## 1agoea2023001

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### Executive summary — context and recent policy actions
- Angola achieved macroeconomic stabilization amid a very difficult environment in 2020; growth began to recover in 2021 and picked up in 2022 aided by high oil prices.
- Key long-term challenges: debt vulnerabilities and the need to diversify the economy as oil production declines over the long term.
- Authorities’ reform agenda includes the upcoming 2023–27 National Development Plan (NDP) and prior reforms: large fiscal adjustment over 2018–21 (including VAT introduction and floating the exchange rate), monetary tightening in late 2020, and structural reforms in fiscal management, monetary policy framework, financial stability, and central bank independence.
- Pandemic/vaccination: as of January 1, 2023, about 46 percent of the population had received one dose of the COVID-19 vaccine and 25 percent had received two doses.
- Political context: MPLA won 51 percent of the vote in August 2022 (down from 61 percent in 2017); opposition 44 percent.

### Recent economic developments (selected indicators and facts)
- Oil and GDP:
  - Oil production: +4 percent (annual average) between January and August 2022; declined by an annual average 4 percent between September and November 2022 due to maintenance.
  - Non-oil GDP growth (first three quarters of 2022): 3.9 percent y/y.
  - Total GDP growth (first three quarters of 2022): 3.4 percent y/y.
- Inflation and exchange rate:
  - Inflation: 27.0 percent at end-2021 → 13.8 percent y/y at end-2022.
  - Kwanza: at end-December 2022 the kwanza was 10 percent stronger than at the beginning of 2022.
- Fiscal outcomes:
  - Capital spending expected to have exceeded its budgeted amount by about 60 percent in 2022.
  - Fuel subsidies projected at 2.7 percent of GDP in 2022 (0.9 percentage points of GDP higher than estimated at the beginning of 2022).
  - Overall balance expected to have fallen from 3.8 percent of GDP in 2021 to 1.7 percent of GDP in 2022.
  - Non-oil primary fiscal deficit (NOPFD) expected to have increased to 7.6 percent of GDP in 2022 (2.4 percentage points of GDP higher than expected at the time of the EFF Sixth Review).
  - Public debt declined from 83.6 percent of GDP in 2021 to a projected 66.1 percent in 2022, driven primarily by strong exchange rate appreciation.
- Banking and credit:
  - Credit growth estimated at 4.9 percent y/y in 2022.
  - Regulatory capital: 18.8 percent of risk weighted assets in September 2022 (down from 23.8 at end-2021).
  - Nonperforming loans (NPLs): 21.1 percent of gross loans, largely concentrated in two large banks under restructuring.
- External sector:
  - Current account surplus strengthened to almost 12 percent of GDP at end-September 2022 (up from 11.2 percent of GDP in 2021).
  - Exports through Q3 2022 grew by 65 percent y/y; imports through Q3 2022 grew by 47 percent y/y.
  - Central bank interventions remained contained.

### Outlook and risks
- Short-run projections:
  - Total real growth projected to have been 2.8 percent in 2022.
  - Non-oil GDP growth 3.2 percent in 2022; oil sector growth 2.0 percent in 2022.
  - 2023 overall GDP growth projected at 3.5 percent.
  - Inflation projected to decline to 12.3 percent in 2023.
  - Staff projects NOPFD falling to 7.2 percent of GDP in 2023 (draft budget target: 6.5 percent of GDP).
- Medium-term baseline:
  - Growth projected to stabilize at around 4 percent.
  - Inflation expected to reach the BNA’s single-digit target by end-2024.
  - Baseline assumes gradual decline in oil revenues, modest increase in non-oil revenues in line with non-oil growth, decline in subsidies consistent with projected decline in oil prices, and some decrease in capital expenditure as a share of GDP from 2024 onward.
  - With lower oil prices, overall fiscal balance would turn marginally negative and continue to decline; overall primary balance would remain in surplus through the medium-term but on a declining path, leading to a flat path for the debt-to-GDP ratio.
- Main risks (tilted to the downside):
  - Primary risk: larger-than-expected decline in oil prices—could cause currency depreciation, worsen fiscal and external accounts, increase debt ratio (large FX share of debt), and add inflationary pressures.
  - Domestic risks: failure to reverse 2022 fiscal loosening; adverse weather conditions affecting agriculture.

### Policy discussions: priorities to consolidate stability and enable inclusive growth
- Main focus areas: 2023 budget and medium-term fiscal/debt outlook; fiscal structural reforms; disinflation and transition to inflation targeting; external sector; financial stability; diversification; governance and gender issues.

A. Firming up medium-term debt sustainability
- 2023 budget and fiscal stance:
  - Draft 2023 budget targets NOPFD reduction to 6.5 percent of GDP via: some non-oil revenue improvements (new fee-earning concessions and administrative reforms), some reduction in capital expenditure as a share of GDP, and higher goods and services spending related to public investment levels in 2022–23.
  - Draft budget projects subsidy costs for 2023 on a cash basis of 1.6 percent of GDP; staff’s estimate for full calendar year subsidy costs is 2.4 percent of GDP.
  - Staff project NOPFD falling to 7.2 percent of GDP in 2023.
- Financing and debt dynamics:
  - Gross financing needs (GFNs) manageable near term; debt-to-GDP ratio projected to fall to 64.1 percent of GDP in 2023.
  - Liability management actions in 2022 included use of part of the $1.8 billion Eurobond proceeds to buy back 2025 Eurobonds, prepayments of external debt, and extension of domestic debt maturities.
  - GFNs estimated at 7.7 percent of GDP in 2023 expected to be met with domestic financing, multilateral and bilateral loans, and commercial financing linked to capital projects.
- Risks to meeting fiscal targets:
  - Fiscal loosening in 2022 and limited adjustment in 2023 imply fiscal targets likely not met without policy action.
  - Baseline (no new measures) leaves debt ratio above the 60 percent anchor and NOPFD above the 5 percent anchor through the medium term.

### Policy recommendations (IMF staff views — summarized)
- Fiscal policy:
  - Boost non-oil tax revenues and phase out fuel subsidies while increasing support for the vulnerable.
  - Accelerate structural fiscal reforms to maximize non-oil revenues and enhance spending impact.
  - Include full annual costs of fuel subsidies in the budget to build budget transparency.
- Monetary and exchange rate policy:
  - Maintain a wait-and-see monetary policy approach until inflation shows a firmer downward path; align the interbank (Luibor) rate with the key policy rate.
  - Continue transition toward an inflation-targeting framework and retain a flexible exchange rate regime.
- Banking sector:
  - Strengthen financial stability: implement the Financial Institution Law (FIL) secondary legislation, adopt comprehensive approach to troubled banks, enhance supervisory information and recovery planning.
- Structural and governance:
  - Diversification requires improvements in human and physical capital, more effective social and public investment spending, improved access to credit, reduced corruption, and enhanced government transparency.

### Fuel subsidy reform — reform package and estimated gains
- Key recommendation: take advantage of relatively high oil prices to put the NOPFD on a sharper downward path toward its target through:
  - renewed tax-policy measures to mobilize non-oil revenue;
  - phasing out fuel subsidies;
  - further fiscal structural and administrative reforms, including keeping capital expenditure within budgeted amounts.
- Follow-through priorities: complete PFM reforms, leverage TA, smooth external debt service via liability management and prepayment, include full annual subsidy costs in the budget.
- Text Table 2 (percent of GDP, preserve exact figures and formatting):
  - TotalYear 1Year 2Year 3
  - Tax Policy Measures0.90.50.20.2
    - VAT Threshold Reduction 0.30.10.10.1
    - Lower PIT Rate Brackets0.50.40.10.1
    - Property Registry/Property Tax0.10.00.10.1
  - Fuel Subsidy Reform (gross)3.6-5.11.2-1.71.2-1.71.2-1.7
  - Total4.5-6.0
  - (percent of GDP)

### Arrears clearance and audit
- Authorities intend to clear remaining arrears of an estimated Kz. 1.2 trillion (about 2 percent of GDP, as of November 2022) over the medium term; the 2023 budget plans to clear Kz. 429 billion.
- Additional Kz. 725 billion (about 1 percent of GDP) in pending arrears cases await certification.
- Staff recommended an audit of newly-recognized arrears; TA on arrears prevention and cash management planned.

### Banking sector, problem banks, and financial stability
- Two banks under restructuring hold 16 percent of system assets; restructuring delayed and regulatory forbearance continues in the form of deferred provisions.
- Planned capital injections and corporate governance reforms largely materialized; voluntary conversion of large deposits to equity in August 2022 effectively privatized the smaller of the two banks.
- NPLs: majority reported to be in legal resolution; NPL ratio at 21.1 percent of gross loans.
- Staff priorities: adopt comprehensive restructuring approach with robust viability analyses; enforce prudential regulations on FX risk; develop BNA methodology for viability assessments; operationalize contingency and resolution plans.
- Financial safety net: Deposit Guarantee Fund holds funds amounting to about 2 percent of insured deposits; Bank Resolution Fund established in 2022 but not yet operational.

### Diversification, social outcomes, and climate considerations
- Dependence on oil persists: oil accounts for about 95 percent of exports.
- PRODESI program intensified support to producers (especially agriculture); PROPRIV privatization program: 94 mostly small- and medium-sized entities privatized for Kz.961.1 billion (about 60 percent received, predominantly by Sonangol); PROPRIV extended for 2023–2027 to privatize remaining 84 public assets.
- SDG horizon:
  - Under baseline, Angola would not match SDG outcomes of high-performing peers for more than 22 years beyond 2030.
  - Under a reasonable reform scenario (tax mobilization, expenditure reallocation and efficiencies, increased private savings and investment, TFP- and growth-raising diversification), Angola can reduce this excess gap by at least 12 years and achieve the SDGs by 2040.
- Climate (Annex I):
  - Projected temperature increases: "1-1.5°C warmer in 2020-40 than the 1981-2010 average, and at least 1.5-2°C warmer in 2040-60."
  - CCDR identifies focus areas: water resource management; climate-resilient power; climate-smart food production; green and resilient cities; human capital.
  - Climate-related policies will require additional fiscal space; financing will need private investment and potential ESG bond issuance.

### Public debt, DSA assumptions and stress tests (selected exact figures)
- Public sector debt (gross, percent of GDP): 113.6 138.4 83.6 66.1 64.1 63.4 63.4 (2019–25 sequence as shown).
- DSA baseline underlying assumptions (selected, percent unless indicated):
  - Real GDP growth: 2.8 3.5 3.6 3.9 4.0 4.1
  - Inflation: 15.8 7.6 8.4 8.1 7.2 8.0
  - Primary Balance: 6.1 3.8 3.1 2.7 2.4 2.1
  - Effective interest rate: 6.3 7.1 9.1 9.3 9.3 9.4
- Stress tests (selected shock outcomes preserved exactly):
  - Primary Balance Shock (2022–2027): Primary balance: 6.1 1.4 0.7 2.7 2.4 2.1; Effective interest rate: 6.3 8.5 8.9 9.2 8.9 8.8.
  - Real GDP Growth Shock (2022–2027): Real GDP growth: 2.8 -0.6 -0.5 3.9 4.0 4.1.
  - Real Exchange Rate Shock (2022–2027): Inflation: 15.8 22.9 8.4 8.1 7.2 8.0; Effective interest rate: 6.3 10.6 8.4 8.6 8.4 8.4.

