## 1agoea2021002 ## Source details **Canonical URL:** [1agoea2021002](https://www.imf.org/-/media/files/publications/cr/2021/english/1agoea2021002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1agoea2021002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1agoea2021002.pdf.json) --- ### Executive Summary — context and near-term outlook - Near-term macroeconomic prospects improving amid higher oil prices and a gradual global recovery; medium-term outlook remains challenging and highly uncertain. - Oil production: fell by 8 percent in 2020 and remained weak into early 2021. - COVID-19 (April/May 2021 data): - New cases averaged 140 per day and associated deaths averaged 2 per day in April. - Vaccination: Chinese government donations 200,000 doses; COVAX 12.8 million doses; purchases of Sputnik V 6 million doses. - Almost 500,000 people vaccinated as of end-April; as of June 4, 2021: well over 1 million received at least the first dose, 390,000 fully vaccinated. - Non-oil sector: contracted by 4 percent in real terms in 2020; non-oil GDP projected to grow 2.3 percent in 2021. - Inflation: - Headline inflation end-2020: 25.1 percent (y/y). - Food inflation remained above 30 percent (y/y) through April. - Inflation rose from 20.81 percent in 2020 to 24.8 percent in April 2021. - External and exchange rate: - Exports fell by 40 percent (by value) in 2020. - Current account: modest surplus in 2020 due to import contraction and kwanza real depreciation. - Reserve coverage at end-2020: 9.7 months of imports, or 125 percent of the ARA metric. - Banking sector: bank credit contracted in 2020; banking system registered net losses but capital remains high on average; NPL ratio end-2020: 18.4 percent of total loans. ### Growth projections and risks - Staff projections (selected): - Non-oil GDP growth: 2.3 percent in 2021. - Overall real GDP: roughly stagnate in 2021; oil and gas growth projected at -7.0 percent in 2021. - Key downside risks: - Reversal of oil price recovery; pandemic resurgence; longer-lasting pandemic impacts; larger-than-expected weather shocks; weaker fiscal implementation. - Upside risks: - Better-than-expected oil production; sustained higher oil prices; faster non-oil recovery. - Real economy projections (percent change series as presented for selected years): - Real GDP: -4.0 -5.2 0.4 -0.1 2.4 2.4 3.5 3.4 3.7 3.9 - Oil sector: -6.3 -8.0 -6.2 -7.0 0.0 0.0 0.0 0.0 0.0 0.0 - Non-oil sector: -2.9 -4.0 2.5 2.3 3.3 3.4 4.7 4.7 5.0 5.0 - Consumer prices (end of period): 25.0 25.1 18.7 19.5 10.0 11.0 8.0 9.0 7.0 7.0 ### Program performance since the Fourth Review - Implementation: adequate. - All but one end-December 2020 performance criteria (PCs) were met; exception: PC on central bank advances to central government (waiver granted; result stayed within waiver amount). - All continuous PCs were met. - All but one end-December 2020 indicative targets (ITs) were met (exception: stock of central government and Sonangol debt). - All end-March 2021 ITs likely met except accumulation of arrears by the central government. - Structural benchmarks (SBs) up to end-March 2021: of nine SBs: two met; three completed with delay; progress continuing on four. Two unmet SBs proposed to be reset; two new SBs proposed. ### Fiscal policy and debt dynamics (Policy area A) - 2020 fiscal outcomes: - Non-oil primary fiscal deficit (NOPFD): fell to 5.5 percent of GDP in 2020 from 6.1 percent of GDP in 2019. - Overall balance 2020: -1.9 percent of GDP. - Public debt ratio: pushed to over 135 percent of GDP in 2020. - Early 2021: - Strong non-oil revenue performance continued into Q1 2021 producing an overall surplus while allowing higher-than-planned investment spending. - 2021 budget execution (intentions and projections): - NOPFD projected: 4.8 percent of GDP in 2021 (fiscal adjustment of 0.7 percentage points of GDP from 2020). - COVID-19 vaccines spending: 0.3 percent of GDP. - Authorities intend to save the bulk of oil revenue windfall in 2021. - Overall fiscal surplus projected: 2.2 percent of GDP in 2021 versus 2020 deficit of 1.9 percent of GDP. - Gross financing needs (GFNs) expected to fall to around 9 percent of GDP in 2021. - Arrears: - Authorities nearly completed clearing legacy arrears; met end-December 2020 program limit on net accumulation of new domestic arrears; missed end-March 2021 limit due to delayed external financing and acceleration of domestic payment arrears. - Debt outlook (Annex I summary): - Public debt projected to decline from 135 percent of GDP in 2020 to 113 percent of GDP in 2021 and continue falling. - Government debt-to-GDP ratio expected to fall to 56 percent by 2027; public debt-to-GDP expected to decline to 62 percent by 2027. - GFNs projected to fall below 10 percent of GDP by 2026 and average 7 percent of GDP in 2027-31. - Vulnerabilities: high exposure to foreign-currency risk (over four-fifths of debt denominated/indexed to foreign currency), interest rate risk, narrow creditor base; severe combined shocks could raise public debt to 157 percent of GDP in stress scenarios. ### Monetary policy (Policy area B) - Policy stance: - Shift toward gradually reducing inflation after supporting the economy in 2020. - BNA tightened reserve money target under the program; monetary aggregate growth slowed from late 2020. - Increased custody fee on excess reserves to reduce excess bank reserves. - Since January 2021: increased the interest rate on the 7-day permanent liquidity absorption facility by 500 bps and increased the rate on the permanent liquidity facility twice. - Targets and commitments: - BNA on track to meet tighter reserve money target for end-June and target for advances to the central government. - If price pressures persist or increase, BNA committed to tighten money targets further and work toward bringing real interest rates into positive territory. - Staff recommendation: consider increasing the policy rate as a signaling device; move away from the custody fee and rely more on liquidity-absorbing instruments. - Monetary sector key indicators (end of period series as presented): - Broad money (M2) percent change: 15.0 24.3 23.8 15.8 11.0 12.8 12.5 12.1 12.0 9.7 - Credit to the private sector (annual percent change): -6.0 -8.4 18.5 9.4 25.9 24.1 15.1 21.5 15.8 15.0 - Foreign currency deposits (share of total deposits): 54.7 54.7 57.0 55.8 55.2 54.0 53.5 52.4 52.0 50.8 - Net international reserves (end of period, millions of U.S. dollars): 8,085 8,668 8,187 9,128 8,687 10,128 9,030 10,220 10,483 11,033 ### Exchange rate and external buffers (Policy area C) - Exchange rate policy: - More flexible exchange rate facilitated adjustment in 2020. - Since late 2020, the kwanza broadly stabilized in nominal terms with increased FX supply from higher oil prices and limited BNA intervention. - Authorities and staff agree interventions should be limited to preventing excessive volatility; allow market pricing and rely on local currency instruments. - Reserves: - NIR overperformed end-December 2020 PC and end-March 2021 IT. - Program anticipates moderate reserve accumulation in 2021; reserve coverage end-2020: 9.7 months of imports. - External sector indicators (selected, millions of U.S. dollars): - Exports, f.o.b.: 34,726 34,726 20,927 20,937 23,082 27,885 23,609 26,610 24,191 26,011 - Crude oil exports: 31,303 31,396 18,609 18,297 20,555 25,186 20,640 23,700 20,907 22,821 - Imports, f.o.b.: 14,116 14,127 10,621 9,543 10,774 11,197 11,123 11,434 11,367 11,249 - Current account (percent of GDP): 5.7 6.1 -0.7 1.5 0.6 5.2 -0.3 3.1 -0.7 2.7 ### Financial sector stability (Policy area D) - Banking system: - Closed 2020 with net losses largely due to two large troubled public banks; system capital ratio remains above 20 percent. - NPL ratio end-2020: 18.4 percent of total loans. - No pandemic-related moratoria currently in place. - Bank credit contracted in 2020; tentative recovery in late 2020. - Financial Institutions Law (FIL): - FIL published on May 19, 2021; secondary legislation needed for implementation. - Drafting of secondary instruments for prudential framework well advanced; resolution and macroprudential instruments in progress. - Bank restructuring and Recredit: - Restructuring plan for one troubled public bank being finalized; privatization of a smaller public bank (13th largest by assets) expected by September 2021. - Recredit: independent member nominated January (completed with delay); did not meet 2020 recovery targets; plans to ramp up operations and outsource recoveries for less significant borrowers. - Authorities’ commitments: - Monitor credit portfolios closely; accurately record credit losses; strengthen crisis management preparedness and contingency plans. - BNA to monitor banks’ net open FX positions relative to capital. ### Structural and governance reforms (Policy area E) - Tax administration: - AGT reported progress establishing database and improving monitoring and compliance. - Centralized tax collection, consolidated audit functions, and digitalized operations of three most important taxes. - 70 percent of non-oil revenue collected through automatic electronic channels. - Cash transfer program (Kwenda) and fuel subsidies: - Over 300,000 households registered by end-February 2021; aim to make at least one payment by end-2021. - Plan to have 700,000 households enrolled by end-2021 (out of overall target 1.6 million). - Fuel subsidy reforms planned once cash transfer program reaches critical mass. - SOEs and privatization: - SOE reform roadmap adopted; amended SOE law lacked some intended audit elements. - Plan adoption of comprehensive strategic roadmap for SOE reform by end-September (requested modification of end-June SB). - Planned privatization of 100 SOEs in 2021. - Prior privatization of 39 assets expected to generate proceeds about 1.1 percent of GDP, paid over multiple years. - Procurement and transparency: - 54 percent of public contracts awarded through open tenders as of end-December 2020 (exceeding 45 percent target). - Expand electronic tender program; publish Annual Purchase Plans. - Governance and AML/CFT: - Continue efforts to join EITI; Sonangol seeks Trace International membership and alignment with U.S. FCPA and U.K. Bribery Act practices. - Implement AML/CFT law and prepare for assessment in mid-2022. ### Program financing, capacity to repay, and safeguards - Program financing: described as fully financed; bilateral debt reprofiling and DSSI extension provided near-term relief; authorities to request further DSSI extension for second half of 2021. - Capacity to repay the Fund (paragraph 21): - Peak Fund credit outstanding: - 12.6 percent as a share of non-collateralized external debt. - 7.0 percent as a share of GDP. - 39.4 percent as a share of GIR net of collateralized debt service. - Total debt service to the Fund peaks in 2026 at 3.2 percent of exports and 7.1 percent of GIR net of collateralized debt service. - Safeguards: - BNA implemented IFRS9 and adopted an external audit framework policy in February 2021. - Progress on rebalancing foreign reserves portfolio and strengthening internal audit capacity. ### Program conditionality modifications proposed by authorities - Propose modifications to: - End-June NIR PC and an adjuster to incorporate higher NIR levels and an oil-price adjuster under a flexible exchange rate and lower oil production. - Add an adjustor to the NOPFD and social spending targets to accommodate COVID-19 vaccine import costs. - Convert the continuous PC on new external oil-collateralized debt to a six-monthly PC. - Staff supports these modification requests. ### Debt Sustainability Analysis — Annex I (key points) - Public debt perimeter includes Central Government domestic and external debt; external debt of Sonangol and TAAG; public guarantees; reported external liabilities of other state entities, including external arrears. - Budget financing and debt rollover assumptions: - About $700 million from the World Bank and $120 million from a bilateral official development agency in 2021. - Baseline assumes issuance of Eurobonds starting in 2024 with assumed spreads of 700 basis points. - Sonangol baseline assumes cumulative $9.2 billion external borrowing in 2021–25; Sonangol external debt ratio projected decline from 8.3 percent of GDP in 2020 to 7.1 percent by 2025. - Privatization receipts assumed around $200 million in 2021 and 2022. - Debt projections: - Public debt projected to decline from 135 percent of GDP in 2020 to 113 percent of GDP in 2021 and to 62 percent by 2027. - Government debt-to-GDP ratio projected to fall to 56 percent by 2027. - GFNs projected to fall below 10 percent of GDP by 2026 and average 7 percent in 2027-31. - Stress tests and vulnerabilities: - Real exchange rate shock: a 30-percent one-time real depreciation of the Kwanza would raise the debt ratio in 2022 to 125 percent of GDP. - Combined shock (growth, inflation, primary balance, exchange rate, and 200-basis-point interest rate increase): debt ratio would rise to 157 percent of GDP and GFNs above high-risk benchmark; under such shock, Angola likely unable to service its debt. - Oil-price shock: two-year drop averaging 30 percent in Angolan oil basket for 2021–22 would raise GFNs to 14 percent of GDP in 2023 and 2025. - Bottom line: public debt remains sustainable under baseline assuming continued fiscal discipline and reforms, but risks remain very high and further debt relief may be needed if downside risks materialize. ### Banking sector resilience, restructuring, and oversight (selected operational commitments) - Banking system 2020 performance: - System recorded net losses; system capital ratio remains above 20 percent. - NPL ratio at end-2020: 18.4 percent. - FIL and regulatory actions: - FIL published May 19, 2021; BNA to introduce secondary legislation and roll out resolution and macroprudential instruments. - Bank restructuring and privatization timeline: - Finalize strategy on the role of the State in the banking