 2020 edition) include: - Unexpected shift in the Covid-19 pandemic (Relative likelihood: High; Time Horizon: Short Term; Impact: Medium/High). - Widespread social discontent and political instability (Relative likelihood: High; Time Horizon: Short Term; Impact: Medium). - Accelerating de-globalization (Relative likelihood: High; Time Horizon: Short Term; Impact: Low). - Oversupply and volatility in the oil market (Relative likelihood: Medium; Time Horizon: ST/MT; Impact: High). - Stronger-than-expected decline in crude oil production (Relative likelihood: Medium; Time Horizon: ST/MT; Impact: High). - Potential negative spillovers on the financial sector from transition to a more flexible exchange rate (Relative likelihood: Medium; Time Horizon: ST/MT; Impact: Medium). - Shocks to the public debt trajectory (Relative likelihood: High; Time Horizon: ST/MT; Impact: High). - Possibility of reform fatigue (Relative likelihood: Medium; Time Horizon: MT; Impact: Medium). - Stress-test outcomes (selected): - Real exchange rate shock: A 30-percent, one-time real depreciation of the Kwanza increases the debt ratio to 146 percent of GDP. - Combined shock (growth, inflation, primary balance, exchange rate, 200-basis-point increase in effective interest rate) increases debt ratio to 175 percent of GDP. - Oil-price shock (two-year drop averaging 30 percent in the Angolan oil basket price in 2020–21) results in GFNs averaging 11 percent of GDP in 2021-25 and the debt-to-GDP ratio remaining above the high-risk benchmark through 2025. - Policy responses and contingency measures emphasized: - Maintain program as macro anchor to catalyze financing and debt reprofiling. - Continue prudent fiscal management and protect priority social spending. - Advance debt reprofiling and engagement with creditors; consider additional reprofiling if risks materialize. - Enhance exchange rate flexibility and rebuild external buffers (GIR). - Persist with structural reforms to diversify the economy and improve resilience. ### Key high-frequency and balance-sheet figures (selected exact values) - Financing Needs (A) for 2020–25 (Billions of U.S. dollars): 11.9; 6.2; 5.2; 5.6; 6.5; 8.3. - Financing Sources (B) for 2020–25 (Billions of U.S. dollars): 10.7; 3.4; 5.2; 5.6; 6.5; 8.3. - Financing Gap (A−B) for 2020–25 (Billions of U.S. dollars): 1.2; 2.8; 0.0; 0.0; 0.0; 0.0. - Total usable cash balances (Billions of U.S. dollars, 2020–25): 2.1; 2.6; 2.6; 2.6; 2.6; 2.6. - Total usable cash balances (in months of expenditure, 2020–25): 4.0; 5.8; 6.1; 6.3; 6.3; 6.4. - External debt rollover rate (in percent, 2020–25): 31; 22; 46; 47; 43; 55. - Domestic debt rollover rate (in percent, 2020–25): 41; 13; 49; 96; 94; 75. - Gross international reserves (end of period, millions of U.S. dollars, 2019–23): 17,321; 17,211; 15,582; 14,102; 16,914; 15,218; 18,114; 15,218; 19,114; 15,468. - Net international reserves (end of period, millions of U.S. dollars, 2019–23): 11,302; 11,712; 8,100; 8,085; 7,968; 8,187; 9,168; 8,687; 10,266; 9,030. - Public sector debt (gross, percent of GDP, 2019–23): 109.2; 107.1; 120.3; 134.2; 107.5; 119.9; 93.8; 106.7; 83.7; 97.2. - Angola oil price (average, U.S. dollars per barrel, 2019–23): 65.2; 65.0; 39.8; 39.6; 44.9; 46.2; 46.9; 46.4; 48.5; 46.9. - IMF credit outstanding as a share of GDP now peaks at 7.5 percent. - IMF credit as a share of non-collateralized external debt peaks at 13.5 percent. - IMF credit as a share of GIRs (net of collateralized debt service) peaks at 33.6 percent. - EMBIG (average over the last 3 months, 10-Sep-20 through 09-Dec-20): 885 (bp). As of December 09, 2020. ### Staff appraisal and recommendations (policy priorities) - Maintain the program as a macroeconomic anchor to support reforms and catalyze official financing and debt reprofiling. - Continue prudent fiscal management to protect priority spending while addressing interest-payment pressures. - Keep monetary policy tightening to bring inflation down and move toward positive real interest rates; staff recommends increasing the BNA’s policy rate. - Continue exchange rate flexibility, refrain from being the primary FX supplier, and allow full price discovery while intervening only to curb excessive volatility. - Advance structural and governance reforms: tax administration, SOE restructuring and privatization, public procurement transparency, Financial Institutions Law, BNA Law amendments, and Recredit governance improvements. - Enhance debt management strategy, develop domestic debt markets, and be ready to reprofile debt or enact further contingency measures if shocks materialize. - Scale up social protection (cash transfer program) to mitigate reform side effects and reduce the risk of social discontent. *Source: IMF staff report excerpt (1agoea2021001).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and current outlook - Angola remains heavily dependent on oil and has suffered a fifth straight year of recession. - Oil and gas production dropped by about 6 percent in 2020. - Staff expect non-oil output to contract by 2.9 percent for the year. - Non-oil GDP output plunged 9.2 percent y/y in Q2 2020. - Inflation is expected to end 2020 at 25 percent; food inflation was 31 percent y/y in October. - The World Bank estimates a poverty headcount ratio of 52 percent (2018, based on income of less than $1.90 a day); staff estimates that GDP per capita on a PPP basis has declined by 23 percent over 2014–2020, including a 7 percent drop in 2020 alone. - Public debt-to-GDP ratio rose to very elevated levels, expected to peak at over 130 percent of GDP at end-2020, driven primarily by exchange rate depreciation. - Reserve import coverage declined 2 months to 9.9 months. - Goods export receipts are projected to drop by 40 percent in 2020. - Current account balance projected to shift from a large surplus to a small deficit (¾ percent of GDP). ### Recovery from the COVID-19 pandemic (key findings) - Containment measures, including a country-wide lockdown, depressed domestic activity and caused large terms-of-trade and balance-of-payments shocks. - The number of COVID infections was lower than initially feared but has risen recently. - The non-oil economy recovered only gradually in the second half of 2020; resilient agriculture growth provided a modest counterbalance. - Banks face high levels of nonperforming loans (NPLs) and weakened asset quality, though capital levels remain adequate for all but two banks. - Despite recession, strong fiscal consolidation continued: the non-oil primary fiscal deficit (NOPFD) in 2020 is projected to narrow to 4.3 percent of GDP (below 5.7 percent recorded in 2019 and 5.9 percent projected at the time of the Third Review). - The 2021 outlook: non-oil growth expected to recover, oil production may decline further in 2021 before a slow return to trend; inflationary pressures expected to abate as monetary policy tightens, VAT impacts are absorbed, and exchange rate depreciation moderates. - Risks to the outlook are tilted to the downside (lower oil prices, persistent non-oil weakness, reform fatigue) with upside possibilities (faster oil price recovery, smaller-than-expected oil production decline, faster normalization). ### Program performance and indicators - Program performance since the Third Review has been adequate. - All but two end-September 2020 indicative targets were met; exceptions: central bank claims on the Central Government and the stock of public debt. - Authorities expect to meet all end-December 2020 PCs except for central bank claims on the Central Government. - Of eight structural benchmarks up to end-December 2020, two will likely be met; progress continued toward actions on the six unmet SBs. - The authorities met the end-June 2020 PC on the non-oil primary deficit. - End-December 2020 PCs on net international reserves and reserve money will likely be met; end-December 2020 PC on central bank claims on the Central Government expected to be missed. - All continuous PCs are expected to have been met. - Gross financing needs (GFNs) are expected to decline from 17 percent of GDP in 2020 to around 9 percent of GDP in 2021. ### Fiscal policy: continued restraint and actions - The 2021 budget projects broadly stable non-oil revenue relative to GDP; planned non-oil revenue is slightly lower at 7.3 percent of GDP in 2021 (based on conservative budget projections). - New revenue measures approved in the 2020 budget are projected to yield additional non-oil revenue in 2021 equivalent to 0.4 percent of GDP (Text Table 1, MEFP ¶7). - Specific revenue and tax measures (Text Table 1 totals as presented in source): - Total: 0.09 0.53 0.18 - The 2021 budget includes a 2.5 percent VAT withholding levy on sales at automatic payment terminals; this and other measures aim to enhance tax base and non-oil revenue efficiency. - Continued expenditure restraint and constrained public investment plans keep the NOPFD roughly stable at 4.4 percent of GDP in 2021, and aim to improve the non-oil primary balance toward around 3 percent of GDP in the medium term. - Settlement of historical domestic payment arrears is mostly completed; settlement of 2018 arrears anticipated with slight delay relative to end-December 2020 SB. Program limits on accumulation of new domestic arrears met with comfortable margin (June 2020 IT). ### Debt sustainability and management - Public debt is considered sustainable but subject to very high risks. - Debt-to-GDP ratio projected to peak at over 130 percent of GDP at end-2020 and to decline steadily from 2021 with tight fiscal policy and growth recovery; projected to reach authorities’ long-term target of 60 percent of GDP by 2028. - Debt service reprofiling (including DSSI extended through end-June 2021) and debt relief from two large creditors provide substantial cash-flow savings in 2020–23. - Fiscal financing will depend significantly on disbursements from external sources (commercial lenders and multilateral institutions) and sufficiently high rollover rates of domestic debt. - Policy priorities: conservative fiscal budgeting and execution, enhanced debt management strategy, development of domestic debt markets to enlarge lender base and extend maturities, readiness to act to mitigate shocks. ### Monetary policy and exchange rate stance - Monetary policy shifted from accommodation early in 2020 to gradual tightening in the second half of the year to curb rising inflation. - Actions included enhanced open market operations to drain excess liquidity and an increase in September in the reserve requirement on banks’ FX deposits (to be settled in domestic currency). - Despite tightening, inflation remains high and interbank lending rates are negative in real terms; maintaining a tightening stance in 2021 is critical. - Program targets for 2021 for reserve money and BNA advances to the Central Government are set consistent with sufficient monetary tightening, including a tighter reserve money path than at the Third Review. - Staff recommends increasing the BNA’s policy rate to support a shift toward positive real interest rates; authorities agree on gradual real rate increases but are concerned about risks to activity from rapid increases. - Authorities allowed the exchange rate to adjust and should continue enhancing exchange rate flexibility and external buffers. ### Financial sector and structural reforms - Banks operate under protracted recession, high inflation, and continued kwanza depreciation; asset quality deteriorated and NPLs are high. - Capital levels remain adequate for all but two banks. - Ongoing structural and governance reforms are progressing but with delays on some structural benchmarks; authorities continue work to complete outstanding measures. - Program emphasizes moving forward on structural and governance reforms to support recovery and debt dynamics. ### Risks and program vulnerabilities - Major risks: very high public debt levels, oil price volatility, fragile global environment, exchange rate depreciation, and potential reform fatigue. - Downside scenario: prolonged weak global demand leading to lower oil prices or persistent non-oil weakness could cause further output contraction in 2021 and worsen debt dynamics. - Upside scenario: faster oil price recovery, less-than-expected decline in oil production, or faster return to normalcy in non-commodity sectors could improve outlook. - Authorities have taken mitigating steps: prudent 2021 budget, effective debt management strategy, exchange rate adjustment to shocks, sound monetary policy, and continued structural reform progress. *Source: EXECUTIVE SUMMARY (1agoea2021001)* ### 12. The flexible exchange rate has served as a shock absorber, as the authorities target ### 12. The flexible exchange rate has served as a shock absorber, as the authorities target further FX market liberalization ### Exchange rate dynamics and FX market liberalization - The sharp depreciation of the exchange rate that began with the shock in March continued through much of the rest of 2020 (totaling 33 percent