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### EXECUTIVE SUMMARY — Context
- Angola remained resilient in the face of significant challenges in 2023, including weaker oil production and prices.
- Gains from fiscal consolidation in 2023 were lower-than-anticipated and inflation increased.
- Angola’s capacity to repay the Fund is adequate though subject to risks. In an adverse scenario involving a prolonged oil price shock, repayment indicators would weaken but remain adequate.
- Further reforms needed to reduce debt vulnerabilities and diversify the economy, including:
  - reducing fuel subsidies;
  - mobilizing more domestic revenues;
  - improving the quality of spending, notably on health, education, and targeted social protection;
  - active liability management and deepening domestic debt markets;
  - steadfast implementation of the National Development Plan (NDP) 2023–27 (including governance, gender, and climate), consistent with a medium-term fiscal framework.

### RECENT DEVELOPMENTS AND OUTLOOK
- Growth and activity:
  - GDP growth declined to 0.9 percent in 2023 from 3.0 percent in 2022 but was higher than the 2023 AIV projection of 0.5 percent, supported by better-than-expected oil production in Q4.
  - Real oil GDP growth reached 2.2 percent in Q4 (y-o-y) as oil production increased to 1.1 million bpd.
  - Non-oil GDP growth remained moderate, influenced by lagged spillovers from the earlier contraction in the oil sector.
- Inflation and monetary policy:
  - CPI inflation increased to 28 percent in April 2024, largely concentrated in food items.
  - BNA actions since the beginning of the year:
    - increasing its policy rate by 150 bps to 19.5 percent in May;
    - eliminating the custody fee on excess reserve balances;
    - increasing local currency reserve requirements by 300 bps to 21 percent.
  - The Treasury sold about US$300 million to commercial banks. Interbank rates increased by more than 1,000 bps since the beginning of the year to move closer to the policy rate.
- Exchange rate and FX market:
  - Exchange rate stable since the June 2023 depreciation, but FX market fragmentation persists, generating FX backlogs and illegal parallel market spreads.
  - A recovery in oil receipts to the Treasury since end-2023 helped narrow spreads, with some exchange rate movements between March and May 2024.
- Fiscal developments:
  - Overall and non-oil primary fiscal balances in 2023 estimated at -1.9 percent of GDP and -6.4 percent of GDP, respectively.
  - Expenditures reduced in 2023 by an estimated 0.2 percent of GDP; adjustment smaller than projected due to higher interest payments on domestic debt, offset of estimated fuel subsidy savings by higher-than-projected fuel consumption, and increased capital spending in Q4.
  - Public debt increased to 73.9 percent of GDP in 2023 from 56.1 percent of GDP in 2022, driven by a significantly weaker exchange rate.
  - Agreement with Chinese authorities (accounting of prepayment of debt service) estimated to lower debt service by US$150–200 million per month in 2024.
- Fuel subsidy reform and budget:
  - Approved 2024 budget assumes a 2 ppts of GDP cut in fuel subsidy costs.
  - On April 23, 2024, authorities increased diesel prices by about 48 percent, which could lead to a 0.7 ppt reduction in subsidy costs.
  - Staff considers full implementation of the subsidy reform in 2024 as an upside risk to the baseline.
- External sector:
  - Current account surplus declined to 3.8 percent of GDP in 2023 from 8.3 percent of GDP in 2022.
  - Oil and gas exports declined by about 30 percent y-o-y in 2023; imports decreased by 12.6 percent (in US$ nominal terms).
  - International reserves broadly stable at US$ 14.7 billion in 2023, providing 7.2 months of import coverage.
- Implementation of reforms and statistics:
  - NDP implementation ongoing; Diversifica Mais Project launched.
  - National Strategy for the Prevention and Repression of Corruption approved.
  - Adoption of GFSM 2014 presentation underway; historical series completion planned for 2024:Q3.
- Outlook:
  - Baseline assumes oil production at 1.08 million bpd in 2024.
  - Near-term growth recovery supported by oil sector; medium-term non-oil growth assumed about 3.2 percent real GDP growth.
  - Balance of payments expected to remain in surplus over the medium-term, slightly lower than the Article IV projection.
  - Downside risks: decline in domestic oil production or international oil prices, slippages in fuel subsidy reform, negative spillovers from international capital markets.
  - Upside risks: higher-than-expected oil recovery and full implementation of the fuel subsidy reform.

### POLICIES AND RECOMMENDATIONS
- Fiscal policy:
  - Create additional fiscal space via fiscal structural reforms and mobilizing non-oil revenues.
  - In an adverse scenario, continue planned fuel subsidy reform and contain capital and current spending.
- Monetary policy:
  - Adopt a tighter monetary policy bias in the short-term and improve interbank liquidity management.
  - Gradually move towards greater exchange rate flexibility to ease inflation, anchor inflation expectations, and reduce borrowing costs.
- Financial sector:
  - BNA should prepare for decisive resolution or liquidation of problem banks as necessary, protect small depositors, and minimize taxpayer costs.
  - Expedite efforts to establish fiscal backup funding for the Deposit Guarantee Fund.
- Growth and diversification:
  - Steadfast implementation of structural reforms under the NDP (including governance, gender, and climate) consistent with a medium-term fiscal framework.
- Public finance and debt management:
  - Reduce fuel subsidies, mobilize more domestic revenues, improve spending quality, pursue active liability management, and deepen domestic debt markets.

### CAPACITY TO REPAY
- Fund exposure and profile:
  - Total outstanding Fund credit was SDR 3.1 billion (416.1 percent of quota or 27.9 percent of gross international reserves) at end-2023.
  - Repayments to the Fund projected to increase over the medium-term, peaking in 2026 at:
    - 5.9 percent of GIR (7.1 percent of GIR net of collateralized debt service);
    - 10.0 percent of external debt service;
    - 2.6 percent of exports.
- Risks:
  - Primary risks from lower oil sector performance and delays in fiscal adjustment.
  - Under an illustrative adverse scenario, CtR expected to remain adequate, though more active fiscal policy response would be needed.

