## DEVELOPMENT PLANNING, SDG PROGRESS, AND FISCAL SPACE IN ANGOLA

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### A. Introduction
- Key medium- to long-term challenges: boosting economic diversification and reducing poverty and inequality.
- The upcoming 2023-27 National Development Plan (NDP) provides an opportunity to focus spending priorities with SDG guidance.
- Two models used in the paper: a costing model and a financing model.
- Central finding: achieving SDG outcomes by 2030 would require very large additional spending, but substantial progress can still be made over a longer period consistent with macroeconomic stability and debt sustainability through:
  - prudent borrowing;
  - creating additional fiscal space through policy measures and reforms;
  - increasing private sector involvement;
  - continuing diversification-enhancing structural reforms;
  - support from bilateral and multilateral partners.

### B. Context
- Poverty and informality:
  - Poverty remains elevated at 31 percent.
  - Informal economy estimated at 35 percent of GDP.
- Angola classification and relative SDG position:
  - Angola is classified as an LCM with the 10th-highest GDP per capita in SSA in PPP terms.
  - Angola lags median SSA and EM peers across most SDG categories, particularly health, education, water and sanitation, electricity, and roads.
- COVID-19 effects: pandemic likely worsened outcomes, with scarring, increases in inequality, and disproportionate impact on informal workers.

### C. Social, Human Capital, and Infrastructure Spending — historical patterns and gaps
- Historical trends:
  - Social spending has largely declined since the mid-2010s (public health and education expenditures as shares of GDP and total expenditure).
  - Public and private investment as a share of GDP rose sharply in the late 2000s, then declined from the mid-2010s onward.
  - Public capital stock left Angola in line with SSA and EMDE peers as a share of GDP.
- Education:
  - Education spending as a share of total government expenditure significantly lags SSA and EMDE peers and fell in the runup to the pandemic.
  - Spending biased toward tertiary education.
  - Teacher-student ratios historically lagged EMDEs (roughly in line with SSA peers) and appear to have little relationship to outcomes.
  - Net primary school enrollment has significantly lagged peers.
- Health:
  - Public health expenditure as a share of GDP and total spending are low relative to SSAs and EMDEs.
  - Downward trend in public health spending since the early 2010s (excluding an uptick around the pandemic), with weak budget execution.
  - Health spending efficiency is low with weak health outcomes across multiple areas.
- Social protection:
  - Overall social protection and labor assistance coverage: 12 percent of the population.
  - Urban coverage: 14 percent; rural coverage: 8 percent.
  - Social assistance component coverage: 5 percent of the population.
  - Kwenda cash transfer program: over half of households registered and a third receiving payments (logistical and infrastructure constraints caused missed targets).
- Infrastructure quality and public investment management:
  - Infrastructure quality across several categories is relatively weak, suggesting inefficient use of investment.
  - 2019 PIMA found ample room for improvement in public investment management procedures and practices; reaching the SSA average for efficiency would double infrastructure access and increase infrastructure quality by 63 percent.

### D. SDG Performance and Costs — aggregate and sectoral costing to reach high-performing outcomes by 2030
- Aggregate cost estimate:
  - Additional annual spending required to achieve SDG outcomes in the critical human capital and infrastructure sectors of high performing countries in a similar income group: 20.8 percent of 2030 GDP.
  - This is about 1.5 percent of GDP higher than the SSA average.
- Summary of additional expenditures by 2030 (percent of GDP):
  - Education 8.3
  - Health 5.7
  - Water & Sanitation 2.1
  - Electricity 1.2
  - Roads 3.5
  - Total 20.8
- Key aggregate implication:
  - Under a more realistic baseline scenario, Angola would not be able to afford the investments required for more than 22 years beyond the target year of 2030.

Education (selected costing indicators and drivers)
- Additional spending needs: 8.3 percent of 2030 GDP (most costly of the five categories).
- SSA average for education: 5.7 percent of GDP.
- Cost drivers: increasing enrollment rates, increasing numbers and quality of teachers, increasing teacher wages, building new and improving existing school infrastructure (bathrooms, electricity, drinking water, boundary walls), raising capital spending and teacher wage bill.
- Selected indicators (High performance / 2020 (or latest) / 2030):
  - GDP per capita: 4,137 / 1,743 / 1,821
  - Students per teacher ratio: 17.8 / 45.1 / 17.8
  - Teacher wages (ratio to GDP per capita): 2.7 / 2.0 / 2.7
  - Capital and other recurrent spending (% total spending): 43.5 / 30.9 / 43.5
  - Student age population (% total population): 33.2 / 51.8 / 51.1
  - Enrollment rate (preprimary to tertiary): 77.9 / 50.2 / 80.1
  - Private share (% of total spending): 34.6 / 23.2 / 34.6
  - Education spending (percent of GDP): 6.8 / 2.5 / 10.8
  - Public education spending (percent of GDP): 4.5 / 1.9 / 7.1
  - Private education spending (percent of GDP): 2.4 / 0.6 / 3.7
  - Spending per student (USD 2020): 1,093 / 168 / 481
  - SDG4 index: 93.5 / 42.2 / >87