### External sector assessment and reserves
- NIIP (end-2021): NIIP = -36.4 percent of GDP; gross assets = 57.5 percent of GDP; gross liabilities = 93.9 percent of GDP.
- Current account: CA surplus ended 2020 at 1½ percent of GDP; CA balance strengthened to 11.2 percent of GDP in 2021 and projected strong in 2022.
- EBA-lite 2022 estimates: CA norm = 2.7 percent of GDP; Adjusted CA surplus end-2022 = 8.9 percent of GDP; CA gap = 6.2 percent of GDP.
- Gross international reserves (end-2022): US$14.5 billion, equivalent to 6.5 months of imports or 111 percent of the ARA metric (under a floating regime).
- REER indicators: REER model indicated REER overvaluation of 49.4 percent; REER gap from CA model suggested an undervaluation of 28.9 percent; staff assesses the REER gap appears to have already been corrected given 2022 adjustments.

### Capacity building, statistics and TA priorities (Annex VI highlights)
- Comprehensive, demand-driven capacity-building program with IMF, World Bank, AfDB, UN agencies, AFD, FSVC, EU.
- Key areas of TA and training: PFM, tax administration, expenditure policy, AML/CFT, monetary and exchange rate policies, central bank governance, financial sector stability, statistics, SOEs, business climate, climate change.
- Selected upcoming/planned support: IMF (FAD) — MTFF, PIMA follow-up, arrears prevention and cash management (2022–23); IMF (MCM/AFS) — inflation targeting, ELA, SREP, bank resolution (2023); World Bank — public finance review and CCDR (2023).
- Statistics and data reforms:
  - INE rebasing national accounts from 2002 to 2019 via a two-stage process (update to 2015, then to 2019); expected finalization by 2023.
  - Continued improvements in balance of payments and reserves reporting (Reserves Data Template monthly compilation initiated).

### Social and governance indicators (selected)
- Gender and representation:
  - Seats occupied by women in the national assembly: 59 (26 percent) in 2017 → 83 (38 percent) in 2022.
  - 2023 draft budget quantifies gender-impact programs at Kz. 408 billion (0.7 percent of GDP).
- Labor, fertility, and other series (Text Table 3 excerpts preserved as presented; examples):
  - Global Gender Gap Index series: 0.67, 0.64, 0.64, 0.64, 0.63, 0.000, 0.66, 0.66, 0.64.
  - Women Business and the Law Index (WBL) series: 62.50, 70.63, 73.13, 73.13, 73.13, 73.13, 73.13, 77.9, 38n.a.
  - Total Fertility Rate (Births Per Woman) series: 6.19, 5.77, 5.69, 5.60, 5.52, 5.44, 5.37, n.a., n.a.

### Staff appraisal (summary)
- 2022: economy continued recovery; oil production recovered; non-oil output resilient.
- Vulnerabilities remain high due to reliance on volatile oil receipts.
- Policy prescription: return to fiscal adjustment supported by structural reforms; pursue non-oil tax measures; follow through on fuel subsidy reform when social support systems (Kwenda) in place; maintain monetary policy supportive of disinflation with interbank rate alignment; improve financial stability via FIL implementation and comprehensive resolution approaches; strengthen governance and anticorruption efforts; continue gender-policy progress.

*International Monetary Fund staff. February 7, 2023.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### CONTEXT
- Angola achieved macroeconomic stabilization amid a very difficult environment in 2020 and growth began to recover in 2021. The recovery picked up pace in 2022, aided by high oil prices. President João Lourenço was reelected in August 2022.
- Key long-term challenges: debt vulnerabilities and the need to diversify the economy as oil production declines over the long term.
- Authorities’ reform agenda is focused on these challenges, including the upcoming 2023–27 National Development Plan (NDP).
- Recent policy actions and reforms:
  - Large fiscal adjustment over 2018–21, including the introduction of a VAT and floating the exchange rate.
  - Monetary tightening in late 2020.
  - Structural reforms in fiscal management, the monetary policy framework, financial stability, and central bank independence.
- Resilience amid external shocks:
  - Higher oil prices in 2021–22 bolstered growth, revenues, and external balances but increased fuel subsidy costs.
  - Inflation steadily declined in 2022 despite higher global food prices.
  - As of January 1, 2023, about 46 percent of the population had received one dose of the COVID-19 vaccine and 25 percent had received two doses.
- Political context:
  - MPLA won 51 percent of the vote in August 2022 (down from 61 percent in 2017); no longer a two-thirds majority.
  - Opposition won 44 percent of the national vote and a majority in Luanda and two other provinces.
  - Continuity of economic policies signaled by keeping the economic team in place.

### RECENT ECONOMIC DEVELOPMENTS
- Growth and production:
  - Oil production grew on annual average terms by 4 percent between January and August 2022.
  - Oil production declined by an annual average 4 percent between September and November 2022 due to temporary maintenance operations.
  - Non-oil and total GDP growth in the first three quarters of 2022 stood at 3.9 and 3.4 percent y/y, respectively.
  - Agriculture and diamond sectors broadly registered positive growth rates in the first three quarters of 2022.
- Inflation and exchange rate:
  - Inflation fell from 27.0 percent at end-2021 to 13.8 percent y/y at end-2022.
  - Drivers: drop in global food inflation; kwanza’s strengthening in the first three quarters of 2022; prior monetary tightening.
  - Following strong nominal appreciation in H1 2022, the exchange rate stabilized before depreciating in October; at end-December the kwanza was still 10 percent stronger than at the beginning of 2022.
- Fiscal developments:
  - Fiscal policy loosened in 2022 after consolidation in 2021.
  - Capital spending is expected to have exceeded its budgeted amount by about 60 percent as projects were advanced to 2022.
  - Fuel subsidies are projected to have been 2.7 percent of GDP in 2022, 0.9 percent of GDP higher than estimated at the beginning of 2022.
  - Overall balance expected to have fallen from 3.8 percent of GDP in 2021 to 1.7 percent of GDP in 2022.
  - Non-oil primary fiscal deficit (NOPFD) expected to have increased to 7.6 percent of GDP in 2022 (2.4 percentage points of GDP higher than expected at the time of the EFF Sixth Review).
  - Public debt declined from 83.6 percent of GDP in 2021 to a projected 66.1 percent in 2022, driven primarily by strong exchange rate appreciation.
- Banking and credit:
  - Credit growth low at an estimated 4.9 percent y/y in 2022.
  - Banking sector regulatory capital reported at 18.8 percent of risk weighted assets in September 2022, down from 23.8 at end-2021 (largely reflecting the stronger kwanza).
  - Nonperforming loans (NPLs) at 21.1 percent of gross loans, largely concentrated in two large banks under restructuring.
  - COVID-related regulatory forbearance measures unwound in early 2022; two banks under restructuring continue to enjoy regulatory forbearance in the form of deferred provisions.
  - Remaining 21 banks expected to be sufficiently capitalized and liquid to support moderate credit growth on a sectoral level.
- External sector:
  - Current account surplus strengthened to almost 12 percent of GDP at end-September 2022, up from 11.2 percent of GDP in 2021.
  - Exports through Q3 2022 grew by 65 percent y/y, driven by oil and gas.
  - Imports through Q3 2022 grew by 47 percent y/y, driven by consumption goods.
  - Central bank interventions remained contained to limiting excessive exchange rate movements caused by lumpy purchases of surplus FX from the Treasury.

### OUTLOOK AND RISKS
- 2022 and 2023 projections:
  - Total real growth projected to have been 2.8 percent in 2022.
  - Non-oil GDP growth 3.2 percent in 2022; oil sector growth 2.0 percent in 2022 (first positive oil growth in seven years).
  - 2023 overall GDP growth projected at 3.5 percent.
  - Inflation projected to decline to 12.3 percent in 2023.
  - Staff projects modest adjustment in NOPFD in 2023, with NOPFD falling to 7.2 percent of GDP (staff) versus draft budget target of 6.5 percent of GDP (authorities).
- Medium-term outlook:
  - Growth projected to stabilize at around 4 percent in the medium term, supported by structural reforms to boost diversification.
  - Inflation expected to reach the BNA’s single-digit inflation target by end-2024.
  - Baseline assumes gradual decline in oil revenues over the medium term, modest increase in non-oil revenues in line with non-oil growth (no new policy measures), decline in subsidies consistent with projected decline in oil prices (baseline does not assume subsidy reform), and some decrease in capital expenditure as a share of GDP from 2024 onward.
  - With lower oil prices, overall fiscal balance would turn marginally negative this year and continue to decline; overall primary balance would remain in surplus through the medium-term but on a declining path, leading to a flat path for the debt-to-GDP ratio.
  - Current account expected to weaken in the medium term as oil and gas prices decline.
- Risks (tilted to the downside; see Annex III):
  - Primary risk: larger-than-expected decline in oil prices, which could cause currency depreciation, worsening fiscal and external accounts, increased debt ratio (given large FX share of debt), and inflation pressures.
  - Domestic risks: failure to reverse 2022 fiscal loosening; adverse weather conditions negatively impacting non-oil sector (especially agriculture).

### AUTHORITIES' VIEWS
- Broad alignment with staff on outlook and risks.
- Authorities foresee a single digit disinflation path in 2024 supported by the central bank’s efforts toward an inflation targeting framework.
- Over the medium term, authorities expect lower reliance on the oil sector and stronger non-oil growth as diversification measures materialize.

### POLICY DISCUSSIONS: CONSOLIDATING STABILITY AND SETTING THE STAGE FOR INCLUSIVE GROWTH
- Main areas of focus in the 2022 Article IV consultation:
  - 2023 budget and medium-term fiscal and debt outlook, preserving debt sustainability gains.
  - Fiscal structural reforms.
  - Disinflation, monetary policy stance, and transitioning to an inflation-targeting regime.
  - External sector outlook in an uncertain global environment.
  - Steps toward ensuring financial stability.
  - Diversification plans.
  - Governance and gender issues.