*IMF staff mission discussions took place during May 13–17, 2024 in Luanda; mission approved June 13, 2024.*

### OTHER RISKS — Growth-related and structural
- Political tensions ahead of elections scheduled for 2027 could hinder fiscal reform.
- Diversification reforms could stall while oil-sector challenges spill over.
- Climate-related shocks could harm agriculture, challenge fiscal consolidation and price stability.
- Slower governance and AML/CFT reforms (including beneficial ownership law and registry) could hinder the medium-term outlook.
- Delayed resolution of a large insolvent and loss-making bank could increase fiscal contingent liabilities.

### OTHER RISKS — External position and capacity to repay
- 2023 AIV assessment: external position broadly in line with fundamentals and desirable policies.
- International Investment Position (IIP) improved from US$-22.2 billion to US$ -20.9 billion in 2023.
- SWF accumulated assets around US$1.1 billion as of April 2024.
- Reserves at end-2023 about 130 percent of the ARA metric under a floating exchange rate arrangement.
- CtR indicators: outstanding Fund credit peaked in 2021 at 5.3 percent of GDP (13.3 percent of exports). Angola’s CtR should remain below the average in the medium-term.

### OTHER RISKS — Public finance
- Fiscal risks tilted to the downside despite recovery in domestic oil production.
- Fuel subsidy policy:
  - 2024 Budget envisages reducing subsidies by two ppts of GDP.
  - Baseline assumes gradual implementation with one ppt of GDP cuts in 2024 and 2025, plus compensating spending cuts.
- Key forecast revisions:
  - Oil revenues slightly revised downward despite higher oil prices in 2024.
  - Non-oil revenues slightly revised upward partly on better-than-expected 2024Q1 performance.
  - Capital spending revised upward: 26 percent higher in nominal terms than the AIV forecast; 2024 projections 14 percent higher than AIV estimates.
  - Debt projected to reach 58.5 percent of GDP in 2024 and then steadily decline.
  - NOPFD estimated at 4.4 percent of GDP in 2024 and expected to decline in the medium-term.
- Arrears:
  - Stock of arrears increased in 2023 but broadly stable at 2.6 percent of GDP (Kwz 2.5 trillion).
  - External legacy arrears ~Kwz 1.6 trillion or 1.6 percent of GDP due to two Chinese companies.
- Mitigating measures:
  - Rationalize spending, continue fuel subsidy reform with mitigation, expand non-oil tax measures (including VAT threshold reduction), adjust PIT brackets, develop property registry and property tax, and advance fiscal structural measures (tax administration, PFM, PIM, SOE reform, procurement).
- Authorities’ views:
  - Reiterated commitment to fiscal anchors under the Fiscal Sustainability Law; focus on expanding tax base, reducing informality, and using mitigation measures for vulnerable groups.
  - Aim to speed up privatization of SOEs and continue active liability management and cash management improvements with IMF TA.

### OTHER RISKS — Financial sector
- Banking sector (end-2023):
  - Reported regulatory capital: 30 percent of assets.
  - Reported profitability: 4.2 percent of assets.
  - One large loss-making problem bank accounts for 6 percent of system assets.
  - NPLs increased by 1.5 pp y-o-y to 15.9 percent and are reportedly fully provisioned.
  - Loan portfolios represent 26 percent of assets.
  - Most banks’ net open positions in foreign currency turned negative in 2023; sector total NOP to capital turned negative at -20 percent and -5 percent excluding the large problem bank.
- Contingent liabilities:
  - Delayed resolution of the large problem bank poses contingent fiscal liability; authorities communicated it will not be bailed-out; negligible interbank exposures reduce contagion risk.
- Mitigants and recommendations:
  - BNA publishes biannual financial stability reports, requires recovery plans, conducts stress tests, and drafted AML/CFT supervisory plan.
  - Staff urged decisive action on the problem bank, liquidity assistance only to banks with credible solvency, stronger FX supervision, and improved FSI compilation.
  - Establish fiscal backup funding for the DPF and strengthen legal protection of BNA staff.
- Authorities’ plans:
  - Review Financial Institution Law with legal amendments aimed for 2025; prioritize establishing a fiscal backstop for the DGF.
  - Angola scheduled for an FSAP in 2025.

### OTHER RISKS — Price stability and growth
- Inflation and FX risks:
  - Continued inflationary pressures and FX market frictions risk de-anchoring inflation expectations.
  - Import substitution policies constrained food supply and access to critical inputs, intensifying inflation.
  - De-anchored expectations increase borrowing costs in kwanza.
  - Guidance: improve FX market functioning, enhance monetary policy framework to reduce inflation to BNA’s single-digit target.
- Oil dependence and diversification:
  - Oil accounts for over 90 percent of exports and 60 percent of government revenues.
  - Exposure to oil price volatility, aging fields, and global energy transition underscores need for diversification.
- Climate risks:
  - Investment in adaptation or climate-resilient infrastructure could reduce GDP losses from a natural disaster by 50 percent (staff analysis).
  - Angola revised NDC: target year for cutting emissions by 14 percent to 2025.
  - As a Global Methane Pledge member, expected to cut methane in oil and gas to avoid risk to LNG exports to the EU.
- Mitigating policies:
  - Gradual exchange rate flexibility, rules-based FXI strategy, improved interbank liquidity management, tightening bias in monetary policy short-term.
  - Incentivize oil extraction and exploration investment; simplify property registration and reduce bureaucratic hurdles.
  - Carefully assess import substitution risks; sustain structural reforms to support diversification.
  - Expedite AML/CFT and other legal reforms and prepare communication strategies to mitigate correspondent banking impacts.