Health (selected costing indicators and drivers)
- Additional spending needs: 5.7 percent of 2030 GDP.
- SSA average for health: 4.2 percent of GDP.
- Cost drivers: increasing the number of doctors and other medical personnel and increasing their wages.
- Key findings:
  - To achieve high performance in the health SDG, the number of doctors should be increased tenfold.
  - Other medical personnel should be increased by about two thirds from current level.
  - Wages of medical personnel must rise to catch up to peers.
- Selected indicators (High performance / 2020 (or latest) / 2030):
  - GDP per capita: 4,456 / 1,743 / 1,821
  - High-cost population (<1 and 60+) (percent of total population): 15.4 / 8.0 / 8.0
  - Doctors per 1,000 population: 2.1 / 0.2 / 2.1
  - Doctors per 1,000 population - demographically adjusted: 2.9 / 0.2 / 2.1
  - Other medical personnel per 1,000 population: 4.6 / 2.8 / 4.6
  - Doctor wages (ratio to GDP per capita): 7.1 / 5.0 / 7.1
  - Other recurrent & capital health spending (percent tot health spend): 55.6 / 62.2 / 55.6
  - Private health spending (percent of total health spending): 46.2 / 55.6 / 46.2
  - Total health spending (percent of GDP): 7.0 / 2.8 / 8.6
  - Public health spending (percent of GDP): 3.8 / 1.3 / 4.6
  - Private health spending (percent of GDP): 3.2 / 1.6 / 4.0
  - Per capita health spending (US$): 310.9 / 49.6 / 155.8
  - SDG3 index: 78.5 / 34.8 / >75

Water and Sanitation (selected costing figures and findings)
- Annual spending required to provide safely managed water and sanitation for all: 2.1 percent of GDP every year from now to 2030 (comparable to SSA average).
- Angola is far behind the water and sanitation SDG green thresholds across all categories and ranks toward the bottom of SSA peers on sanitation access and freshwater withdrawal.
- Bulk of additional spending burden comes from safely managed sanitation in rural areas.
- Selected table figures (preserved exact figures from source tables):
  - Total unserved population (million), today and through 2030: 0.9 1.2 2.2 3.8 1.3 3.8 1.3 1.8 1.1 2.8 1.5 1.8 3.3 1
  - Cost per capita (US$): 18.8 145.4 76.0 35.9 168.3 3.4 4.4 438.7 237.9 405.3 324.6 761.2
  - Total additional cost (US$ million): 16.8 1,778 1,048 497 2,323 385 66,952 4,105 4,684 5,122 25,198
  - Annual additional cost (US$ million): 16.8 119 970 331 553 446 327 431 234 11,688
  - Total additional cost (percent of GDP): 0.0 2.2 1.3 0.6 2.8 0.0 0.1 8.5 5.0 5.7 6.3 30.8
  - Additional annual cost by 2030 (pct GDP): 0.0 0.1 0.1 0.0 0.2 0.0 0.0 0.6 0.3 0.4 0.4 2.1

Electricity (selected costing parameters and figures)
- Additional investment required: aggregate of 1.2 percent of GDP every year to 2030 to connect about 53 percent of the population lacking access to electricity and keep up with population and economic growth.
- Parameters and selected figures:
  - Unit cost of investment (generation, transmission, dist. costs) (US$/kW): 2,600
  - Depreciation rate per year: 5%
  - Regression coefficient (electricity consumption on GDP per capita): 1.06
  - 2020 GDP (US$ billion): 58.3; 2030 GDP (US$ billion): 81.8; Percentage growth: 40.4%
  - GDP per capita (US$): 1,743 (2020) and 1,821 (2030); Percentage growth: 4.5%
  - Population (thousand): 33,428 (2020) and 44,912 (2030); Percentage growth: 34.4%
  - Access to electricity (percent of population): 46.9 (2020) and 100 (2030)
  - Additional population to be connected by 2030: 29,236,852
  - Initial consumption per capita (kWh): 348.8
  - Electricity consumption per user (kWh): 743.8 (2020) and 779.1 (2030)
  - Additional consumption per person to keep up with growth (kWh): 35.3
  - Total construction cost of current electricity network (US$ billion): 3.46
  - Depreciation cost to maintain current electricity network (US$ billion): 0.20
  - Discounting factor for depreciation: 0.60
  - Total cost of connecting new users (US$ billion): 6.45
  - Total cost to keep up with growth (US$ billion): 0.47
  - Total additional cost of construction (US$ billion): 6.93
  - 1+ Annual compound annual growth rate of GDP, today to 2030: 1.03
  - Factor to account for GDP growth: 1.09
  - Additional annual cost by 2030 (percent of GDP): 1.20

Roads (selected costing parameters and findings)
- Increasing rural access from 20 percent to 90 percent by 2030 will require investing the equivalent of 3.5 percent of GDP every year from now to 2030.
- This would cover about 20,364 additional kilometers of all-weather roads (about a 142 percent increase in road length).
- Parameters and figures:
  - Unit cost ($/km) 1,000,000614
  - Annual depreciation rate 5%
  - Years to SDG end-period10
  - Regression coefficients: Roads to GDP elasticity 0.5528; Roads to population-density elasticity 0.5886; Roads percent increase per rise in RAI index point 0.0105; Roads percent increase per rise in percent rural population0.0072
  - GDP (US$ billion) 58.3 | 81.8
  - GDP per capita (US$) 1,743 | 1,821
  - Population (thousand) 33,428 | 44,912
  - Rural population (percent of total population) 34.5 | 27.5
  - Rural Access Index (RAI) 19.6 | 90.0
  - Length of roads (km) 14,340 | 34,704
  - Total construction cost of current road infrastructure (US$ bn) 14.34
  - Depreciation cost to maintain current road infrastructure (US$ bn) 0.83
  - Discounting factor for depreciation 0.60
  - Total additional cost of construction (US$ billion) 20.36
  - 1+ Annual compound annual growth rate of GDP, today to 2030 1.03
  - Factor to account for GDP growth 1.09
  - Additional annual cost by 2030 (percent of GDP) 3.5