A. Firming Up Medium-Term Debt Sustainability
- 2023 budget and fiscal stance:
  - Draft 2023 budget targets NOPFD reduction to 6.5 percent of GDP through: some improvements in non-oil revenue driven by new fee-earning concessions and continued administrative reforms (but not new tax policy measures); some reduction in capital expenditure as a share of GDP; and a large increase in goods and services spending related to higher public investment levels in 2022–23.
  - Draft budget projects subsidy costs for 2023 on a cash basis of 1.6 percent of GDP; staff’s estimate for full calendar year subsidy costs is 2.4 percent of GDP.
  - Staff project a more modest adjustment in 2023, with the NOPFD falling to 7.2 percent of GDP.
  - A decline in oil tax receipts due to lower prices, along with continued higher expenditures, would reduce the overall and primary balances in 2023.
- Financing and debt dynamics:
  - Gross financing needs (GFNs) are manageable near term; debt-to-GDP ratio projected to fall to 64.1 percent of GDP in 2023.
  - Liability management actions in 2022: use of a portion of the $1.8 billion Eurobond proceeds to buy back 2025 Eurobonds; prepayments of other external debt; extension of domestic debt maturities—these helped reduce 2022–23 GFNs and medium-term vulnerabilities.
  - GFNs of an estimated 7.7 percent of GDP in 2023 expected to be met with a mix of domestic financing (tilted toward the longer term), multilateral and bilateral policy and project loans, and commercial financing linked to capital projects.
- Risks to meeting fiscal targets:
  - Fiscal loosening in 2022 and limited adjustment in 2023 imply that, without policy action, neither of Angola’s fiscal targets are likely to be met in the medium term.
  - Baseline assumptions (no new policy measures) leave debt ratio above the 60 percent debt anchor and NOPFD above the 5 percent fiscal anchor through the medium term.
  - Remaining vulnerability to shocks, particularly exchange rate and growth shocks, could drive sharp increases in the debt ratio and financing needs relative to the baseline.

### POLICY ISSUES (SUMMARY OF IMF Recommendations and Staff Views)
- Fiscal policy:
  - Need to take policy action to boost non-oil tax revenues and phase out fuel subsidies, while increasing support for the vulnerable.
  - These measures should reduce debt vulnerabilities, create fiscal space, and help achieve medium-term fiscal and debt anchors.
  - Accelerate structural fiscal reforms to maximize non-oil revenues and enhance spending impact.
- Monetary and exchange rate policy:
  - Monetary policy should maintain a wait-and-see approach while inflation remains high (albeit steadily declining) given potential risks to prices.
  - Central bank should continue transition toward an inflation-targeting framework and retain a flexible exchange rate regime as a shock absorber.
- Banking sector policies:
  - Continue efforts to strengthen financial stability, including implementing the new financial institution law and adopting a comprehensive approach to dealing with troubled banks.
- Structural and diversification policies:
  - Successful diversification and development hinge on improvements in human and physical capital, underpinned by more effective social and public investment spending.
  - Improved access to credit is critical.
  - Further efforts required to reduce corruption and boost government transparency.

*International Monetary Fund staff. February 7, 2023.*

### 12.      Action should be taken while oil

### 12.      Action should be taken while oil prices are relatively high to put the NOPFD on a sharper downward path toward its target.

### Fiscal consolidation and NOPFD target
- Key recommendation: take advantage of relatively high oil prices to put the NOPFD on a sharper downward path toward its target.
- Policy package to achieve this includes:
  - renewed efforts to further mobilize non-oil revenue via tax policy measures;
  - a phasing out of fuel subsidies;
  - further progress on fiscal structural and administrative reforms, including keeping capital expenditure within the budgeted amount and avoiding extra-budgetary project approvals that led to large overruns in 2022.
- Follow-through priorities:
  - complete outstanding public financial management reform agenda and leverage technical assistance (Annex VI);
  - seek opportunities to smooth external debt service via additional liability management actions and prepayment, while bolstering fiscal buffers (also required for climate change needs, Annex I);
  - include the full annual costs of fuel subsidies in the budget to build on 2022 gains in budget transparency.
- Fiscal anchors reiterated by authorities:
  - bring the NOPFD down to 5 percent of GDP in the medium term;
  - bring the debt ratio below 60 percent of GDP.

### Arrears clearance and audit
- Authorities intend to clear remaining arrears of an estimated Kz. 1.2 trillion (about 2 percent of GDP, as of November 2022) over the medium term; the 2023 budget plans to clear Kz. 429 billion.
- There is an additional Kz. 725 billion (about 1 percent of GDP) in pending arrears cases awaiting certification.
- No new arrears were accumulated in 2022; certifications of previously-unrecognized arrears increased the recorded stock, though large clearances meant a net drop.
- Staff recommended an audit of newly-recognized arrears.
- Planned technical assistance on arrears prevention and cash management (Annex VI) should support arrears-addressing efforts.

### Fuel subsidy reform and estimated gains
- Authorities are considering phasing out fuel subsidies; staff view this as a key step toward fiscal consolidation and reducing debt vulnerabilities.
- Completed preparatory work includes: comprehensive fuel pricing reform options; quantitative poverty and social impact analysis; estimation of potential savings; mitigation options for the vulnerable; and a communications strategy.
- Staff encouraged authorities to provide data to estimate inflationary impacts and to design mitigation for users of mass informal transportation, including outside Luanda.
- Text Table 2 (preserve exact figures and formatting as presented):
  - TotalYear 1Year 2Year 3
  - Tax Policy Measures0.90.50.20.2
    - VAT Threshold Reduction 0.30.10.10.1
    - Lower PIT Rate Brackets0.50.40.10.1
    - Property Registry/Property Tax0.10.00.10.1
  - Fuel Subsidy Reform (gross)3.6-5.11.2-1.71.2-1.71.2-1.7
  - Total4.5-6.0
  - (percent of GDP)

### Structural fiscal reforms — progress and remaining gaps
- Tax policy and administration:
  - Room to further mobilize non-oil revenues.
  - Staff recommendations: reducing VAT thresholds; increasing progressivity and lowering brackets for the top marginal PIT rate; limiting thin capitalization; reforming the property registry and property tax.
  - Tax administration: adopt modern organizational structure and compliance risk management; access data outside AGT.
- Cash transfer program (Kwenda):
  - Implementation hampered by logistical and infrastructure constraints (roads, bank facilities, mobile connectivity).
  - Eighteen nationwide teams take 55 days on average to pay a typical village of 10,000 households.
  - Faster rollout is crucial to enable fuel subsidy reform in 2023.
  - Remaining three components are advancing more slowly.
- State-owned enterprise (SOE) reform and privatization:
  - Objectives: improve efficiency of dormant productive public assets; promote private sector-led non-oil growth.
  - Activation of SOE reform roadmap prioritizing energy and water, telecommunications, and transportation sectors.
  - Emphasis on restructuring underperforming SOEs into liquidation, privatization, public service companies, or corporations; management efficiency; financial reporting and transparency; monitoring fiscal risks.
  - Privatization program (PROPRIV): 94 mostly small- and medium-sized entities privatized for a value of Kz.961.1 billion; only about 60 percent of that amount has been received, predominantly by Sonangol for its holdings.
  - PROPRIV extended for another five years (2023-2027) to privatize remaining 84 public assets, including some larger assets (UNITEL, Sonangol, ENDIAMA, TAAG); authorities envision 23 of these 84 privatizations to take place in 2023.
  - Staff urged against further state financial support to failing SOEs without credible restructuring plans.
- Public financial management (PFM):
  - Concern about acceleration of capital expenditure well in excess of the budgeted amount in 2022, amid weak public investment management institutions and practices.
  - Authorities intend to integrate implementation lessons of PIIM into NDP 2023–2027 and pursue a 5-year national PFM strategic action plan.
  - Fund ready to support publication (per fiscal responsibility law) of:
    - (i) MTFF and MTEF projections with ceilings, bottom-up costing, and budget guidelines;
    - (ii) a reliable fiscal strategy compliant with fiscal rules;
    - (iii) analysis of oversight/management of fiscal risks, including SOEs and PPPs;
    - (iv) a Public Investment Management Assessment (PIMA) workshop to update the PIMA action plan on project appraisal, selection, and multiyear budgeting;
    - (v) more timely and consistent fiscal reporting.
- Procurement:
  - Preliminary AfDB Methodological Assessment of Procurement System confirms recent progress.
  - Angola fully or partially meets most assessed criteria, with strengths in legal/regulatory framework and accountability, integrity, and transparency.
  - Shortcomings remain in institutional framework, management capacity, public procurement operations, and market practices.
  - Publication of ultimate beneficial ownership (UBO) information is essential but challenging due to required legislative overhaul.
  - BNA’s Financial Intelligence Unit collects and shares UBO information of suppliers with payments above certain thresholds with other government bodies.
- Audit and publication of Covid expenditure report:
  - Commitment under the IMF-supported program to publish audited 2020 and 2021 Covid expenditure reports has not yet been fulfilled.
  - Staff urged Ministry of Finance and IGAE to accelerate publication.

### Authorities’ views on fiscal reforms and priorities
- Authorities reiterated commitment to dual anchors of Fiscal Responsibility Law (NOPFD 5 percent of GDP; debt ratio below 60 percent of GDP).
- They believe stronger adjustment efforts planned for 2024 will be sufficient to meet medium-term targets, achieved mainly via fiscal administrative measures and a gradual decline in capital expenditure as a share of GDP from 2024 onward.
- Authorities viewed IGAE practices as providing sufficient control over arrears reclassification.
- Committed to gradually reform fuel subsidies when conditions are in place, with Kwenda as main mitigation mechanism; aim had been to register at least 1 million poor households (about two-thirds of program’s target) by end-2022.
- Intend to mobilize non-oil tax revenue; no substantial tax-structure changes in 2023 budget proposal but signaled move towards single global taxation.
- Slight sectoral reprioritization of SOE reforms (excluding extractive industries; including water and transportation) to focus on publicly visible services.
- Divestment of government shares in larger SOEs contingent on restructuring and privatization of non-core assets.
- Committed to reinvigorate PFM reform with donor support; produced preliminary MTFF for 2024–2028 and requested IMF assistance on macroeconomic modeling, forecasting, and fiscal strategy preparation.
- On procurement: authorities noted UBO not published publicly but relevant government entities have access for investigative purposes.
- Delays in audited Covid expenditure publication attributed to reorganization and transfers of inspection functions to IGAE.

### Proceeding with disinflation and strengthening the external position
- Recent monetary policy and inflation developments:
  - BNA enacted large policy rate increases and achieved low monetary aggregate growth in 2021.
  - Inflation fell from 27 percent in end of 2021 to 13.8 percent in end of 2022.
  - BNA eased policy with a cut in its policy rate by 50 bps in September 2022 and 150 bps in January 2023.
  - Total M2 is still contracting (backed by the drop in net foreign assets), and credit growth remains subdued.
  - Overnight Luibor interbank rate fell to (and remains) well below the policy rate.
  - Average inflation of 22 percent in the past eight years.
- Staff advice:
  - adopt a wait-and-see policy approach given historically high inflation and significant upside risks until there is more evidence of a firm downward path and anchored lower inflation expectations;
  - align the interbank rate (Luibor) with the key policy rate.
  - continue improving liquidity management and remove the custody fee to support the move away from monetary aggregate targeting and align Luibor with the policy rate.
- Transition toward inflation-targeting:
  - BNA’s forecasting and communications practices progressing toward an inflation-targeting framework with IMF TA support; full transition is medium-term.
- Exchange rate policy and reserves:
  - BNA engaged in modest intervention to lean against strong appreciation earlier in the year; kwanza appreciated by 10 percent over 2022.
  - Net FX purchases in 2022 were mainly in the first half of the year; extent of intervention modest relative to pre-2020 managed regime.
  - Staff encouraged development of an indicator-based intervention strategy (with IMF TA), specifying how reserves would be accumulated and sterilized if needed.
  - External position in 2022 assessed as stronger than level implied by fundamentals and desirable policies, implying an undervaluation of the REER; staff assesses the REER gap to have already been corrected (Annex V).