### AUTHORITIES’ VIEWS (selected)
- Agreed on necessity to boost non-oil sector growth and reiterated commitment to NDP 2023–27 and climate resilience.
- BNA committed to reduce inflation and transition to inflation targeting; will improve monetary operations framework and seeks IMF TA on FX operations.
- Authorities acknowledged the need for better policy coordination between MoF and BNA and prioritized implementing GAFI recommendations to avoid a possible gray listing.

### ILLUSTRATIVE ADVERSE SCENARIO — Description and assumptions
- Scenario: extended oil price shock with contraction in domestic oil production beginning in 2024.
- Brent prices assumed to decrease by about 27 percent to $60 per barrel beginning in 2024.
- Shock duration: three years; oil prices remain at $60 and other parameters do not improve until assumed return to baseline in 2027.
- Assumed cumulative 10 percent contraction in oil production over three years and significant lagged contraction effects.
- Resulting REER depreciation of about 17 percent relative to baseline and negative spillovers to non-oil growth.

### ILLUSTRATIVE ADVERSE SCENARIO — Real sector and prices
- Five ppts decrease in total GDP growth relative to baseline over three years given the assumed oil shock.
- BNA may need to tighten monetary policy to contain inflation expectations.
- Inflation projected to peak in 2025 under the adverse scenario and converge towards baseline over the medium-term.

### ILLUSTRATIVE ADVERSE SCENARIO — External sector and reserves
- Current account balance would fall into deficit at -5.9 percent of GDP in 2024.
- International reserves projected to immediately fall by US$2.8 billion to US$11,873 million (US$11.9 billion) in 2024, equivalent to 109.3 percent of the ARA metric under a floating exchange rate regime.
- GIR would fall to about 100 percent of ARA metric in the medium-term.
- Angola’s capacity to repay remains adequate: repayment to the Fund peaks at 8.8 percent of GIR, 10.0 percent of external debt service, and 3.7 percent of exports in 2026.

### ILLUSTRATIVE ADVERSE SCENARIO — Fiscal impacts
- Overall balances deteriorate significantly in 2024 as oil revenues projected nearly two ppts of GDP lower than baseline.
- Debt ratio would increase to about 88.5 percent of GDP, mainly driven by FX depreciation.
- Gross financing needs (GFN) rise to 10.7 percent of GDP.
- GFNs remain elevated given large Eurobond repayments maturing in 2028–29; Angola could approach domestic financing limits by 2028.

### ILLUSTRATIVE ADVERSE SCENARIO — Financial sector
- Banks with large negative NOPs and relatively low capital buffers (accounting for 15 percent of system assets) are vulnerable to kwanza depreciation.
- Credit risk partly contained due to relatively small loan books.

### ILLUSTRATIVE ADVERSE SCENARIO — Recommended mitigation measures
- Implement fiscal structural measures (paragraph 24), adjust current and capital expenditures while prioritizing social spending.
- Pursue active liability management:
  - lengthen domestic maturities;
  - prepay external commercial debt when oil prices supportive;
  - buy back maturing Eurobonds, conditions permitting.
- Deepen domestic debt markets to reduce foreign currency financing reliance.
- Be prepared to tighten monetary policy if inflation surges and enhance monetary policy implementation to align interbank markets with the policy rate.
- Maintain exchange rate flexibility and limit FX intervention consistent with IMF IPF advice.
- If market access limited, pursue more active fiscal adjustment and seek alternate financing.

### SELECTED KEY FIGURES — Downside vs Baseline (Text Table 2)
- Real GDP (percent change): baseline 2024 = 2.4; downside 2024 = 0.8.
- o/w Oil (percent change): baseline 2024 = 0.8; downside 2024 = -2.0.
- Consumer Prices (aop): baseline 2024 = 25.7; downside 2024 = 27.4.
- Brent Price (USD per barrel): baseline 2024 = 82.5; downside 2024 = 60.0.
- Oil & Gas Production (mn barrels per day): baseline 2024 = 1.2; downside 2024 = 1.0.
- Current Account Balance (percent of GDP): baseline 2024 = 3.4; downside 2024 = -5.9.
- Gross International Reserves (US$ mn): baseline 2024 = 15,135; downside 2024 = 11,873.
- percent of ARA metric (floating): baseline 2024 = 127.7; downside 2024 = 109.3.
- Revenue (percent of GDP): baseline 2024 = 18.1; downside 2024 = 14.8.
- o/w Oil Revenue (percent of GDP): baseline 2024 = 10.7; downside 2024 = 7.3.
- Expenditure (percent of GDP): baseline 2024 = 16.7; downside 2024 = 17.1.
- Overall Balance (percent of GDP): baseline 2024 = 1.3; downside 2024 = -2.4.
- Public Debt (percent of GDP): baseline 2024 = 58.5; downside 2024 = 88.5.
- Gross Financing Need (percent of GDP): baseline 2024 = 6.5; downside 2024 = 10.7.
- Obligations to IMF relative to Gross international reserves (percent): baseline 2024 = 3.4; downside 2024 = 4.3.

### STAFF APPRAISAL — Key conclusions and recommendations
- Recovery from the 2023 shock is underway; baseline favorable but risks tilted to the downside.
- Angola’s capacity to repay the Fund is adequate with manageable risks; projected repayments peak in 2026. Under a severe shock, CtR indicators weaken but remain manageable.
- Crucial mitigation steps:
  - allow exchange rate to function as shock absorber;
  - continue fuel subsidy reform with mitigation for vulnerable groups and strong communication;
  - rationalize spending in the near-term and build additional buffers via tax policy measures to mobilize non-oil revenues;
  - progress fiscal structural agenda (PFM and PIM reforms).
- Monetary policy framework enhancements:
  - maintain tighter bias short-term;
  - improve interbank liquidity management;
  - gradual move toward greater exchange rate flexibility.
- Financial stability actions:
  - implement and enforce bank supervision and resolution frameworks decisively;
  - prepare for decisive resolution or liquidation of problem banks as necessary while protecting small depositors;
  - expedite establishment of fiscal backup funding for the DPF and strengthen legal protection for BNA staff.