### E. Financing scenarios and SDG Financing tool findings
- The SDG Financing tool evaluates financing needed to achieve SDGs in a macroeconomically consistent and dynamic setting with projections up to 2052.
- Key illustrative financing results:
  - Under the illustrative cost example, Angola would need additional annual financing equivalent to 17.3 and 11.4 percent of GDP under the baseline and reform scenarios, respectively, to meet the human capital and infrastructure SDGs by 2030.
  - Under the baseline scenario, Angola would not be expected to reach its SDGs by 2052 (the final year considered by the financing tool).
  - Under a reform scenario, Angola can make considerable progress towards achieving its SDGs in a much shorter timeline (by 2040) than under the baseline and achieve much higher real GDP per capita.
- Reform scenario prerequisites (policy actions enumerated):
  - Pursue prudent borrowing consistent with debt sustainability.
  - Prioritize tax revenue mobilization.
  - Reform fuel subsidies.
  - Optimize expenditure reallocation and efficiencies by targeting duly appraised, selected, and costed priority projects with the most value for money.
  - Increase private sector savings and participation.
  - Pursue TFP- and growth-raising diversification of the non-oil economy.

### F. Fiscal context, constraints, and recent policy
- Historical fiscal context:
  - Global oil prices began to fall from 2014 onward; with over half of revenue dependent on oil and public debt already elevated, Angola undertook sizeable fiscal consolidation over 2018-21.
  - Consolidation included large primary expenditure compression and steps to boost non-oil revenues; expenditure cuts fell on both current and capital spending roughly evenly.
- Fiscal space remains limited:
  - Strong gains on tax policy led to a 3.0 percent of GDP increase in non-oil revenues over 2017-20, yet collection levels remain below SSA peers.
  - Interest spending historically comprised nearly a third of total spending; projected to fall to between a fifth and a quarter of total spending in the near term, but would remain well above regional and EMDE averages of 8.5 and 7.5 percent, respectively.
  - Fuel subsidies expected to have peaked at 2.7 percent of GDP in 2022 and will still represent a major expense (of about 2 percent of GDP per year) through the medium term.

### G. Creating fiscal space — policy measures and quantified potential gains
- Fiscal anchors emphasized:
  - Achieving 60 percent debt-to-GDP ratio and a 5 percent non-oil primary fiscal deficit is critical to debt sustainability; doing so while allowing spending on development goals requires structural reforms.
- Identified reform areas and expected fiscal gains (relative to baseline):
  - Implement outstanding tax policy and administrative reforms to boost non-oil revenue further (+2.4 percent of GDP per years relative to the baseline level).
    - Suggested tax policy measures: 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 measures for AGT: new organizational structure, modern compliance risk management, legislative changes and IT overhaul, strengthen information-reporting obligations, improve e-filing and access to third-party data.
  - Gradually but permanently phase out fuel subsidies and create fiscal space (+1.2-1.7 percent of GDP per year relative to the baseline level).
    - Includes fuel pricing reform options, poverty and social impact analysis, estimation of savings, mitigation measures, communications strategy, clarification of Treasury-Sonangol relationship, deregulation of downstream sector.
  - Improve expenditure reallocation and efficiencies via institutionalization of medium-term fiscal planning (+0.5 percent of GDP per year relative to the baseline level).
    - Measures to implement (in line with Public Finance Sustainability Law): medium-term fiscal and expenditure frameworks; reliable fiscal strategy in compliance with PFSL; analysis of fiscal risks from SOEs and PPPs; strengthen Ministry of Finance oversight; update and implement the 2019 PIMA recommendation action plan; broader, timely, and consistent fiscal reporting.
  - Create conditions for greater private sector involvement (+5.1 percent of GDP per year relative to the baseline level).
    - Transfer idle public sector productive assets into private hands, rechannel private savings and investments into non-oil economy expansion.
    - SOE reform roadmap and PROPRIV 2023-2027 program could be catalysts, with emphasis on assets in financial, telecommunications, industrial, and transport sectors and various Sonangol assets.

### H. Conclusion and implications
- Economic diversification and poverty reduction will require more and better-quality spending on human and physical capital and thus greater fiscal space.
- Spending on human and physical capital has historically been lower relative to LMC peers, with weak outcomes.
- Achieving SDG-benchmarked goals will entail greater and more targeted investment, with the largest spending needs in education and health.
- Creating additional fiscal space, implementing structural fiscal reforms, and attracting private investment are critical to improving the level and quality of development spending in Angola.