in nominal terms), although the Kwanza saw some appreciation in November and December. - Authorities actions to enhance FX market functioning: - Extension of the recently-adopted electronic trading platform for FX transactions to the Treasury. - Initiation by the BNA of FX futures contracts auctions (MEFP ¶12). - Policy objective: further remove the BNA from the spot FX market so it intervenes only to reduce excessive volatility, and to enhance exchange rate flexibility and full price discovery. - The spread between the official and parallel exchange rates, which had widened considerably in mid-2020 (partly due to the lack of physical FX in informal markets as borders were closed), has recently narrowed again. - Continued progress in developing the FX market will help minimize the spread. ### Reserve adequacy and balance of payments - Reserve adequacy is projected to improve during the program (Tables 4a–4b). - Reflecting limited FX intervention (in line with an intervention budget agreed under the program), the authorities kept reserve losses well within program targets throughout 2020. - Although BOP pressures are expected to persist in 2021 (reflecting the decline in oil production and absence of market access), NIR and GIR are both projected to rise in 2021, translating into substantial improvements in import coverage and reserve adequacy (in percent of the ARA metric) since the launch of the program. - Further improvements would be required to achieve a comfortable level of reserves for a commodity exporter. ### Maintaining financial sector stability - Credit conditions and asset quality: - Credit to the private sector remained flat during the third quarter. - NPLs was above 20 percent at end-September 2020 (although in decline thanks to the restructuring of one of the two troubled public banks). - Supervisory actions: - Authorities have overseen the banking system, emphasizing accuracy of loan classification and prudent provisioning. - BNA has closely followed sovereign holdings in the banking system and monitoring banks’ net open FX positions given substantial exchange rate risks (MEFP ¶17). - Public bank restructurings: - AQRs in December 2019 identified important capital shortfalls in two public banks. - Restructuring of the largest public bank is underway, under a BNA-approved plan including recapitalization, transfer at fair value of NPLs to Recredit, and governance improvements. - Finalization of the restructuring plan for the other troubled public bank (missed end-June SB, MEFP ¶15, reset for end-March 2021) is awaiting passage of the Financial Institutions Law, expected by end-March 2021. - Authorities plan to complete their strategy for the role of the state in the banking sector (missed end-February 2020 SB, reset for end-March 2021). - Recredit: - Expected to finalize agreed governance and transparency arrangements by end-February 2021 (missed end-August SB, MEFP ¶16). - Scaling up operations to resolve the second batch of NPLs received in June 2020 and committed to improve operational capacity, including hiring external experts. - Emergency Liquidity Assistance (ELA): - BNA will develop a new ELA framework and secondary legislation to operationalize it, benefiting from IMF capacity development. - Financial Institutions Law (FIL): - Revised FIL submitted in August 2020 to the National Assembly (missed end-September SB, reset for end-March 2021). - Authorities working on secondary legislation to complement the strengthened regulatory framework for banks (MEFP ¶14). ### Structural and governance reforms - Tax administration: - AGT enhancing capacity to implement newly introduced tax policy reforms, focusing on taxpayer databases, improving VAT monitoring, and adopting an invoice-based compliance strategy. - AGT developing a post-pandemic collection recovery plan, with IMF technical assistance. - Cash transfer program and fuel subsidy reforms: - Cash transfer program registered 80,000 households by mid-November and aims to reach 1.6 million households by end-2023. - Authorities plan gradual fuel subsidy reforms once the cash transfer program reaches a critical mass of households. - A presidential decree adopted in October to publish monthly market reference fuel prices to move toward an automatic retail fuel pricing mechanism. - State-owned enterprises (SOEs) and privatization: - By end-October, 30 SOEs were privatized for Kz 55 billion and 6 non-core assets of Sonangol were sold for $17 million. - Six national companies are in the privatization process, expected to be finalized by end-2021, with estimated proceeds of Kz 330 billion. - By September, 59 SOEs (including the 15 largest by assets) had published their audited financial statements on IGAPE’s website. - Public financial management (PFM): - Fiscal Responsibility Law (FRL) approved in August 2020. - A pilot Medium-Term Fiscal Framework (MTFF) and a fiscal strategy completed in September to help anchor the 2021 budget. - Annual and quarterly fiscal reports are being published regularly; pilot MTFF expected to be fully implemented in the 2021 budget. - To strengthen public investment efficiency, authorities committed in the 2021 budget to publish initial project appraisal reports for all large projects undertaken from January 2021 onward (SB, reset for end-June 2021), in addition to procurement reforms (¶21). - Revised BNA Law: - Revised BNA Law submitted to the Council of Ministers in December (missed SB, end-September 2020). - Amended law improves BNA’s governance structure and independence (MEFP ¶10); plan to submit it to the National Assembly by end-January 2021 (proposed new SB). - Governance, transparency, and anti-corruption: - SOE Law approved by the National Assembly in August 2020; authorities plan to submit amendments to reinforce segregation of power and compliance by end-June 2021 (proposed new SB). - By end-October, more than 88 percent of eligible projects were awarded through public tender, on track to exceed the annual target of 45 percent (SB). - Authorities expanding the use of the electronic tender program and publishing Annual Purchase Plans. - Authorities coordinating with the United Nations (UN) to open an agency in Angola to fight drugs, crimes, corruption, and terrorism (UNODC) (MEFP ¶21). - Sonangol pursuing membership in Trace International to comply with the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act, and other anti-bribery legislation. - Continued implementation of the recently enacted AML/CFT law to address pressures on correspondent banking relationships and prepare for Angola’s upcoming AML/CFT assessment. ### Program issues, financing, and debt - Program financing: - The program is fully financed for the next 12 months through existing bilateral external credit lines, prospective domestic banking system financing, program support (including the IMF access augmentation), and the extension of the DSSI to the first half of 2021 (Tables 7–8). - Adequate domestic financing assumes a plausible moderate increase in rollover rates relative to the very low rates of 2020, supported by planned movement toward positive T-bill rates in real terms. - Implementation of debt reprofiling initiatives agreed by the authorities bolsters financing prospects against potential oil price shocks. - Capacity to repay the Fund: - Several capacity-to-repay indicators have deteriorated reflecting the access augmentation. - IMF credit outstanding as a share of GDP now peaks at 7.5 percent. - IMF credit as a share of non-collateralized external debt peaks at 13.5 percent. - IMF credit as a share of GIRs (net of collateralized debt service) peaks at 33.6 percent. - Peak repayments to exports are at the high end of other normal access EFF arrangements. - Risks to the Fund could be mitigated by further debt reprofiling and further progress towards reducing debt collateralization. - Financial burden sharing and gap: - Debt reprofiling agreements reached in mid-2020 provide substantial cash-flow relief; extension of the DSSI to the first half of 2021 further improves burden sharing. - Fiscal financing gap for 2020–21 has been revised down to $4 billion (from $4.6 billion at the time of the Third Review). - Delayed multilateral support from other IFIs will cover around 30 percent of Angola’s financing gap in the course of 2021. - Safeguards and governance: - Authorities continuing to implement 2019 safeguards assessment recommendations, including finalization of the revised BNA Law and ELA framework (MEFP ¶10 & 14), progress on IFRS implementation, strengthening internal audit capacity, and rebalancing foreign reserves assets portfolio. - Following legal amendments (¶20), an Audit Committee will need to be established to strengthen independent oversight. - Program conditionality adjustments and waivers: - Authorities request a waiver for nonobservance of the end-December 2020 PC on BNA advances to the Central Government due to corrective action; size of the non-observance is not expected to exceed Kz 300 billion. - Authorities request a revision of the TMU to exclude government securities obtained when realizing collateral received in an emergency liquidity assistance operation from the definition of “claims” under this PC. - Authorities propose changing the end-June 2021 PC on reserve money to a lower target, taking into account overperformance of reserve money in 2020 and efforts to tighten monetary policy in 2021. - Authorities propose changes to March IT and June PC on BNA advances to the Central Government to address front-loaded borrowing in early 2021. - Authorities propose decreasing the end-June 2021 NOPFD PC to reflect a lower projected full-year deficit relative to the Third Review, while increasing the end-March IT to accommodate seasonality in non-oil tax revenues. - Staff proposes increasing the end-March and end-June public debt ITs to reflect higher-than-expected end-December 2020 stock of debt due to exchange rate depreciation. - Authorities propose to reset four SBs and introduce two new SBs to strengthen the monetary policy framework and state enterprises’ internal controls. - Exchange restrictions and arrears: - Authorities committed to gradual phasing out of exchange restrictions and multiple currency practices, including working toward eliminating the special tax on transfers to non-residents under foreign TA or management service contracts (ER, Article VIII, 2a). - External debt arrears: - Accumulating arrears at a rate of $4.3 million per month through June 2020 due to correspondent banks’ unwillingness to process debt service payments to a commercial creditor. - At end-June established an escrow account at an Angolan bank to deposit full debt service due. - In discussions with a successor state regarding legacy obligations to the former Federal Socialist Republic of Yugoslavia. - Cleared payments arrears to a commercial creditor via an agreement to settle outstanding obligations over a ten-year period; in discussions with a second commercial creditor to verify claims and aim for agreement on a repayment schedule. ### Staff appraisal - COVID-19 impacts and outlook: - Angola continues to suffer from COVID-related shocks: weak oil production and low oil prices leading to further weak exports, subdued (if improving) economic activity, and pressures on the current account, international reserves, the exchange rate, and debt dynamics. - Downside risks remain considerable, including further shocks to global oil prices and local oil production, resurgence of the pandemic, and slower-than-expected recovery from the 2020 shock. - Program performance: - Program remains on track with continuing strong fiscal performance. - Fiscal tightening achieved in 2020 has overperformed program targets. - The 2021 budget signals continued commitment to program objectives, including reducing the budget’s dependence on oil revenues and preserving critical social spending. - Debt sustainability: - Authorities’ measures have preserved public debt sustainability, but risks remain very high. - Debt-to-GDP ratio spiked in 2020 due to exchange rate depreciation but is expected to fall steadily over the medium and long term based on sustained large primary surpluses and a negative interest rate-growth differential. - Fiscal GFNs projected to drop substantially in 2021 and decline gradually thereafter. - Debt sustainability faces high risks due to vulnerability to exchange rate and oil price movements; authorities should continue prudent and active debt management to build buffers. *Source: IMF staff report excerpt (1agoea2021001).