### Maintaining banking sector stability
- Financial Institution Law (FIL) implementation:
  - FIL approved in 2021 to align supervision and resolution with international best practices; progress being made operationalizing and implementing FIL.
- Bank supervision:
  - Secondary legislation issued; BNA completing second round of SREP, defining bank-specific capital requirements (Basel Pillar 2).
  - New corporate governance requirements: inclusion of non-executive and independent board members; more stringent suitability assessments.
  - Staff advocated increased focus on collective suitability of bank managers and improved supervisory information quality; urged development of remaining secondary legislation and recovery planning guidelines.
- Macroprudential policies:
  - Financial Stability Department (FSD) established in July 2022.
  - Council of Financial System Supervisors created to monitor financial stability and advise on macroprudential policies.
  - Systemically important banks identified; banks instructed to build systemic and capital conservation buffers (Basel III).
- Financial safety net and resolution:
  - Bank Resolution Unit established under FSD; staff recommended separate reporting lines for supervision and resolution to ensure operational independence.
  - Development and adoption of secondary legislation and procedures prioritized to operationalize bank resolution framework.
  - Emergency liquidity assistance (ELA) framework implementation well advanced; staff urged provision of ELA only to solvent and viable banks.
  - Deposit Guarantee Fund (DGF) holds funds amounting to about 2 percent of insured deposits.
  - Bank Resolution Fund established in 2022 but yet to commence operations.
  - Staff advised priority be given to improve DGF’s financial strength.

*Source: IMF staff report (excerpt).*

### 24.      The restructuring of two (formerly)  state-owned problem banks is delayed and

### 24. The restructuring of two (formerly) state-owned problem banks is delayed and reliance on regulatory forbearance continues

### Bank restructuring, governance, and current constraints
- Two banks under restructuring hold 16 percent of system assets.
- Banks are implementing BNA-approved restructuring plans to address capital shortfalls identified during the 2019 asset quality reviews (AQRs).
- Planned capital injections have largely materialized, including the voluntary conversion of large deposits to equity in August 2022 in the smaller of the two banks, effectively resulting in the banks’ privatization.
- Corporate governance reforms are well advanced within both banks and their management teams recently replaced.
- Governance arrangements for the consortium of depositors turned shareholders are in place; staff recommended that BNA extend its suitability assessment to include the consortium’s management.
- Continued financial pressures weigh negatively on profitability and implementation of restructuring plans, including:
  - Slow resolution of nonperforming assets (NPLs and real estate portfolios).
  - Large foreign exchange exposure.
- These factors undermine exit from regulatory forbearance and delay the banks’ ability to provide new credit to the economy.
- Following the BNA’s decision to grant an additional one-year extension on provision deferrals and request updated plans, staff emphasized the importance of:
  - Adopting a more comprehensive approach to bank restructuring, predicated on robust viability analyses and full compliance with regulatory requirements within a reasonable time.
  - Enforcing prudential regulations on foreign exchange risk.
  - Developing the BNA’s methodology for viability assessments.
  - Preparing and operationalizing contingency plans.

### Nonperforming loans (NPLs) and asset recovery
- The majority of NPLs are reported to be in legal resolution—a process that may take several years to complete.
- In early 2023, the BNA plans to complete targeted onsite inspections at all banks with elevated NPLs, focusing on provisioning levels, collateral valuations, and resolution strategies.
- Anticipated enforcement actions include instructions to:
  - Increase provisions.
  - Submit updated time-bound NPL resolution strategies and targets to be closely monitored by the BNA.
- Recredit (the asset management company that received part of the larger troubled bank’s NPLs):
  - For the second year, achieved its targets for recoveries and expects to continue to do so.
  - Around 45 percent are non-cash recoveries and Recredit is exploring options to monetize those.
  - Staff noted Recredit’s backloaded asset recovery plan and advised that it be revisited to ensure operations can be wound up within the predetermined lifetime of 10 years.

### Authorities’ views on financial sector reforms
- Authorities reconfirmed commitment to complete ongoing financial sector reforms and broadly agreed with staff’s recommended priorities.
- The BNA presented a time-bound plan to operationalize the new bank recovery and resolution framework.
- Authorities agreed that the BNA Law’s solvency requirement for ELA eligibility should be defined on a forward-looking basis.
- The BNA acknowledged the benefit of improving supervisory information, including in the context of the SREP.
- IMF staff has been providing TA to the BNA in all of these areas and continued engagement is planned for 2023.

### Diversifying the economy and shoring up resilience
- Angola’s economy remains dependent on oil.
- Policy actions to reduce dependence on oil and deliver stronger, more inclusive long-term growth should be incorporated in the 2023-27 National Development Plan.
- Improved performance on macro-critical governance issues and corruption vulnerabilities are vital to diversification and addressing climate change impacts.

### Progress and priorities for diversification
- PRODESI program has intensified plans to support producers through training, sales promotion (especially agricultural sector), and support to access project credit.
- Efforts should be increased to:
  - Improve the business climate by reducing the administrative burden on investment, particularly regarding licensing and price controls.
  - Enhance access to credit, especially for SMEs.
  - Reduce the difficulty of registering land ownership.

### Social spending, SDG outcomes, and reform scenario
- Angola’s human capital spending is relatively low and inefficient; physical capital spending is higher but also inefficient.
- Under the baseline scenario, Angola would not match the SDG outcomes of high performing peers in human and physical capital for more than 22 years beyond the target year of 2030.
- Under a reasonable reform scenario prioritizing:
  - Tax revenue mobilization.
  - Improvement of expenditure reallocation and efficiencies.
  - Increased private savings and participation in investment.
  - TFP- and growth-raising diversification of the non-oil economy.
  Angola can reduce this large excess gap in the horizon by at least 12 years and achieve the SDGs by 2040.

### Access to credit and implications of delayed bank restructuring
- Private credit as a share of GDP is amongst the lowest in SSA, constrained by demand, supply, and institutional factors.
- A comprehensive strategy is needed to:
  - Reduce informality.
  - Strengthen private sector capacity.
  - Decrease the large share of government debt on banks’ balance sheets.
  - Stimulate banks to lend more to the private sector.
- The delay in restructuring of problem banks poses challenges to credit access and diversification objectives.
- As financial access deepens, the BNA must ensure banks remain well-capitalized and equipped to assess and manage associated credit risk.

### AML/CFT, governance, and corruption
- Efforts made to strengthen AML/CFT framework, reduce corruption, and boost government effectiveness include:
  - Recently-approved AML/CFT law with assistance from the Fund.
  - Various fiscal governance reforms.
- Remaining priorities include:
  - Transparency of beneficial ownership information (including procurement contracts).
  - Asset recovery efforts.
- An AML/CFT assessment with ESAAMLG is underway, and the report is expected to be adopted in April 2023; authorities should address noted deficiencies as soon as possible to avoid potential “gray-listing” by FATF.

### Gender equality progress and indicators
- Seats occupied by women in the national assembly grew from 59 (26 percent) in 2017 to 83 (38 percent) in 2022.
- Since 2022, gender-equality measures have been institutionalized in the central government budget, including a methodology to assess the efficacy of programs promoting gender-equality funded by budget resources.
- The 2023 draft budget quantifies budgeted programs with the strongest impact on gender, estimating the impact at Kz. 408 billion (0.7 percent of GDP).
- Global gender gap index for Angola in 2022 was 0.64, meaning females were 36 percent less likely to have the same opportunities as males in Angola; this compares to a 0.68 index for Sub-Saharan Africa as a whole.
- Text Table 3 (selected indicators):
  - Women Business and the Law Index (WBL) series: 62.50, 70.63, 73.13, 73.13, 73.13, 73.13, 73.13, 77.9, 38n.a. (as presented).
  - Global Gender Gap Index series: 0.67, 0.64, 0.64, 0.64, 0.63, 0.000, 0.66, 0.66, 0.64.
  - Proportion of Seats Held By Women in National Parliaments series: 38.6, 36.8, 36.8, 26.0, 30.5, 30.0, 30.0, n.a., 37.7.
  - Labor Force Participation: Women series: 73.3, 72.3, 72.3, 72.3, 72.3, 72.3, 71.0, 71.4, 72.0.
  - Labor Force Participation: Men series: 75.9, 76.8, 76.8, 76.6, 76.5, 76.3, 75.6, 75.9, 76.2.
  - Unemployment Rate: Women series: 13.0, 9.6, 9.7, 9.7, 9.7, 9.7, 10.7, 11.1, 10.8.
  - Unemployment Rate: Men series: 10.0, 9.1, 9.1, 9.1, 9.1, 9.1, 10.1, 10.2, 9.9.
  - Total Fertility Rate (Births Per Woman) series: 6.19, 5.77, 5.69, 5.60, 5.52, 5.44, 5.37, n.a., n.a.
  - Adolescent Fertility Rate series: 172.9, 157.3, 153.9, 150.5, 148.0, 145.4, 142.8, n.a., n.a.

### Staff appraisal: macro outlook, fiscal and monetary policy, and financial stability
- 2022 developments:
  - Angola’s economy continued to recover in 2022 after a subdued performance over the previous seven years.
  - Oil production has recovered and is expected to remain at a stable level in the near term as new investments see some revival.
  - Non-oil output has remained resilient with broad-based positive performance.
  - Vulnerabilities remain high given continued reliance on volatile oil export receipts.
- Medium-term outlook and risks:
  - Growth is expected to broadly stabilize in the medium term, supported by the non-oil sector and diversification efforts.
  - Inflation is expected to continue declining at a gradual pace with the BNA’s policy stance supportive of a disinflationary path; the flexible exchange rate acts as an absorber for external shocks.
  - Risks include a decline in international oil prices and/or oil production, resurgence of the pandemic, increasing inflation, and further fiscal loosening.
- Fiscal policy:
  - A return to fiscal adjustment based in part on further progress on structural fiscal reforms is required to preserve debt sustainability.
  - Near-term financing needs are manageable but the envisaged adjustment path would leave Angola vulnerable to shocks.
  - Non-oil tax policy measures should be pursued to spur adjustment and balance expected declines in oil revenues.
  - Authorities should follow through on fuel subsidy reform once appropriate social support systems are in place.
  - Measures should be complemented by structural fiscal reforms to improve revenue and expenditure efficiency and by continued liability management operations to smooth financing needs.
- Monetary policy:
  - Monetary policy stance should remain supportive of a disinflationary path to safeguard price stability.
  - A “wait and see” strategy is advised until inflation is firmly on a downward path.
  - To strengthen monetary policy effectiveness, the interbank rate should be closely aligned with the key policy rate.
  - BNA should continue improving liquidity forecasting capabilities and enhancing instruments to move away from monetary aggregate targeting.
  - Given exchange rate volatility, developing an indicator-based intervention strategy to mitigate excess exchange rate volatility would be useful.
- Financial stability:
  - Continued efforts needed to strengthen financial stability.
  - Expeditious implementation of the FIL’s remaining secondary legislation is crucial, including bank recovery and resolution planning.
  - BNA should adopt a more comprehensive approach for dealing with problem banks, predicated on robust viability analyses and full compliance with regulatory requirements within a reasonable time.
  - Banks’ foreign exchange risk warrants increased supervisory attention under the new currency regime.
  - BNA and other safety net participants (supervisors, DGF, and the MinFin) should prepare contingency plans to effectively deal with financial sector stress.
- Governance and structural reforms:
  - Continuance of structural reforms remains critical to strengthen governance, improve the business environment, and promote private investment to support diversification and inclusive growth.
  - Increased efforts needed to speed up finalization of the nationwide anti-corruption strategy and strengthen governance and transparency.
  - Authorities are encouraged to continue building on recent progress with gender policies.
- BNA safeguards:
  - BNA has implemented most recommendations from the 2019 safeguards assessment, including establishment of an audit committee in January 2022 and adoption of secondary regulations to help implement the amended 2021 BNA Law.
  - Key deviations from IFRS were resolved in the FY 2021 financial statements.
  - Remaining recommendations include developing a framework for emergency liquidity assistance and continuing to strengthen internal audit capacity, with an independent quality assessment expected in 2023.
- External accounts and restrictions:
  - Angola continues to maintain restrictions on the making of payments and transfers for current international transactions under the transitional arrangements of Article XIV, Section 2 (in addition to measures subject to AVIII, Sections 2 and 3).