### I. Annex — Costing and Financing frameworks (methodology highlights)
- Costing (Gaspar and others 2019 methodology):
  - Education and health estimated via an input-outcome approach; outcome measured by SDG result indicators (range 0 to 100).
  - Steps: assume SDG outcomes are functions of inputs and unit costs; set levels of cost drivers b* from countries with similar GDP per capita and high outcomes; calculate 2030 spending s(b*, x_i2030).
  - For physical capital, annualized additional spending estimated to close infrastructure gap between latest historical year (2020) and 2030, expressed in percent of 2030 GDP.
- Financing:
  - The framework constructs financing scenarios given SDG needs and shows whether SDG targets can be met or size of remaining financing gap between current and target years.
  - The financing framework models interaction between fiscal and private sectors and productive capacity, following the Debt, Investment, and Growth (DIG) model and extension to human capital (Atolia and others 2019).
  - Framework assumes human capital, private capital, and two forms of public capital (publicly financed and privately financed/bankable); investments are complementary and boost returns across capital types.

### J. Reserve requirements, credit growth, and private sector credit constraints
- Impact of reserve requirements and business confidence:
  - Until 2019, the relationship between required bank reserves and private credit growth was relatively weak, partially due to excess liquidity in the banking system.
  - Starting in 2019, the central bank began removing excess liquidity; required reserves and credit growth have moved in opposite directions: as banks deposited more reserves in the central bank, there were increasingly less resources available for lending.
  - The relationship between the business confidence index and credit growth moved in the expected direction: as sentiment about the business environment improves, credit to the private sector responds more positively.
- Constraints to private sector credit growth:
  - Demand-side constraints:
    - Large informal non-oil sector with limited access to credit.
    - Capacity constraints at firms.
    - Lack of professional accounting in preparation of firms’ financial statements.
    - The oil sector is generally funded from outside the domestic banking sector.
  - Supply-side constraints:
    - Angolan banks invest around 40 percent of their balance sheets in Angola sovereign debt.
    - Balance sheets have been encumbered with a high level of NPLs and associated required provisioning until very recently.
    - Current level of real interest rates is relatively high compared to other SSA countries.
    - Perception of remaining capacity constraints at banks to assess and properly manage project risks despite improvements after the 2019 Asset Quality Review.

### K. Policy response and recommended reforms to support credit growth and private investment
- Recent and ongoing policy:
  - Notice 10/20 by the BNA, reissued in 2022, requires banks to provide a minimum of 2.5 percent of their liquid assets to finance domestic production, with nominal interest rates in the range of 7-10 percent.
    - Banks’ market interest rates in domestic currency, for loans over 1 year, are close to 20 percent, as of September 2022.
    - Banks in Angola have an average 32 percent of liquid assets to total assets; 2.5 percent of liquid assets represents about 0.8 percent of total assets.
  - Notice 9/22 broadly extends Notice 10/20 to housing and construction loans.
  - Project to Support Credit (PAC) seeks to provide support to national production of 54 items listed in PRODESI, using budget resources to support micro enterprises.
- Further recommended demand-side actions:
  - More investment in education is needed; Angola’s spending on education is below the SSA average.
    - In 2020 Angola spent approximately 2.4 percent of its budget in education, compared to 3.4 percent for Sub-Saharan Africa.
  - Expand vocational education and technical training to improve productivity and labor efficiency; tailor training to identified human capacity gaps and deliver via both government and private sector.
  - Implement a reliable and efficient accounting system; strengthen the accountancy profession to improve financial reporting, resource allocation, cost of capital, and investment.
- Further recommended supply-side and institutional reforms:
  - Continue strengthening banks’ credit risk assessment and management capacity following the 2019 Asset Quality Review; sustain improvements in governance and internal controls within a realistic implementation timeframe.
  - Strengthen financial stability through implementation of the new financial institution law and a comprehensive approach to dealing with troubled banks; delays in restructuring two formerly state-owned banks are delaying their ability to provide new credit.
  - Ensure credit guarantee schemes (CGS) are well designed and implemented, properly funded, supported by robust legal and regulatory frameworks, and have sound and independent corporate governance; align the Credit Guarantee Fund and other CGS in Angola with best international practices.
  - Improve collateral frameworks:
    - Strengthen and streamline collateral registration processes to reduce frictions in lending.
    - Address bottlenecks in judicial asset recovery processes; ensure courts have proper resources for timely processing.
  - Enhance use of credit information:
    - The credit risk bureau managed by BNA has made progress; in 2021 an instruction was issued for financial institutions to report more and better credit information to the BNA.
    - BNA should fully use the credit bureau database to assess financial stability and inform supervision.
    - In 2022, the first private credit risk bureau was authorized to operate in Angola; create cooperation channels between private and public credit registries.

*Source: 1agoea2023002*

### References ____________________________________________________________________________ 18

### DEVELOPMENT PLANNING, SDG PROGRESS, AND FISCAL SPACE IN ANGOLA

### A. Introduction
- Key medium- to long-term challenges: boosting economic diversification and reducing poverty and inequality.
- The upcoming 2023-27 National Development Plan (NDP) provides an opportunity to focus spending priorities with SDG guidance.
- Two models used in the paper: a costing model and a financing model.
- Central finding: achieving SDG outcomes by 2030 would require very large additional spending, but substantial progress can still be made over a longer period consistent with macroeconomic stability and debt sustainability through:
  - prudent borrowing;
  - creating additional fiscal space through policy measures and reforms;
  - increasing private sector involvement;
  - continuing diversification-enhancing structural reforms;
  - support from bilateral and multilateral partners.