* ### 32. Monetary policy now needs to turn toward tightening to deal with high inflation. The ### 1agoea2021001 - 32. Monetary policy now needs to turn toward tightening to deal with high inflation. The ### Monetary policy - The BNA appropriately supported firms and households with liquidity-provision measures at the height of the COVID-19 shock. - With conditions seemingly beginning to stabilize and prices continuing to rise, it is critical that the BNA assert a tighter monetary policy to help rein in inflation, which risks spurring further depreciation, negatively affecting both households and public debt dynamics. - The BNA should stand ready to react further to adverse changes in the inflation outlook. ### Exchange rate and foreign exchange (FX) market - The exchange rate has appropriately acted as a shock absorber. - Further progress has been made toward developing and liberalizing the FX market, including futures contracts auctions and expanded access to the trading platform. - Policy recommendations: - Continue to allow the exchange rate to adjust. - Refrain from being a primary supplier of FX in the market. - Allow full price discovery to take place, intervening only to curb excessive volatility. - Maintain adequate external buffers, especially GIR, to bolster resilience. ### Financial sector stability - The completion of the restructuring of the two troubled public banks has taken considerable time. - Authorities should follow through resolutely on their plans to reinforce financial stability. - Additional measures: - Continue to monitor closely the level of NPLs in the banking system and identify any further deterioration in the banks’ credit portfolios in a timely fashion. - Continue to ensure prudent provisioning. - Remain vigilant in relation to banks’ net open FX positions. ### Structural reforms and fiscal framework - Structural reforms are advancing to support the fiscal adjustment and foster a better business environment. - Continued progress in tax administration, SOE reforms, public procurement, and fiscal governance will: - Ensure efficiency and transparency in the collection and use of public resources. - Restore fiscal sustainability. - Foster private-sector-led diversification. - Robust growth is identified as an essential ingredient to reducing debt vulnerabilities and raising living standards. ### Program commitment, social spending, and implementation risks - While risks remain elevated and there have been delays on some structural reforms, the authorities’ commitment to the program continues to be strong. - The government has demonstrated its commitment to maintain macroeconomic stability via the policies and measures in the 2020 and 2021 budgets. - These steps will be complemented by the authorities’ gradual pivot toward monetary tightening to rein in inflation and contain exchange rate pressures. - The authorities’ structural reform agenda and social spending commitments are helping to set the stage for more inclusive and diversified medium-term growth. - Moving forward more quickly with the planned cash transfer program, which has been delayed by capacity constraints and the COVID-19 shock, will help in this area. - The IMF staff stand ready to support the authorities’ policy agenda with technical assistance, in coordination with development partners. ### External payments regime - Angola continues to maintain restrictions on the making of payments and transfers for current international transactions under the transitional arrangements of Article XIV, Section 2 (in addition to measures subject to AVIII, Sections 2 and 3). *ANGOLA 16 INTERNATIONAL MONETARY FUND* ### 38. Staff supports the authorities’ request for the completion of the Fourth Review, the ### 1agoea2021001 - 38. Staff supports the authorities’ request for the completion of the Fourth Review, the ### Program assessment and policy actions - Staff supports the authorities’ request for: - Completion of the Fourth Review. - Waiver for non-observance of the end-December PC on BNA advances to the Central Government. - Waivers of applicability for the other end-December PCs. - Modifications to conditionality. - The program is described as a sound anchor for the authorities’ reform agenda and a catalyst for official financing and debt reprofiling. ### High-frequency macroeconomic and financial developments (selected findings) - Business sentiment: - Business confidence fell in line with the COVID shock. - Sovereign financing conditions: - Downward trend in Eurobond yields continues. - Inflation: - Consumer price inflation accelerated in 2020. - Wholesale price inflation is trending up as well. - External sector and trade: - Lower oil exports and import compression drove the trade balance deterioration. - Monetary aggregates: - Net foreign assets (NFAs) are the main contributor to M3 growth in 2020. ### Fiscal developments (selected findings) - Oil sector: - Oil and gas production is declining. - Oil exports and revenue are projected to stabilize in line with oil prices. - Fiscal structure and outlook: - Interest payments are squeezing other expenditures. - Fiscal stance is projected to remain prudent. - Oil prices are expected to begin recovering in 2021. - Non-oil tax revenues are projected to increase in 2020-21. ### Monetary sector (selected findings) - Policy rates and liquidity: - The interbank rate has fallen while the policy rate remains on hold. - Monetary aggregate growth has been elevated in 2020 but is beginning to ease. - Excess reserves remain sizeable but stable. - Private credit growth is expected to recover in 2021. - Dollarization and inflation outlook: - Dollarization remains elevated. - Inflation is expected to continue to decline in 2021. ### External sector (selected findings) - Reserves and coverage: - Reserves remain stable compared to imports and to GDP, and are expected to improve relative to M2. - International reserve coverage remains adequate. - Exchange rate: - The exchange rate has depreciated amid liberalization and the COVID-19 shock. ### Key statistics (selected exact figures) - Financing Needs (A) for 2020–25 (Billions of U.S. dollars): 11.9; 6.2; 5.2; 5.6; 6.5; 8.3. - Financing Sources (B) for 2020–25 (Billions of U.S. dollars): 10.7; 3.4; 5.2; 5.6; 6.5; 8.3. - Financing Gap (A−B) for 2020–25 (Billions of U.S. dollars): 1.2; 2.8; 0.0; 0.0; 0.0; 0.0. - Total usable cash balances (Billions of U.S. dollars, 2020–25): 2.1; 2.6; 2.6; 2.6; 2.6; 2.6. - Total usable cash balances (in months of expenditure, 2020–25): 4.0; 5.8; 6.1; 6.3; 6.3; 6.4. - External debt rollover rate (in percent, 2020–25): 31; 22; 46; 47; 43; 55. - Domestic debt rollover rate (in percent, 2020–25): 41; 13; 49; 96; 94; 75. ### Notable fiscal and balance-sheet aggregates (selected exact figures) - Gross international reserves (end of period, millions of U.S. dollars, 2019–23): 17,321; 17,211; 15,582; 14,102; 16,914; 15,218; 18,114; 15,218; 19,114; 15,468. - Net international reserves (end of period, millions of U.S. dollars, 2019–23): 11,302; 11,712; 8,100; 8,085; 7,968; 8,187; 9,168; 8,687; 10,266; 9,030. - Public sector debt (gross, percent of GDP, 2019–23): 109.2; 107.1; 120.3; 134.2; 107.5; 119.9; 93.8; 106.7; 83.7; 97.2. - Angola oil price (average, U.S. dollars per barrel, 2019–23): 65.2; 65.0; 39.8; 39.6; 44.9; 46.2; 46.9; 46.4; 48.5; 46.9. ### Policy implications and priorities (implicit in staff assessment) - Maintain the program as a macroeconomic anchor to support reforms and catalyze official financing and debt reprofiling. - Continue prudent fiscal management to protect priority spending while addressing interest-payment pressures. - Support monetary and financial measures that alleviate market stress, rebuild reserves coverage, and facilitate private credit recovery. - Advance debt reprofiling and engagement with creditors to record exceptional financing and preserve external stability. *Source: IMF staff report material (Angola). ### Annex I. Debt Sustainability Analysis Update ### Annex I. Debt Sustainability Analysis Update ### Public debt overview and recent developments - The collapse in oil prices in early 2020 and the ensuing exchange rate depreciation have led to a further increase in Angola’s already very high public debt, creating serious challenges for debt sustainability. - Public debt is expected to peak at 134 percent of GDP at end-2020, in large part reflecting the one-off impact of exchange rate depreciation, as well as lower growth. - Authorities have undertaken strong fiscal retrenchment and have secured significant reprofiling of debt service. - Under the program, public debt is expected to decline to 63 percent of GDP by 2027, close to the authorities’ long-term target, driven by structural fiscal consolidation and supported by the large share of oil revenues. - Debt reprofiling and agreed relief help assure financing in 2020 and reduce gross financing needs (GFNs) to more manageable levels from 2021 onwards. - Conclusion: Angola’s public debt remains sustainable although risks remain high; further debt relief may be needed if downside risks materialize. ### Public debt perimeter and macro-fiscal assumptions - Public debt perimeter includes: - Domestic and external debt of the Central Government; - External debt of Sonangol and TAAG; - Public guarantees; and - Reported external liabilities of other state entities, including external arrears. - Main macro-fiscal assumptions: - Based on further implementation of reform policies described in the Staff Report for the Fourth Review. - Maintain a tight fiscal stance in the 2021 budget (tighter than projected in the Third Review), supported by full-year impact of 2020 non-oil revenue measures and continued expenditure restraint. - Framework reflects a recession in 2020, mild recovery in 2021, transition to stronger sustained medium-term growth, and lower oil production than envisaged in the Third Review. - Budget financing and debt rollover assumptions: - Budget support in 2021: about $500 million from the World Bank, $200 million from the AfDB, and $120 million from a bilateral official development agency. - Authorities committed to progressively aligning government securities yields with market rates to support domestic debt rollover rates and maturity extension. ### Financing needs and reprofiling - GFNs peak in 2020 and exceed the MAC-DSA’s high-risk benchmark for emerging economies, but fiscal financing is assured. - Under the G20 Debt Service Suspension Initiative (G20DSSI), Angola benefits from reprofiling of all principal and interest due between May 2020 and June 2021 from official creditors. - Authorities reached agreement to defer selected principal payments to two large creditors to well beyond the end of the program. - Debt reprofiling operations, including DSSI, provide cumulative cash flow relief of $6.9 billion in 2020-22 and reduce average annual GFNs in 2021–25 to 8.7 percent of GDP; average annual GFNs in 2026–2030 decline to 7.3 percent of GDP. ### Financing assumptions by horizon - Medium term (2021–25): - Fiscal stance tighter than previously projected (NOPFD is lower by 0.6 percent of GDP in 2021 relative to the Third Review). - International market access expected to resume gradually post-program. - Baseline assumes issuance of $1.4 billion and $0.8 billion of Eurobonds in 2025 and 2026, respectively, with assumed spreads of 750 basis points. - Continued external financing from secure existing credit lines and plausible multilateral borrowing. - Gradual lengthening of domestic bond maturities assumed. - Long term (2026–30): - Conservative assumptions: gradual lengthening of domestic bond maturities within banking system absorption; external financing mostly from secure existing credit lines; no additional fiscal revenue measures built into the framework. ### Sonangol, guarantees, privatization, and arrears - Sonangol financing assumptions: - Baseline assumes conservative external borrowing: $2 billion in 2020, cumulative $6.3 billion in 2021–25. - Sonangol external debt ratio projected: 5.5 percent of GDP in 2019 → 10.1 percent of GDP in 2020 → 4.9 percent by 2025. - Guarantees: - Government loans involving sovereign guarantees to support private sector development will be incorporated in baseline once contracted; program includes ceilings (indicative targets) on new guarantees by the State. - Privatization: - Baseline includes privatization receipts (net of costs) around $170 million in 2021 and 2022. - Clearance of external arrears: - Baseline assumes regularization and gradual clearance of external arrears to one private entity over 10 years, beginning in 2021. ### Debt reprofiling operations (Box 1 summary) - Authorities requested DSSI relief to Paris Club Secretariat and relevant G20 countries and suspended principal and interest payments on relevant debt as of September 2020 while progressing on memoranda of understanding. - Agreements with two large creditors include: - Three-year deferral of principal payments; - Repayment of deferred principal falling due in 2020H2–2023H1 over seven years after the grace period, with modest additional relief in 2024–25. - For one creditor, interest payments during the deferral period to be serviced by drawing down the associated escrow account, to be replenished after the initial three-year deferral. - Reprofiling effects: - Helps bring annual GFNs to an average of 8.7 percent of GDP in 2021–25 and provides cumulative cash-flow relief of $6.9 billion in 2020-22. - Average annual GFNs in 