sector by end-July (reset SB). - Complete bank restructuring and recapitalization by end-September (reset SB). - Privatization of a smaller public bank expected by September 2021. - Recredit actions: - Increase operational capacity; outsource recoveries for less significant borrowers; publish semi-annual performance reports (first published April 2021). ### TMU, PCs, ITs, reporting, and monitoring (selected operational definitions and targets) - Arrangement accounting exchange rate: AOA 295 per US$1. - Major quantitative PCs and definitions (selected): - NIRs of the BNA — Floor (definition and adjustors tied to Brent crude price and debt-service/disbursement deviations). - BNA claims on Central Government — Cumulative ceiling. - Average Adjusted Reserve Money — Ceiling (for 2021Q1: Kz 1,992 billion). - Non-Oil Primary Fiscal Deficit (NOPFD) — Cumulative ceiling (defined in cash terms, includes arrears clearance). - Non-accumulation of external debt payment arrears — Continuous ceiling. - New external oil-collateralized debt by Central Government/BNA/Sonangol — Ceiling (gross basis). - Selected numerical targets (Table 1a excerpts as presented): - Net international reserves (BNA), floor (millions of U.S. dollars): 8,247; 7,714; 9,334; 8,085; 7,316; 8,742; Met; 8,001; 7,933; 8,390; 7,916; 8,841 - Reserve money, ceiling (billions of kwanzas): 2,062; 2,113; 1,914; 2,086; 2,114; 1,941; Met; 2,130; 2,130; 1,992; 2,099; 2,099 - Non-oil primary fiscal deficit (billions of kwanzas cumulative ceiling): 1,568; 1,568; 749; 2,384; 2,394; 1,095; Met; 625; 625; -116; 1,010; 1,010 - Stock of Central Government debt and debt of Sonangol, ceiling (billions of kwanzas): 42,994; 42,994; 43,049; 42,994; 42,994; 44,815; Not Met; 55,951; 55,951; ...; 55,951; 55,951 - Social spending, cumulative floor (billions of kwanzas): 1,031; 1,031; 1,262; 1,440; 1,440; 1,859; Met; 446; 446; ...; 892; 892 - Reporting requirements (selected frequencies and deadlines): - BNA: NIRs — Daily — No later than one week after the end of each day. - MINFIN: Non-oil revenue by category — Monthly — No later than 2 weeks after the end of each month. - MINFIN: Production and exports of oil and natural gas — Monthly — No later than 2 weeks after the end of each month. - Bank-by-bank financial data for 13 banks in AQRs — Quarterly — no later than 4 weeks after the end of each quarter. ### Staff appraisal — policy advice and priorities (selected) - Fiscal: - Program on track; maintain commitment to debt-reducing fiscal path and save bulk of oil revenue windfall in 2021. - Build fiscal and external buffers; improve debt profile and dynamics. - Monetary: - Continue tightening to address high inflation; BNA should achieve positive real interest rates and consider policy-rate signaling. - Strengthen monetary policy framework and adopt revised BNA Law to reinforce independence and governance. - Exchange rate and reserves: - Allow exchange rate to act as shock absorber; limit interventions to prevent excessive volatility. - Rebuild international reserves while oil prices offer a window. - Financial sector: - Complete FIL secondary legislation and remaining reforms; finalize restructuring plan for one troubled public bank; ensure prudent provisioning and supervision. - Structural reforms: - Advance tax administration, PFM reform, procurement transparency, SOE reform, and privatization to support competitiveness and diversification. - Overall: - Authorities’ commitment to program remains strong; continued disinflation, fiscal progress, and structural and financial sector reforms are critical to support recovery. _Italic: Source — Executive Summary, selected chapters, Annex I, TMU, and Letter of Intent from IMF staff report for Angola (content as provided in the supplied PDF excerpt)._ ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and near-term outlook - Near-term macroeconomic prospects are improving amid higher oil prices and a gradual global recovery, but the medium-term outlook remains challenging and highly uncertain. - Oil production remains muted; debt and inflation remain elevated; non-oil activity is expected to recover only gradually. - Continued strong fiscal performance (aided by higher oil revenues), exchange rate stabilization, and return to positive non-oil growth would help reduce the debt-to-GDP ratio this year and ease debt vulnerabilities. - COVID-19: new cases averaged 140 per day and associated deaths averaged 2 per day in April; containment measures tightened. Vaccination campaign: Chinese government donations (200,000 doses), COVAX (12.8 million doses), purchases of Sputnik V (6 million doses). Almost 500,000 people vaccinated as of end-April. - Oil sector: oil prices partially recovered starting in late 2020, but oil production fell by 8 percent in 2020 and remained weak into early 2021. - Non-oil sector: non-oil GDP contracted by 4 percent in real terms in 2020; non-oil activity started to recover in Q3 2020 but is expected to recover only gradually. Adverse weather (drought, heavy rainfall) in early 2021 poses additional headwinds. - Inflation: headline inflation ended 2020 at 25.1 percent (y/y) and eased only marginally through April; food inflation remained above 30 percent (y/y) through April. - External and exchange rate: exports fell by 40 percent (by value) in 2020; the 2020 current account ended in a modest surplus due to a strong import contraction and the kwanza’s real depreciation. The nominal exchange rate broadly stabilized since November 2020. - Banking sector: bank credit to the real economy contracted in 2020; the banking system registered net losses but capital remains high on average. Bank credit showed some recovery in late 2020. ### Growth projections and risks - Staff project non-oil GDP growth of 2.3 percent in 2021, reflecting a slow rebound as pandemic effects linger and adverse weather shocks disrupt activity. - Overall real GDP is projected to roughly stagnate in 2021 as oil and gas production are projected to continue to drop due to subdued investment and recurring technical issues. - Key downside risks: reversal of oil price recovery; resurgence of the pandemic; longer-lasting pandemic impact on non-oil economy; larger-than-expected weather shocks; weaker fiscal implementation. These could lead to deeper-than-expected contraction in 2021 and challenge debt dynamics. - Upside risks: better-than-expected oil production, sustained higher oil prices, faster non-oil recovery. ### Program performance since the Fourth Review - Implementation has been adequate. All but one end-December 2020 performance criteria (PCs) were met; the exception was the PC on central bank advances to the central government (a waiver was granted; result stayed within waiver amount). - All continuous PCs were met. - All but one end-December 2020 indicative targets (ITs) were met (exception: stock of central government and Sonangol debt). All end-March 2021 ITs were likely met except the one on accumulation of arrears by the central government. - Of nine structural benchmarks (SBs) up to end-March 2021: two met; three completed with delay; progress continuing on four. Two unmet SBs proposed to be reset with new target dates and two new SBs proposed. ### Fiscal policy and debt dynamics (Policy area A) - 2020 fiscal consolidation: non-oil primary fiscal deficit (NOPFD) fell to 5.5 percent of GDP in 2020 from 6.1 percent of GDP in 2019, meeting the program PC with a substantial margin. Overall balance was -1.9 percent of GDP in 2020. Public debt ratio pushed to over 135 percent of GDP following the deficit and exchange rate depreciation. - Early 2021: strong non-oil revenue performance continued into Q1 2021, producing an overall surplus while allowing higher-than-planned investment spending. - 2021 budget execution: non-oil revenues projected to remain broadly stable relative to non-oil GDP. Primary expenditure relative to output expected to decline as public investment is reduced to 2019 level, offsetting additional spending on Covid-19 vaccines (0.3 percent of GDP) and hiring in education and health care. Resulting fiscal adjustment of 0.7 percentage points of GDP will yield an NOPFD of 4.8 percent of GDP. - Oil revenue treatment: bulk of revenue windfall from higher oil prices will be saved. Combined with lower interest bill (partly due to 2021 G20 DSSI extension) and lower NOPFD, this will produce an overall fiscal surplus of 2.2 percent of GDP in 2021 versus the 2020 deficit of 1.9 percent of GDP. - Gross financing needs (GFNs) expected to fall substantially to around 9 percent of GDP in 2021. - Arrears: authorities nearly completed clearing legacy arrears and met end-December 2020 program limit on net accumulation of new domestic arrears; missed end-March 2021 limit due to delayed external financing disbursements and acceleration of domestic payment arrears in late 2020. Authorities committed to improve management of budgetary accounts payable, arrears, and spending oversight. - Debt outlook: public debt-to-GDP ratio peaked at around 135 percent of GDP in 2020 and is projected to begin falling rapidly in 2021 under current fiscal stance. Angola aims for long-term government debt objective of 60 percent of GDP by 2027 and to lower GFNs below 8 percent of GDP in the long run. Debt dynamics remain highly vulnerable to oil price drops, oil production declines, slow non-oil growth, exchange rate depreciation, and weakening fiscal policy. Long-run prospects of Angola’s oil industry are particularly uncertain. ### Monetary policy (Policy area B) - Monetary policy is shifting toward gradually reducing inflation after supporting the economy through 2020 shock. - The Banco Nacional de Angola (BNA) has tightened its reserve money target under the program (monetary aggregate growth slowed from late 2020), adjusted instruments to tighten monetary conditions, and increased the custody fee on excess reserves to reduce excess bank reserves. - BNA is on track to meet its tighter reserve money target for end-June and its target for advances to the central government. - Expected impact: tightening plus lagged pass-through from a stable nominal exchange rate expected to bring inflation down gradually in 2021 given persistent economic slack. - Contingency: if price pressures persist or increase, BNA committed to tighten money targets further and to work toward bringing real interest rates into positive territory. - Staff recommendations: consider increasing the policy rate as a signaling device to complement monetary aggregate measures; move away from the custody fee (which reduces overnight rates) and rely more on liquidity-absorbing instruments. ### Exchange rate and external buffers (Policy area C) - A more flexible exchange rate has facilitated adjustment to shocks in 2020. With increased FX supply from improved oil prices and limited BNA intervention, the kwanza has been broadly stable in nominal terms since late 2020. - Authorities and staff agree interventions should be limited to preventing excessive volatility; otherwise allow the kwanza to find its market price and rely predominantly on local currency instruments for monetary operations. - Net international reserves (NIR) held up well in 2020 despite shocks. NIR overperformed the end-December 2020 PC and end-March 2021 IT. - Program anticipates moderate reserve accumulation in 2021 to rebuild precautionary buffers under a flexible exchange rate and altered reserve elasticity to oil prices. - Reserve coverage at end-2020: 9.7 months of imports, or 125 percent of the ARA metric — characterized as adequate. ### Financial sector stability (Policy area D) - Banks remain risk-averse amid difficult macroeconomic conditions; bank credit contracted in 2020 and the banking system recorded net losses though capital remains high on average. - Bank credit showed tentative recovery in the last quarter of 2020. - Authorities are implementing reforms to address financial sector challenges (details in full report). ### Structural and governance reforms (Policy area E) - Continued emphasis on growth-enhancing structural reforms and governance reforms to support recovery and improve debt dynamics. - BNA Law: authorities revised the draft BNA Law in line with IMF staff recommendations and submitted it to the National Assembly in December 2020 (structural benchmark). National Assembly began consideration of a constitutional amendment to strengthen central bank independence; following that consideration (anticipated in the third quarter), the National Assembly is expected to approve revisions to the BNA Law in line with IMF staff recommendations by end-November (proposed new SB). ### Program risks and policy priorities - Key program risks: high public debt, volatile global oil prices, course of the pandemic, weather shocks, and potential delays in reform implementation. - Authorities’ priorities to mitigate risks: - Prioritize vaccination campaign. - Maintain a prudent policy course: proceed with planned debt-reducing fiscal path, tighten monetary policy as needed, implement financial sector reforms. - Deepen growth-enhancing structural reforms and improve fiscal and spending oversight, including arrears management. *Source: Executive Summary of IMF staff report for Angola (May 26, 2021).