### B. Context
- Poverty: poverty remains elevated at 31 percent.
- Informality: informal economy estimated at 35 percent of GDP (Medina and Schneider, 2018).
- Angola classification and relative position:
  - Angola is classified as an LCM with a relatively high GDP per capita (the 10th-highest in SSA in PPP terms).
  - Angola lags median SSA and EM peers across most SDG categories, particularly health, education, water and sanitation, electricity, and roads.
- COVID-19 pandemic effects:
  - Pandemic likely worsened outcomes; references to Cuesta Aguirre and Hanan (2021), Fuceri et al (2021), and IMF (2021) on scarring, increases in inequality, and disproportionate impact on informal workers.

### C. Social, Human Capital, and Infrastructure Spending
- Historical trends:
  - Social spending has largely declined since the mid-2010s (public health and education expenditures as shares of GDP and total expenditure).
- Education:
  - Education spending as a share of total government expenditure significantly lags SSA and EMDE peers and fell in the runup to the pandemic.
  - Spending biased toward tertiary education.
  - Teacher-student ratios historically lagged EMDEs (roughly in line with SSA peers) and appear to have little relationship to outcomes.
  - Net primary school enrollment has significantly lagged peers.
- Health:
  - Public health expenditure as a share of GDP and total spending are low relative to SSAs and EMDEs.
  - Downward trend in public health spending since the early 2010s (excluding an uptick around the pandemic), with weak budget execution.
  - Health spending efficiency is low with weak health outcomes across multiple areas.
- Social protection:
  - Overall social protection and labor assistance coverage: 12 percent of the population.
  - Urban coverage: 14 percent; rural coverage: 8 percent.
  - Social assistance component coverage: 5 percent of the population.
  - Kwenda cash transfer program: has continued to expand, with over half of households registered and a third receiving payments (logistical and infrastructure constraints caused missed targets).
- Infrastructure investment and quality:
  - Public and private investment as a share of GDP rose sharply in the late 2000s, then declined from the mid-2010s onward.
  - Public capital stock left Angola in line with SSA and EMDE peers as a share of GDP.
  - Infrastructure quality across several categories is relatively weak, suggesting inefficient use of investment.
  - 2019 PIMA found ample room for improvement in public investment management procedures and practices; reaching the SSA average for efficiency would double infrastructure access and increase infrastructure quality by 63 percent.

### D. SDG Performance and Costs (summary of costing assessment to reach high-performing SDG outcomes by 2030)
- Aggregate cost estimate:
  - Additional annual spending required to achieve SDG outcomes in the critical human capital and infrastructure sectors of high performing countries in a similar income group: 20.8 percent of 2030 GDP.
  - This is about 1.5 percent of GDP higher than the SSA average.

- Education (Angola: Additional Education Spending By 2030):
  - Additional spending needs: 8.3 percent of 2030 GDP (most costly of the five categories).
  - SSA average for education: 5.7 percent of GDP.
  - Cost drivers: increasing enrollment rates, increasing numbers and quality of teachers, increasing teacher wages, building new and improving existing school infrastructure (bathrooms, electricity, drinking water, boundary walls), raising capital spending and teacher wage bill.
  - Selected indicators (High performance / 2020 (or latest) / 2030):
    - GDP per capita: 4,137 / 1,743 / 1,821
    - Students per teacher ratio: 17.8 / 45.1 / 17.8
    - Teacher wages (ratio to GDP per capita): 2.7 / 2.0 / 2.7
    - Capital and other recurrent spending (% total spending): 43.5 / 30.9 / 43.5
    - Student age population (% total population): 33.2 / 51.8 / 51.1
    - Enrollment rate (preprimary to tertiary): 77.9 / 50.2 / 80.1
    - Private share (% of total spending): 34.6 / 23.2 / 34.6
    - Education spending (percent of GDP): 6.8 / 2.5 / 10.8
    - Public education spending (percent of GDP): 4.5 / 1.9 / 7.1
    - Private education spending (percent of GDP): 2.4 / 0.6 / 3.7
    - Spending per student (USD 2020): 1,093 / 168 / 481
    - SDG4 index: 93.5 / 42.2 / >87

- Health (Angola: Additional Health Spending by 2030):
  - Additional spending needs: 5.7 percent of 2030 GDP.
  - SSA average for health: 4.2 percent of GDP.
  - Cost drivers: increasing the number of doctors and other medical personnel and increasing their wages.
  - Key findings:
    - To achieve high performance in the health SDG, the number of doctors should be increased tenfold.
    - Other medical personnel should be increased by about two thirds from current level.
    - Wages of medical personnel must rise to catch up to peers.
  - Selected indicators (High performance / 2020 (or latest) / 2030):
    - GDP per capita: 4,456 / 1,743 / 1,821
    - High-cost population (<1 and 60+) (percent of total population): 15.4 / 8.0 / 8.0
    - Doctors per 1,000 population: 2.1 / 0.2 / 2.1
    - Doctors per 1,000 population - demographically adjusted: 2.9 / 0.2 / 2.1
    - Other medical personnel per 1,000 population: 4.6 / 2.8 / 4.6
    - Doctor wages (ratio to GDP per capita): 7.1 / 5.0 / 7.1
    - Other recurrent & capital health spending (percent tot health spend): 55.6 / 62.2 / 55.6
    - Private health spending (percent of total health spending): 46.2 / 55.6 / 46.2
    - Total health spending (percent of GDP): 7.0 / 2.8 / 8.6
    - Public health spending (percent of GDP): 3.8 / 1.3 / 4.6
    - Private health spending (percent of GDP): 3.2 / 1.6 / 4.0
    - Per capita health spending (US$): 310.9 / 49.6 / 155.8
    - SDG3 index: 78.5 / 34.8 / >75