2026–2030 decline to 7.3 percent of GDP. ### Key fiscal financing numbers (selected rows from Text Table 1; Percent of GDP unless otherwise indicated) - Financing Needs (GFN as in the DSA): 2020: 17.0; 2021: 9.2; 2022: 8.0; 2023: 8.1; 2024: 8.7; 2025: 10.3; 2026: 7.2; 2027: 5.6; 2028: 10.8; 2029: 8.6; 2030: 4.5. - Overall deficit: 2020: 1.7; 2021: -0.3; 2022: -1.4; 2023: -1.4; 2024: -1.7; 2025: -1.7; 2026: -1.9; 2027: -2.1; 2028: -2.1; 2029: -2.1; 2030: -2.3. - Debt amortization: 2020: 15.3; 2021: 9.5; 2022: 9.4; 2023: 9.6; 2024: 10.4; 2025: 12.0; 2026: 9.1; 2027: 7.8; 2028: 12.9; 2029: 10.7; 2030: 6.8. - Domestic amortization: 2020: 10.7; 2021: 5.3; 2022: 5.5; 2023: 3.8; 2024: 4.5; 2025: 4.4; 2026: 2.9; 2027: 1.3; 2028: 4.5; 2029: 2.7; 2030: 1.1. - External amortization: 2020: 4.5; 2021: 4.2; 2022: 3.8; 2023: 5.8; 2024: 5.9; 2025: 7.6; 2026: 6.2; 2027: 6.5; 2028: 8.4; 2029: 8.0; 2030: 5.6. - Debt issuance (total): 2020: 12.6; 2021: 9.5; 2022: 7.3; 2023: 9.4; 2024: 9.4; 2025: 10.1; 2026: 7.0; 2027: 5.5; 2028: 10.6; 2029: 8.3; 2030: 3.3. - Domestic debt issuance: 2020: 6.8; 2021: 1.7; 2022: 3.7; 2023: 4.9; 2024: 5.3; 2025: 4.1; 2026: 2.1; 2027: 5.9; 2028: 3.9; 2029: 0.8; 2030: 0.0. - External debt issuance: 2020: 5.8; 2021: 7.8; 2022: 3.6; 2023: 4.5; 2024: 4.0; 2025: 6.0; 2026: 4.9; 2027: 3.4; 2028: 4.7; 2029: 4.4; 2030: 2.5. - Budget support component (external): 2020: 1.9; 2021: 4.6; 2022: 0.8; 2023: 1.1; 2024: 1.0; 2025: 0.9; 2026: 0.9; 2027: 0.3; 2028: 0.1; 2029: 0.1; 2030: 0.1. ### Projection record, realism, and debt path - Angola’s forecast record for growth, primary balance, and inflation shows a relatively large median error compared with other program countries, reflecting trend decline in oil production, oil price volatility, swings in agricultural production, and limited economic diversification. - MAC-DSA realism module characterizes Angola’s fiscal adjustment as optimistic compared to other IMF arrangements; much of the adjustment was frontloaded in 2018–19 and largely completed by end-2020. - Public debt projection: - 2019: 107 percent of GDP; - 2020: 134 percent of GDP; - 2021: expected to decline to 120 percent of GDP. - Baseline scenario with structural adjustment in the NOPFD and agreed debt reprofiling reverses upward trend in 2021 and brings debt close to authorities’ anchor in the medium term; sustained growth rebound and structural reforms would reduce debt significantly by 2025. ### Debt service, GFNs, and composition vulnerabilities - Total debt service projected to exceed 100 percent of fiscal revenues in 2020, declining thereafter. - GFNs projected to remain contained from 2021 on, falling to 5-10 percent of GDP, below the standard 15 percent of GDP threshold. - Vulnerabilities: - Currency risk: over four-fifths of Angola’s debt is denominated in, or indexed to, foreign currency (large share of oil revenues provides a medium-term hedge). - Interest rate risk. - Narrow creditor base, especially in the domestic market. ### Stress-test scenarios and vulnerability outcomes - Growth shock: Lowering projected real GDP growth by one standard deviation keeps the debt ratio significantly above the high-risk benchmark over the projection horizon. - Real exchange rate shock: A 30-percent, one-time real depreciation of the Kwanza increases the debt ratio to 146 percent of GDP and debt remains significantly above the high-risk benchmark over the projection horizon (note: standardized shock does not consider Kwanza value improvement of oil revenues, but it increases the interest bill). - Combined shock: Combination of growth, inflation, primary balance, exchange rate shocks and a 200-basis-point increase in the effective interest rate increases the debt ratio to 175 percent of GDP and GFNs above the high-risk benchmark; under this severe stress scenario, Angola would likely be unable to service its debt. - Contingent-liability (CL) shocks: - Baseline includes 0.7 percent of GDP for bank recapitalization in 2020. - Under this scenario, both debt and GFN ratios would exceed high-risk benchmarks in 2020 but fall below them in ensuing years. - Large borrowing or CL risks from non-financial SOEs could further threaten sustainability. - Mitigation under the program: prudent borrowing strategy; moderate sovereign guarantees; restructuring of Sonangol; SOE privatization. - Oil-price shock (customized): A two-year drop averaging 30 percent in the Angolan oil basket price in 2020–21 would result in GFNs averaging 11 percent of GDP in 2021-25 and the debt-to-GDP ratio remaining above the high-risk benchmark through 2025. ### External debt assessment - External DSA coverage: external debt of Central Government, Sonangol, TAAG, and public guarantees of debt denominated in foreign currency. No private sector external debt data available. - Public external debt projected: - Peaks at 101 percent of GDP in 2020; - Converges to 62 percent of GDP in 2025. - External debt vulnerabilities: - Sensitive to unfavorable current account developments and large exchange rate depreciation. - Vulnerable to further declines in oil prices and growth, tighter financing conditions, and materialization of contingent liabilities from the financial sector. *Source: IMF staff—Annex I. Debt Sustainability Analysis Update.* ### 15. Angola’s public debt is sustainable with substantial previous reprofiling of interest ### 15. Angola’s public debt is sustainable with substantial previous reprofiling of interest ### Key findings - Angola’s public debt is sustainable with substantial previous reprofiling of interest and principal payments and a continued tight fiscal position, although high risks remain. - Following its 2020 peak (now higher due to larger projected exchange rate depreciation), the debt ratio is projected to decline steadily toward the authorities’ medium-term target. - An improved overall fiscal balance and the agreed debt reprofiling are projected to keep gross financing needs (GFNs) contained in the medium term. - Authorities will work to enhance their debt management strategy, together with conservative fiscal budgeting and execution, and remain ready to act to mitigate the impact of possible shocks to the Angolan economy and their possible negative effect on public debt dynamics. - EMBIG (average over the last 3 months, 10-Sep-20 through 09-Dec-20): 885 (bp). *As of December 09, 2020.* ### Debt dynamics and projections (selected series, in percent of GDP unless otherwise indicated) - Total Nominal gross public debt (2018–2030): 47.2, 89.0, 107.1, 134.2, 119.9, 106.7, 97.2, 87.2, 78.2, 70.3, 62.6, 56.0, 49.6, 42.9. - Public gross financing needs (2018–2030): 11.9, 15.6, 11.1, 17.0, 9.2, 8.0, 8.1, 8.7, 10.3, 7.2, 5.6, 10.8, 8.6, 4.5. - Real GDP growth (2018–2030, in percent): 2.9, -2.0, -0.6, -4.0, 0.4, 2.4, 3.5, 3.7, 3.8, 3.7, 3.7, 3.8, 3.8, 3.8. - Primary deficit (contribution to change in public debt, 2018–2030, in percent of GDP): -0.3, -6.7, -6.0, -4.7, -7.0, -7.1, -6.6, -6.4, -6.1, -5.9, -5.8, -5.4, -5.3, -5.1. - Effective interest rate (in percent, selected years shown): 4.1 (2018), 8.6 (2019), 7.3 (2020), 6.7 (2021), 6.5 (2022), 5.5 (2023), 5.5 (2024), 5.4 (2025). ### Debt profile and composition (high-level) - Public sector defined as Central government plus public companies and includes public guarantees (CG guarantees to SOEs and private firms). - Debt composition projections show a declining gross nominal public debt trajectory after the 2020 peak under the baseline scenario. - Maturity composition highlights medium and long-term versus short-term debt shares across the projection period (2018–2025) with projected declines in gross nominal public debt ratios. - By currency, public debt is shown as local currency–denominated and foreign currency–denominated components in projections (2018–2025). ### External debt and external financing - Baseline external debt (2015–2025, percent of GDP): 35.1 (2015), 45.0 (2016), 38.2 (2017), 56.8 (2018), 74.2 (2019), 101.4 (2020), 95.8 (2021), 87.1 (2022), 78.3 (2023), 69.1 (2024), 61.8 (2025). - Gross external financing need (in billions of US dollars, selected years): 12.9 (2015), 7.3 (2016), 4.4 (2017), -1.6 (2018), 0.5 (2019), 4.2 (2020), 3.9 (2021), 4.5 (2022), 6.7 (2023), 7.2 (2024), 8.2 (2025). - External debt–to–exports ratio (in percent, 2015–2025): 105.1, 158.7, 131.1, 119.1, 142.9, 245.3, 233.8, 227.6, 216.5, 200.6, 183.9. ### Stress tests and risk assessment - Heat-map and stress-test framework shows vulnerabilities across scenarios: primary balance shock, real GDP growth shock, real interest rate shock, exchange rate shock, contingent liability shock, combined shocks, and oil price shock. - Baseline and stress scenarios project gross nominal public debt and public gross financing needs (percent of GDP and percent of revenue) under each shock through 2025. - External-debt bound tests apply permanent one-half standard deviation shocks and combined scenario variants (including a one-time real depreciation of 30 percent in 2021). - Stress tests indicate that while baseline paths show declining debt ratios after 2020, shocks could materially worsen debt metrics and GFNs. ### Realism of baseline assumptions and forecast track record - Forecast track-record comparisons (2011–2019) show Angola’s median forecast errors and percentile ranks for Real GDP growth (median forecast error -2.85, percentile rank 3%), Primary Balance (median forecast error -1.24, percentile rank 15%), and Inflation (GDP deflator) (median forecast error 3.28, percentile rank 95%). - Realism assessments include boom-bust analysis, projections of baseline versus potential output, and assessment of projected fiscal adjustment (3-year CAPB adjustment and average CAPB level distributions). - Assumed fiscal multiplier in some analyses: multiplier of 1, persistence of 0.6 (for growth/level of output in absence of fiscal adjustment charts). ### Policy recommendations and authorities’ stance - Enhance debt management strategy to improve public debt dynamics. - Maintain conservative fiscal budgeting and execution. - Be prepared to act to mitigate impacts from potential economic shocks given very high risks to debt sustainability. - The agreed debt reprofiling and improved fiscal balance are central to keeping GFNs contained in the medium term. *Source: IMF staff.* ### Annex II. Risk Assessment Matrix ### Annex II. Risk Assessment Matrix ### RAM methodology and framing - The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). - The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). - The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. - Non-mutually exclusive risks may interact and materialize jointly. - “Short term (ST)” and “medium term (MT)” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively. - July 24, 2020 edition of the RAM. ### Principal risks, likelihoods, horizons, impacts, and policy responses - Unexpected shift in the Covid-19 pandemic - Relative likelihood: High - Time Horizon: Short Term - Impact on Angola: Medium/High - Description: The disease proves harder to eradicate (e.g., due to difficulties in finding/distributing a vaccine), requiring more containment efforts and impacting economic activity directly and through persistent behavioral changes (prompting costly reallocations of resources). Monetary and fiscal policy response is insufficient amid dwindling policy space and concerns about debt sustainability. Financial markets reassess real economy risks leading to a repricing of risk assets, unmasking of debt-related vulnerabilities, and weakening banks and nonbank financial intermediaries–forcing them to reduce credit (further weighing on growth). Financing difficulties extend to vulnerable sovereigns, leading to cascading debt defaults, capital outflows, depreciation pressures, and in some cases inflation. Pandemic-prompted protectionist actions (e.g., export controls) reemerge, disrupting trade and global value chains. - Policy responses: - Accommodate essential health spending and combine well-paced, growth-friendly spending adjustments that protect social spending and public investment with additional financing from international financial institutions (IFIs) and the donor community given limited scope for fiscal easing. - Reach out to a wider range of bilateral creditors to secure additional debt reprofiling. - Let the exchange rate adjust to changes in global conditions. - Persevere with structural reforms to diversify the economy. - Widespread social discontent and political instability - Relative likelihood: High - Time Horizon: Short Term - Impact on Angola: Medium - Description: Social tensions erupt as the pandemic and inadequate policy response cause economic hardship (including unemployment, higher incidence of poverty, and shortages and higher prices of essentials) and exacerbate preexisting socioeconomic inequities. Economic activity is disrupted. Growing political polarization and instability (e.g., contested elections) weaken policymaking and confidence. - Policy responses: - Accelerate the roll out of the