### IMPLEMENTING BROAD-BASED STRUCTURAL REFORMS — Key policy guidance
- Implement the NDP consistent with a medium-term fiscal framework.
- Apply PIMA recommendations to strengthen public investment management.
- Address governance, gender, and climate change as enablers of diversification and sustainable growth.

### SELECTED MACRO AND FISCAL SERIES (as presented)
- Real gross domestic product series: -4.0; 2.1; 4.2; 0.9; 2.4; 2.8; 3.3; 3.3; 3.4; 3.4.
- Consumer prices (annual average): 22.3; 25.8; 21.4; 13.6; 25.7; 16.3; 12.4; 10.0; 10.0; 10.0.
- Total revenue (percent of GDP): 18.3; 20.7; 20.1; 17.4; 18.1; 17.2; 16.3; 15.5; 14.9; 13.7.
- Total expenditure (percent of GDP): 20.0; 17.3; 19.5; 19.3; 16.7; 15.9; 15.7; 14.9; 14.7; 14.6.
- Overall fiscal balance (percent of GDP): -1.7; 3.4; 0.6; -1.9; 1.3; 1.2; 0.7; 0.5; 0.3; -0.9.
- Gross international reserves (US$, millions): 10,978; 14,375; 14,661; 14,727; 15,135; 15,501; 15,887; 16,043; 16,179; 16,298.
- Financing Needs (Billions of U.S. dollars) for 2023–2029: 13.7; 7.9; 6.7; 7.8; 8.2; 10.6; 11.5.
- Financing Sources (Billions of U.S. dollars) for 2023–2029: 13.0; 7.9; 6.7; 7.8; 8.2; 10.6; 11.5.
- Financing Gap (A-B): 0.7; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0.
- Total usable cash balances (Billions of U.S. dollars): 0.7; 1.4; 1.9; 2.2; 2.5; 2.8; 3.0.
- External debt rollover rate (percent): 52; 65; 27; 35; 34; 54; 55.
- Domestic debt rollover rate (percent): 74; 35; 82; 68; 76; 89; 112.

### ANNEX I — Global Risk Assessment Matrix (February 7, 2024) — Selected risks and mitigation
- Commodity price volatility: Likelihood: High; Potential Impact: High.
  - Mitigants: streamline oil-sector investment, mobilize non-oil revenues, compress expenditure, active debt management, allow exchange rate to absorb shocks, accelerate diversification.
- Abrupt global slowdown: Likelihood: Medium; Potential Impact: High.
  - Mitigants: mobilize non-oil revenues, compress expenditure while protecting social spending, active debt management, allow exchange rate flexibility with a tightening bias.
- Sovereign debt distress: Likelihood: Medium; Potential Impact: High.
  - Mitigants: frontload fiscal adjustment, limit reliance on international markets, seek IFI/donor financing.
- Systemic financial instability: Likelihood: Medium; Potential Impact: High.
  - Mitigants: strengthen resolution mechanisms, allow exchange rate flexibility while tightening monetary policy, seek IFI/donor financing if needed.
- Extreme climate events: Likelihood: Medium; Potential Impact: Medium.
  - Mitigants: invest in agriculture resilience and infrastructure; scale up cash transfer programs (e.g., Kwenda).
- Intensification of regional conflict(s): Likelihood: High; Potential Impact: Low.
  - Mitigants: accelerate diversification, invest in agriculture and infrastructure, scale up social safety nets.
- Social discontent: Likelihood: Medium; Potential Impact: Medium.
  - Mitigants: stakeholder engagement, targeted social policies, maintain fiscal discipline, improve governance and transparency.

*Source: IMF staff report content (selected sections on "Other risks", Public finance, Financial sector, and Risks to price stability and growth).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Angola remained resilient in the face of significant challenges in 2023, including weaker oil production and prices.
- Gains from fiscal consolidation in 2023 were lower-than-anticipated and inflation increased.
- Angola’s capacity to repay the Fund is adequate though subject to risks. In an adverse scenario involving a prolonged oil price shock, repayment indicators would weaken but remain adequate.
- Further reforms are needed to reduce debt vulnerabilities and diversify the economy, including:
  - reducing fuel subsidies;
  - mobilizing more domestic revenues;
  - improving the quality of spending, notably on health, education, and targeted social protection;
  - active liability management and deepening domestic debt markets;
  - steadfast implementation of the National Development Plan (NDP) 2023–27 (including governance, gender, and climate), consistent with a medium-term fiscal framework.