- Water and Sanitation (Angola: SDG Costing Assessment Detail)
  - Annual spending required to provide safely managed water and sanitation for all: 2.1 percent of GDP every year from now to 2030 (comparable to SSA average).
  - Angola is far behind the water and sanitation SDG green thresholds across all categories and ranks toward the bottom of SSA peers on sanitation access and freshwater withdrawal.
  - Bulk of additional spending burden comes from safely managed sanitation in rural areas.
  - Selected table figures (Total unserved population (million), today and through 2030; Cost per capita (US$); Total additional cost (US$ million); Annual additional cost (US$ million); Total additional cost (percent of GDP); Additional annual cost by 2030 (pct GDP)) include many disaggregated values in the source tables (examples shown below preserve exact figures as in source):
    - Total unserved population (million), today and through 2030: 0.9 1.2 2.2 3.8 1.3 3.8 1.3 1.8 1.1 2.8 1.5 1.8 3.3 1
    - Cost per capita (US$): 18.8 145.4 76.0 35.9 168.3 3.4 4.4 438.7 237.9 405.3 324.6 761.2
    - Total additional cost (US$ million): 16.8 1,778 1,048 497 2,323 385 66,952 4,105 4,684 5,122 25,198
    - Annual additional cost (US$ million): 16.8 119 970 331 553 446 327 431 234 11,688
    - Total additional cost (percent of GDP): 0.0 2.2 1.3 0.6 2.8 0.0 0.1 8.5 5.0 5.7 6.3 30.8
    - Additional annual cost by 2030 (pct GDP): 0.0 0.1 0.1 0.0 0.2 0.0 0.0 0.6 0.3 0.4 0.4 2.1

- Electricity (Angola: SDG Costing Assessment Detail)
  - Additional investment required: aggregate of 1.2 percent of GDP every year to 2030 to connect about 53 percent of the population lacking access to electricity and keep up with population and economic growth (least costly of the five categories; similar to SSA average).
  - Parameters and selected figures:
    - Unit cost of investment (generation, transmission, dist. costs) (US$/kW): 2,600
    - Depreciation rate per year: 5%
    - Regression coefficient (electricity consumption on GDP per capita): 1.06
    - 2020 GDP (US$ billion): 58.3; 2030 GDP (US$ billion): 81.8; Percentage growth: 40.4%
    - GDP per capita (US$): 1,743 (2020) and 1,821 (2030); Percentage growth: 4.5%
    - Population (thousand): 33,428 (2020) and 44,912 (2030); Percentage growth: 34.4%
    - Access to electricity (percent of population): 46.9 (2020) and 100 (2030)
    - Additional population to be connected by 2030: 29,236,852
    - Initial consumption per capita (kWh): 348.8
    - Electricity consumption per user (kWh): 743.8 (2020) and 779.1 (2030)
    - Additional consumption per person to keep up with growth (kWh): 35.3
    - Total construction cost of current electricity network (US$ billion): 3.46
    - Depreciation cost to maintain current electricity network (US$ billion): 0.20
    - Discounting factor for depreciation: 0.60
    - Total cost of connecting new users (US$ billion): 6.45
    - Total cost to keep up with growth (US$ billion): 0.47
    - Total additional cost of construction (US$ billion): 6.93
    - 1+ Annual compound annual growth rate of GDP, today to 2030: 1.03
    - Factor to account for GDP growth: 1.09
    - Additional annual cost by 2030 (percent of GDP): 1.20

- Roads
  - Increasing rural access from 20 percent to 90 percent by 2030 will require investing the equivalent of 3.5 percent of GDP every year from now to 2030.
  - This would cover about 20,364 additional kilometers of all-weather roads (about a 142 percent increase in road length).

Final observation: the five assessed categories (Education, Health, Water and Sanitation, Electricity, Roads) together drive the additional annual spending requirement of 20.8 percent of 2030 GDP needed to reach high-performing SDG outcomes in a similar income group by 2030.

*Source: 1agoea2023002*

### 13.      Taken together, an annual cost of 20.8 percent of GDP to achieve the human capital

### 1agoea2023002 - 13.      Taken together, an annual cost of 20.8 percent of GDP to achieve the human capital

### SDG aggregate costing and key finding
- Taken together, an annual cost of 20.8 percent of GDP to achieve the human capital and infrastructure SDG outcomes of high performing peers by 2030 would mean, under a more realistic baseline scenario, that Angola would not be able to afford the investments required for more than 22 years beyond the target year of 2030.
- This reflects an exceptionally low starting point and high spending pressure to meet SDGs and other spending needs while keeping public debt sustainable.
- Angola: Summary of Additional Expenditures by 2030 (percent of GDP):
  - Education 8.3
  - Health 5.7
  - Water & Sanitation 2.1
  - Electricity 1.2
  - Roads 3.5
  - Total 20.8