cash-transfer program. - Target fiscal measures to the most affected sectors and households with the aim of alleviating liquidity constraints while ensuring transparency and accountability in managing spending related to COVID-19. - Proactively seek additional financing from IFIs and the donor community given limited fiscal buffers. - Accelerating de-globalization - Relative likelihood: High - Time Horizon: Short Term - Impact on Angola: Low - Description: Geopolitical competition and fraying consensus about the benefits of globalization lead to further fragmentation. Reshoring and less trade reduce potential growth. - Policy responses: - Reach out proactively to main trade partners to protect exports. - Speed up structural reforms to enhance external competitiveness and economic diversification, including greater trade and financial integration in SADC and AfCFTA. - Oversupply and volatility in the oil market - Relative likelihood: Medium - Time Horizon: Short Term/Medium Term - Impact on Angola: High - Description: Supply increases following OPEC+ disagreements and lower demand keep energy prices close to historical lows, but uncertainty about possible production cuts and the pace of demand recovery lead to bouts of volatility. - Policy responses: - Maintain exchange rate flexibility. - Adopt a steadfast fiscal policy response, including by mobilizing non-oil tax revenues and adjusting public spending and improving its efficiency. - Accelerate reforms to diversify the economy. - Stronger-than-expected decline in crude oil production - Relative likelihood: Medium - Time Horizon: Short Term/Medium Term - Impact on Angola: High - Description: A stronger-than-expected decline in crude oil production would reduce growth, oil tax revenues, and availability of foreign exchange. - Policy responses: - Streamline administrative procedures to attract investment to the oil sector. - Move expeditiously with Sonangol's restructuring. - Mobilize additional non-oil fiscal revenues. - Accelerate reforms to diversify the economy. - Potential negative spillovers on the financial sector from the transition to a more flexible exchange rate - Relative likelihood: Medium - Time Horizon: Short Term/Medium Term - Impact on Angola: Medium - Description: The capital position of some banks may be vulnerable to further exchange rate depreciation. - Policy responses: - Address gaps in prudential regulations. - Assess potential fiscal contingent liabilities from weak banks. - Ensure that resources are earmarked/budgeted to minimize risks to financial stability. - Shocks to the public debt trajectory - Relative likelihood: High - Time Horizon: Short Term/Medium Term - Impact on Angola: High - Description: Shocks include further decline in oil prices, low economic growth, and materialization of contingent liabilities. - Policy responses: - Re-calibrate monetary and fiscal policy to a proper response to the shock. - Allow for greater exchange rate flexibility. - Continue to strengthen public debt management, state-owned enterprise oversight, and transparency of public debt statistics. - Reprofile selected public debt service over an extended period. - Possible contingency measures could include: - (i) additional fiscal retrenchment; - (ii) additional reprofiling by large creditors; - (iii) partial running down of NIRs; and - (iv) drawing down on the sovereign wealth fund. - Possibility that reform fatigue could arise, given pervasive hardships - Relative likelihood: Medium - Time Horizon: Medium Term - Impact on Angola: Medium - Policy responses: - Scale up of cash transfers, with the help of the World Bank, to protect the most vulnerable from the side effects of reforms. - Continue well-focused technical assistance by the Fund and other development partners to mitigate implementation risks and mitigate side effects of reforms. _Annex II. Risk Assessment Matrix — July 24, 2020 edition._ ### 6. Our fiscal policy has maintained fiscal and debt sustainability despite the economic ### 6. Our fiscal policy has maintained fiscal and debt sustainability despite the economic ### Fiscal performance during the crisis - Combination of new non-oil revenue measures approved in the supplementary 2020 budget and strict expenditure restraint allowed overperformance of the 2020 NOPFD targets at end-March, end-June and end-September. - Non-oil tax receipts outperformed expectations in the first half of 2020 due to strong performance of the personal income tax (PIT), value-added tax (VAT), corporate income tax (CIT) paid by large corporations, and settlement of tax arrears. - Revenues in the second half of 2020 benefited from robust yields from the VAT and PIT. - Freeze of non-essential spending on goods and services and on new hiring (except in the education and health sectors) delivered substantial savings; social assistance expenditure was safeguarded. ### 2021 budget -- objectives and measures - Broadly unchanged NOPFD in 2021, benefiting from full-year impact of 2020 tax policy reforms (increasing PIT progressivity; broadening the VAT base at customs; optimizing the VAT refund account balances; differentiating CIT rates between companies; raising withholding rates for non-resident service providers; adjusting property tax thresholds and excises on cigarettes and luxury cars). - Focus in 2021 on improving implementation and fine-tuning of 2020 revenue measures and introducing additional operational measures to enhance revenue efficiency. - Continued restraint in current spending and expenditure consolidation through prioritization and efficiency improvements. Key revenue and expenditure measures in the 2021 budget: - Non-oil revenue: - Strengthen the collection capacity of the revenue agency (AGT) by enhancing the integrity of taxpayer databases; improving VAT monitoring; and establishing an invoice-based compliance strategy. - Discontinue the temporary exemption of capital goods adopted during the pandemic when it expires in April 2021. - Introduce a 2.5 percent VAT withholding tax on all sales of goods and services made at automatic payment terminals (TPA). - Lower the VAT threshold to Kz 50 million in October 2021, to be effective from January 2022. - Wage bill: - Maintain the 2020 hiring freeze (except for essential social services) to contain growth in the nominal wage bill. - Goods and services: - Slightly relax 2020 constraints on payments for goods and services to return overall spending on goods and services to slightly above its 2019 level relative to GDP. - Transfers and subsidies: - Keep transfers and subsidies under tight control while preserving targeted social spending floors. - Capital expenditure: - Continue to rein in capital expenditure relative to GDP through restraint in non-essential investment. - Payments arrears: - Commit to staying within agreed program limits for the net accumulation of new arrears (ITs) despite a tight cash position expected in 2021. ### Fiscal structural reforms and debt target - Additional fiscal retrenchment necessary to attain public debt (including Sonangol and TAAG) target of 60 percent of GDP, now aimed to be achieved in the long term, consistent with the objective in the Fiscal Responsibility Law (FRL), adopted in August 2020. - Adjustment to be underpinned by continued non-oil revenue mobilization and restraint in current expenditure while protecting key public investment and social expenditure. Specific structural reform actions: - Non-oil revenue: - Continue to strengthen AGT capacity via better databases and stricter compliance. - Reduce tax expenditures; reform investment incentives; implement a property registration system; broaden the tax base by integrating the informal sector. - Continue to be guided by technical assistance (TA) from the IMF. - Cash-transfer program and subsidy reform: - Cash-transfer program started in late May; about 80,000 households registered by mid-November, with an aim to register 300,000 households by early 2021. - Plan to accelerate the program once the pandemic abates and reach goal of 1.6 million households by end-2023. - Resume fuel subsidy reforms gradually when the cash-transfer program reaches a critical mass; evaluate special fuel subsidies for the agriculture and fishing sectors in 2021. - Published a presidential decree in October 2020 on an automatic mechanism to establish the reference market price; results to be published monthly. - External arrears: - Set up an independent third-party escrow account in June 2020 in a sound bank in Angola to deposit debt service payments rejected by intermediary financial institutions. - Working on legacy claims by the former Federal Socialist Republic of Yugoslavia with one successor State; verifying its claim and plan to reinvigorate discussions. - Cleared arrears to a commercial creditor via an agreement to settle outstanding obligations over a ten-year period; in discussions with a second commercial creditor to verify claims and aim to reach agreement on a repayment schedule in the near future. - Payments arrears: - By end-November, verified and settled 80 percent of all payment arrears accumulated by the Central Government in 2018 and recorded in SIGFE but may miss the end-December SB on completing verification and settlement because of the COVID-19 pandemic. - Net accumulation of new payments arrears reached Kz 81 billion at end-June 2020, below the program ceiling of Kz 250 billion (IT). - Medium-term fiscal framework (MTFF): - FRL defines a fiscal rule including a debt target and an operational target for the NOPFD. - Completed a pilot MTFF in June and revised it in November to anchor the 2021 budget proposal; identified areas for improvement for formal implementation in the 2022 budget. - Preparing a fiscal strategy to accompany the MTFF and will update it in April and October 2021, as required by the FRL. - Public investment management: - 2021 budget requires publication of an initial project appraisal for all new public investment projects undertaken after January 1, 2021 and above Kz 10 billion (SB for end-March 2021, reset for end-June 2021). - Started to publish appraisal documentation of major projects and will regularly review and update cost estimates and selection criteria. - Continue to improve governance of public private partnerships to reduce fiscal risks from contingent liabilities. - Safeguard budgeted capital expenditure, allowing only exceptional cases where up to 7 percent of capital expenditure could be reallocated to current expenditure. - Fiscal transparency and accountability: - Continue regular publication of quarterly and yearly fiscal reports to disclose collection and use of public resources and support preparation and update of pilot MTFF. - Continue to improve coverage and timeliness of reports under IMF guidance and enforce sanctions to senior officials for spending decisions above approved budget ceilings. ### Monetary and exchange rate policies - Strengthen RM target policy framework to achieve price stability; quantitative RM targets under the program (PCs) set consistent with monetary policy to establish a credible nominal anchor and mitigate exchange rate pressures and inflation. - Instruments: use OMOs at market interest rates and the policy rate to sterilize shocks to money aggregates and improve monetary policy transmission; better align money market rates with the policy rate as moving toward positive real interest rates and single-digit inflation. - End-December 2020 PC on BNA advances to the Central Government was not observed due to secondary market securities operations related to COVID relief; steps taken to sterilize securities purchased via OMOs and met the end-December 2020 RM PC. - In 2021, intra-year direct lending by the BNA to the Government will be restricted to no more than 10 percent of the previous year’s fiscal revenues, as defined in Article 29 of the BNA Law, while respecting related PCs. There is a March IT and June PC on this lending. - Commit that no more than Kz 250 billion in new lending after the start of next year will be outstanding by end-September 2021 and that all advances will be settled solely in cash by the end of 2021. - Amended BNA Law: - Draft amended BNA Law submitted to the Council of Ministers on December 15, 2020 (SB); following approval to be submitted to the National Assembly by end-January 2021 (proposed new SB). - Amended Law clearly defines BNA’s mandate; sets a clear primary policy objective; strengthens governance arrangements; legally protects BNA staff from undue influence; ensures financial, functional, and staff personal autonomy; distinguishes between emergency liquidity assistance (ELA) and monetary policy operations; strengthens solvency support frameworks. - Strengthening governance at the BNA: - Continued to reduce holdings with external managers in line with new investment policy. - Implemented the International Financial Reporting System (IFRS). - Strengthened internal audit capacity by certifying additional staff and improving information systems, with timeframe to continue