### Recent Developments and Outlook
- Growth and activity:
  - GDP growth declined to 0.9 percent in 2023 from 3.0 percent in 2022 but was higher than the 2023 AIV projection of 0.5 percent, supported by better-than-expected oil production in Q4.
  - Real oil GDP growth reached 2.2 percent in Q4 (y-o-y) as oil production increased to 1.1 million bpd.
  - Non-oil GDP growth remained moderate, influenced by lagged spillovers from the earlier contraction in the oil sector.
- Inflation and monetary policy:
  - CPI inflation increased to 28 percent in April 2024, largely concentrated in food items, reflecting lagged effects from last year’s currency depreciation, reduced goods imports, and adverse weather.
  - The Banco Nacional de Angola (BNA) tightened monetary policy since the beginning of the year, including:
    - increasing its policy rate by 150 bps to 19.5 percent in May;
    - eliminating the custody fee on excess reserve balances;
    - increasing local currency reserve requirements by 300 bps to 21 percent.
  - The Treasury sold about US$300 million to commercial banks. Interbank rates increased by more than 1,000 bps since the beginning of the year to move closer to the policy rate.
- Exchange rate and FX market:
  - The exchange rate has remained stable since the June 2023 depreciation, but FX market fragmentation continues to hinder exchange rate flexibility, generating FX backlogs and illegal parallel market spreads.
  - A recovery in oil receipts to the Treasury since end-2023 helped narrow spreads, with some exchange rate movements between March and May 2024.
- Fiscal developments:
  - The overall and non-oil primary fiscal balances are estimated at -1.9 percent of GDP and -6.4 percent of GDP, respectively in 2023.
  - Expenditures were reduced in 2023 by an estimated 0.2 percent of GDP, but the adjustment was smaller than projected due to:
    - higher interest payments on domestic debt from tighter financing conditions in Q4;
    - net estimated savings from the fuel subsidy reform being fully offset by higher-than-projected fuel consumption (particularly diesel);
    - increased capital spending in Q4.
  - Public debt increased to 73.9 percent of GDP in 2023 from 56.1 percent in 2022, driven by a significantly weaker exchange rate.
  - An agreement with Chinese authorities (accounting of prepayment of debt service) is estimated to lower debt service by US$150–200 million per month in 2024 and should alleviate near-term liquidity pressures.
- Fuel subsidy reform and budget:
  - The approved 2024 budget assumes a 2 ppts of GDP cut in fuel subsidy costs.
  - On April 23, 2024, authorities increased diesel prices by about 48 percent, which could lead to a 0.7 ppt reduction in subsidy costs.
  - Staff considers full implementation of the subsidy reform in 2024 as an upside risk to the baseline.
- External sector:
  - The current account surplus declined to 3.8 percent of GDP in 2023 from 8.3 percent in 2022.
  - Oil and gas exports declined by about 30 percent y-o-y in 2023 due to extended maintenance operations and a 20 percent reduction in Angolan oil prices.
  - Imports decreased by 12.6 percent (in US$ nominal terms).
  - International reserves remained broadly stable at US$ 14.7 billion in 2023, providing 7.2 months of import coverage.
- Implementation of reforms and statistics:
  - Implementation of the NDP is ongoing; the new Ministry of Planning leads NDP implementation and the “Diversifica Mais Project” was launched to accelerate diversification.
  - Authorities approved a National Strategy for the Prevention and Repression of Corruption.
  - Adoption of GFSM 2014 presentation for fiscal data is underway; completion and dissemination of historical series is planned for 2024:Q3.
- Outlook:
  - Baseline assumes oil production at 1.08 million bpd in 2024.
  - Growth is expected to recover in the near-term, supported by the oil sector; medium-term non-oil growth depends on structural reforms with an assumed about 3.2 percent real GDP growth in the medium-term.
  - The balance of payments is expected to remain in surplus over the medium-term, at a slightly lower level than the Article IV projection.
  - Risks to the baseline include:
    - decline in domestic oil production or a significant fall in international oil prices;
    - slippages in the fuel subsidy reform;
    - negative spillovers from international capital markets.
  - Upside risks include higher-than-expected oil recovery and full implementation of the fuel subsidy reform.

### Policies and Recommendations
- Fiscal policy:
  - Create additional fiscal space by following through on fiscal structural reforms and mobilizing non-oil revenues.
  - In an adverse scenario, critical measures include continued implementation of the planned fuel subsidy reform and containment of capital and current spending.
- Monetary policy:
  - Adopt a tighter monetary policy bias in the short-term and improve interbank liquidity management.
  - Gradually move towards greater exchange rate flexibility to ease inflation, better anchor inflation expectations, and reduce public and private sector borrowing costs.
- Financial sector:
  - Banco Nacional de Angola (BNA) should prepare for decisive resolution or liquidation of problem banks, as necessary, while protecting small depositors and minimizing costs to taxpayers.
  - Expedite efforts to establish fiscal backup funding for the Deposit Guarantee Fund.
- Growth and diversification:
  - Steadfast implementation of structural reforms under the NDP (including on governance, gender, and climate) to promote diversified, resilient, and inclusive growth.
  - Ensure the NDP is consistent with a medium-term fiscal framework.
- Public finance and debt management:
  - Continue efforts on the fiscal front to bring public debt to safer levels, including reducing fuel subsidies, mobilizing more domestic revenues, improving spending quality, and pursuing active liability management.
  - Deepen domestic debt markets to diversify financing sources over the medium-term.

### Capacity to Repay
- Fund exposure and repayment profile:
  - Total outstanding Fund credit was SDR 3.1 billion (416.1 percent of quota or 27.9 percent of gross international reserves) at end-2023.
  - Repayments to the Fund are projected to increase over the medium-term, peaking in 2026 at:
    - 5.9 percent of GIR (7.1 percent of GIR net of collateralized debt service);
    - 10.0 percent of external debt service;
    - 2.6 percent of exports.
  - These projections are broadly in line with recently-approved EFF programs.
- Risks to capacity to repay:
  - Primary risks stem from lower oil sector performance and persistent delays in fiscal adjustment.
  - A scenario with falling oil prices and production would weaken fiscal and external positions, increase financing needs, depreciate the kwanza, lower international reserves, and reduce CtR.
  - Delays in implementing the 2024 budget fuel subsidy reform would increase Gross Financing Needs (GFN).
  - Under an illustrative adverse scenario, Angola’s CtR is expected to remain adequate, although a more active fiscal policy response would be needed.

*IMF staff mission discussions took place during May 13–17, 2024 in Luanda; mission approved June 13, 2024.*

### 17.      Other risks:

### 17. Other risks

### Growth-related and structural risks
- Political tensions in the run-up to the next elections (scheduled for 2027) could increase and hinder fiscal reform implementation.
- Diversification reforms could stall while challenges in the oil sector spill over to the non-oil economy.
- Climate-related shocks could have adverse effects on the agriculture sector, challenging fiscal consolidation and price stability.
- Slower implementation of governance reforms envisaged under the NDP and government anti-corruption strategy and AML/CFT (including the implementation of a beneficial ownership law and registry) could hinder the medium-term outlook.
- Banking system risk: further delays in the resolution of a large insolvent and loss-making bank could increase fiscal contingent liabilities.