### Roads costing and parameters (SDG Costing Assessment Detail: Roads)
- Parameters:
  - Unit cost ($/km) 1,000,000614
  - Annual depreciation rate 5%
  - Years to SDG end-period10
  - Income group Emerging Market Economies
- Regression coefficients:
  - Roads to GDP elasticity 0.5528
  - Roads to population-density elasticity 0.5886
  - Roads percent increase per rise in RAI index point 0.0105
  - Roads percent increase per rise in percent rural population0.0072
- Income, Population and Rural Access (2020 | 2030):
  - GDP (US$ billion) 58.3          81.8
  - GDP per capita (US$) 1,743         1,821
  - Population (thousand) 33,428      44,912
  - Rural population (percent of total population) 34.5          27.5
  - Rural Access Index (RAI) 19.6          90.0
- Contribution to growth of road network:
  - GDP per capita growth's contribution 2.4%
  - Population density's contribution 17.4%
  - RAI's contribution 73.6%
  - Rural share's contribution -5.1%
  - Growth of roads 88.4%
- Length of roads (km) 14,340       34,704
- Cost of required investment:
  - Total construction cost of current road infrastructure (US$ bn) 14.34
  - Depreciation cost to maintain current road infrastructure (US$ bn) 0.83
  - Discounting factor for depreciation 0.60
  - Total additional cost of construction (US$ billion) 20.36
  - 1+ Annual compound annual growth rate of GDP, today to 2030 1.03
  - Factor to account for GDP growth 1.09
  - Additional annual cost by 2030 (percent of GDP) 3.5

### Financing scenarios and SDG Financing tool findings
- The SDG Financing tool evaluates financing needed to achieve SDGs in a macroeconomically consistent and dynamic setting with projections up to 2052.
- Key illustrative financing results:
  - Under the illustrative cost example, Angola would need additional annual financing equivalent to 17.3 and 11.4 percent of GDP under the baseline and reform scenarios, respectively, to meet the human capital and infrastructure SDGs by 2030.
  - Under the baseline scenario, Angola would not be expected to reach its SDGs by 2052 (the final year considered by the financing tool).
  - Under a reform scenario, Angola can make considerable progress towards achieving its SDGs in a much shorter timeline (by 2040) than under the baseline and achieve much higher real GDP per capita.
- Reform scenario prerequisites (enumerated policy actions needed):
  - Pursue prudent borrowing consistent with debt sustainability.
  - Prioritize tax revenue mobilization.
  - Reform fuel subsidies.
  - Optimize expenditure reallocation and efficiencies by targeting duly appraised, selected, and costed priority projects with the most value for money.
  - Increase private sector savings and participation.
  - Pursue TFP- and growth-raising diversification of the non-oil economy.

### Fiscal context and constraints
- Historical and recent fiscal context:
  - Global oil prices began to fall from 2014 onward; with over half of revenue dependent on oil and public debt already elevated, Angola undertook sizeable fiscal consolidation over 2018-21.
  - Consolidation included large primary expenditure compression and steps to boost non-oil revenues; expenditure cuts fell on both current and capital spending roughly evenly.
- Fiscal space remains limited:
  - Strong gains on tax policy led to a 3.0 percent of GDP increase in non-oil revenues over 2017-20, yet collection levels remain below SSA peers.
  - Interest spending historically comprised nearly a third of total spending; projected to fall to between a fifth and a quarter of total spending in the near term, but would remain well above regional and EMDE averages of 8.5 and 7.5 percent, respectively.
  - Fuel subsidies expected to have peaked at 2.7 percent of GDP in 2022 and will still represent a major expense (of about 2 percent of GDP per year) through the medium term.

### Creating fiscal space — policy measures and quantified potential gains
- Achieving fiscal anchors (60 percent debt-to-GDP ratio and a 5 percent non-oil primary fiscal deficit) is critical to debt sustainability; doing so while allowing spending on development goals requires structural reforms.
- Identified reform areas and expected fiscal gains (relative to baseline):
  - Implement outstanding tax policy and administrative reforms to boost non-oil revenue further (+2.4 percent of GDP per years relative to the baseline level).
    - Suggested tax policy measures: 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 measures for AGT: new organizational structure, modern compliance risk management, legislative changes and IT overhaul, strengthen information-reporting obligations, improve e-filing and access to third-party data.
  - Gradually but permanently phase out fuel subsidies and create fiscal space (+1.2-1.7 percent of GDP per year relative to the baseline level).
    - Includes fuel pricing reform options, poverty and social impact analysis, estimation of savings, mitigation measures, communications strategy, clarification of Treasury-Sonangol relationship, deregulation of downstream sector.
  - Improve expenditure reallocation and efficiencies via institutionalization of medium-term fiscal planning (+0.5 percent of GDP per year relative to the baseline level).
    - Measures to implement (in line with Public Finance Sustainability Law): medium-term fiscal and expenditure frameworks; reliable fiscal strategy in compliance with PFSL; analysis of fiscal risks from SOEs and PPPs; strengthen Ministry of Finance oversight; update and implement the 2019 PIMA recommendation action plan; broader, timely, and consistent fiscal reporting.
  - Create conditions for greater private sector involvement (+5.1 percent of GDP per year relative to the baseline level).
    - Transfer idle public sector productive assets into private hands, rechannel private savings and investments into non-oil economy expansion.
    - SOE reform roadmap and PROPRIV 2023-2027 program could be catalysts, with emphasis on assets in financial, telecommunications, industrial, and transport sectors and various Sonangol assets.