through 2022. - Drafted a new policy for hiring external auditors to submit to Board and then Audit Council for approval. - Exchange rate regime progress: - FX trading platform allows market players (oil and mineral companies) to trade directly with banks; as of November 2020, the Treasury also started to do the same. - Platform will allow BNA to gradually withdraw from being the main FX supplier. - BNA to improve predictability of FX auctions by announcing monthly indicative amounts to be auctioned in the following three months. - Net international reserves (NIRs): - COVID-19 shock delayed rebuilding of BNA’s NIRs even as corresponding targets were met. - Met the end-September 2020 IT and on track to meeting the end-December PC. - Program’s 2021 targets provide room to accommodate persistent balance of payments weaknesses with at most a moderate NIR decline while starting to rebuild GIR. - Continue to implement a monthly FX intervention budget consistent with program NIR targets. ### Financial sector policies - Strengthening regulatory framework for banks: - Submitted amendments to the Financial Institutions Law (FIL) to the National Assembly for approval in August; currently under consideration (missed end-September SB); aim adoption by end-March 2021 (reset SB). - Amendments to provide effective recovery planning, enhanced corrective actions, and resolution framework for weak banks in line with IMF advice; strengthen BNA’s resolution authority, enable broad set of resolution tools, and safeguard potential use of public funds in resolution. - Once approved, will improve prudential regulatory and supervisory framework for banks, including corporate governance and more rigorous fit and proper requirements for bank owners, Board members, and managers. - Issuance by BNA of secondary legislation is advanced. - Committed to improvements to regulatory framework for provisioning of ELA to banks, including collateral framework and minimum measures to mitigate BNA’s potential credit exposure. - Working on implementation of revised Anti-Money Laundering Law enacted in January 2020 (Law No.5/20 of January 27, 2020) and complementary legal amendments issued in June 2020. - Restructuring public banks and reducing State role: - Four banks owned or controlled by the State and five banks in which the State is indirectly a significant shareholder. - Implementing restructuring plan of the largest troubled public bank and updating strategy to reduce State role in banking sector (missed end-February SB); plan to be adopted by end-March 2021, ensuring upfront loss recognition of capital shortfalls identified by asset quality reviews (AQRs) of December 2019 without further reliance on public funds. - Pending restructuring of another public bank included in updated strategy (missed end-June SB). - Recredit governance and efficiency: - Improvements in Recredit’s statutes to reinforce governance and independence, introduction of a ten-year sunset clause, and transfer of assets only at fair value and following due diligence. - Commit to publish performance reports every six months and a summary of its business plan. - Committed to finalize governance arrangements, including nomination of an independent Board member (missed end-August SB), before end-February 2021. - Commit to continue disposing of assets swiftly, targeting maximization of recovery value, and improve operational capacity of Recredit, including outsourcing recovery of NPLs to external experts. - Banking system monitoring: - Promote accuracy and timely classification by banks of their credit portfolios and related loan loss provisions according to international standards. - Intensify oversight to identify borrower distress and check effectiveness of NPL management approaches. - Ensure levels of capital and liquidity in the banking system remain adequate. - Monitor sovereign exposures in the banking system and ensure banks' compliance with prudential requirements in relation to net FX positions despite domestic currency depreciation. ### Public debt management - Committed to a prudent and proactive debt management strategy to support debt sustainability. - Recently reprofiled debt service due on substantial amounts owed to large creditors, resulting in significant cash-flow savings in coming years. - Obtained debt relief under the DSSI for 2020 and will request an extension for the first half of 2021. - Renegotiated some large external arrears pre-dating the program and de-collateralized them from oil, freeing a stream of foreign exchange. - Will continue to abide by ceilings for issuance of debt guarantees by the State (IT). - Plan to better align interest rates on domestic debt obligations with market rates to develop the domestic debt market, lengthen domestic debt maturity, and secure higher rollover rates. - Will enhance debt management strategy alongside conservative fiscal budgeting and execution. - Given very high risks to debt sustainability, remain ready to act to mitigate impacts of possible shocks to the Angolan economy on public debt dynamics. ### Structural reforms and investment - Infrastructure: - Secured important financial resources in the 2021 budget (almost US$400 million) to optimize and consolidate investment in electricity and water sectors, supported by the World Bank and the African Development Bank. - Projects include generation, distribution, and transmission of electricity and expansion of water supply to urban and rural areas in several municipalities. - Planning to rehabilitate two important roads in 2021 and to build irrigation structures in the Calueque and Kizenga municipalities. - SOE reforms and privatization: - Launched public tenders for 54 SOEs by end-October 2020 and privatized 30 companies for total proceeds of Kz 55 billion, of which Kz 39 billion was transferred to the State. - Granted concession rights to three textile companies, expected to generate revenue of Kz 1.4 billion annually for the next 10-15 years. - Finalize privatization of 12 agricultural businesses and 5 farms by end-2020 and intend to privatize six large SOEs by end-2021 for expected total proceeds of Kz 330 billion. - Under Sonangol’s “Regeneration Program,” 12 non-core assets put up for sale between September 2019 and October 2020, and 6 were sold for a total price of US$17 million. - Since end-June 2020, launched or about to launch privatization of 9 SOEs and other assets, including Sonangol’s shares in two banks, mostly through the Angola Stock Exchange; assets to be sold include Sonangol’s shares in another 4 companies (construction, telecommunications, fuel distribution). - Arrears accumulated in 2016–18 between Sonangol and the State electricity producer PRODEL will be settled in December 2020 by compensation. - Improved SOE transparency: 59 SOEs, among which the 15 largest (by assets), published their audited 2019 annual reports on the SOEs oversight institute’s (IGAPE) website by end-September. - Committed to keeping privatization receipts fully disclosed to the Ministry of Finance and have incorporated sales proceeds in the budget when assets were owned directly by the State. - Expect to fully implement planned acceleration of the privatization program in 2021. *Source: 1agoea2021001 - 6. Our fiscal policy has maintained fiscal and debt sustainability despite the economic* ### 21. Governance reforms and corruption fight are progressing apace. Discussions with ### 1agoea2021001 - 21. Governance reforms and corruption fight are progressing apace. Discussions with ### Governance reforms and anti-corruption actions - UN cooperation: - Discussions with the United Nations to open an agency in Angola to fight drugs, crimes, corruption, and terrorism (UNODC) have been delayed owing to the pandemic; authorities remain committed to its successful establishment. - This effort aims to enhance governance and transparency on commercial transactions within the Southern African Development Community. - Extractive Industries Transparency Initiative (EITI): - Discussions to become a member of the EITI are advancing. - Authorities will undertake an analysis of the existing levels of disclosures to help inform priority areas for an EITI work plan. - Sonangol and international anti-bribery compliance: - Sonangol is seeking to join Trace International, aiming at being compliant with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and other international anti-bribery legislation. - Reputation and institutional reforms: - Angola moved from 69th to 32nd position in the FutureBrand Country Reputation Index (which covers 75 countries). - The SOE Law was approved by the National Assembly in August 2020; it improved internal control, governance structure, professionalism, internal and external audit functions, and disclosure practices of SOEs. - Authorities will submit amendments to the SOE Law on segregation of power and compliance to the National Assembly, incorporating good international practices by end-June 2021 (proposed new SB). - Public procurement and transparency: - By mid-November, 254 out of 289 eligible public contracts were awarded via public tenders, above the annual target of 45 percent for 2020 (SB). - Authorities will work with the Court of Audit to provide information on pandemic related spending. - Preparing an assessment of the procurement system and certification of suppliers; continued training for implementing the electronic procurement platform, including at provincial and municipal levels for PIIM projects. - By end-October, 314 of the 593 budget units published their Annual Purchase Plans on the Public Procurement portal; authorities aim to have 60 percent in 2021. ### Program monitoring and review schedule - Monitoring framework: - The program will be monitored through semi-annual reviews. - The Fifth and Sixth Reviews will be based on PCs at end-December 2020 and end-June 2021, respectively. - Continuous performance criteria (high-level): - Not to impose new or intensify existing restrictions on payments and transfers for current international transactions. - Not to introduce new or intensify existing multiple currency practices. - Not to conclude bilateral payments agreements inconsistent with the IMF’s Articles of Agreement (Article VIII). - Not to impose new or intensify existing import restrictions for balance of payments reasons. ### Key quantitative performance criteria, indicative targets, and selected outcomes - Net international reserves (NIRs) of the Banco Nacional de Angola (BNA) — floor (millions of U.S. dollars): - Program tables report multiple test-date values and adjustments; selected program notes: - NIRs definition: official reserve assets minus reserve liabilities; non-dollar assets converted using IFS exchange rates of September 28, 2018; monetary gold valued at market price at each test date. - Disbursements from the IMF received by the Central Government under the arrangement are excluded from the computation of NIRs. - BNA claims on the Central Government — cumulative ceiling (billions of kwanzas): - Definition: cumulative change from beginning of calendar year in stock of outstanding claims on the Central Government held by the BNA, less revaluation gains/losses; includes loans, securities, shares, financial derivatives, settlement accounts, advances, and arrears. - Reserve money — ceiling (billions of kwanzas): - Reserve money (RM) definition: currency in circulation outside the BNA (includes cash in vaults), balances of commercial banks’ overnight deposits, and banks’ correspondent accounts (includes required reserves in local and foreign currency) at the BNA; excludes balances in deposit auctions and commercial banks’ term deposits at the BNA. - For 2020Q3, the average adjusted reserve money thus defined amounted to Kz 2,113 billion. - Adjustor formula for changes in reserve requirement ratios is specified explicitly. - Non-oil primary fiscal deficit (NOPFD) of the Central Government — cumulative ceiling (billions of kwanzas): - NOPFD definition: non-oil primary expenditure plus clearance of external and domestic payments arrears in cash, less Central Government non-oil revenue. - Non-oil primary expenditure = total expenditure less interest on domestic and external debt and ANPG’s oil-related expenditure on behalf of the Government. - Payments arrears are defined as contractual obligations unpaid within 90 days after the due date or delivery date, related to transactions authorized inside or outside SIGFE up to December 31, 2017. - Clearance of payments arrears in cash is the cash component of repayments of arrears accumulated up to December 31, 2017. ### Structural benchmarks (selected items, dates, and status) - Payments arrears: Complete verification and settlement of all payments arrears accumulated by the Central Government in 2018 and recorded in SIGFE. - Objective: Normalize supplier relations and reduce debt burden. - Date: End-December 2020. - Status/Observation: Not expected to be met. 80 percent have been cleared; authorities intend to complete the process by