### External position and capacity to repay
- 2023 AIV assessment: Angola’s external position in 2023 is assessed to be broadly in line with the level implied by fundamentals and desirable policies.
- International Investment Position (IIP): improved from US$-22.2 billion to US$ -20.9 billion in 2023; both assets and liabilities fell in 2023, with the reduction in liabilities outweighing the reduction in assets.
- Drivers of IIP change:
  - Assets: short-term currency deposits and trade credits slightly declined, reflecting lower oil production and price developments in 2023.
  - Liabilities: a significant reduction in government loans helped the IIP improve at end-2023.
- NIIP: expected to improve in the medium-term in line with the projected fall in the external debt-to-GDP ratio.
- External balances: despite lower oil exports, remain relatively robust; risks from external liabilities are mostly mitigated by external assets, including accumulated assets of the Sovereign Wealth Fund (SWF) (around US$1.1 billion as of April 2024).
- Reserves: Angola’s foreign reserves are projected to remain adequate in the medium-term; at end-2023, reserves stood at about 130 percent of the ARA metric under a floating exchange rate arrangement.
- Current account: recent data show a higher-than-projected current account surplus at 3.8 percent of GDP compared to a 3.1 percent projection in the 2023 AIV consultation.
- Capacity to repay (CtR) indicators:
  - Credit outstanding to the Fund peaked in 2021 at 5.3 percent of GDP (13.3 percent of exports).
  - Angola’s CtR should remain below the average in the medium-term.
  - Angola’s resilience to past oil price shocks, policy adjustment ability, and strong repayment record suggest repayment risk to the Fund is contained and manageable.

### Risks from public finance
- Fiscal risks remain tilted to the downside despite recovery in domestic oil production and improved oil price outlook.
- Fiscal space reduced by lower-than-anticipated fiscal consolidation in 2023 (after significant loosening in 2022).
- Oil dependence and large share of external debt continue to pose fiscal risks, although targets under the Fiscal Sustainability Law are still projected to be reached.
- Fuel subsidy policy:
  - The 2024 Budget envisages reducing fuel subsidies by two ppts of GDP.
  - Baseline assumes gradual implementation with one ppt of GDP cuts in 2024 and 2025, respectively, plus additional compensating spending cuts.
- Key forecast revisions and fiscal projections:
  - Oil revenues: slightly revised downward despite higher oil prices in 2024 and recovery in oil production at end-2023/early-2024, reflecting a more conservative production recovery.
  - Non-oil revenues: slightly revised upward compared to 2023, partly on better-than-expected performance in 2024Q1 and expected stronger output recovery in 2024.
  - Capital spending: revised upward to be broadly in line with 2023 budgetary figures (26 percent higher in nominal terms than the AIV forecast); projections for 2024 are 14 percent higher than AIV estimates.
  - Debt: projected to reach 58.5 percent of GDP in 2024, driven by a higher nominal GDP base and higher debt prepayment; debt ratio projected to steadily decline from 2024 onward as a primary surplus is maintained and the growth outlook improves.
  - Non-oil primary fiscal deficit (NOPFD): estimated at 4.4 percent of GDP in 2024; expected to steadily decline in the medium-term on modestly improving non-oil revenues, moderately lower current and capital expenditures, and savings from fuel subsidy reform.
- Fiscal financing and risks:
  - Baseline assumes continued issuance of longer-term domestic debt, the materialization of the second World Bank Development Policy Loan, and multilateral support.
  - Return to markets by 2028 would be needed to meet large maturing Eurobonds in 2028–29.
  - GFNs in percent of GDP remain manageable through the medium-term under these assumptions.
  - 2023 AIV DSA assessed Angola’s public debt as sustainable but with high risk due to: (i) exposure to currency risk (high share of foreign currency debt); (ii) exposure to oil prices and production; and (iii) a narrow creditor base.
- Arrears:
  - Stock of arrears increased in 2023 but remains broadly stable at 2.6 percent of GDP (Kwz 2.5 trillion).
  - External sector legacy arrears account for a little less than two thirds of the stock of arrears (Kwz 1.6 trillion or 1.6 percent of GDP) and are due to two Chinese companies for infrastructure project payments.
  - Authorities are taking steps to regularly publish stock and composition of arrears; a medium-term clearance plan is yet to be finalized.
- Mitigating public finance policies:
  - Rationalize spending, especially in 2024, and continue fuel subsidy reform with appropriate mitigation measures and communication strategy.
  - Create additional fiscal space via:
    - non-oil tax policy measures, including a VAT threshold reduction;
    - adjustment of Personal Income Tax (PIT) brackets to improve PIT progressivity;
    - development of a property registry and property tax;
    - fiscal structural measures from the recent Article IV, including tax administration, public financial management, public investment management (including implementing recommendations of the 2019 PIMA), SOE reform and privatization, and procurement.
- Authorities’ views:
  - Reiterated commitment to fiscal anchors under the Fiscal Sustainability Law and recognized need for fiscal adjustment.
  - Revenue enhancement focus: expanding the tax base and reducing informality through continued structural and administrative reforms.
  - Recognized importance of mitigation measures for the vulnerable as part of fuel subsidy reform.
  - Aim to speed up privatization of state-owned enterprises to reduce fiscal risks and widen the tax base.
  - Ongoing active liability management efforts and intention to continue improving cash management practices with IMF TA.