* ### 13. The banking system has been resilient so far, but continued monitoring is critical to ### 13. The banking system has been resilient so far, but continued monitoring is critical to ### Banking system resilience and near-term risks - The banking sector closed 2020 with net losses, largely due to two large troubled public banks; as result, banks’ capital fell, although the system capital ratio remains above 20 percent. - The system’s non-performing loan (NPL) ratio at end-2020 was 18.4 percent of total loans. - There are currently no moratoria measures in place related to the pandemic. - Authorities should ensure banks: - Closely monitor their credit portfolios. - Accurately record credit losses. - The BNA should continue to monitor banks’ net open FX positions relative to their capital. - Authorities should strengthen crisis management preparedness, including preparing contingency plans to mitigate the impact of potential shocks (MEFP ¶15). ### Financial Institutions Law (FIL) and regulatory framework - The FIL was officially published on May 19, establishing comprehensive legislation for banks that includes a prudential, resolution, and macroprudential framework. - The BNA needs to introduce secondary legislation to implement the FIL. - Drafting of secondary instruments for the prudential framework is well advanced. - Authorities should roll out secondary instruments for the resolution framework, prioritizing elements key for immediate resolution implementation (MEFP ¶12). - Similar progress is expected on the macroprudential framework in the coming months. - The BNA has requested technical assistance to reform its internal organization to align supervisory, resolution, and macroprudential authorities with international best practices. ### Bank restructuring, privatization, and Recredit operations - Authorities are finalizing the restructuring plan for one of the two large troubled public banks; completing this step will address two missed SBs: finalizing a strategy on the role of the state in the banking sector and completing bank restructuring and recapitalization, reset to end-July and to end-September, respectively. - Authorities commit to a transparent and operationally feasible restructuring process to remediate the existing capital shortfall and ensure viability (MEFP ¶13). - Implementation of the restructuring plan for the largest troubled public bank continues to advance. - Privatization process of a smaller public bank (the 13th largest bank by total assets) is advancing and is expected to be completed by September 2021. - Recredit (the asset management company that received NPLs from the largest troubled public bank): - Nominated the independent member of its Strategy and Nomination Committee in January, completing with a delay the action in the corresponding SB. - Did not meet recovery targets in 2020, in part due to the pandemic. - Plans to ramp up operations, focus on resolving NPLs and maximizing recovery value. - Will outsource recoveries for less significant borrowers to external companies (MEFP ¶14). ### Moving forward on structural and governance reforms - Tax administration: - The General Tax Administration (AGT) reported significant progress establishing a functioning database and improving monitoring and compliance (MEFP ¶16). - Centralized tax collection management, consolidated audit functions, and completed digitalization of operations of the three most important taxes. - 70 percent of non-oil revenue is collected through automatic electronic channels. - Cash transfer program and fuel subsidies: - By end-February 2021, well over 300,000 households were registered in the Kwenda program. - Authorities aim to make at least one payment to them by the end of 2021. - Plan to have 700,000 households enrolled by the end of 2021 (out of an overall program target of 1.6 million). - Authorities plan to pursue fuel subsidy reforms once the cash transfer program reaches a critical mass of households. - State-owned enterprises (SOEs): - SOE reform reinvigorated with adoption of a strategic roadmap. - Authorities amended the SOE law last year; revised law favored corporatization and did not fully meet previously intended reforms, so the end-December 2020 SB on enhancing internal and external audit functions was not met. - Authorities plan adoption of a comprehensive strategic roadmap for SOE reform by end-September (MEFP ¶16); they requested modification of the end-June 2021 SB accordingly. - Privatization: - Authorities intend to accelerate privatization with planned privatization of 100 SOEs in 2021. - Last year’s privatization of 39 assets is expected to generate proceeds worth about 1.1 percent of GDP, to be paid over multiple years under the contracts. - Public financial management (PFM): - As required by the recently enacted Fiscal Responsibility Law, authorities are crafting a medium-term fiscal strategy reflecting a prudent fiscal stance ahead of the 2022 budget. - Staff stressed advancing public investment management reform in line with PIMA recommendations. ### Governance, transparency, and AML/CFT - Combating corruption (MEFP ¶17): - Authorities are continuing efforts to become a member of the Extractive Industries Transparency Initiative (EITI). - Sonangol seeks to join Trace International and aims to adopt practices in line with the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act. - Authorities are coordinating with the UN on a comprehensive anti-corruption strategy, which could include support to open a UN agency in Angola (UNODC). - Transparency of public finances: - 54 percent of public contracts had been awarded through open tenders as of end-December 2020, exceeding the annual target of 45 percent (SB). - Authorities are expanding use of electronic tender program and publishing Annual Purchase Plans to improve procurement efficiency and transparency (MEFP ¶17). - Authorities committed to transparently disclosing pandemic-related spending in the quarterly budget execution report and in the annual audit of the General State Account by the Court of Accounts by October 2021 (MEFP ¶17). - AML/CFT: - Authorities are implementing the recently enacted AML/CFT law, bolstering correspondent banking relationships, supporting corruption and money laundering investigations, and preparing for Angola’s AML/CFT assessment planned for mid-2022. ### Trade policy and diversification - Authorities plan additional non-tariff administrative import restrictions on certain pre-packaged products in June 2021 to promote the packaging industry. - In 2022, authorities plan to introduce quantitative import restrictions on 16 goods, mainly agricultural products. - Staff concerns and recommendations: - Staff expressed concerns about distortions and supply disruptions from import restrictions and encouraged phasing out existing administrative import restrictions and refraining from any new import restrictions this year. - Staff urged developing a diversification strategy that does not rely on distortionary import restrictions. - For any import measures taken, staff stressed ensuring WTO-consistency (which authorities intend to do) and establishing a timetable for elimination. - Staff highlighted careful monitoring of impacts of any measures, including on inflation. ### Program financing, capacity to repay, and safeguards - Program financing: - The program is fully financed. Full BOP and fiscal financing are expected until the end of the program (Tables 7 and 8). - Bilateral debt reprofiling agreements reached in 2020 and extension of the DSSI until mid-2021 provided significant near-term relief. - Authorities will request an extension of the DSSI for the second half of 2021. - Financial burden sharing will continue, including World Bank budget support approved for disbursement this year. - Capacity to repay the Fund (paragraph 21): - Peak Fund credit outstanding is: - 12.6 percent as a share of non-collateralized external debt. - 7.0 percent as a share of GDP. - 39.4 percent as a share of GIR net of collateralized debt service. - Total debt service to the Fund will peak in 2026 at 3.2 percent of exports and 7.1 percent of GIR net of collateralized debt service. - Safeguards: - Authorities continue implementing recommendations of the 2019 safeguards assessment. - BNA has implemented IFRS9 and formally adopted an external audit framework policy in February 2021. - Progress continues on rebalancing foreign reserves portfolio toward international best practices and strengthening internal audit capacity. ### Program conditionality modifications proposed by authorities - Propose modifications to the end-June NIR PC and an adjuster for this target to incorporate current higher NIR levels and an adjuster relative to oil prices that accounts for a flexible exchange rate regime and lower oil production. - Propose adding an adjustor to the non-oil primary fiscal deficit and social spending targets to accommodate COVID-19 vaccine import costs when needed. - Propose converting the continuous PC on new external oil-collateralized debt to a six-monthly PC. ### Exchange restrictions and tax measures - The authorities have eliminated the exchange restriction subject to Article VIII, Section 2(a). - The special tax of 10 percent on transfers to non-residents under foreign TA or management service contracts giving rise to an exchange restriction subject to Fund jurisdiction has been eliminated. ### Staff appraisal: outlook, policy assessment, and priorities - Outlook and risks: - Angola is beginning a gradual recovery from the COVID shock; higher oil prices and a more stable kwanza have strengthened exports, increased oil revenues, reduced current account stresses, and lowered pressure on debt dynamics. - Recovery in activity will likely be measured, and downside risks remain significant, including reversal in oil prices or global recovery and domestic risks from pandemic resurgence or weaker-than-expected output (oil or non-oil). - Fiscal policy: - Program remains on track with continuing strong fiscal performance preserving debt sustainability. - Fiscal stance tightened in 2020 despite recession; 2021 budget envisages further adjustment. - Decision to save the bulk of the oil revenue windfall in 2021 is highlighted as fiscal discipline. - Authorities should remain committed to the fiscal path to ensure public debt sustainability while promoting non-oil growth and essential social spending. - Continue building fiscal and external buffers and improve debt profile and dynamics. - Monetary policy: - Monetary policy needs to continue tightening to address high inflation; steps taken so far are welcome. - BNA could enhance tightening with stronger signaling by tightening the policy rate. - BNA needs to achieve positive real interest rates and be ready to take more aggressive tightening if needed. - Reining in inflation is critical for households and attention is warranted to potential import-measure impacts on the cost of living. - Strengthening the monetary policy framework and enacting a revised BNA Law with independence and governance in line with international best practices is especially welcome. - Exchange rate and reserves: - Progress on exchange rate liberalization and rebuilding reserves enhances flexibility and resilience. - BNA should allow the exchange rate to act as a shock absorber and limit interventions to minimizing excessive volatility. - Higher oil prices offer a window to accumulate international reserves for precautionary purposes, consistent with revised NIR target for June 2021. - Financial sector reforms: - Authorities need to complete remaining reforms to safeguard financial sector stability. - Promulgation of the FIL is significant; authorities should swiftly implement necessary secondary legislation. - Finalize pending restructuring plan for one of the two large troubled public banks to address capital shortfall. - Continue close supervision to ensure prudent provisioning by banks. - Structural reforms: - Progress on tax administration, PFM reform, and procurement transparency is critical. - Pursuit of fuel subsidy reforms once cash transfer enrollment reaches critical mass. - Adoption and implementation of a strategic roadmap for SOE reform and success of privatization plans are key to competitiveness and diversification. - Overall assessment: - While risks remain elevated, authorities’ commitment to the program remains strong, evidenced by implementation of the 2020 budget and thus far the 2021 budget. - Continued efforts toward disinflation, fiscal progress, and structural and financial sector reforms are important to support recovery. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### 32. Staff supports the authorities’ request for the completion of the Fifth Review and ### 32. Staff supports the authorities’ request for the completion of the Fifth Review and ### Program modifications and staff support - Staff supports the authorities’ request to modify the end-June NIR PC and NIR target adjustor. - Staff supports adding COVID-related adjustors to the non-oil primary fiscal deficit and social spending targets. - Staff supports converting the continuous PC on external oil-collateralized debt to a six-monthly PC. - The program is described as continuing to provide a solid anchor for the authorities’ reform agenda and a catalyst for official financing. ### Real economy — key projections (percent change, unless otherwise indicated) - Real gross domestic product: -4.0 -5.2 0.4 -0.1 2.4 2.4 3.5 3.4 3.7 3.9 - Oil sector: -6.3 -8.0 -6.2 -7.0 0.0 0.0 0.0 0.0 0.0 0.0 - Non-oil sector: -2.9 -4.0 2.5 2.3 3.3 3.4 4.7 4.7 5.0 5.0 - Nominal GDP (percent change): 10.5 9.7 29.7 32.1 15.1 14.5 11.7 11.3 10.3 9.9 - Consumer prices (annual average): 22.3 22.3 22.2 22.5 13.1 14.3 8.9 9.9 7.9 7.0 - Consumer prices (end of period): 25.0 25.1 18.7 19.5 10.0 11.0 8.0 9.0 7.0 7.0 ### Fiscal developments — central government (percent of GDP and levels) - Total revenue (percent of GDP): 18.2 20.8 20.3 22.6 20.4 22.1 20.0 21.3 20.7 20.2 - Of which: Oil-related: 9.2 10.7 11.7 13.2 11.3 12.2 10.6 11.1 10.2 9.4 - Of which: Non-oil tax: 7.5 8.8 7.3 8.2 7.8 8.7 8.0 9.0 9.2 9.4 - Total expenditure (percent of GDP): 19.9 22.7 20.0 20.4 19.0 20.1 18.5 19.2 18.5 17.9 - Current expenditure: 15.5 17.5 16.8 16.9 15.7 16.6 15.2 15.8 15.2 14.6 - Capital spending: 4.4 5.2 3.2 3.5 3.3 3.5 3.3 3.4 3.3 3.3 - Overall fiscal balance (percent of GDP): -1.7 -1.9 0.3 2.2 1.4 2.0 1.4 2.1 2.2 2.3 - Non-oil primary fiscal balance (percent of GDP): -4.3 -5.5 -4.4 -4.8 -3.8 -4.4 -3.7 -3.7 -3.1 -2.8 - Social expenditures (billions of kwanzas): 1,726 1,726 1,726 1,726 2,721 2,721 2,428 2,304 3,015 2,848 ### Monetary sector — key indicators (end of period) - Broad money (M2) (percent change): 15.0 24.3 23.8 15.8 11.0 12.8 12.5 12.1 12.0 9.7 - Credit to the private sector (annual percent change): -6.0 -8.4 18.5 9.4 25.9 24.1 15.1 21.5 15.8 15.0 - Foreign currency deposits (share of total deposits): 54.7 54.7 57.0 55.8 55.2 54.0 53.5 52.4 52.0 50.8 - Net international reserves (end of period, millions of U.S. dollars): 8,085 8,668 8,187 9,128 8,687 10,128 9,030 10,220 10,483 11,033 - Gross international reserves (end of period, millions of U.S. dollars): 14,102 14,779 15,218 14,776 15,218 14,776 15,468 14,776 14,776 14,776 - Gross international reserves (months of next year's imports): 9.9 9.7 10.0 9.7 10.0 9.5 9.6 9.3 8.7 8.6 ### External sector and balance of payments (millions of U.S. dollars; key items) - Trade balance: 20,610 20,599 10,306 11,394 12,308 16,688 12,485 15,175 12,824 14,762 - Exports, f.o.b.: 34,726 34,726 20,927 20,937 23,082 27,885 23,609 26,610 24,191 26,011 - Crude oil exports: 31,303 31,396 18,609 18,297 20,555 25,186 20,640 23,700 20,907 22,821 - Imports, f.o.b.: 14,116 14,127 10,621 9,543 10,774 11,197 11,123 11,434 11,367 11,249 - Current account (percent of GDP): 5.7 6.1 -0.7 1.5 0.6 5.2 -0.3 3.1 -0.7 2.7 - Financial account (net, millions of U.S. dollars): 5,080 3,219 4,352 2,819 3,116 5,865 -135 1,901 -611 1,833 ### Public debt, financing needs, and exceptional financing - Public sector debt (gross, percent of GDP): 134.2 135.1 119.9 113.3 106.7 102.7 97.2 95.9 85.8 76.7 - Of which: Central Government debt (percent of GDP): 126.4 125.2 112.8 103.9 100.8 92.8 91.2 85.8 76.9 68.8 - Fiscal financing needs (billions of U.S. dollars) 2021–2025: - Financing Needs (A): 7.7 6.8 6.9 8.0 10.2 - Financing Sources (B): 4.9 6.8 6.9 8.0 10.2 - Financing Gap (A-B): 2.9 0.0 0.0 0.0 0.0 - Program financing covered the Financing Gap in 2021: Program financing 2.9 0.0 0.0 0.0 0.0 - External financing requirements and sources (millions of U.S. dollars): Gross financing requirements and gross sources of financing are reported year-by-year; collateralized external debt stock and external borrowing schedules are presented in detail in the tables. - Debt reprofiling is recorded as exceptional financing in the central government operations table, with specific foreign amortization and reprofiling flows indicated. ### Selected program and IMF credit indicators - Disbursements under existing/prospective Fund arrangements (millions of U.S. dollars): 358.0 731.7 1,408.7 ... - Stock of existing and prospective Fund credit (millions of U.S. dollars): 1,073.0 1,804.7 3,213.4 3,213.4 3,079.3 2,900.5 2,526.9 1,991.3 1,455.8 920.2 518.7 162.0 - Key milestones listed for the Extended Arrangement include Board approval on December 7, 2018, and subsequent review completions, including completion of the fifth review on April 30, 2021. _Italic: Source — Angola: Selected chapter and statistical tables (IMF staff estimates and projections as presented in the supplied content)._ ### Annex I. Debt Sustainability Analysis Update ### Annex I. Debt Sustainability Analysis Update ### A. Public Debt Sustainability Analysis - Public debt perimeter covers: 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. - Macro-fiscal framework and assumptions: - Near-zero real economic growth in 2021, transitioning into sustained positive growth in the medium term. - Maintain a tight overall fiscal stance in 2021 based on saving most of the windfall from higher oil prices. - Continued implementation of reform policies described in the Staff Report for the Fifth Review. - Budget financing and debt rollover assumptions: - About $700 million from the World Bank and $120 million from a bilateral official development agency in 2021. - Authorities committed to progressively aligning government securities yields with market rates to support domestic debt rollover rates and maturity extension. - Angola benefits from reprofiling of all principal and interest coming due between May 2020 and December 2021 from official creditors under G20DSSI; amounts reprofiled get a one-year grace period followed by three years of repayment for the 2020 suspension and five years of repayment for the 2021 suspension. - Agreement to defer selected principal payments to two large creditors to well beyond the end of the program; rescheduling increased the amount of debt outstanding partially covered by oil collateral by about $2.5 billion. - Baseline assumes issuance of Eurobonds starting in 2024, with assumed spreads of 700 basis points. - Continued external financing from secure existing credit lines and plausible multilateral borrowing; gradual lengthening of domestic bond maturities. - Long-term (2027–31) framework assumes gradual lengthening of domestic bond maturities and external financing mostly from secure existing credit lines; no additional fiscal revenue measures built in. - Sonangol: baseline assumes conservative external borrowing amounting to cumulative $9.2 billion in 2021–25; Sonangol’s external debt ratio projected to decline from 8.3 percent of GDP in 2020 to 7.1 percent by 2025. - Guarantees: loans from international banks that may involve sovereign guarantees are incorporated in baseline once contracted and issued; program includes ceilings (indicative targets) on new guarantees by the State. - Privatization receipts (net of costs) assumed around $200 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. - Forecast record and realism: - Growth projections have a relatively large median error compared with other program countries due to trend decline in oil production, volatility in oil prices, swings in agricultural production, and limited economic diversification. - MAC-DSA realism module characterizes maintaining Angola’s fiscal stance as optimistic compared to other IMF arrangements. - Debt projections and fiscal metrics: - Public debt projected to decline from 135 percent of GDP in 2020 to 113 percent of GDP in 2021 and continue falling over the medium and long term. - Government debt-to-GDP ratio expected to fall to 56 percent by 2027 (below authorities’ long-term target); public debt-to-GDP expected to decline to 62 percent by 2027. - Fall driven by structural fiscal consolidation and large share of oil revenues which provides a natural medium-term hedge to the initial exchange rate shock. - Previously agreed reprofiling reduced gross financing needs (GFNs) to more manageable levels from 2021 onwards. - Total debt service projected to remain around 80 percent of fiscal revenues in the medium run. - GFNs projected to remain contained from 2021 on, falling below 10 percent of GDP by 2026 and to an average of 7 percent of GDP in 2027-31. - Vulnerabilities and stress tests: - Debt profile vulnerable due to currency risk (over four-fifths of Angola’s debt is denominated in, or indexed to, foreign currency), interest rate risk, and narrow creditor base. - Growth shock: lowering projected real GDP growth rates by one standard deviation would keep debt ratio significantly above the high-risk benchmark over the medium term. - Real exchange rate shock: a 30-percent, one-time real depreciation of the Kwanza would increase the debt ratio in 2022 to 125 percent of GDP and keep debt significantly above the high-risk benchmark over the projection horizon. - Combined shock (growth, inflation, primary balance, exchange rate, and a 200-basis-point increase in the effective interest rate): would increase the debt ratio to 157 percent of GDP and GFNs above the high-risk benchmark; under such a severe stress scenario, Angola would likely no longer be able to service its debt. - Contingent-liability (CL) shocks: baseline includes amounts equivalent to 0.4 percent of GDP for bank recapitalization in 2021-22; under this scenario, both debt and GFN ratios would exceed high-risk benchmarks in 2021 but fall below it in the medium term. - Oil-price shock: customized scenario with a two-year drop averaging 30 percent in the projected price of the Angolan oil basket for 2021–22 would raise GFNs to 14 percent of GDP in 2023 and 2025 and decline thereafter. - Large borrowing or CL risks from non-financial SOEs could further threaten debt sustainability. - Policy and program measures to mitigate risks: - Mitigate CL risks through adherence to a prudent borrowing strategy; moderate issuance of sovereign guarantees; restructuring of Sonangol; and SOEs privatization. - Careful management required as total debt service remains large despite reprofiling and consolidation. ### B. External Debt Sustainability Analysis - Coverage: external debt of the Central Government, Sonangol, TAAG, and public guarantees of debt denominated in foreign currency; no information available on private sector external debt. - External debt trajectory: - External debt estimated to have peaked in 2020 and projected to decline below 60 percent of GDP in the medium term. - Vulnerabilities: - External debt vulnerable to unfavorable current account developments and large exchange rate depreciation. - Also vulnerable to further declines in oil prices and growth, tighter financing conditions, and materialization of contingent liabilities from the financial sector. - Data efforts: authorities continue efforts to collect private sector debt data, including with IMF technical assistance. ### C. Bottom Line Assessment - Angola’s public debt remains sustainable under the baseline assuming continued fiscal discipline and implementation of growth-enhancing structural reforms, although risks remain very high. - Debt dynamics are highly vulnerable to additional shocks; further debt relief may be needed if downside risks materialize. - The asymmetric fan chart indicates that systematically unfavorable macroeconomic shocks (e.g., fiscal and exchange rate shocks) would likely push the debt trajectory above the high-risk benchmark. - The heat map shows debt and GFNs breach their high-risk benchmarks in both the baseline and stress test scenarios and flags risks from market sentiment, investor base, and currency composition. *Source: Annex I. Debt Sustainability Analysis Update* ### 14. Angola’s public debt is sustainable with substantial previous reprofiling of interest and ### 1agoea2021002 - 14. Angola’s public debt is sustainable with substantial previous reprofiling of interest and ### Key findings - Angola’s public debt is sustainable with substantial previous reprofiling of interest and principal payments and a continued tight fiscal position, although very high risks remain. - Following its 2020 peak, the debt ratio is projected to decline steadily toward the authorities’ long-term target. - A positive overall fiscal balance and the agreed debt reprofiling are projected to keep GFNs contained in the medium term. - The authorities will work to enhance their debt management strategy as part of an effort to improve Angola’s public debt dynamics, together with conservative fiscal budgeting and execution. ### Debt dynamics and projections (selected figures from Public Sector DSA baseline) - Total nominal gross public debt (series as presented): 50.6; 113.6; 135.1; 113.3; 102.7; 95.9; 85.8; 76.7; 69.6; 62.1; 55.7; 50.0; 44.8; 41.8 (in percent of GDP unless otherwise indicated). - Public gross financing needs (series as presented, in percent of GDP): 11.2; 11.6; 18.0; 9.3; 9.3; 9.7; 10.4; 12.3; 6.3; 6.3; 9.4; 9.2; 5.3; 4.7. - Sovereign spreads: EMBIG (bp) 677; 5Y CDS (bp) 665. - Effective interest rate (defined as interest payments divided by debt stock): 4/ = 4.6; 7.2; 6.6; 5.7; 5.5; 5.4; 5.3; 5.1; 5.0; 5.5; 5.6; 5.8 (series as presented). - Primary (noninterest) revenue and grants (series as presented, percent of GDP): 31.0; 21.2; 20.8; 22.6; 22.1; 21.3; 20.7; 20.2; 19.7; 19.3; 18.8; 18.5; 18.2; 16.1; 217.5. - Primary deficit (series as presented, percent of GDP): -1.7; -6.4; -4.9; -8.0; -7.4; -7.0; -6.8; -6.3; -5.8; -5.5; -5.1; -4.8; -4.5; -2.5; -63.6 (cumulative shown). ### Underlying macroeconomic assumptions (baseline) - Real GDP growth (series as presented): 2.5-0.6; -5.2-0.1; 2.4; 3.4; 3.7; 3.9; 3.9; 4.0; 4.1 (series formatting preserved as in source). - Inflation (GDP deflator, series as presented, percent): 16.4; 21.0; 15.8; 32.3; 11.8; 7.6; 6.3; 5.8; 6.0; 6.0; 5.6; 5.3; 4.9; 4.7. - Nominal GDP growth (series as presented, percent): 19.1; 20.3; 9.7; 32.1; 14.5; 11.3; 10.3; 9.9; 9.9; 10.0; 9.7; 9.4; 9.1; 9.0. ### External debt and external sector indicators (selected from External DSA) - Baseline external debt (in percent of GDP, series 2016–26): 45.0; 38.2; 59.3; 78.6; 100.7; 89.9; 85.9; 77.9; 70.8; 64.9; 59.3; 0.6 (as presented). - Change in external debt (series): 9.9; -6.8; 21.1; 19.3; 22.1; -10.8; -4.0; -8.0; -7.1; -5.9; -5.6. - Gross external financing need (in billions of US dollars, series): 9.4; 9.3; -0.1; 2.0; 3.1; 1.5; 2.3; 4.9; 5.4; 6.7; 6.0. - External debt-to-exports ratio (in percent, series): 158.7; 131.1; 119.1; 142.9; 247.2; 194.3; 209.5; 207.6; 202.9; 193.6; 186.5. ### Composition and scenarios presented - Composition of public debt shown by net debt and gross nominal public debt with breakdowns by maturity (short-term vs medium and long-term) and by currency (local vs foreign currency-denominated). - Alternative scenarios included: Historical Scenario; Constant Primary Balance Scenario (Primary Balance maintained at 8.0 in 2021–2026 in that scenario). - Historical scenario assumptions excerpt (as presented): Real GDP growth -0.1; 1.2; 1.2; 1.2; 1.2; 1.2; Inflation 32.3; 11.8; 7.6; 6.3; 5.8; 6.0; Primary Balance 8.0; 2.2; 2.2; 2.2; 2.2; 2.2; Effective interest rate series likewise shown for scenarios. ### Realism assessment and forecast track record (selected points) - Forecast track record plots show distribution of forecast errors for Real GDP Growth (Angola forecast error median -2.85; percentile rank 3%), Primary Balance (median -1.24; percentile rank 15%), Inflation (median 3.28; percentile rank 95%). - Assessment of projected fiscal adjustment uses CAPB-based metrics: 3-Year Adjustment in CAPB percentile rank shown as 53%; 3-Year Average Level of CAPB percentile rank shown as 4%. ### Stress tests and risk assessment (selected outcomes) - Stress tests performed: Primary Balance Shock; Real GDP Growth Shock; Real Interest Rate Shock; Real Exchange Rate Shock; Combined Shock; Contingent Liability Shock; Oil Price Shock. - Stress test underlying assumptions (examples preserved as presented): Combined Shock—Real GDP growth -0.1; -1.8; -0.8; 3.7; 3.9; 3.7; Inflation 32.3; 10.7; 6.6; 6.3; 5.8; 6.0; Effective interest rate 5.7; 7.1; 5.3; 5.5; 5.2; 5.3 (series as presented). - Stress-test outputs include projected paths for gross nominal public debt (in percent of GDP) and public gross financing needs (in percent of GDP) under each shock through 2026. - Risk-assessment heat map applies benchmarks (e.g., debt burden benchmark 70%; gross financing needs benchmark 15%) to categorize vulnerabilities across shocks. ### Policy implications and recommendations (as stated) - Maintain a positive overall fiscal balance to keep public gross financing needs (GFNs) contained in the medium term. - Implement the agreed debt reprofiling and continue to enhance the debt management strategy. - Pursue conservative fiscal budgeting and execution to improve public debt dynamics and reduce very high risks remaining in the near term. *Source: IMF staff; figures and tables as presented in the Public Sector and External Debt Sustainability Analysis for Angola.* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### I. Background, recent economic developments, and outlook - Purpose: The attached MEFP and TMU update the Letter of Intent, MEFP and TMU of December 22, 2020, report recent developments, review program implementation, and set out macroeconomic and structural policies going forward. - Program objectives reiterated: reduce fiscal vulnerabilities; strengthen debt sustainability; reduce inflation; consolidate the transition to a flexible exchange rate regime; safeguard financial sector stability; bolster governance, including the anti-money laundering/combating the financing of terrorism (AML/CFT) framework; and improve the business climate to promote private sector-led growth. - Performance against program targets (end-December 2020 / end-March 2021): - End-December 2020 Performance Criteria (PCs) on net international reserves, reserve money, and the non-oil primary fiscal deficit were met. - A waiver of nonobservance was granted during the Fourth Review for the PC on central bank claims on the central government; the result stayed within the waiver amount. - The non-oil primary fiscal deficit (NOPFD) at end-December 2020 outperformed the PC. - End-March 2021 Indicative Target (IT) on Reserve Money was met with a significant margin. - End-March 2021 IT on BNA advances to the government and on the NIR were met. - All continuous PCs were observed. - COVID-19 and economic shock: - Angola experienced two major related shocks: (i) COVID-19 health crisis and containment disruptions; and (ii) collapse in international oil demand and prices during the first half of 2020. - 2020 GDP: a -5.2 percent growth contraction in 2020. - Oil production: continuing to contract in 2021 despite higher oil prices. - Non-oil GDP: starting to recover only gradually due to balance sheet scarring, some continued health-related restrictions, and adverse weather conditions (drought, heavy rainfall) affecting agriculture production and transport. - Inflation: reached 25.1 percent y/y in December 2020; this level continued in early 2021 due to weather-related shortages counteracting monetary tightening. - Public debt: peaked at 135.1 percent of GDP in December 2020 as the exchange rate depreciated and the real economy contracted, even though its dollar value declined. - COVID-19 response and vaccination status (as of end-April 2021): - Received over 624,000 doses of AztraZeneca-SII vaccine, administered over 492,690 doses, out of 12.8 million doses expected under COVAX. - Received 200,000 doses of Sinopharm donated by the Government of China. - Purchasing 6 million doses of Sputnik V vaccine. - External position 2020: exports fell by 40 percent; current account ended with a modest surplus for 2020 due to strong import contraction and lower oil-company income transfers abroad; gross international reserves (GIRs) declined relative to 2019 but still provide relatively comfortable import coverage. - Banking sector: overall well capitalized but vulnerable to shocks; restructuring of one of two large troubled public banks is advancing; progress pending on the other; promulgation of the revised Financial Institutions Law (FIL) is a key milestone. - Outlook and projections: - Growth: project non-oil growth to recover to 2.3 percent in 2021; oil and gas growth projected at -7.0 percent in 2021. - Inflation: projected to decline to 19.5 percent by end-2021. - Fiscal sector: NOPFD projected to improve to 4.8 percent of GDP in 2021 (down from 5.5 percent of GDP in 2020); overall budget surplus expected to be 1.9 percent of GDP; public debt projected at 114 percent of GDP. - External position: current account projected to improve substantially in 2021 driven by higher oil prices. - Monetary policy: gradual tightening anticipated to reduce inflation; moves already include increases in OMOs and rates on BNA standing deposit and liquidity facilities. - Financial stability: NPLs expected to continue downward trend with economic recovery; liquidity and capitalization ratios expected to remain in solid territory and compliant with prudential rules. ### II. Macroeconomic policies and structural reforms for 2021 — A. Fiscal policy - Overarching fiscal goal: preserve and strengthen fiscal and debt sustainability to achieve long-term objective of a public debt ratio of 60 percent of GDP (embedded in the Fiscal Responsibility Law (FRL)); reduce and maintain average annual gross financing needs at levels compatible with debt sustainability. - Use of windfall oil revenue in 2021: - Intend to save the majority of windfall oil revenue stemming from higher-than-expected oil prices to accelerate debt reduction and rebuild fiscal buffers depleted in 2020. - Will spend a share on priority areas, including a campaign of vaccination against Covid-19, but commit to saving most of the windfall for faster debt reduction and rebuilding buffers. - 2021 budget execution intentions: - Non-oil revenue: expect non-oil revenue above budgeted level across a number of taxes due to strong late-2020 performance from revenue-enhancing measures. - Wage bill: maintain tight control; may slightly exceed budgeted amount to hire additional essential healthcare and education personnel. - Goods and services: intend to remain within the 2021 budget envelope except additional spending on vaccine procurement and administration. - Transfers and subsidies: will remain at or below budgeted level. - Capital expenditure: public investment spending may slightly exceed budget to prioritize conclusion of key nearly-complete projects. - Payment arrears: met program limit on net accumulation of payment arrears by December 2020 (IT); completed over 99 percent of verification and settlement of Central Government payment arrears accumulated in 2018 and recorded in SIGFE (SB); intend to accelerate clearance of arrears following additional accounts payable and arrears in late 2020 and early 2021. - Fiscal structural reforms: - Arrears management: empower financial comptrollers in major line ministries to vet commitments and verify compliance with administrative PFM regulations in real time, starting with budgetary units with higher concentration of arrears; develop a comprehensive arrears management plan relying on an updated real-time arrears surveillance mechanism. - Public investment management: commit to address (i) project appraisal and preparation through development of the review role in the Ministry of Finance; (ii) budgeting around a multiyear horizon with rigorous project selection; and (iii) improving allocation of funds, strengthening financial programming, and ensuring effective control over expenditure commitments. Publish appraisal reports of largest projects in the 2021 budget no later than end-June 2021 (SB). - Fiscal transparency and accountability: prepare and disclose main fiscal risks, including those related to SOEs and PPPs, together with the draft budget 2022; continue to publish quarterly and annual fiscal reports with Fund TA support. ### II. Macroeconomic policies and structural reforms for 2021 — B. Public debt management - Strategy: maintain and enhance debt sustainability through a prudent and proactive debt management strategy. - Key actions: - Rapidly reduce debt relative to GDP by maintaining overall primary fiscal surpluses as growth recovers. - Following reprofiling with commercial creditors and rescheduling under the 2020 DSSI, requested an extension of the DSSI for the first half of 2021 and will request an extension for the second half of 2021. - Endeavor to increase average maturity of domestic debt as the economy stabilizes and risk profile improves, including issuance of foreign currency domestic debt as an investment tool for oil companies’ abandonment funds. - Continue retiring foreign currency-linked debt to reduce exposure to foreign currency risk. - Borrow prudently for public investment projects, which will be carefully prioritized. - Remain committed to program targets on debt, including the IT on the stock of central government debt and debt of Sonangol. ### II. Macroeconomic policies and structural reforms for 2021 — C. Monetary and exchange rate policies - Monetary stance and actions: - Adjust monetary stance to reduce inflation; tightened reserve money (RM) targets via the end-June PC (Fourth Review) to better contain monetary growth and address rising inflation. - Met March RM IT and on track to meet tightened June PC; met March IT on BNA advances to central government and on track to meet June PC. - Since January 2021, increased the interest rate on the 7-day permanent liquidity absorption facility by 500 bps and increased the rate on the permanent liquidity facility twice; continue to utilize Open Market Operations to drain liquidity. - Anticipate gradual tightening in 2021 to reduce inflation and move toward positive real interest rates; willing to tighten faster if inflation does not fall, including adjustments to permanent liquidity facilities and the BNA policy rate. - Exchange rate regime and reserves: - Committed to a market-determined exchange rate; the 2020 FX trading platform introduction allowed the BNA to gradually withdraw from FX market activity and reduce interventions to limiting excess exchange rate volatility, allowing the kwanza to be market-cleared and to rebuild international reserves buffers. - Intend to gradually rebuild international reserves for precautionary purposes given improved external conditions. - Noted that with the move to a flexible exchange rate regime, the elasticity of reserve accumulation to changes in oil prices has changed; requested modification of the end-June NIR PC and modification of the NIR adjustor to reflect this changed elasticity. *Attachment: Memorandum of Economic and Financial Policies and Technical Memorandum of Understanding are referenced in the Letter of Intent.* ### 10. We will adopt the revised BNA Law shortly after approval by the National Assembly ### 10. We will adopt the revised BNA Law shortly after approval by the National Assembly ### BNA law, mandate, and governance - The BNA Law was submitted to the National Assembly in December 2020 and is expected to be approved by end-November (new SB), after related constitutional amendments are adopted. - The revised BNA Law will strengthen the BNA’s mandate, autonomy, and governance. - Amendments to the Constitution proposed since submission will allow for even stronger governance and autonomy provisions to be included in the Law. - Structural benchmark: Adoption of the revised BNA Law by end-November 2021 to define, inter alia, 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. ### Reserve management, safeguards, and internal audit - Progress reported on rebalancing the international reserves portfolio, with the intent to finalize this process by July 2021. - Commitment to internal audit reform in line with recent IMF Safeguards Assessments policy recommendations. ### Financial sector policies and actions - Financial Institutions Law (FIL) - The FIL will be enacted in May 2021 (fulfilling the action envisaged in the missed end-March SB). - Much of the secondary legislation complementing the prudential framework has been drafted and will be adopted soon. - Secondary legislation for the new resolution framework is being developed, prioritizing instruments enabling immediate resolution implementation. - Commitments to advance secondary legislation supporting the macroprudential framework and to improve the regulatory framework of the BNA as lender of last resort, including Emergency Liquidity Assistance (ELA). - Ongoing implementation of revised AML/CFT framework to bolster banks’ correspondent banking relationships. - State role and recapitalization - Commit to finalize the strategy to reduce the role of the State in the banking sector by end-July. - Commit to complete the banking sector recapitalization process by end-September. - Completion of these actions is awaiting finalization of the strategy to deal with one of the two troubled public banks; a solid restructuring plan will include upfront loan losses recognition and remediation of existing capital shortfall without further reliance on public funds. - Ongoing implementation of the restructuring plan for the largest troubled public bank and completion of targets established in that plan. - Privatization process of a smaller public bank is being completed. - Recredit (public asset management company) - Will advance resolution of its NPL portfolio and monitor progress against projected targets. - Actions include increasing