*Sources: Angolan authorities; and IMF staff estimates.*

### 42.      Staff recommend that the next Article IV consultation take place on the standard 12-

### 1agoea2023001 - 42.      Staff recommend that the next Article IV consultation take place on the standard 12-

### Article IV timing and Fund assessments
- Staff recommend that the next Article IV consultation take place on the standard 12-month cycle.
- With credit outstanding to the Fund exceeding 200 percent of quota, Angola requires a Post-Financing Assessment (PFA).
- A PFA discussion, including an assessment on the capacity to repay, is expected to take place in mid-2023.

### Macroeconomic performance and high-frequency indicators (2014–22)
- A return to oil growth helped boost recovery in 2022; business confidence recovered in parallel; exports continued their recovery; bond yields continued to fall as oil prices rose.
- Continued overall M3 growth containment has helped to drive disinflation.
- Selected indicator notes: 1/ Difference between positive and negative responses to a survey of economic conditions in percentage points.

### Fiscal developments (2016–22) and central government operations (2019–24)
- Oil production improved in 2022 and, along with higher oil prices, led to an increase in exports and revenues.
- Non-oil revenues declined modestly and, along with higher expenditure, notably subsidies, meant fiscal slippage in 2022.
- Key Table 1 highlights (2019–27, Prel./Proj./Est. where shown):
  - Real gross domestic product: -0.7 -5.6 1. 12.8 3.5 3.6 3.9 4.0 4.1
  - Oil sector real GDP: -6.5 -6.7 -11.5 2.0 1.2 0.0 0.0 0.0 0.0
  - Non-oil sector real GDP: 1.8 -5.2 5.3 3.2 4.3 4.8 5.0 5.0 5.0
  - Nominal GDP (billions of kwanzas): 30,833 33,041 47,226 56,231 62,625 70,317 79,012 88,095 99,107
  - Gross domestic product (billions of U.S. dollars): 84.5 57.1 74.8 121.6 118.6 124.2 130.3 135.4 142.3
  - Consumer prices (annual average): 17.1 22.3 25.8 21.4 11.7 10.8 9.4 9.3 9.1
  - Overall fiscal balance (percent of GDP): 0.8 -1.9 3.8 1.7 -0.4 -2.0 -2.5 -2.9 -3.2
  - Non-oil primary fiscal balance (percent of non-oil GDP): -8.8 -7.6 -6.8 -10.4 -9.5 -8.7 -7.9 -7.2 -6.6
  - Gross international reserves (end of period, millions of U.S. dollars, excluding pledged repo securities): 12,979 10,978 14,375 14,479 14,769 15,509 16,200 16,411 16,099
  - Public sector debt (gross, percent of GDP): 113.6 138.4 83.6 66.1 64.1 63.4 63.4 63.8 63.1
  - Angola oil price (average, U.S. dollars per barrel): 65.0 41.3 70.7 97.8 81.6 77.4 74.0 71.1 68.8
- Table 2a (Central Government operations, 2019–24, Billions of kwanzas) highlights:
  - Revenue: 6,530 7,053 11,017 13,190 13,280 14,400
  - Taxes: 6,058 6,605 10,346 12,212 11,817 12,680
  - Expenditure: 6,291 7,691 9,207 12,240 13,511 15,809
  - Interest: 1,721 2,300 2,444 2,475 2,594 3,581
  - Net lending (+) / Net borrowing (-): 239 -638 1,811 950 -231 -1,409
  - Non-oil primary fiscal balance (memorandum): -1,868 -1,867 -2,234 -4,249 -4,527 -4,817
- Table 2b (Percent of GDP) and Table 2c (Percent of non-oil GDP) present consistent percent-of-GDP breakdowns reaffirming fiscal slippage in 2022 and large non-oil primary deficits.

### Monetary sector and financial indicators (2019–24; financial stability 2015–22)
- Monetary aggregates and monetary policy:
  - Broad money (M3, end of period, Billions of currency): 10,219 12,702 11,518 10,986 12,114 13,471
  - Money and quasi-money (M2): 10,214 12,698 11,513 10,981 12,109 13,466
  - Net foreign assets: 7,030 7,311 5,913 5,354 6,015 7,003
  - Reserve money (end of period): 2,287 2,361 2,586 2,384 2,625 2,958
  - Claims on private sector (percent change): 21.7 -7.7 5.6 4.9 10.2 10.7
  - Foreign currency deposits (share of total deposits): 54.7 55.8 50.5 34.3 32.8 31.2
- Financial stability indicators (Table 6):
  - Regulatory capital to risk-weighted assets: 19.8 19.2 18.9 24.2 23.2 20.3 23.8 22.9 20.5 18.8 (Dec-15 through Sep-22 sequence)
  - Nonperforming loans to gross loans: 11.6 13.1 8.8 8.7 32.4 18.4 20.3 21.2 22.0 21.1
  - Return on assets (ROA) and Return on equity (ROE) show volatile profitability with ROA: 1.7 2.2 2.1 4.4 -1.3 -2.9 2.2 1.5 2.5 2.3

### External sector and balance of payments (2019–24)
- Trade and current account:
  - Exports, f.o.b. (millions of U.S. dollars): 34,726 20,937 33,581 48,483 42,532 40,173
  - Crude oil exports (millions of U.S. dollars): 31,396 18,297 27,860 40,954 34,562 32,804
  - Imports, f.o.b. (millions of U.S. dollars): 14,127 9,543 11,795 16,404 16,809 17,252
  - Trade balance (millions of U.S. dollars): 20,599 11,394 21,787 32,078 25,723 22,921
  - Current account (millions of U.S. dollars): 5,137 872 8,399 13,353 7,519 3,876
  - Current account (percent of GDP): 6.1 1.5 11.2 11.0 6.3 3.1
- Reserves and financing:
  - Gross international reserves (excluding pledged repo securities, millions of U.S. dollars): 12,979 10,978 14,375 14,479 14,769 15,509
  - Months of next year's imports: 10.3 7.0 6.6 6.5 6.4 6.7
  - Financial account (millions of U.S. dollars, + = outflows): 3,500 2,756 4,524 12,086 7,056 2,903
  - Exceptional financing and IMF support figures are noted in Tables 4a/4b.

### Public debt and fiscal financing (2019–25)
- Public debt levels and composition (Table 5 and Table 7):
  - Total public debt (percent of GDP): 113.6 138.4 83.6 66.1 64.1 63.4 63.4 (2019–2025 sequence as shown)
  - External debt (percent of GDP): 78.6 103.1 60.6 48.6 47.6 47.4 46.5
  - Domestic debt (percent of GDP): 34.9 35.3 23.0 17.5 16.5 16.1 16.9
- Fiscal financing needs and sources (Table 7, Billions of U.S. dollars, 2022–25):
  - Financing Needs (A): 13.3 10.8 13.3 12.4
    - Primary deficit: -7.4 -4.5 -3.8 -3.5
    - Debt service: 16.8 14.0 15.6 14.5
    - External debt service: 7.4 7.1 8.3 10.3
    - Domestic debt service: 9.4 6.9 7.3 4.2
    - Net clearance of domestic arrears / accounts payable: 2.1 0.5 0.4 0.4
    - Net clearance of external arrears / accounts payable: 1.3 0.3 1.1 1.0
  - Financing Sources (B): 13.3 10.8 13.3 12.4
    - External debt disbursements: 6.6 5.5 7.6 8.0
    - Domestic debt disbursements: 5.4 5.3 5.9 4.6
    - Deposits withdrawals (+): 2.4 -0.6 -0.4 -0.4
    - FSDEA asset sales: 0.7 0.5 0.0 0.0
  - Financing Gap (A-B): 0.0 0.0 0.0 0.0
  - Memorandum:
    - Total usable cash balances: 1.5 1.5 1.5 1.5 (Billions of U.S. dollars)
    - Total usable cash balances (in months of expenditure): 2.0 1.9 1.6 1.5
    - External debt rollover rate (in percent): 89 78 89 78
    - Domestic debt rollover rate (in percent): 58 78 82 113

### IMF credit indicators and obligations (2021–30)
- Table 8 highlights:
  - Disbursements (2021): 1,408.7
  - Stock of existing and prospective Fund credit (2021 onward): 3,213.4 ... declining across projection years to 162.0 by 2030 as shown in the table.
  - Fund Credit Outstanding relative to key variables (selected):
    - Quota: 434.2 434.2 416.1 391.9 341.4 269.1 196.7 124.3 70.1 21.9 (2021–2030 sequence)
    - Gross international reserves: 31.3 28.9 27.2 24.5 20.4 15.7 11.0 6.5 3.5 1.0 (percent)
    - Central Government revenues (millions of U.S. dollars, memorandum): 17,448 28,524 25,501 25,512 25,816 26,274 26,896 27,910 28,995 30,155

*Source: Angola—IMF staff report content as provided.*

### Annex I. Climate Change in Angola

### Annex I. Climate Change in Angola

### Climate impacts and projections
- The World Bank Country Climate Development Report (CCDR) for Angola projects annual mean temperatures in most of Angola to be "1-1.5°C warmer in 2020-40 than the 1981-2010 average, and at least 1.5-2°C warmer in 2040-60."
- Projected climatic changes could lead to shorter rainy seasons, higher rainfall variability, and drier conditions in the south, with negative impacts on:
  - agriculture,
  - fisheries,
  - energy (in particular hydropower),
  - growth more broadly.
- These conditions would also exacerbate water scarcity in urban areas.