### Risks from the financial sector
- Banking sector structure and indicators (end-2023):
  - Reported regulatory capital: 30 percent of assets.
  - Reported profitability: 4.2 percent of assets.
  - One large loss-making problem bank accounts for 6 percent of system assets and involved deferred impairment charges (regulatory forbearance).
  - Nonperforming loans (NPL): increased by 1.5 pp y-o-y to 15.9 percent and are reportedly fully provisioned.
  - Loan portfolios are relatively small (26 percent of assets); restrictions on FX-lending helped contain credit risk.
  - Most banks’ net open positions (NOP) in foreign currency turned negative in 2023.
  - Sector total NOP to capital turned negative at -20 percent and -5 percent when excluding the large problem bank.
  - Following BNA’s 2023/24 supervisory evaluation program (SEP), three small banks (6 percent of system assets) were instructed to submit timebound plans to strengthen business models, internal governance and risk management.
- Contingent fiscal liabilities:
  - Delayed resolution of the large problem bank poses increasing contingent fiscal liability, including potential support to the Deposit Protection Fund (DPF) and BNA’s impaired exposures to the bank.
  - Authorities publicly communicated that the large problem bank will not be bailed-out; negligible interbank exposures reduce contagion risk.
- Mitigating financial sector policies and recommendations:
  - BNA actions: publishes biannual financial stability reports, requires banks to prepare recovery plans (first submittal by end-July 2024), conducts top-down stress tests and targeted reviews of individual banks’ credit risk and corporate governance, drafted a supervisory plan for AML/CFT risk in banks and nonbanks.
  - Staff urged BNA to:
    - deal more decisively with the large problem bank and cease regulatory forbearance;
    - provide liquidity assistance (open market operations and emergency liquidity assistance) only to banks with credible solvency prospects;
    - strengthen supervision on FX risk;
    - improve compilation of Financial Soundness Indicators (FSI).
  - Early 2024 adoption of key secondary legislation was an important milestone toward operationalizing BNA’s bank resolution regime.
  - To facilitate orderly bank resolution, authorities should establish a fiscal backup funding arrangement for the DPF and strengthen legal protection of BNA staff (including ensuring protection of former staff).
- Authorities’ views:
  - Agreed broadly with staff’s assessment and advice.
  - BNA supervisory focus: banks’ governance and internal controls to strengthen sector performance and stability; draft supervisory plan for AML/CFT risk aligned with recommendations from the June 2023 ESAAMLG assessment.
  - Acknowledged need for strong monitoring of FX-risk and reported progress implementing IMF TA recommendations on FSI compilation.
  - Launched review of the Financial Institution Law, focusing on nonbanks and protection of BNA staff, with legal amendments aimed to be proposed in 2025.
  - Continue to consider resolution options for the large problem bank and intend to prioritize establishing a fiscal backstop for the DGF.
  - Angola is scheduled to have a Financial Sector Assessment Program (FSAP) in 2025.

### Risks to price stability and growth
- Inflation and FX risks:
  - Continued inflationary pressures and FX market frictions risk de-anchoring inflation expectations and hindering transition to an inflation targeting (IT) regime.
  - Inflationary pressures have recently intensified partly due to import substitution policies which constrained food supply and access to critical inputs.
  - Frictions in the foreign exchange market impacted market expectations following a sudden repricing in the exchange rate, partially de-anchoring inflation expectations.
  - De-anchored inflation expectations impose costs via increased borrowing costs in kwanza.
  - Policy guidance: improving FX market functioning and enhancing the monetary policy framework are crucial to reduce inflation towards the BNA’s single-digit target and foster medium-term growth.
- Oil dependence and diversification:
  - Oil accounts for over 90 percent of exports and 60 percent of government revenues.
  - Significant exposure to oil price volatility, aging oil fields, and the global energy transition.
  - Robust progress on economic diversification is required for rapid and sustainable growth; delays in reforms to enhance the business environment and increase non-oil investment could drag on medium-term growth.
- Climate risks:
  - Growth and diversification prospects vulnerable to climate shocks; key non-oil sectors including agriculture and fisheries are particularly exposed.
  - Recent staff analysis suggests that investment in adaptation or climate-resilient infrastructure could reduce GDP losses from a natural disaster by 50 percent.
  - Climate-related risks have long-term impact via the global transition to renewable energy, beyond the PFA assessment period.
- Mitigating policies for price stability and growth:
  - Gradually move toward greater exchange rate flexibility, define a rules-based FXI strategy, improve interbank liquidity management, and in the short-term maintain a tightening bias in monetary policy to address FX backlogs, better anchor inflation expectations, and foster a favorable environment for non-oil sector-led growth.
  - Government efforts to incentivize investments in oil extraction and exploration should help maintain production capacity over the medium-term.
  - Further simplify property registration and reduce bureaucratic hurdles for starting a business to support the non-oil sector.
  - Carefully assess risks of import substitution measures to avoid inflationary pressures and reduced access to production inputs.
  - Over the medium-term, sustained structural reforms supporting economic diversification via horizontal policies are advisable.
  - Governance and AML/CFT:
    - Amendments to the AML/CFT law were approved by the National Assembly on May 2024; other critical laws (NGO, Penal Code, and Beneficial Ownership) are expected to be approved in 2024.
    - These efforts need to be expedited; a communication strategy would help mitigate impact on correspondent banking relationships in the event of a gray listing.
  - Climate mitigation and commitments:
    - Under the revised National Determined Contribution (NDC), Angola pushed forward its target year for cutting emissions by 14 percent to 2025.
    - Authorities prioritize investing in resilient infrastructure and promoting capacity building on climate change resilience for the vulnerable.
    - Staff highlighted that as a member of the Global Methane Pledge, Angola is expected to cut its methane emissions in the oil and gas sector to avoid the risk of being unable to export LNG to the EU.