operational capacity and outsourcing NPL collection to independent experts where necessary. - Recredit published its first performance report in April 2021 and will continue semi-annual publication. - Prudential monitoring and crisis preparedness - Monitoring banks and credit portfolios to ensure adequate provisioning and capitalization. - Promoting prudent recognition of loan loss provisions in line with expected credit losses and early recognition and active management of NPLs. - Monitoring banks’ capital, liquidity, and net FX open positions; will act to ensure regulatory compliance. - Strengthening crisis management preparedness, including contingency plans. ### Structural reforms and governance measures - Tax administration - Continue digitalization of tax administration operations, reestablish taxpayer databases, improve monitoring and compliance, and develop a post-pandemic collection recovery plan. - Strengthen VAT enforcement: improve on-time filing rates, enhance submission of invoicing information according to Standard Audit File for Tax (SAF-T) standards, verify reporting through large-scale cross-matching, and start auditing businesses with largest excess credits (construction, commerce, manufacturing). - Developing IT tools to support VAT enforcement programs. - For the 2022 budget, use accumulated data on VAT credits and refunds and consider adopting a reserve scheme for VAT refunds based on monthly excess credits no later than end-January 2023. - Guarantee a minimum of 15 percent of the revenue for the reimbursement account in the meantime. - Enhance inspections and start recovery of significant tax and customs arrears. - Cash transfer program (Kwenda) - Main objective: complete at least one quarterly payment to the more than 300,000 households already registered and validated in 2021. - Continue accelerating registration of eligible households and explore feasibility of enlarging financial contribution to increase monthly benefit to account for inflation. - Explore extending social support program using Kwenda’s registry beyond 2023. - Fuel subsidies and transparency - Pursue subsidy reforms once the cash transfer program reaches critical mass. - Publish quarterly statistical information on fuel costs and subsidies; report on the first quarter expected by end-June 2021. - Estimated value of fuel subsidies: Kz 437.5 billion in 2019 and Kz 551.2 billion in 2020, or 1.4 and 1.6 percent of GDP respectively. - State-Owned Enterprises (SOEs) and privatization - Amended SOE law last year, but amendment lacked intended internal and external audit elements referenced in an associated SB. - Request to modify end-June 2021 SB to comprise preparation of a roadmap by end-September 2021 detailing legislative, regulatory, policy and implementation measures to enhance governance and performance of SOEs, prioritizing extractive, energy and telecoms sectors; the roadmap to be approved by Presidential Decree. - Of 126 approved SOEs scheduled for privatization, 39 were privatized by end-2020 (31 percent success rate in number of companies). - Last year’s privatization is expected to generate proceeds worth about 1.1 percent of GDP, although only about 0.02 percent of GDP has been received to date, with remaining balance payable over multiple years. - Strategy shift to corporatizing commercially viable SOEs to professionalize management and enhance governance. - Plan to accelerate privatization program with planned privatization of 100 SOEs for the year. - Considering engaging outside advisers to assist preparation and acceleration of privatization of large national enterprises currently programmed to begin in 2022 (SONANGOL, ENDIAMA, TAAG). - Public financial management (PFM) - Fiscal strategy crafted to support fiscal consolidation and debt sustainability; will be updated ahead of the 2022 budget to underpin the Medium-Term Fiscal Framework (MTFF) and the Medium-Term Expenditure Framework (MTEF), in line with the newly adopted FRL. - Procurement reform and beneficial ownership - Intend to increase published procurement annual plans to 65 percent. - Ensure contracts from 21 Contracting Public Entities are registered in the contract management system and published in their procurement portal, including names of representatives. - Explore feasibility of identifying beneficial ownership in the future. ### Governance, anti-corruption, and transparency commitments - Pursue membership in the Extractive Industries Transparency Initiative (EITI); commit to submit candidacy no later than end-December 2021. - Cooperating with the UN on a comprehensive anti-corruption strategy encompassing ongoing initiatives and exploring feasibility of opening a UN agency (UNODC) in Angola. - Commit to include a chapter on crisis-related spending in the Quarterly Budget Execution Report, which is approved by the National Assembly and published on the Ministry of Finance website. - The crisis-related spending report is part of the General State Account, to be audited by the Court of Accounts, approved by parliament, and published in October of each fiscal year. ### Program monitoring, performance criteria, and structural benchmarks - The program will be monitored through the 6th and last review, to be completed on or after November 1 based on end-June 2021 test dates. - Monitoring instruments include quantitative performance criteria (PCs), indicative targets, and structural benchmarks (SBs); all quantitative PCs and indicative targets are listed in Table 1a and b, and SBs are in Table 2; definitions and data provision requirements are in the Technical Memorandum of Understanding (TMU). - Selected exact figures from Table 1a (Performance Criteria and Indicative Targets): - Net international reserves of the Banco Nacional de Angola (BNA), floor (millions of U.S. dollars): 8,247; 7,714; 9,334; 8,085; 7,316; 8,742; Met; 8,001; 7,933; 8,390; 7,916; 8,841 - BNA claims on the Central Government, cumulative ceiling (billions of kwanzas): 300; 300; 4360; 0; 269; Not Met; 350; 350; 231; 300; 300 - Reserve money, ceiling (billions of kwanzas): 2,062; 2,113; 1,914; 2,086; 2,114; 1,941; Met; 2,130; 2,130; 1,992; 2,099; 2,099 - Non-oil primary fiscal deficit of the Central Government, cumulative ceiling (billions of kwanzas): 1,568; 1,568; 749; 2,384; 2,394; 1,095; Met; 625; 625; -116; 1,010; 1,010 - Stock of Central Government debt and debt of Sonangol, ceiling (billions of kwanzas): 42,994; 42,994; 43,049; 42,994; 42,994; 44,815; Not Met; 55,951; 55,951; ...; 55,951; 55,951 - Social spending, cumulative floor (billions of kwanzas): 1,031; 1,031; 1,262; 1,440; 1,440; 1,859; Met; 446; 446; ...; 892; 892 - Net accumulation in the stock of payments arrears by the Central Government, ceiling (billions of kwanzas): 250; 250; -322; 502; 501; 143; Met; 250; 250; 620; 250; 250 - Disbursements of oil-collateralized external debt by the Central Government, cumulative ceiling (millions of U.S. dollars): 600; 600; 0; 1,160; 1,160; 0; Met; 219; 219; 0; 438; 0 - Authorizations by the Ministry of Finance for the issuance of debt guarantees by the Central Government, annual ceiling (U.S. million dollars): 300; 300; 105; 300; 300; 105; Met; 300; 300; 0; 300; 300 - Standard continuous performance criteria (Table 1b) include: - Not to impose new or intensify existing restrictions on the making of payments and transfers for current international transactions. - Not to introduce new or intensify existing multiple currency practices. - Not to conclude bilateral payments agreement that are inconsistent with the IMF’s Articles of Agreement (Article VIII). - Not to impose new or intensify existing import restrictions for balance of payments reasons. - Selected structural benchmarks and their status (Table 2): - Payments arrears: Complete verification and settlement of all payments arrears accumulated by the Central Government in 2018 and recorded in SIGFE. Objective End-December 2020 — Not met (authorities intend to complete by end-June 2021). - Public procurement: Award through open tenders at least 45 percent of public contracts related to public investment projects above Kz 182 million. End-December 2020 — Met (54 percent awarded through open tenders as of end-December 2020). - Public investment: Publish initial project appraisal report for all new public investment projects above Kz 10 billion from January 2021. End-June 2021 — In Progress (reset from end-March 2021). - Financial Institutions Law: Adopt amendments to the FIL in line with IMF advice. End-March 2021 — Not met (Completed with delay: promulgation and official publication in May 2021). - Role of the State in the banking sector: Finalize strategy for the State's future involvement in the banking sector. End-March 2021 — Not met (Reset to end-July 2021). - Banking sector restructuring/recapitalization: Complete recapitalization to meet regulatory capital rules. End-March 2021 — Not met (Reset to end-September 2021). - Strengthening of Recredit: Ensure proper governance arrangements and operational procedures at Recredit. End-August 2020 — Not met (Completed with a delay; independent member of the Strategy and Monitoring Committee became official on January 21, 2021). - State Owned Enterprises (SOE) Law: Submit revised SOE Law to National Assembly enhancing internal and external audit functions. End-December 2020 — Not Met (Submitted May 30, 2020 and adopted August 2020 but lacking elements on internal and external audit functions). - BNA Law submission milestones: - Submit amendment to the BNA Law to the Council of Ministers: End-September 2020 — Not met (Submitted to Council of Ministers, December 2020). - Submit amendment to the BNA Law to the National Assembly: End-January 2021 — Met (Submitted to National Assembly, January 2021). - New proposed SBs: - SOE Roadmap approval by Presidential Decree by End-September 2021. - Adoption of the revised BNA Law by End-November 2021. *Source: IMF staff report content as provided.* ### 1. This Technical Memorandum of Understanding (TMU) sets out the understandings ### 1. This Technical Memorandum of Understanding (TMU) sets out the understandings ### Arrangement overview - Purpose: Sets out understandings between the Angolan authorities and IMF staff regarding the definition of performance criteria (PCs); indicative targets (ITs); memorandum items; associated adjustors; and data reporting requirements for the duration of the Extended Arrangement under the Extended Fund Facility (the “arrangement”). - Numeric targets: Unadjusted number values are stated in the Memorandum of Economic and Financial Policies (MEFP, Table 1a). Compliance will be assessed against values adjusted up or down according to adjustors in this TMU. - Reviews/test dates: Reviews under the arrangement will assess PCs and ITs on specified test dates. Specifically, fifth and sixth reviews will assess PCs and ITs at end-December 2020 and end-June 2021 test dates, respectively (MEFP, Table 1a). ### Arrangement exchange rates - Arrangement accounting exchange rate for the Angolan Kwanza (AOA) to the U.S. dollar: AOA 295 per US$1 for the duration of the arrangement. - Note: Setting the arrangement’s accounting exchange rate does not imply a target exchange rate for policy purposes; it allows comparability across test dates. - 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 - Non-dollar denominated foreign assets and liabilities: converted into U.S. dollars at the International Financial Statistics exchange rates on September 28, 2018, except monetary gold, which is valued at market price at each test date. ### I. Quantitative Performance Criteria (major PCs and definitions) A. Net International Reserves (NIRs) of the Banco Nacional de Angola (BNA) — Floor - Definition: - NIRs = U.S. dollar value of official reserve assets of the BNA minus reserve liabilities of the BNA. - Official reserve assets include: monetary gold, SDRs, foreign currency cash, foreign currency securities, deposits abroad, and the country's reserve position at the IMF. - Excluded from foreign assets: assets that are pledged, collateralized, or otherwise encumbered (including guarantees for third-party external liabilities), claims on residents including commercial banks, claims from derivatives vis-à-vis the domestic currency (futures, forwards, swaps, options), precious metals other than gold, assets in nonconvertible currencies, assets held with unrated correspondent banks, and illiquid assets. - Reserve liabilities: all short-term foreign exchange liabilities of the BNA to nonresidents with original maturity up to and including one year; commitments to sell foreign exchange arising from derivatives; and all credit outstanding from the IMF. - Disbursements from the IMF received by the Central Government under the arrangement are excluded from NIRs computation. - Adjustors (Text Table 2, Baseline Scenario): - Upward adjustments: - US$15 million for each quarter 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. This adjustor’s upper limit is US$60 million for 2021Q2. - The shortfall in external debt service of the Central Government with multilateral institutions, excluding the IMF, as well as with Eurobonds, relative to the baseline projection reported in Text Table 2. - The excess in disbursements for budget support received by the Central Government from multilateral institutions, excluding the IMF, as well as proceeds from Eurobonds, relative to the baseline projection reported in Text Table 2. - Downward adjustments: - US$15 million for each quarter 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. This adjustor’s lower limit is US$60 million for 2021Q2. - The excess in external debt service of the Central Government with multilateral institutions, excluding the IMF, as well as with Eurobonds, relative to the baseline projection reported in Text Table 2. - The shortfall in disbursements for budget support received by the Central Government from multilateral institutions, excluding the IMF, as well as proceeds