### Implications for diversification and sectoral strategy
- Angola’s heavy dependence on the oil sector increases vulnerability to shocks and holds back non-oil sector competitiveness; global trends toward carbon neutrality heighten the urgency of economic diversification.
- Taking into account natural endowments, Angola holds a comparative advantage in agriculture; authorities also see great potential in the fishery and energy sectors.
- The CCDR identifies five areas of focus for a diversified climate-resilient economy:
  - Water resource management;
  - climate-resilient power supply;
  - climate-smart food production;
  - green and resilient cities;
  - human capital.
- Climate mitigation and resilience must be factored into diversification plans to ensure sustainable non-oil growth and to meet social needs.

### Fiscal tradeoffs and policy implications
- Climate-related policies and investments could require additional fiscal space and difficult choices given continued large debt vulnerabilities and fiscal adjustment needs.
- As oil revenues decline, the following will become increasingly important:
  - expenditure efficiency,
  - greater progress on the structural fiscal agenda.
- Creating additional fiscal space will require:
  - mobilizing non-oil revenues,
  - rationalizing expenditure, including fuel subsidy reform.
- The drafting of the new National Development Plan (2023–27) should take into account climate-related needs and the inherent spending tradeoffs.

### Financing needs and mobilization
- New sources of financing will be required to meet climate mitigation and resilience needs.
- Liability management and domestic debt market development operations by the authorities in recent years have been described as commendable.
- The authorities are planning on pursuing an ESG bond issuance, which will also help to leverage finance for sustainable projects.
- Private investment will likely be required to meet climate mitigation needs; attracting it will require improvements in Angola’s business environment.

*Annex I. Climate Change in Angola — IMF staff summary from source document.*

### 9.      Angola’s public debt is vulnerable to downside risks. The asymmetric fan chart shows

### 9. Angola’s public debt is vulnerable to downside risks. The asymmetric fan chart shows

### Debt vulnerabilities and heat map
- Systematically unfavorable macroeconomic shocks (e.g., fiscal and exchange rate shocks) could drive the debt trajectory to exceed the high-risk benchmark (as shown by the asymmetric fan chart).
- The heat map indicates:
  - Debt breaches their high-risk benchmarks in stress test scenarios; GFNs do not breach their high-risk benchmarks in the same scenarios.
  - Risks are flagged from market sentiment, the investor base, and the currency composition.

### External Debt Sustainability Analysis (coverage and trajectory)
- Debt coverage in the external DSA includes:
  - external debt of the Central Government, Sonangol, TAAG, and public guarantees of debt denominated in foreign currency.
  - Private sector external debt is excluded due to limited data; authorities are working to collect private sector debt data, including with IMF technical assistance.
- Angola’s external debt:
  - Estimated to have peaked in 2020 and projected to continue to moderately decline through the medium term.
  - Drivers of the declining external debt path are the same as those for public debt.
- External debt vulnerabilities:
  - Especially exposed to unfavorable current account developments and a 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.

### Bottom line assessment and policy guidance
- Public debt sustainability:
  - Public debt is assessed as sustainable, although substantial risks remain.
  - Following its 2020 peak, the debt ratio is projected to have fallen to a level moderately above the authorities’ medium-term target in 2022 and is expected to decline modestly in 2023, remaining just above the target through the medium term.
  - A positive, albeit declining, primary fiscal balance is projected to keep the debt ratio and GFNs contained in the medium term.
- Policy recommendations for authorities:
  - Enhance debt management strategy to improve public debt dynamics.
  - Pursue conservative fiscal budgeting and prudent budget execution.

### DSA baseline assumptions and alternative scenarios (selected underlying assumptions reproduced exactly)
- Baseline scenario underlying assumptions (in percent unless otherwise indicated) for 2022–2027 (selected lines preserved as in source):
  - Real GDP growth: 2.8 3.5 3.6 3.9 4.0 4.1
  - Inflation: 15.8 7.6 8.4 8.1 7.2 8.0
  - Primary Balance: 6.1 3.8 3.1 2.7 2.4 2.1
  - Effective interest rate: 6.3 7.1 9.1 9.3 9.3 9.4
- Historical scenario (selected):
  - Real GDP growth: 2.8 1.0 1.0 1.0 1.0 1.0
  - Inflation: 15.8 7.6 8.4 8.1 7.2 8.0
  - Primary Balance: 6.1 2.2 2.2 2.2 2.2 2.2
  - Effective interest rate: 6.3 8.5 7.6 6.6 5.5 4.6
- Constant Primary Balance Scenario (selected):
  - Primary Balance: 6.1 6.1 6.1 6.1 6.1 6.1
  - Effective interest rate: 6.3 8.5 8.7 8.9 8.6 8.6

### Stress tests (selected shocks and key projected values preserved exactly)
- Stress test shocks and selected underlying assumption paths:
  - Primary Balance Shock (2022–2027):
    - Real GDP growth: 2.8 3.5 3.6 3.9 4.0 4.1
    - Inflation: 15.8 7.6 8.4 8.1 7.2 8.0
    - Primary balance: 6.1 1.4 0.7 2.7 2.4 2.1
    - Effective interest rate: 6.3 8.5 8.9 9.2 8.9 8.8
  - Real GDP Growth Shock (2022–2027):
    - Real GDP growth: 2.8 -0.6 -0.5 3.9 4.0 4.1
    - Inflation: 15.8 6.6 7.3 8.1 7.2 8.0
    - Primary balance: 6.1 2.9 1.2 2.7 2.4 2.1
    - Effective interest rate: 6.3 8.5 8.8 9.1 8.8 8.7
  - Real Interest Rate Shock (2022–2027):
    - Effective interest rate: 6.3 8.5 9.1 9.6 9.5 9.8
  - Real Exchange Rate Shock (2022–2027):
    - Inflation: 15.8 22.9 8.4 8.1 7.2 8.0
    - Effective interest rate: 6.3 10.6 8.4 8.6 8.4 8.4
  - Combined Shock (2022–2027):
    - Real GDP growth: 2.8 -0.7 -0.1 3.9 4.0 4.1
    - Inflation: 15.8 5.8 19.1 8.1 7.2 8.0
    - Primary balance: 6.1 1.3 1.4 2.7 2.4 2.1
    - Effective interest rate: 6.3 10.5 9.9 9.6 9.4 9.6
  - Contingent Liability Shock (2022–2027):
    - Real GDP growth: 2.8 1.4 1.6 3.9 4.0 4.1
    - Inflation: 15.8 7.1 7.8 8.1 7.2 8.0
    - Primary balance: 6.1 2.5 3.1 2.7 2.4 2.1
    - Effective interest rate: 6.3 9.1 8.9 9.0 8.7 8.6

### Risk assessment and heat map indicators (selected datapoints preserved exactly as in source)
- Heat map benchmarks and indicators (2021 values or definitions preserved):
  - Gross financing needs benchmark of 15% used to color cells.
  - Bond spread shocks: 200 and 600 basis points.
  - External financing requirement benchmarks: 5 and 15 percent of GDP.
  - Change in share of short-term debt: 0.5 and 1 percent.
  - Public debt held by non-residents benchmarks: 15 and 45 percent.
  - Share of foreign-currency denominated debt benchmarks: 20 and 60 percent.
- Selected 2021 indicators (as presented):
  - Gross financing needs: 20 (in percent of GDP) and noted 73% in one line of the figure.
  - EMBIG: 784 bp (average over the last 3 months, 12-Sep-22 through 11-Dec-22) shown in the figure context.
  - External Financing Requirement: 12 (in percent of GDP) shown in the figure context.
  - Annual Change in Short-Term Public Debt: -4% shown in the figure context.
  - Public Debt in Foreign Currency: -0.9% shown in the figure context.
  - Public Debt Held by Non-Residents: 73% shown in the figure context.

### External sector assessment (NIIP, exports, current account)
- Net International Investment Position (NIIP):
  - Deteriorated sharply in 2020 to over 50 percent of GDP, recovered to pre-pandemic levels, and expected to improve further in 2022.
  - As of end-2021: NIIP = -36.4 percent of GDP; gross assets = 57.5 percent of GDP; gross liabilities = 93.9 percent of GDP.
  - Asset composition (end-2021): foreign reserves = 21 percent of GDP; other investments (including trade credits and currency deposits) = 32 percent of GDP.
  - Liability composition (end-2021): external loans to government and private sector = 59 percent of GDP; FDI liabilities = 17 percent of GDP; Eurobonds issued = 11 percent of GDP.
  - NIIP improvement in 2022 driven by expected decrease in external debt as share of GDP, recovery of GDP, and kwanza appreciation; also partly driven by a fall in FDI liabilities reflecting lack of new FDI inflows.
  - NIIP trajectory remains subject to vulnerabilities such as unfavorable oil price and/or exchange rate developments.
- Current account and exports:
  - Oil accounts for about 95 percent of Angola’s exports.
  - Covid-19 effects: value of oil exports fell by 40 percent y/y in 2020.
  - Current account outcomes:
    - CA surplus ended 2020 at 1½ percent of GDP.
    - CA balance strengthened to 11.2 percent of GDP in 2021 and projected to remain strong in 2022.
  - EBA-lite model estimates for 2022:
    - CA norm = 2.7 percent of GDP.
    - Adjusted CA surplus at end-2022 = 8.9 percent of GDP (after accounting for cyclical and temporary factors).
    - Resulting CA gap = 6.2 percent of GDP, indicating a substantially stronger external position than implied by fundamentals and desirable policies.
- Assessment and policy implications:
  - Staff assesses Angola’s external position for 2022 as stronger than the level implied by fundamentals and desirable policies, but this is partly temporary because of the lagged effect of sharp REER appreciation in 2022.
  - Assessment is contingent on continued success in managing significant debt vulnerabilities and navigating high oil dependence.
  - Policy priorities include:
    - Fiscal discipline for long-term debt sustainability.
    - With inflation precluding monetary loosening, aim to improve private sector investment levels and mitigate precautionary savings.
    - Improve business climate and governance to boost FDI.
    - Close policy gaps such as increasing health expenditure and promoting financial intermediation to align the external position with fundamentals and desirable policies in the medium term.

*Source: 1agoea2023001 - 9.      Angola’s public debt is vulnerable to downside risks.*

### 6.      The financial account reported net outflows at end-2021, consisting mainly of

### The financial account reported net outflows at end-2021, consisting mainly of

### Financial account flows and vulnerabilities
- Net outflows at end-2021 consisted mainly of outflows in FDI and other investment.
- FDI in Angola is concentrated in the oil sector.
- A large share of the FDI flows reflect cash flow management by oil companies.
- When the oil trade balance is strong, FDI outflows tend to be higher, reflecting repatriation of investments previously carried out by oil companies.
- As oil exports have remained strong in 2022, this kind of repatriation is expected to remain a major source of financial account outflows for 2022.
- These repatriations, in the absence of new FDI inflows, remain a major vulnerability to the financial account.

### Portfolio investment and other investment
- Portfolio investment inflows represent mainly Eurobond issuance, whereas outflows are mainly investments of public sector funds abroad.
- The inflows in 2022 reflect the $1.75 billion raised through Eurobond issuance in April.
- Other investment flows mainly consist of trade credits, currency and deposits, and medium- to long-term debt issued by the government.
- The projected net outflows of other investment in 2022 arose mainly from increase in trade receivables and amortization of external debt.