### Conclusion and implications
- Economic diversification and poverty reduction will require more and better-quality spending on human and physical capital and thus greater fiscal space.
- Spending on human and physical capital has historically been lower relative to LMC peers, with weak outcomes.
- Achieving SDG-benchmarked goals will entail greater and more targeted investment, with the largest spending needs in education and health.
- Creating additional fiscal space, implementing structural fiscal reforms, and attracting private investment are critical to improving the level and quality of development spending in Angola.

### Annex — Costing and Financing frameworks (methodology highlights)
- Costing (Gaspar and others 2019 methodology):
  - Education and health estimated via an input-outcome approach; outcome measured by SDG result indicators (range 0 to 100).
  - Steps: assume SDG outcomes are functions of inputs and unit costs; set levels of cost drivers b* from countries with similar GDP per capita and high outcomes; calculate 2030 spending s(b*, x_i2030).
  - For physical capital, annualized additional spending estimated to close infrastructure gap between latest historical year (2020) and 2030, expressed in percent of 2030 GDP.
- Financing:
  - The framework constructs financing scenarios given SDG needs and shows whether SDG targets can be met or size of remaining financing gap between current and target years.
  - The financing framework models interaction between fiscal and private sectors and productive capacity, following the Debt, Investment, and Growth (DIG) model and extension to human capital (Atolia and others 2019).
  - Framework assumes human capital, private capital, and two forms of public capital (publicly financed and privately financed/bankable); investments are complementary and boost returns across capital types.

*Source: IMF Angola Selected Issues — SDG costing and financing excerpts (pages provided).*

### 3.      Reserve requirements have started to have more of an impact on credit growth in

### 3.      Reserve requirements have started to have more of an impact on credit growth in

### Impact of reserve requirements and business confidence
- Until 2019, the relationship between required bank reserves and private credit growth was relatively weak, partially due to excess liquidity in the banking system.
- Starting in 2019, the central bank began removing excess liquidity; required reserves and credit growth have moved in opposite directions: as banks deposited more reserves in the central bank, there were increasingly less resources available for lending.
- The relationship between the business confidence index and credit growth moved in the expected direction: as sentiment about the business environment improves, credit to the private sector responds more positively.

### Constraints to private sector credit growth in Angola

#### Demand-side constraints
- Large informal non-oil sector with limited access to credit.
- Capacity constraints at firms.
- Lack of professional accounting in preparation of firms’ financial statements.
- The oil sector is generally funded from outside the domestic banking sector.

#### Supply-side constraints
- Angolan banks invest around 40 percent of their balance sheets in Angola sovereign debt, leaving less room for private sector credit.
- Balance sheets have been encumbered with a high level of NPLs and associated required provisioning until very recently.
- Current level of real interest rates is relatively high compared to other SSA countries.
- Perception of remaining capacity constraints at banks to assess and properly manage project risks despite improvements after the 2019 Asset Quality Review.

### Policy response (recent and ongoing)
- Notice 10/20 by the BNA, reissued in 2022, requires banks to provide a minimum of 2.5 percent of their liquid assets to finance domestic production, with nominal interest rates in the range of 7-10 percent.
  - Banks’ market interest rates in domestic currency, for loans over 1 year, are close to 20 percent, as of September 2022.
  - Context: banks in Angola have an average 32 percent of liquid assets to total assets; 2.5 percent of liquid assets represents about 0.8 percent of total assets.
- Notice 9/22 broadly extends Notice 10/20 to housing and construction loans.
- Project to Support Credit (PAC) seeks to provide support to national production of 54 items listed in PRODESI, using budget resources to support micro enterprises.

### Further policy actions recommended — Demand side
- More investment in education is needed; Angola’s spending on education is below the SSA average.
  - In 2020 Angola spent approximately 2.4 percent of its budget in education, compared to 3.4 percent for Sub-Saharan Africa.
- Expand vocational education and technical training to improve productivity and labor efficiency; tailor training to identified human capacity gaps and deliver via both government and private sector.
- Implement a reliable and efficient accounting system; strengthen the accountancy profession to improve financial reporting, resource allocation, cost of capital, and investment.

### Further policy actions recommended — Supply side and institutional reforms
- Continue strengthening banks’ credit risk assessment and management capacity following the 2019 Asset Quality Review; sustain improvements in governance and internal controls within a realistic implementation timeframe.
- Strengthen financial stability through implementation of the new financial institution law and a comprehensive approach to dealing with troubled banks; delays in restructuring two formerly state-owned banks are delaying their ability to provide new credit.
- Ensure credit guarantee schemes (CGS) are well designed and implemented, properly funded, supported by robust legal and regulatory frameworks, and have sound and independent corporate governance; align the Credit Guarantee Fund and other CGS in Angola with best international practices.
- Improve collateral frameworks:
  - Strengthen and streamline collateral registration processes to reduce frictions in lending.
  - Address bottlenecks in judicial asset recovery processes; ensure courts have proper resources for timely processing.
- Enhance use of credit information:
  - The credit risk bureau managed by BNA has made progress; in 2021 an instruction was issued for financial institutions to report more and better credit information to the BNA.
  - BNA should fully use the credit bureau database to assess financial stability and inform supervision.
  - In 2022, the first private credit risk bureau was authorized to operate in Angola; create cooperation channels between private and public credit registries.

*Source: IMF — Angola country chapter (excerpts provided).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1agoea2023002.pdf_