end-June 2021. - Public procurement: Award, through open tenders, at least 45 percent of public contracts related to public investment projects (value exceeds Kz 182 million). - Objective: Enhance public procurement transparency and competition. - Date: End-December 2020. - Status/Observation: Expected to be met. 88 percent of public contracts have been awarded through open tenders. - Public investment project appraisal: Publish initial project appraisal report for all new public investment projects above Kz 10 billion undertaken from January 2021. - Objective: Strengthen accountability. - Date: End-March 2021 (reset to end-June 2021 in the Fourth Review). - Role of the State in the banking sector: Finalize a strategy for the State's future involvement in the banking sector. - Objective: Promote financial stability. - Date: End-February 2020 (Not met; reset to end-March 2021). - Financial Institutions Law amendments: - Objective: Promote financial stability and BNA governance and autonomy. - Date: End-September 2020 (Not met; reset to end-March 2021). Under consideration in parliament after submission in August 2020. - BNA Law amendment (submit to Council of Ministers then National Assembly): - Objective: Define a precise mandate to focus on price stability; limit monetary financing of the Government; increase operational autonomy; strengthen oversight over executive management; and improve governance, in line with IMF recommendations. - Status: Submitted to Council of Ministers, December 2020; a proposed new SB calls for submission to the National Assembly by End-January 2021. - Banking sector recapitalization and restructuring: - Objective: Require banks to return to compliance with regulatory capital rules; promote financial stability. - Date: End-June 2020 (Not met; reset to end-March 2021). Implementation pending restructuring plan of one public bank. - Strengthening of Recredit and SOE Law: - Recredit governance and operational procedures—End-August 2020 (Not met; pending nomination of independent Board member expected by end-February 2021). - SOE Law (submitted May 30, 2020 and adopted August 2020)—Met; proposed new SB: submit amendments to SOE Law on segregation of power and compliance by End-June 2021. ### Technical Memorandum of Understanding (TMU) — selected operational details - Arrangement exchange rates: - For the arrangement, the exchange rate of the Angolan Kwanza (AOA) to the U.S. dollar is set at AOA 295 per US$1 for the duration of the arrangement. - Text Table 1 exchange rates per U.S. dollar: AOA 295.00000; EUR 1.15760; GBP 1.30410; CNY 0.14531; ZAR 0.07050; SDR 1.39525. - NIR adjustors (baseline scenario): - Upward adjustor: US$200 million, on a quarterly basis, for each US$1 per barrel that the average Brent crude oil price in the corresponding quarter exceeded the arrangement’s assumption in Text Table 2. - Downward adjustor: US$200 million, on a quarterly basis, for each US$1 per barrel that the average Brent crude oil price in the corresponding quarter fell below the arrangement’s assumption in Text Table 2. Lower limits specified: US$400 million for 2020Q2, US$600 million for 2020Q3, and US$800 million for 2020Q4, cumulatively; and US$200 million for 2021Q1 and US$400 million for 2021Q2. - Adjustors also reflect shortfalls/excesses in external debt service and disbursements for budget support from multilaterals and Eurobonds relative to baseline projections. - Selected reported figures in Text Table 2 and related tables (as presented in the program tables): - Brent oil price entries include values such as 64.06, 62.76, 62.35, 50.56, 0.83, 1.44, 3.44, 2.74, 5.74, 7.34, 7.9 (as displayed in the program tables). - Disbursements from multilaterals (except the IMF) and Eurobonds: entries include 3,777; 3,615; 402; 315; 802; 234; 852; 621; 1,160; 734; 1,042 (cumulative flow reporting format). - Debt service to multilaterals and Eurobonds: entries include 576; 586; 964; 373; 104; 493; 268; 821; 944; 8 (as displayed). - Data reporting and test dates: - Reviews under the arrangement will assess PCs and ITs on specified test dates; fifth and sixth reviews will assess PCs and ITs at end-December 2020 and end-June 2021 test dates, respectively. *Source: Angolan authorities; and IMF staff report and Technical Memorandum of Understanding (excerpts as presented).* ### 10. To improve monitoring of spending on public investment projects that are financed by ### 10. To improve monitoring of spending on public investment projects that are financed by ### Monitoring of public investment projects financed by external project loans - Every calendar quarter the Ministry of Finance will provide the total value in U.S. dollars of invoices that have been approved by the Ministry, broken down into invoices for which (i) external disbursements have been confirmed by external lenders; and (ii) those that have not (Table 1). ### NOPFD PCs and ITs adjustor for Kz/USD exchange rate depreciation - The NOPFD PCs and corresponding ITs will be adjusted (asymmetrically) for the Kz/USD exchange rate depreciation in excess of the program’s baseline. - Adjustment rule: PCs and ITs will be adjusted upward by a cumulative Kz 4 billion per quarter for every 1 percentage point depreciation of the cumulative average Kz/USD exchange rate (since the start of the year) by the end of the quarter in excess of the program’s baseline (Text Table 4). - Cap on adjustor: The adjustor will be capped at a cumulative Kz 100 billion per quarter (Text Table 4). - Text Table 4. Cumulative Average Kwanza per U. S. Dollar Exchange Rates, 2020–21 (Units as indicated) - September 2020: AOA/USD 553.43 — Cap units 300 - December 2020: AOA/USD 566.26 — Cap units 400 - March 2021: AOA/USD 716.39 — Cap units 100 - June 2021: AOA/USD 733.17 — Cap units 200 ### Non-Accumulation of External Debt Payments Arrears by the Central Government and the Banco Nacional de Angola (Continuous Ceiling) - Definition (Paragraph 12): - External debt payments arrears are total external debt service obligations (principal and interest) of the Central Government and the BNA falling due after the date of arrangement approval that have not been paid by the time they are due, taking into account the grace periods specified in contractual agreements. - Debt is defined in Paragraph 17 of this TMU and excludes contracts providing for payment on delivery. - Arrears are defined on a residency basis. - Exclusions: arrears resulting from nonpayment for which a clearance framework has been agreed or a restructuring agreement is sought; external debt obligations that cannot be paid due solely to intermediary financial institutions’ compliance policies but have been paid into an independent third-party escrow account by the contractual due date (taking into account contractual grace period) will not give rise to arrears for purposes of this PC. - Application (Paragraph 13): The PC on the non-accumulation of external debt payments arrears will apply on a continuous basis throughout the arrangement. ### New External Oil-Collateralized Debt (Continuous Ceiling) - Definition (Paragraph 14): - Oil-collateralized debt is external debt involving creating a security interest, charge or lien over oil, oil receivables, or the proceeds of the sale of oil. - Use of a collection account where no charge or lien is created is excluded. - Prefinancing refers to debt contracted against future oil sales. - Debt contracted on behalf of the Central Government, the BNA, or Sonangol is when the borrowing entity is wholly owned and/or controlled by those entities. - Exclusions and monitoring (Paragraph 15): - Disbursements under oil-collateralized debt contracted before approval of the arrangement are excluded from this PC and monitored under ITs relating to such disbursements (Paragraphs 21–22). - New oil-collateralized debt contracted by or on behalf of the Central Government, the BNA, or Sonangol is excluded from this PC where such debt is used for financing of oil-extraction equipment, as evidenced by the financing documents. - Ceiling (Paragraph 16): The contracting of new oil-collateralized debt (including prefinancing) by or on behalf of the Central Government, the BNA, or Sonangol, on a gross basis, is subject to a continuous zero ceiling under the arrangement. ### Indicative Targets — Definitions and Coverage - Stock of Debt Contracted or Guaranteed by the Central Government or Sonangol (Ceiling) — Definition (Paragraph 17): - Public debt includes domestic and external debt contracted or guaranteed by the Central Government, including debt related to the National Urbanization and Housing Plan (PNUH) owed by the Central Government to Sonangol, and external debt contracted by Sonangol. - Cross-holding of claims by entities within this debt perimeter, including PNUH-related debt, are netted out for computing this IT. - External debt is determined according to the residency criterion. - “Debt” is a current, i.e., not contingent liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; payments discharge principal and/or interest. - Primary debt forms include: i. Loans (advances of money, deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements); ii. Suppliers’ credits; iii. Leases (debt is the present value at inception of all lease payments expected to be made during the period of the agreement, excluding payments that cover operation, repair, or maintenance). - Central Government Social Expenditure (Cumulative Floor) — Definition (Paragraph 18): - Social expenditure is Central Government spending on functions specified in the General State Budget (OGE) as the “social sector”: education (budget line 04); health (budget line 05); social protection (budget line 06); and housing and community services (budget line 07). - This IT is set in Kwanzas. - Net-Accumulation of Payments Arrears by the Central Government (Cumulative Ceiling) — Definition (Paragraphs 19–20): - Payments arrears are all external and domestic non-debt contractual obligations of the Central Government that remain unpaid within 90 days after the due date specified in the contract or after the delivery date, and which: (i) include procurement contracts for goods and services and statutory obligations (e.g., civil service wages, and other entitlements); and (ii) are recorded in SIGFE. - The due date is the deadline by which payment must be made under the contract, taking into account contractual grace periods. - After rescheduling by agreement with the creditor, the obligation rescheduled is not considered in arrears anymore. - The IT is calculated as the net change in the stock of payments arrears reported between the date of arrangement approval and each test date; excludes claims related to transactions authorized outside SIGFE (reported separately). - Disbursements of Oil-Collateralized External Debt to the Central Government (Cumulative Ceiling) — Definition (Paragraphs 21–22): - This ceiling refers to disbursements of oil-collateralized external debt to the Central Government from credit lines contracted before the start of the arrangement (Paragraph 15). - This IT will be monitored on a quarterly basis (Table 1). - Issuance by the State of Debt Guarantees (Annual Ceiling) — Definition (Paragraphs 23–26): - Covers all debt guarantees issued by the Central Government, irrespective of purpose, currency, and beneficiary. - Defined for each calendar year and will be identical to the annual ceiling for issuance of debt guarantees approved in the annual Budget Law. - Debt defined as in paragraph 17 of this TMU. - Monitored quarterly based on amounts approved by the Ministry of Finance for guarantee issuances. ### Reporting Requirements (Selected items from Table 1) - General: To ensure adequate monitoring of economic variables and reforms, the authorities will provide the data and information specified in Table 1. - MINFIN — Quarterly, no later than 8 weeks after the end of each quarter: - Accumulation of external debt service arrears by the Central Government (Quarterly). - Oil revenue by category (Quarterly): oil revenue, including from the concessionaire (100 percent), from other oil tax (IRP, IPP, ITP), and identifying the average oil price (US$/barrel) and crude oil exports (barrels). - Expenditure by category (Quarterly): wages; goods and services (non-oil related and Sonangol’s expenditure on behalf of the Central Government); domestic and external interest payment; current transfers (subsidies—including price subsidies, donations, social benefits, and other transfers); capital expenditure, broken down between public investment program (PIP) and others, and between domestically and externally financed. - External borrowing and debt service (principal and interest) as recorded in the DMFAS system (Quarterly): broken down by creditor type (multilateral, bilateral, commercial, suppliers, and Eurobonds) and divided by public investment projects and budget support under the arrangement. Borrowing and debt service of collateralized debt broken down by creditor. - Total value of invoices