### Balance of payments data quality
- Errors and omissions have been persistently large and negative since 2016.
- This may reflect that the value of credits in the current and capital accounts is too high, and/or the value of net increases in assets in the financial account is too low.
- Improving the accuracy of BOP statistics would be crucial to eliminate any substantial errors and omissions.

### FX intervention and reserves
- The BNA has moved towards a more flexible exchange rate regime with relatively limited FX intervention, especially since the onset of the Covid-19 pandemic.
- The kwanza depreciated sharply upon the onset of the pandemic shock in March 2020 and started to stabilize in late 2020.
- The sharp depreciation acted as an absorber to the pandemic shock and helped preserve Angola’s external position.
- The value of the kwanza has subsequently recovered to its pre-pandemic level; in 2022, despite some fluctuations during the year, it appreciated by about 10 percent against the USD relative to end-2021.
- Reserves are assessed to be adequate.
- Gross international reserves (GIR) improved considerably in 2021, helped by strong oil exports.
- At end-2022, they stood at US$14.5 billion, equivalent to 6.5 months of imports or 111 percent of the ARA metric (under a floating regime).
- Reflecting a methodological change in the computation of the GIR, this represents a net accumulation of about US$1.3 billion in 2022.
- Footnote: Starting from the beginning of 2022, the BNA has excluded the Treasury’s deposits (US$1.2 billion at the time of adjustment) from the calculation of the GIR, in line with BPM6 methodology.

### Real Exchange Rate and External Balance Assessment (EBA)-Lite results
- With greater exchange rate flexibility allowed by the BNA, the kwanza began a depreciation trend in 2018 through the pandemic crisis in 2020.
- In 2020, the REER (annual average) depreciated over 50 percent from its peak in 2017.
- With the recovery of oil prices, the kwanza has reversed its depreciation trend since late 2020.
- The REER stabilized in 2021, followed by a strong rebound in 2022.
- Up to November 2022, the REER had appreciated by over 70 percent relative to 2021, which is in part due to the high inflation.
- Large REER appreciation will exacerbate weak competitiveness, as reflected by the low inflows of non-oil FDI and the stagnant growth of other exports in 2022H1.
- The REER model indicates a REER overvaluation of 49.4 percent.
- The REER gap based on the CA model suggests an undervaluation of 28.9 percent.
- However, taking into account the exchange rate adjustment that has already taken place in 2022 and that CA adjustment to large exchange rate movements typically occurs with a lag, staff assesses the REER gap appears to already have been corrected.

### Key quantitative indicators (as presented)
- CA-Actual11.0
- Cyclical contributions (from model) (-)2.0
- COVID-19 adjustors (-) 2/0.0
- Natural disasters and conflicts (-)0.1
- Adjusted CA8.9
- CA Norm (from model) 3/2.7
- CA Gap6.2-10.6
- o/w Relative policy gap2.9
- Elasticity-0.2
- REER Gap (in percent)-28.949.4

*Source: IMF staff analysis in the referenced chapter.*

### Annex VI. Capacity Building in Angola

### Annex VI. Capacity Building in Angola

### Overview
- The Angolan authorities, supported by IMF staff and other institutions, are implementing a comprehensive, demand-driven capacity building program.
- The effort involved short- and long-term experts, Technical Assistance (TA) and training, and covered topics including PFM, tax administration, expenditure policy, AML/CFT, monetary and exchange rate policies, central bank governance, financial sector stability, economic and social statistics, SOEs, and business climate.
- International institutions involved include the IMF, the World Bank (WB), the African Development Bank (AfDB), United Nations (UN) agencies, the French Development Agency (AFD), the Financial Services Volunteer Corps (FSVC), and the European Union (EU).

### Key achievements and ongoing/planned support
- Tax Policy and Revenue Administration
  - IMF (FAD) technical support focused on boosting tax policy and revenue administration capacity to mobilize revenue (especially non-oil revenue).
  - Support included design and implementation of a framework for emergency management and business continuity during a period of crisis, implementation of a project management framework, enhancing access to electronic information at the Angolan Tax Authority (AGT), and enhancement of the customer relationship management framework in the context of the VAT.
- Expenditure Policy and Expenditure Administration
  - FAD and other international institutions engaged in capacity building on public procurement, public debt management, cash transfer programs, and reform of subsidies.
- Public Financial Management (PFM)
  - An IMF long-term PFM expert, with EU financial support, has been providing technical assistance to strengthen fiscal governance and laying the groundwork for a medium-term fiscal framework and a medium-term expenditure framework.
  - The AFD concluded a Public Expenditure and Financial Accountability (PEFA) assessment.
  - TA on arrears prevention and cash management planned for 2023.
- Monetary Policy Framework
  - IMF provided technical assistance on transitioning to an inflation targeting regime.
  - A peer-to-peer workshop on the experience with Forecasting and Policy Analysis System (FPAS) at Sub-Saharan African central banks took place in 2022.
  - AFD providing capacity support on BNA governance and a new strategy under the new BNA law.
  - TA to support enhancement of monetary policy operations planned for 2023.
- Financial Sector
  - IMF TA to BNA on implementation of Supervisory Review and Evaluation Process (SREP) framework to tailor capital and liquidity requirements to risk profiles.
  - TA on enhancing banks’ governance took place in 2022.
  - TA planned for 2023 on bank resolution and financial crisis management, emergency liquidity assistance, strengthening risk-based supervision, and compilation of FSIs.
- AML/CFT and Anti-Corruption
  - UNODC local office continues support on anti-corruption and asset recovery (UNODC engagement noted 2021–24).
  - FSVC and AFD support implementation of AML/CFT measures in support of a country-wide anti-corruption strategy.
- Business Climate and Climate Change
  - World Bank planning significant technical support to enhance the business climate; concluded the Country Climate and Development Report (CCDR) for Angola in 2022.
- Statistics
  - Substantial TA by IMF and WB to establish and enhance statistics on national accounts, balance of payments, government finance and debt, consumer price index, economic census, and poverty indicators.

### Capacity building activities (selected items and timelines)
- IMF (FAD): Enhancing access to electronic information — 2023
- IMF (FAD): Customer relationship management (CRM) system in VAT — 2023
- IMF (FAD): Customs administration — 2022
- IMF (FAD): Implementation of project management framework — 2022
- IMF (AFS, FAD): Emergency management and business continuity — 2022
- IMF (FAD): Auditing financial industry — 2022
- FSVC: Fiscal and expenditure management during crisis — 2023
- World Bank: Energy subsidy reform — 2023
- AfDB: Public debt management technical assistance project I (PDM-TAP I) — 2022-23
- World Bank: Public finance review — 2022
- AfDB-AFD: Public procurement technical assistance project (MAPS) — 2021-22
- UNICEF: Social protection and PFM — 2021-22
- UNICEF: Pilot child cash-transfer program — 2021-22
- IMF (FAD): Public Investment Management — 2023
- IMF (FAD): Medium-term fiscal framework and fiscal risks — 2022-23
- FSVC: PFM decentralization (Ministry of Finance and local governments) — 2023
- IMF (AFS, FAD): Arrears prevention and cash management — 2022-23
- IMF (AFS): Budget preparation, MTEF — 2022-23
- AFD-EU: Action plan on PFM reform including PEFA and MAPS recommendations — 2022
- AFD-EU: PEFA diagnostics — 2022
- IMF (AFS, FAD) and AFD: PIMA follow-up — 2022
- AFD: Securing and operationalizing PPPs — 2022
- FSVC: Procurement process in the Ministry of Health — 2022
- AFD: SOEs reform in the urban transport sector — 2021-23
- AFD: Implementation of SOE reform road map — 2022
- World Bank: SOE reform, privatization, and PPPs — 2022
- FSVC: Development of capital markets — 2022-23

- Monetary and exchange rate policies, central bank governance, and modelling
  - IMF (AFS): Monetary policy implementation — 2023
  - AFD: New strategy and governance under BNA Law — 2022-23
  - IMF (MCM): Inflation targeting — 2022
  - IMF (MCM): Experience with FPAS in Sub-Saharan African central banks — 2022
  - IMF (MCM): Emergency liquidity assistance — 2023
  - IMF (AFS): Enhancing risk-based supervision — 2023
  - IMF (STA): Strengthening FSI compilation — 2023
  - IMF (MCM): Bank resolution and financial crisis management — 2023
  - IMF (AFS): Basel II/III - SREP Implementation — 2022-23
  - IMF (AFS): Strengthening banks' governance — 2022
  - IMF (MCM): Auditing financial industry — 2022
  - AFD and FSVC: Implementation of AML/CFT legislation/regulation — 2022
  - AFD and WB: Financial inclusion, supervision, and stability — 2022

- Statistics and analytical products (selected)
  - IMF (AFS, FAD): National accounts, and external and monetary statistics — 2019–22 (ongoing support)
  - World Bank: Angola: smart policies for private sector-led economic transformation — 2023
  - World Bank: Angola urbanization review — 2023
  - World Bank: Diagnostic trade integration study — 2022
  - World Bank: Angola: digital inclusion and market gap assessment — 2022
  - IMF (STA): Government finance statistics — 2022
  - IMF (AFS): Consumer price index (CPI) — 2021-22
  - World Bank: Angola climate change and development report — 2022
  - AFD: Green finance and financial-related climate change risk mapping — 2022
  - World Bank: Angola investment climate — 2023
  - World Bank: Business environment reform — 2022

### IMF Technical Assistance since 2014 (select highlights by area and year)
- Monetary and Capital Markets (MCM)
  - Monetary Policy Framework Modernization/Inflation Targeting — 2022
  - Emergency Liquidity Assistance — 2021
  - Basel II/III SREP Implementation — 2021
  - Development of capital markets — 2020
  - Monetary policy implementation and operations — 2020
  - Foreign operations and FX policy implementation — 2019–20
  - Technical Assistance on FX Market Operations — 2018
- Fiscal Affairs Department (FAD)
  - Tax Compliance — 2022
  - Medium-term fiscal framework and fiscal risks — 2022
  - PIMA Followup — 2022
  - Fiscal reporting (follow-up) — 2022
  - AFRITAC South: arrears prevention and cash management — 2022
  - MTFF (incl. FRL and Fiscal Rules) — 2014, 2016
  - VAT Implementation — 2016, 2017
- Statistics Department (STA)
  - Government finance and debt statistics — 2019–22
  - Consumer Price Index (CPI) — 2020-22
  - National accounts, and external and monetary statistics — 2019–22
- Legal Department
  - AML/CFT Framework — 2017, 2018, 2019, 2020
  - BNA Law — 2020

### Joint IMF–World Bank Management Action Plan (summary)
- Coordination items and timing
  - World Bank products planned: Public Finance Review — 2023; Angola Country Economic Memorandum — 2023; Diagnostic Trade Integration Study (DTIS) — 2023; Youth Jobs and Inclusion — 2023; Adaptive Social Safety Nets — 2023; investment climate and other diagnostics ongoing or planned for 2023.
  - IMF work program in next 12 months: Post-Financing Assessment Mission — June 2023; Article IV Mission — December 2023.
- Agreed modes of collaboration
  - Regular exchanges on DPL and DPO discussions, collaboration on macroeconomic framework and tables, continuous dialogue on economic forecasting and macroeconomic modeling issues, and exchange of information and consultations on macroeconomic developments.