from Eurobonds, relative to the baseline projection reported in Text Table 2. - (Text Table 2 includes historical/projected numbers for Brent oil price and various cumulative flows; those numbers are presented in the source table.) B. Banco Nacional de Angola Claims on the Central Government — Cumulative Ceiling - Definition: - BNA claims on the Central Government = cumulative change, from the beginning of the calendar year, in the stock of all outstanding claims on the Central Government held by the BNA, less revaluation gains/losses. - Claims include loans, securities, shares, financial derivatives, settlement accounts, advances, and arrears. - Securities obtained when realizing collateral received in an emergency liquidity assistance operation to commercial banks are excluded. C. Average Adjusted Reserve Money (Ceiling) - Definition: - Reserve money (RM) = currency in circulation outside the BNA (includes cash in vaults) + balances of commercial banks’ overnight deposits + banks’ correspondent accounts (includes required reserves in local and foreign currency) at the BNA. - RM excludes balances in deposit auctions and commercial banks’ term deposits at the BNA. - For each quarter, average adjusted reserve money = quarterly average of daily data recorded in BNA balance sheets (BNA Survey). - For measuring banks’ reserves in foreign currency, use exchange rates in Text Table 1. - For 2021Q1, the average reserve money thus defined amounted to Kz 1,992 billion. - Adjustors: - In the event of a change in the reserve requirement ratio in local currency (rr_LC) and in foreign currency (rr_FC), the RM ceiling will be adjusted according to the formula: - Revised RM ceiling = Arrangements’ RM ceiling + banks’ correspondent accounts (bank reserves) in local currency x (new rr_LC/old rr_LC - 1) + banks’ correspondent accounts (bank reserves) in foreign currency x (new rr_FC/old rr_FC - 1) - For the calculation of adjustors, banks’ correspondent accounts are evaluated as the quarterly average of daily balances, in Kwanzas, using the exchange rate in Text Table 1. - The RM ceiling will be adjusted relative to the assumptions in Text Table 3 (Reserve Money Targets and Components, Baseline Scenario). D. Non-Oil Primary Fiscal Deficit (NOPFD) of the Central Government — Cumulative Ceiling - Definition: - NOPFD = non-oil primary expenditure of the Central Government + clearance of external and domestic payments arrears in cash (as defined) − Central Government non-oil revenue. - Central Government entities included: Central and Local Administrations, Public Institutes, Autonomous Services and Funds, and Social Security. - Non-oil primary expenditure = total expenditure less payment of interest on domestic and external debt, and Agência Nacional de Petróleo, Gás e Biocombustíveis’s (ANPG) oil-related expenditure on behalf of the Government, measured on a cash basis. - Payments arrears: 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, relating to transactions authorized inside or outside SIGFE up to December 31, 2017. - Clearance of payments arrears in cash = cash component of repayments of arrears accumulated up to December 31, 2017. - Central Government non-oil revenue = total revenue less oil revenue, measured on a cash basis. Central Government oil revenue includes IPP, IRP, ITP, total revenue from the concessionaire (without netting out ANPG’s oil-related expenditure), and any applicable charges on oil and gas, all on a cash basis. - The PC is calculated as the cumulative deficit since the start of the calendar year, based on projected exchange rates for the arrangement period, measured in Kwanzas. - Monitoring of external project loans: - Each quarter, the Ministry of Finance will provide the total value in U.S. dollars of invoices 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. - Exchange-rate depreciation adjustor: - PCs and ITs adjusted asymmetrically: upward by 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). - The adjustor will be capped at a cumulative Kz 100 billion per quarter (Text Table 4). - COVID-19 vaccine cost adjustor: - PCs and ITs will be adjusted upwards for import costs of COVID-19 vaccines incurred on a cash basis in the relevant period. - Text Table 4. Cumulative Average Kwanza per U. S. Dollar Exchange Rates, 2020–21: - 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 645.57 Cap units 200 E. Non-Accumulation of External Debt Payments Arrears by the Central Government and the BNA — Continuous Ceiling - Definition: - External debt payments arrears = total external debt service obligations (principal and interest) of the Central Government and the BNA falling due after the date of arrangement approval that have not been paid by the time they are due, taking into account contractual grace periods. - Debt definition per Paragraph 17; excludes contracts providing for payment on delivery. - Arrears resulting from nonpayment for which a clearance framework has been agreed or a restructuring agreement is sought are excluded. - External debt obligations that cannot be paid due to intermediary financial institutions’ compliance policies but are paid into an independent third-party escrow account by the contractual due date (taking into account grace period) will not give rise to arrears for this PC. - Application: The PC applies on a continuous basis throughout the arrangement. F. New External Oil-Collateralized Debt Contracted by or on behalf of the Central Government, the BNA, and Sonangol — Ceiling - Definition: - Oil-collateralized debt = external debt that creates a security interest, charge, or lien over oil, oil receivables, or proceeds of the sale of oil. - Use of a collection account where no charge or lien is created over such account is excluded. - Prefinancing refers to debt contracted against future oil sales. - Debt contracted on behalf of the Central Government, the BNA, or Sonangol = borrowing entity is wholly owned and/or controlled by the Central Government, the BNA, and/or Sonangol. - Exclusions: - Disbursements under oil-collateralized debt contracted before arrangement approval are excluded from this PC and are monitored under ITs relating to such disbursements. - New oil-collateralized debt is excluded where such debt is used for financing of oil-extraction equipment, as evidenced by financing documents. - Coverage: Ceiling applies to contracting of new oil-collateralized debt (including prefinancing) and new oil collateralization of existing debt by or on behalf of the Central Government, the BNA, or Sonangol, on a gross basis. ### II. Indicative Targets (ITs) — definitions and key ITs A. Stock of Debt Contracted or Guaranteed by the Central Government or Sonangol — Ceiling - Definition: - Public debt = 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 determined on residency criterion. - Debt definition: a current (not contingent) liability created under a contractual arrangement through the provision of value in the form of assets or services requiring future payments of assets or services to discharge principal and/or interest liabilities. - Primary forms: loans; suppliers’ credits; leases (present value at inception of lease payments expected to be made during agreement, excluding operation/repair/maintenance payments). - Reference: As defined in the Guidelines on Public Debt Conditionality in IMF Arrangements, Decision No. 15688-(14/107). B. Central Government Social Expenditure — Cumulative Floor - Definition: - Social expenditure = Central Government spending on the “social sector” functions as specified in the General State Budget (OGE): 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. - Adjustor: - The social expenditure IT will be adjusted upwards for import costs of COVID-19 vaccines incurred on a cash basis in the relevant period. C. Net-Accumulation of Payments Arrears by the Central Government — Cumulative Ceiling - Definition: - For this IT, payments arrears = 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, which: (i) include but are not limited to procurement contract obligations and statutory obligations (e.g., civil service wages); and (ii) are recorded in SIGFE. - The due date is the deadline by which payment must be made under the contract, considering contractual grace periods. - After rescheduling by agreement with the creditor, the obligation rescheduled is not considered in arrears. - Measurement: - The IT is calculated as the net change in the stock of payments arrears, as defined and reported between the date of arrangement approval and each test date. - Excludes claims related to transactions authorized outside SIGFE (reported separately). D. Disbursements of Oil-collateralized External Debt to the Central Government — Cumulative Ceiling - Definition and further details: (the source continues beyond the provided excerpt for this IT). *Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1agoea2021002.pdf* ### 23. This ceiling refers to disbursements of oil-collateralized external debt to the Central ### 1agoea2021002 - 23. This ceiling refers to disbursements of oil-collateralized external debt to the Central ### Ceiling definitions and monitoring - Paragraph 23: The ceiling refers to disbursements of oil-collateralized external debt to the Central Government from credit lines that have been contracted before the start of the arrangement, as defined in paragraph 15 of this TMU. - Paragraph 24: This IT will be monitored on a quarterly basis (Table 1). - Paragraph 25–28 (Issuance by the State of Debt Guarantees, Annual Ceiling): - The IT ceiling covers all debt guarantees issued by the Central Government, irrespective of their purpose, currency, and beneficiary. - The IT is 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 is defined as in paragraph 17 of this TMU. - This IT will be monitored quarterly, based on the amounts approved by the Ministry of Finance for guarantee issuances. ### Reporting requirements (Table 1) — key data items, frequencies, and timing - BNA: Stock of the NIRs — Daily — No later than one week after the end of each day. - BNA: Exchange rates (official and parallel) — Daily — No later than one day after the end of each day. - BNA: Decomposition of daily variation of NIRs stock into foreign exchange sales/purchase — Weekly — No later than one week after the end of each week. - BNA: FX cash flows (historical) — Monthly — No later than 6 weeks after the end of month. To include breakdown of inflows (including oil revenues, disbursements of FX debt, and BNA FX purchases) and outflows (including FX debt service, BNA FX liability payments, and BNA FX sales). - BNA: FX cash flows (projections) — Monthly — No later than 6 weeks after the end of month. Same breakdown as historical. - BNA: Any off-balance sheet position denominated or payable in foreign currency — Weekly — No later than one week after the end of each week. - BNA: Exports and imports (nominal values) — Quarterly — No later than 6 weeks after the end of each quarter. - BNA: Balance of payments — Quarterly — No later than 3 months after the end of the relevant quarter. - BNA: BNA Survey — Daily — No later than one week after the end of each week. Should include stock of bank reserves in foreign currency, evaluated at (fixed) exchange rates under the arrangement. - BNA: Bank reserves in foreign currency — Daily — No later than one week after the end of each week. Denominated in foreign currency, for each relevant currency. - BNA: BNA claims on the Central Government — Monthly — No later than 6 weeks after the end of month. Including breakdown of securities obtained when realizing collateral received in a financial institution support operation. - BNA: Stock and flows of bank claims on the Central Government — Monthly — No later than 6 weeks after the end of each month. - BNA: Accumulation of external debt service arrears by the BNA — Daily — Immediately. - BNA, MINFIN: Stock and the change in Central Government deposits at the BNA and banks and change in balances of escrow accounts — Monthly — No later than 6 weeks after the end of each month. Change in deposits broken down by currency (U.S. dollar and Kwanza), and stock and change in balances of escrow accounts, broken down by beneficiary country. - BNA: 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 submissions no later than 4 weeks after the end of each quarter. - MINFIN: Accumulation of external debt service arrears by the Central Government — Daily — Immediately. - MINFIN: Oil revenue by category — Quarterly — No later than 8 weeks after the end of each quarter. To include concessionaire (100 percent), other oil tax (IRP, IPP, ITP), average oil price (US$/barrel) and crude oil exports (barrels). - MINFIN: Non-oil revenue by category — Monthly — No later than 2 weeks after the end of each month. To include income taxes, property taxes, taxes on goods and services, taxes on international trade, social contributions, grants, other current revenues, and capital income. - MINFIN: Expenditure by category — Quarterly — No later than 8 weeks after the end of each quarter. Wages; goods and services (non-oil related and Sonangol’s expenditure on behalf of the Central Government); domestic and external interest payment; current transfers; capital expenditure broken down between PIP and others, and between domestically and externally financed. - MINFIN: Domestic borrowing and debt service (principal and interest) — Monthly — No later than 2 weeks after the end of each month. Including Treasury bonds (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). - MINFIN: External borrowing and debt service (principal and interest) as recorded in the DMFAS system — Quarterly — No later than 8 weeks after the end of each quarter. Broken down by creditor type (multilateral, bilateral, commercial, suppliers, and Eurobonds) and by public investment projects and budget support. Borrowing and debt service of collateralized debt broken down by creditor. - MINFIN: Total value of invoices in