in U.S. dollars related to spending on public investment projections that are financed by external project loans and that have been validated by MINFIN (Quarterly): broken down by invoices for which external disbursements have been confirmed by external lenders and invoices that have not. - Stock, new accumulation, and clearance of payments arrears (Quarterly): clearly identifying the stock and clearance of payments arrears originating outside and inside SIGFE. - Stock of public guarantees (Quarterly): broken down by currency, identifying amounts, beneficiary, guarantor, and maturity date of the underlying loan. - Issuance of new guarantees (Quarterly): Guarantee issuances approved by the Ministry of Finance as defined in paragraphs 21–24 of this TMU. - Contracting and/or disbursements of new collateralized debt by or on behalf of the Central Government, the BNA, and Sonangol (Quarterly). - Stock and the change in balances of the escrow set up in a sound bank operating in Angola to receive rejected debt service payments (Quarterly, no later than 4 weeks after the end of each quarter): broken down by flows—disaggregated by new deposits and withdrawals—and stock (the balance in the account). - MINFIN — Monthly, no later than 2 weeks after the end of each month: - Non-oil revenue by category (Monthly). - Domestic borrowing and debt service (principal and interest) (Monthly): including Treasury bonds (broken down by instrument: OT-NR, OT-TXC, OT-ME, OT-INBT), Treasury bills (Fundada, and ARO whose disbursements should be recorded at price paid), and loans (contratos de financiamento de mútuo). - Stock of domestic debt of the Central Government (Monthly): domestic debt broken down by instrument type. - Production and exports of oil and natural gas (Monthly, MINIFIN): oil and gas production measured in monthly (average) barrels per day and exports measured in U.S. dollars. - Actual selling prices of oil and natural gas (Monthly, MINIFIN): for oil, reported for all Angola brand fields; for natural gas, the average selling price. ### Additional reporting by BNA and other agencies (selected) - BNA — Daily/Weekly/Monthly/Quarterly items including: - Stock of the NIRs (Daily, no later than one week after the end of each day). - Exchange rates (official and parallel) (Daily, no later than one day after the end of each day). - Decomposition of daily variation of NIRs stock into foreign exchange sales/purchase (Weekly, no later than one week after the end of each week). - FX cash flows (historical and projections) (Monthly, no later than 6 weeks after the end of month) with specified breakdowns. - Any off-balance sheet position denominated or payable in foreign currency (Weekly). - Balance of payments (Quarterly, no later than 3 months after the end of the relevant quarter). - Bank-by-bank financial data, including balance sheets, income statements, NPLs, broken down by currency (U.S. dollars and Kwanzas) and financial soundness indicators (Annually, no later than 4 weeks after the end of the year; for the 13 banks participating in the AQRs, quarterly, no later than 4 weeks after the end of each quarter). *Source: TMU excerpts and Table 1 reporting requirements as provided in the content unit.* ### INTRODUCTION ### 1agoea2021001 - INTRODUCTION ### Overview and recent shocks - Authorities value IMF support under the Extended Fund Facility (EFF) as essential to restoring macroeconomic stability. - Angola faced a triple shock in 2020: the COVID-19 pandemic, the global oil price collapse, and weak global demand, exacerbating an already difficult adjustment process. - The updated National Development Plan 2018-2022 underpins the recovery, with focus on human capital development, public sector reform, and economic diversification. ### Economic developments and outlook - 2020 was the most severe year of recession in the last five years, with a sharp decline in business activity in H1:2020. - GDP growth for 2021 is projected to recover to 0.4 percent. - Non-oil GDP is expected to grow by about 2.5 percent in 2021. - Near-term outlook for the oil sector remains subject to significant downside risks due to the pandemic’s effect on oil exploration and operations, which could constrain production in 2021 and negatively affect oil GDP, exports, and fiscal revenues with possible spillovers to the non-oil economy. - External position weakened substantially in 2020 reflecting the global oil price shock and production constraints; mitigation factors included import contraction from real exchange rate depreciation and lower domestic demand. - Lower interest payments from bilateral debt reprofiling and relief under the G20 Debt Service Suspension Initiative (DSSI) helped limit balance of payments impact. - Gross international reserves remained at a reasonable 9.9 months of prospective imports of goods and services at end-December 2020. ### Program performance - Overall program performance has been broadly adequate. - Performance criteria (PCs) and indicative targets (ITs) at end-June and end-September 2020 were all met except: - The end-September ITs for central bank claims on the Central Government and the stock of central government debt and debt of Sonangol. - Breach reason: acquisitions of government securities on the secondary market as part of a debt settlement and to stabilize markets in the wake of COVID-19, despite direct financing of the Central Government remaining within the PC target. - Corrective action taken and a technical adjustment of the target is requested as part of this review. - Non-oil primary fiscal deficit (NOPFD): - End-June target met with a margin. - Preliminary indications suggest end-year target was also met. - Proposal included to modify end-June 2021 NOPFD target to reflect the lower deficit projected for the full year and to increase the end-March IT to accommodate seasonality in non-oil tax revenues. - End-December 2020 PCs and ITs: preliminary indications that all will be met except the PC on central bank claims on the Central Government (reasons noted above). - Establishment of an escrow account in July 2020 resolved past problems with the PC on non-accumulation of external debt payments arrears; missed at end-June 2020 but met at end-September and expected to be met at end-December 2020. - Structural benchmarks (SBs): progress made though some SBs were reset for end-March 2021 due to pandemic-related constraints. - Submission to the National Assembly of the Financial Institutions Law (FIL) in August 2020 and of the BNA Law in December 2020 (ahead of end-January SB target). - Banking sector restructuring/recapitalization and finalization of a strategy for the role of the state in the banking sector awaiting the restructuring plan for the Banco Económico. - PFM and privatization progress: - Fiscal Responsibility Law (FRL) approved by the National Assembly in August 2020. - Procurement transparency improved; targeted level of open tenders far exceeded. - Settling domestic payment arrears from 2018: authorities settled 80 percent (approaching the target of 100 percent). - SOE privatization: by end-December 2020, 34 SOEs privatized through public tenders (update of the 30 cited in the staff report); 17 more expected by end Q1:2021. - Privatization receipts to be used primarily for infrastructure financing, strengthening viable SOEs to be privatized, and repayments of central government debt. ### Macroeconomic policies Fiscal policy - Authorities continued difficult fiscal consolidation measures in 2020 despite the recession. - Stronger-than-expected non-oil tax revenue and deep expenditure cuts helped meet the end-year NOPFD target. - Non-oil tax receipts outperformed expectations in H1:2020 reflecting strong performance on personal income tax, VAT, corporate income tax paid by large corporations, and the settlement of tax arrears. - A prudent, conservative 2021 budget was approved by the National Assembly on December 14, 2020, reflecting revenue measures implemented in 2020. - Measures include elimination of a number of VAT exemptions and raising selected CIT rates. - In April 2021, VAT relief measures related to COVID-19 will be phased out. - Additional inspection measures planned to improve tax compliance. - Anticipated additional revenues from these measures are sufficient to offset the likely decline in oil revenues and are consistent with the NOPFD needed to maintain the debt sustainability trajectory. - Authorities will continue to restrain non-priority spending and enhance the quality of spending. - Projected overall budget outcome: ceteris paribus, the overall budget should reach a surplus of 0.3 percent of GDP in 2021. - A pilot medium-term fiscal framework (MTFF) and related fiscal strategy were compiled in 2020 to meet new requirements under the FRL; the pilot MTFF anchored the 2021 budget. Debt and debt management - Public debt ratio expected to exceed 130 percent of GDP at end-December 2020, mostly because of exchange rate depreciation’s impact on the local currency value of foreign debt and the sharp contraction of GDP since 2015. - Debt to GDP evolution noted: - About 60% of GDP in 2015 at the time of the first oil price shock. - 90% of GDP at the start of the EFF in 2018. - Over 130% in 2020. - Public debt in dollar terms has remained roughly stable over the past year. - Sustained depreciation of the kwanza with a decline in the REER index from 146 in 2017 to 71 in 2020 has added to external debt service burden. - Upside and downside risks to debt dynamics from key variables including oil prices and the exchange rate, which are currently at more favorable levels than projected in the debt sustainability analysis. - Authorities’ debt management actions: - Reprofiled debt service with two large creditors, resulting in significant cash-flow savings in coming years. - Obtained debt relief under the DSSI for 2020 and will request an extension for the first half of 2021. - Renegotiated large external arrears pre-dating the program and de-collateralized them from oil, freeing up receipts to bolster foreign reserves. - Continued imposition of ceilings on debt guarantees by the State. - Aim to better align government securities yields with market rates to support domestic debt rollover rates and maturity extension. - Enhancing debt management strategy and readiness to act to mitigate shocks to debt dynamics. Monetary, exchange rate, and financial sector policies - BNA temporarily eased monetary policy in the wake of COVID-19 to ensure adequate liquidity; with gradual recovery in the non-oil economy, BNA has resumed tightening using open-market operations and increased reserve requirement ratios to contain excess liquidity. - Given ongoing inflationary pressures linked in part to exchange rate depreciation, BNA will maintain this stance in 2021. - BNA agrees that increasing its policy rate in real terms should be part of its arsenal to bring inflation down to single digits by 2023. - Measures to develop the domestic FX interbank market: - Adoption of the Bloomberg FX trading platform. - Measures to enhance full price discovery in the FX market. - Continued progress in market development intended to limit the spread between official and parallel exchange rates. - Authorities plan to eliminate exchange rate restrictions in line with program undertakings. - Financial sector stability focus: - Recapitalization and restructuring of the Banco de Poupança e Crédito (BPC) is being implemented. - Restructuring of the Banco Económico (BE) to be finalized once the new Financial Institutions Law (FIL) is enacted. - Commitment to address governance and operational challenges at Recredit and to advance resolution of the nonperforming loans it purchased. - BNA intends to issue complementary guidelines after adoption of the FIL. ### Structural reforms and governance - Continued progress on structural benchmarks and broader reform agenda. - Improvements in public financial management highlighted by enactment of the FRL and ongoing MTFF work to anchor fiscal policy to prudent rules. - Commitment to increase utilization of public tenders and publication of annual purchase plans by budget units on the Public Purchases Portal. - Governance and anti-corruption efforts: - The National Asset Recovery Service, created by the Attorney General's Office, continues to recover assets illegally financed through public funds, including freezing bank accounts linked to related individuals. ### Conclusion and authorities’ commitments - Authorities reiterate commitment to the reform agenda aimed at restoring macroeconomic stability, recouping sustainable growth, and securing inclusive outcomes. - They will continue implementing appropriate fiscal, monetary, and structural policies and appreciate ongoing Fund engagement and policy advice. - Authorities seek Executive Directors’ support towards completion of the fourth review under the EFF arrangement. *Source: INTRODUCTION (1agoea2021001) — IMF staff report excerpt* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1agoea2021001.pdf_