### Statistical issues and data adequacy for surveillance
- General
  - Data provision has shortcomings but is broadly adequate for surveillance; concerns remain about data quality and timeliness.
  - Considerable progress in data provision and transparency at the BNA and the National Institute of Statistics (INE); Ministry of Finance data delivery and publication could be significantly improved.
- National Accounts
  - INE, with Fund TA, is working to rebase national accounts from the current 2002 to 2019 base year via a two-stage process: (1) update base year to 2015; (2) later update from 2015 to 2019.
  - The rebasing process is expected to be finalized by 2023.
  - INE is enhancing sentiment surveys and compiling an experimental Purchasing Managers Index (PMI) with Fund TA and in collaboration with the Central Bank.
- Price Statistics
  - INE publishes monthly CPI and wholesale price indices; CPI weights derived from the Expenditure and Revenue Survey (February 2018 to March 2019).
  - Current index structure based on December 2020; Luanda represents about 51 percent of the national index sample.
  - Producer Price Index (PPI) published quarterly with 2015 base year; monthly construction material price index and export/import unit value indexes are also compiled.
- Government Finance Statistics
  - Reconciliation of above- and below-the-line data has yet to be achieved, partly due to mixed use of cash and accrual data for revenue and expenditure.
  - Timeliness and quality of GFS need improvement; Ministry of Finance publishes oil fiscal revenue details but with delays.
- Monetary and Financial Statistics
  - MFS for central bank and depository corporation surveys revised using standardized report forms (SRFs); BNA delivers monthly data to the IMF and publishes monthly comprehensive data on its webpage.
  - BNA reporting of Other Financial Corporation (OFC) sector expanded (SRF 4SR); OFC data reported quarterly.
  - BNA publishes a quarterly inflation report and an annual report, albeit with long lags.
  - BNA reports some Financial Access Survey (FAS) indicators, including mobile money and gender-disaggregated data.

*Source: Annex VI. Capacity Building in Angola (1agoea2023001).*

### 8.10 of the Sustainable Development Goals (SDGs).

### 8.10 of the Sustainable Development Goals (SDGs).

### Data Standards and Quality
- Angola has participated in data standards initiatives since 2004, disseminating metadata in accordance with the General Data Dissemination System (GDDS).
- Angola started implementing the e-GDDS in December 2018, publishing macroeconomic data in both human- and machine-readable (SDMX) formats.
- The implementation of e-GDDS is described as a major milestone in Angola’s statistical development and data transparency reforms.

### Financial Sector Surveillance
- BNA recently resumed reporting quarterly financial soundness indicators to STA for publication on the IMF’s website, including 13 core indicators and 8 additional indicators for Deposit-takers (DTs).
- The quality and timeliness of financial soundness indicators need to improve.
- STA technical assistance is planned for the first half of 2023 to support improvements.

### External Sector Statistics
- Balance of payments and international investment position statistics are compiled in line with the sixth edition of the IMF’s Balance of Payments Manual.
- Quarterly statistics are compiled and disseminated on the IMF’s website with a lag of about three months after the reference period.
- STA conducted two external sector statistics TA missions focusing on international reserves in August and November 2021.
- Following mission recommendations:
  - Angola started compiling the Reserves Data Template on a monthly basis and disseminating it on the BNA’s website with a lag of about one month after the reference period.
  - BNA excluded collateralized securities in repo transactions from gross international reserves (GIR) assets starting from January 1, 2022.
  - BNA also excluded the Treasury’s FX deposits at the BNA from GIR.

### Key Data Timelines and Frequencies (as reported)
- Exchange Rates: Date of latest observation 1/20/2023; Date received 1/20/2023; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation 11/2022; Date received 11/2022; Frequency M M M.
- Reserve/Base Money: 9/2022 (observed), 11/2022 (received), M M M.
- Broad Money: 09/2022 (observed), 11/2022 (received), M M M.
- Central Bank Balance Sheet: 09/2022 (observed), 11/2022 (received), M M M.
- Consolidated Balance Sheet of the Banking System: 09/2022 (observed), 10/2022 (received), M I I.
- Interest Rates: 09/2022 (observed), 11/2022 (received), M M M.
- Consumer Price Index: 09/2022 (observed), 11/2022 (received), M M M.
- External Current Account Balance: 09/2022 (observed), 09/2022 (received), Q Q Q.
- GDP/GNP: 2019 (est.) (observed), 03/05/2021 (received), A A A.
- Notes: Frequency codes — Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

### Recent Economic Developments and Outlook
- Economic activity:
  - Rebounded from a contraction of -5.5 percent in 2020 to 1.1 percent in 2021 and 2.8 percent in 2022.
  - Recovery driven by non-oil sector and expansion in manufacturing, agriculture, construction, and services; oil production increased.
- Growth projection:
  - Projected to stabilize at 4.0 percent over the period 2023–2027.
- Inflation:
  - Inflation slowed to 12.6 percent y/y in January, from 13.9 percent in December. (This was the 12th straight month of declining inflation.)
  - On a month-on-month basis, headline inflation eased to 0.8 percent, from 0.9 percent in December.
  - Elsewhere in the report: inflation declined from 27.70 percent in January 2022 to 12.55 percent in January 2023.
- Current account and reserves:
  - Current account registered a surplus of 11.0 percent of GDP in 2022.
  - Gross international reserves (GIRs) improved from US$11.0 billion in 2020 to US$14.4 billion in 2022, representing more than 6 months of import cover.
- Risks to outlook:
  - Geopolitical tensions, tightening global financial conditions, and subdued global growth prospects.

### Fiscal Policy and Debt Management
- Fiscal consolidation is prioritized to create fiscal space and preserve debt sustainability under dual fiscal and debt anchors.
- 2023 budget objective:
  - Achieve a non-oil primary fiscal deficit (NOPFD) of no more than 5 percent of GDP by end-2025.
  - Bring down the debt ratio to the medium-term target of 60 percent.
- Revenue measures:
  - Focus on improving tax compliance and enforcement to recover tax arrears.
  - Integration of customs with non-oil tax systems into the same electronic platform to improve tax collection efficiency.
- Expenditure measures:
  - Rationalizing perks for government officials (housing maintenance subsidy, vehicle allocations).
  - Downgrading of ticket classes for official travels to generate savings.
  - Prioritizing ongoing growth-enhancing projects with high investment returns in 2023; new projects to be considered starting FY2024 under the 2023-2027 NDP.
- Public financial management:
  - Developing medium-term fiscal and expenditure frameworks (MTFF/MTEF) with Fund technical support.
  - Roadmap adopted to guide implementation of the 2019 Public Investment Management Assessment’s (PIMA) recommendations.
- Debt management:
  - One-year government securities’ yield has declined significantly since implementation of the debt strategy.
  - Government agreed with some domestic creditors to extend maturities of some bonds including those denominated in foreign currency.
  - Since FY2021 the authorities have resumed debt service payments to major creditors, including obligations deferred under the Debt Service Suspension Initiative (DSSI).

### Monetary, Exchange Rate and Financial Sector Policies
- Monetary policy:
  - BNA eased monetary policy by reducing cumulatively 200bps of its benchmark interest rate reflecting sustained decline in inflation.
  - BNA will continue to monitor inflation dynamics and make data-driven adjustments.
  - With Fund TA, BNA is preparing for transition towards a fully-fledged inflation targeting regime.
  - Efforts underway to strengthen central bank communication and transparency frameworks to bring down inflation to single digits by 2024.
- Exchange rate policy:
  - BNA will continue to allow market forces to operate in the foreign exchange market and plans to eliminate remaining exchange restrictions while intervening only to smoothen volatile market conditions.
- Financial sector reforms and supervision:
  - Progress on 2019 Safeguards Assessment recommendations including amendments to the BNA Law.
  - Central bank advancing internal restructuring including establishment of a Resolution Unit and ensuring operational independence.
  - Council of Financial System Supervisors established, constituted by all financial sector agencies.
  - Recredit operational and governance weaknesses addressed to improve NPL recoveries.
  - Stricter regulations being introduced to incentivize banks to reduce NPLs, with intensified supervisory vigilance on banks’ credit portfolios.

### Structural Reforms and Governance
- SOE privatization under PROPIV:
  - 94 of 178 selected assets have been privatized, including 27 in 2022 and 67 by end-2021.
  - 2022 saw IPOs at the Luanda Stock Exchange (LSE), the first stock operations since its establishment.
  - Additional assets to be included under PROPIV 2023-2027.
- Private-sector financing and inclusion:
  - National Development Fund (managed by the Development Bank of Angola – BDA) will avail a US$6.3 billion credit line starting in FY2023.
  - Facility aimed to facilitate access to credit for agriculture and other sectors, financing grain production, livestock, and fisheries over the next five years.
  - Finalization of the first national strategy for financial inclusion and expansion of mobile banking and digital infrastructure.
- Fuel subsidy reform:
  - Authorities are assessing socio-economic impacts and designing communication strategy with TA from the Fund and the World Bank.
  - Mitigation: expanding the Kwenda initiative by increasing monthly payouts and expanding beneficiaries toward target of reaching 1.3 million households by end-2023.
- Governance and anti-corruption:
  - National anti-corruption strategy being designed and will be submitted for public consultation.
  - Attorney General's Office implementing an anti-corruption mitigation plan approved in 2018.
  - Authorities intend to revamp the Public Probity Law; technical support from the Fund and the World Bank under consideration.
  - Commitment to publish audited report on COVID-19-related expenditures after institutional arrangements are completed.

### Energy Transition and Climate Change Adaptation
- Energy transition targets and actions:
  - New energy matrix aims to reach 70 percent of electricity generated by renewable sources by end-2025.
  - Diesel-powered plants to be replaced by gas-powered plants; substantial investments in solar farms.
  - Three main solar parks already supply energy to the national grid; remaining projects in initial construction phase.
  - Feasibility studies underway to establish wind farms and commence projects to produce green hydrogen.
- Climate shocks and adaptation:
  - Over 1 million people, mostly across three southern provinces, affected by drought.
  - Authorities developing a water management mega-project to transfer water to affected areas and climate-proof the agricultural sector.
  - First project (Canal do Cafu):
    - Implemented along a 160-kilometer stretch.
    - Brings water from the Cunene River to affected areas to benefit more than 235,000 families.
  - Plans to develop three similar projects in coming years.
  - Recovery and conservation of mangroves along the coast, reforestation, and combating desertification under the 2022–2035 National Strategy for Climate Change.

### Conclusion
- Authorities reaffirm commitment to a well-coordinated fiscal and monetary policy mix alongside structural reforms to accelerate recovery and preserve macroeconomic stability.
- Authorities value Fund technical and policy support and seek continued Fund engagement to consolidate post-program gains and place the economy on an accelerated growth trajectory.
- Authorities seek Executive Director’s support in concluding the 2022 Article IV Consultation.

*Source: 1agoea2023001 - 8.10 of the Sustainable Development Goals (SDGs).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1agoea2023001.pdf_