U.S. dollars related to spending on public investment projections financed by external project loans and validated by MINFIN — Quarterly — No later than 8 weeks after the end of each quarter. Broken down by invoices with confirmed external disbursements and invoices without confirmed disbursements. - MINFIN, Sonangol, TAAG: Stock of external debt of the Central Government, Sonangol and TAAG — Quarterly — No later than 8 weeks after the end of each quarter. External debt broken down by creditor type and stock of collateralized external debt broken down by creditor. - MINFIN, Sonangol: Debt service projection, quarterly for 2018–21 and annually from 2022 onwards — Quarterly — No later than 8 weeks after the end of each quarter. Principal amortizations and interest payments of domestic debt by instrument type and external debt by creditor type and collateralized credit lines. - MINFIN: Stock of public guarantees and Issuance of new guarantees — Quarterly — No later than 8 weeks after the end of each quarter. Guarantees broken down by currency, amounts, beneficiary, guarantor, and maturity date. - MINFIN: Contracting and/or disbursements of new collateralized debt by or on behalf of the Central Government, the BNA, and Sonangol — Quarterly — No later than 8 weeks after the end of each quarter. - MINFIN: Stock, new accumulation, and clearance of payments arrears — Quarterly — No later than 8 weeks after the end of each quarter. Clearly identifying stock and clearance of payments arrears originating outside and inside SIGFE. - MINFIN: Bonds issued in settlement of payment arrears, and for recapitalizations — Quarterly — No later than 8 weeks after the end of each quarter. - MINFIN: Bonds issued in settlement of loans by the BNA to the Central Government — Quarterly — No later than 8 weeks after the end of each quarter. Authorities should meet the corresponding PC and hence report zero issuances. - MINFIN: Recapitalizations — Quarterly — No later than 8 weeks after the end of each quarter. Broken down by beneficiary and instrument (cash, bonds, and other means). - MINFIN: Stock and change in balances of escrow and reserve accounts — Quarterly — No later than 8 weeks after the end of each quarter. Broken down by beneficiary creditor. - MINFIN: Stock and 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 (new deposits and withdrawals) and stock (balance in the account). - MINIFIN: Production and exports of oil and natural gas — Monthly — No later than 2 weeks after the end of each month. Oil and gas production measured in monthly (average) barrels per day and exports measured in U.S. dollars. - MINIFIN: Actual selling prices of oil and natural gas — Monthly — No later than 2 weeks after the end of each month. For oil prices, reported for all Angola brand fields; for natural gas, the average selling price. ### External debt payment arrears (supplementary information) - The authorities temporarily accumulated external debt payment arrears. - Overdue amounts: USD 4.1 million owed to an external financial institution between May 17–26 and EUR 12.5 million owed to an official export finance agency between May 14–June. - Both sets of arrears have been fully cleared and arose because of technical issues. - Authorities requested a waiver of nonobservance of the continuous performance criterion (PC) on non-accumulation of external debt payment arrears (zero ceiling on accumulation by the Central Government and the BNA). - Staff supports the waiver request, assessing that no further corrective action is needed given the temporary nature of the arrears. - Appendix I (LOI): Authorities report they temporarily accumulated and subsequently cleared external debt payment arrears not exceeding US$20 million in May and June 2021 and request a waiver of nonobservance of the continuous PC. ### Macroeconomic developments, outlook, and program performance — key figures and assessments - GDP and growth: - Following a sharp 4 percentage point decline in real GDP growth in 2015, the economy went into recession in 2016 and remained there for five years. - Growth contracted by 5.2 percent in 2020. - A marginal contraction in GDP is projected for 2021, while non-oil GDP is expected to increase by 2.3 percent. - Inflation: - Inflation rose from 20.81 percent in 2020 to 24.8 percent in April 2021. - Tighter monetary policy is expected to reduce inflation to around 19.5 percent by end 2021. - External position and reserves: - Gross international reserves declined relative to 2019 but remain at a comfortable level, representing around 10.6 months of imports cover at end-May 2021. - COVID-19 vaccination and health response: - As at June 4, 2021: well over 1 million people had received at least the first dose, while 390,000 were fully vaccinated. - Doses received/procured: first 624,000 doses of AstraZeneca (of the expected 12.8 million); 100,120 of Pfizer; 200,000 of Sinopharm; authorities purchased 6 million doses of Sputnik V and intend to purchase an additional 4.19 million doses via African Union. - Vaccination target: plan to inoculate 16.8 million people, representing about 52 percent of the total population. - Program performance: - The program remains broadly on track. - All end-December 2020 performance criteria (PCs) were met except for the PC on central bank advances to the central government; that PC was met in March 2021 and the central bank is on track to meet the June 2021 PC. - All December 2020 indicative targets (ITs) were met except the stock of central government and Sonangol debt (met in March 2021). - All PCs and ITs by end-March 2021 were met except for net accumulation of the stock of payments arrears (domestic arrears) by the central government, as COVID-19 related payments were prioritized. - Strong performance highlights: non-oil primary fiscal deficit (NOPFD) at end-December 2020 outperformed the target; end-March 2021 IT on reserve money was met with a large margin. - Preliminary indications: all end-June 2021 PCs and ITs will be met. *Source: 1agoea2021002 - 23. This ceiling refers to disbursements of oil-collateralized external debt to the Central* ### 10. Progress has also been made in the implementation of structural benchmarks (SBs). Of the ### 10. Progress has also been made in the implementation of structural benchmarks (SBs). Of the ### Structural benchmarks and legislative progress - Nine structural SBs up to end-March 2021, five were completed, albeit with a delay for three of these, and progress is continuing toward the remaining four. - Some SBs were reset for end-July and end-September 2021 due to human and institutional constraints caused by the pandemic. - Legislative developments: - Enactment of the Financial Institutions Law (FIL) in May 19, 2021. - Submission to the National Assembly of the BNA Law in December 2020. - A new securities and collateral law was enacted in April 2021, aimed at adopting an international valuation standard for securities and collateral held by banks and enhancing insolvency and enforcement frameworks. ### Public financial management (PFM) and transparency - Notable progress with PFM reforms following approval of the Fiscal Responsibility Law (FRL) by the National Assembly in August 2020. - Authorities are: - Improving the efficiency and transparency of public procurement. - Committed to publishing the initial project appraisal report for all new public investment projects above Kz 10 billion. - Increasing the share of investment projects that go through public tenders. - Increasing the number of budget units whose annual purchase plans are published on the Public Purchases Portal. - Concluding requirements to join the Extractive Industries Transparency Initiative (EITI) to improve transparency and accountability in extractive industries. ### Fiscal policy and debt management - Fiscal priorities focused on attaining a primary fiscal balance consistent with fiscal and debt sustainability. - 2021 budget and revenue: - Building on tight budget execution in 2020, authorities approved a prudent 2021 budget, supported by tax reforms implemented during the first half of 2020. - Authorities anticipate an overall fiscal surplus of 2.2 percent for 2021, reflecting expenditure retrenchment alongside improved revenue performance. - Plans to implement additional measures to strengthen tax capacity, including inspections to improve tax compliance. - Expenditure and arrears management: - Continued restraint of non-priority spending and enhancement of spending quality. - Introduction of a medium-term fiscal framework (MTFF) and related fiscal strategy under the FRL; the pilot MTFF anchored the 2021 budget and will guide 2022 budget preparation. - Development of a comprehensive domestic arrears management plan relying on a real-time arrears surveillance system to mitigate domestic arrears accumulation. - Debt management measures: - Reprofiling of debt service with three large creditors, resulting in significant cash-flow savings in the medium term. - Requested extension of debt relief under the DSSI and in the process of requesting a further extension through end-2021. - Continued imposition of ceilings on issuance of debt guarantees by the State. - Aim to better align interest rates on domestic debt obligations with market rates to support domestic debt rollover rates and maturity extension and contribute to domestic debt market development. - Intend to save most of the windfall oil revenue in 2021 stemming from higher-than-expected oil prices and accelerate debt reduction. - Privatization receipts to be used primarily for infrastructure financing, strengthening viable SOEs to be privatized, and repayments of central government debt. ### Social protection and inclusion - Commitment to reducing poverty and inequality exacerbated by the pandemic. - Fast-tracking registration of beneficiaries of the cash transfer program, Kwenda, with the objective of reaching 1.6 million households by end 2022. - Discussions with the World Bank on possible extension of the program timeframe and augmenting cash transfer amounts per family. - Continued plans to increase spending on education and health over time. ### Monetary, exchange rate, and financial sector policies - Monetary stance and inflation: - Central bank tightened monetary policy in 2019 to reduce inflation. - BNA temporarily loosened monetary policy in 2020 to ensure adequate liquidity due to the pandemic. - In response to recent inflationary pressure caused by weather-related shocks, the central bank initiated a gradual tightening of the monetary stance using open-market operations in 2021Q1 and increased reserve requirement ratios to contain excess liquidity. - BNA will continue to monitor price developments closely and is committed to bringing the real interest rate into positive territory. - FX market and exchange rate regime: - BNA continues to reduce its role in the domestic FX market. - Adoption of the Bloomberg FX trading platform and measures to enhance full price discovery in the FX market. - Progress expected to help limit the spread between the official and parallel exchange rates. - Progress has also been made in eliminating exchange rate restrictions. - Financial stability and banking sector reforms: - Promotion of prudent recognition of banks’ loan loss provisions in line with expected credit losses and early recognition and active management of non-performing loans (NPLs). - Banking system’s NPL ratio has continued to fall but remains high; capital buffers slightly decreased but remain above the regulatory threshold. - Completion of recapitalization and restructuring of Banco de Poupança e Crédito (BPC); initiation of privatization process for Banco de Comércio e Indústria (BCI). - Finalizing restructuring of Banco Económico (BE) following promulgation and publication of the new Financial Institutions Law in May 19, 2021. - Continued attention to governance and operational challenges at Recredit in line with Fund TA recommendations, to advance macroprudential and resolution frameworks. - BNA governance reforms: - New BNA Law submitted to the National Assembly in December-2020, expected to be approved once constitutional amendments are introduced to accommodate autonomy and reinforce the central bank mandate. - Meanwhile, BNA is putting in place complementary guidelines on effective bank boards and effective credit-risk-management practices and updating asset-classification and provisioning rules. ### Structural reforms, privatization, and governance - Government Privatization Program (PROPRIV 2019-2022): - Aimed at privatizing 172 SOEs, including Sonangol’s non-core assets; remains on course albeit with some delays due to COVID-19 interruption in 2020. - A total of 39 SOEs were privatized by end-2020 through public tenders. - Authorities intend to accelerate PROPRIV as the situation improves and are developing a roadmap on overall SOE reform with staff support. - Anti-corruption and rule of law: - Significant progress in fighting corruption and improving the rule of law. - A strategy is being framed with UN support, including establishment of a UN agency in the country to fight drugs, crime, corruption, and terrorism. - The National Asset Recovery Service continues to recover assets financed illegally through public funds, including by freezing bank accounts linked to related individuals. ### Conclusion and outlook - Authorities reiterate commitment to the reform agenda and restoring macroeconomic stability, recouping sustainable growth and securing inclusive outcomes. - Continued implementation of appropriate fiscal, monetary, and structural policies is planned. - Authorities appreciate ongoing Fund engagement and policy advice and look forward to Executive Directors’ support towards completion of this fifth review under the EFF arrangement. *Source: 1agoea2021002 - Excerpt covering progress on structural benchmarks, macroeconomic policies, and reforms.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1agoea2021002.pdf_