*Source: IMF staff report content (selected sections on "Other risks", Public finance, Financial sector, and Risks to price stability and growth).*

### 34.      Authorities’ views:   The authorities agreed on the necessity to boost non-oil sector

### 34.      Authorities’ views:   The authorities agreed on the necessity to boost non-oil sector 

### Authorities’ views and commitments
- Agreed on necessity to boost non-oil sector growth amid oil receipts volatility.
- Reiterated commitment to structural policies in line with the NDP 2023–27, including to promote climate resilience.
- Noted inflationary pressures and potential growth upside from import substitution measures.
- Banco Nacional de Angola (BNA) reiterated commitment to reduce inflation and transition to inflation targeting.
- BNA will continue improving its monetary operations framework in line with IMF CD recommendations.
- BNA noted the FX market structure is constraining greater exchange rate flexibility and is looking forward to IMF TA recommendations on FX operations.
- Authorities acknowledged the criticality of better policy coordination between the Ministry of Finance (MoF) and BNA.
- Prioritizing implementation of GAFI recommendations to avoid a possible gray listing.

### Illustrative Adverse Scenario: description and assumptions
- Scenario: extended oil price shock with contraction in domestic oil production beginning in 2024.
- Brent prices are assumed to decrease by about 27 percent to $60 per barrel beginning in 2024.
- Shock duration: three years, mirroring oil price shocks in recent decades and 2015–19 experience.
- Oil prices remain at $60 and other parameters do not improve until assumed return to baseline in 2027.
- A significant lagged contraction effect on oil production is assumed.
- Resulting impacts include:
  - (1) negative spillovers to non-oil growth;
  - (2) reduction in FX supply leading to additional exchange rate depreciation in 2024 and an REER depreciation of about 17 percent relative to baseline.

### Illustrative Adverse Scenario: real sector impacts
- Angola’s high reliance on oil increases vulnerability to oil production and price shocks.
- Key buffers: flexible exchange rate and adequate external position help mitigate shocks.
- Assumption: cumulative 10 percent contraction in oil production over three years.
- Result: five ppts decrease in total GDP growth relative to the baseline over the same period.
- Widening negative output gap expected to increase unemployment during the stress period, followed by gradual recovery.
- BNA will need to stand ready to tighten monetary policy to contain inflation expectations and improve monetary policy communication to lower output costs.
- Inflation projected to peak in 2025 under the adverse scenario and gradually converge towards the baseline over the medium-term.

### Illustrative Adverse Scenario: external sector impacts and reserves
- Current account balance would fall into deficit at 5.9 percent of GDP in 2024 and remain in deficit over the medium-term.
- Weakness in oil sector fully reflected in sudden decline in exports.
- Two consecutive years of FX depreciation in 2024–25 would push imports higher in local currency nominal terms and in percent of GDP.
- With later oil price recovery and import compression (in real terms), current account expected to improve over the medium-term.
- Pressures on the financial account partially offset by lower FDI outflows and trade advances.
- International reserves projected to immediately fall by US$2.8 billion to US$11.9 billion in 2024, equivalent to 109 percent of the ARA metric under a floating exchange rate regime.
- GIR would continue to fall to about 100 percent of ARA metric in the medium-term.
- Angola’s capacity to repay remains adequate: repayment to the Fund stays manageable at 8.8 percent of GIR, 10.0 percent of external debt service, and 3.7 percent of exports in its peak in 2026.

### Illustrative Adverse Scenario: fiscal sector impacts
- Overall balances would deteriorate significantly in 2024 as oil revenues are projected to be nearly two ppts of GDP lower than under the baseline.
- Lower fuel subsidy costs and lower capital expenditures per GDP modestly offset lower oil revenues.
- Non-oil revenues forecasted to grow broadly in line with non-oil growth projections.
- Debt ratio would increase to about 88.5 percent of GDP, mainly driven by FX depreciation.
- Gross financing needs would be significantly higher at 10.7 percent of GDP.
- Non-oil primary deficit would remain broadly in line with the baseline.
- Oil revenues and production remain weak in 2025–26, recovering in 2027 in line with oil prices and production; debt ratio gradually declines thereafter.
- Scenario assumes BNA maintains kwanza flexibility and does not lean strongly against a depreciation.
- GFNs would remain elevated given large Eurobond repayments maturing in 2028–29; Angola could approach domestic financing limits by 2028, potentially necessitating spending adjustment and preferably additional concessional financing.

### Illustrative Adverse Scenario: financial sector risks
- Banks with large negative NOPs and relatively low capital buffers (accounting for 15 percent of system assets) are vulnerable to kwanza depreciation.
- Credit risk better contained due to banks’ relatively small loan books.

### Mitigation measures recommended
- Implement the fiscal structural measures discussed in paragraph 24 and consider adjusting current and capital expenditures as needed while prioritizing social spending.
- Pursue active liability management:
  - lengthen domestic maturities;
  - prepay external commercial debt when oil prices are supportive;
  - buy back maturing Eurobonds, conditions permitting.
- Deepen domestic debt markets to reduce reliance on foreign currency financing over the medium-term.
- Be prepared to tighten monetary policy if inflation surges under the adverse scenario and enhance monetary policy implementation framework to align interbank markets with the policy rate.
- Maintain exchange rate flexibility to absorb shocks while limiting foreign exchange intervention (FXI), consistent with IMF Integrated Policy Framework (IPF) advice, to counteract fall in USD-denominated oil revenues.
- If limited access to international capital markets, pursue a more active fiscal adjustment and seek alternate financing sources.

### Text Table 2 (selected key figures, downside vs baseline)
- Real GDP (percent change): baseline 2024 = 2.4; downside 2024 = 0.8.
- o/w Oil (percent change): baseline 2024 = 0.8; downside 2024 = -2.0.
- Consumer Prices (aop): baseline 2024 = 25.7; downside 2024 = 27.4.
- Brent Price (USD per barrel): baseline 2024 = 82.5; downside 2024 = 60.0.
- Oil & Gas Production (mn barrels per day): baseline 2024 = 1.2; downside 2024 = 1.0.
- Current Account Balance (percent of GDP): baseline 2024 = 3.4; downside 2024 = -5.9.
- Gross International Reserves (US$ mn): baseline 2024 = 15,135; downside 2024 = 11,873.
- percent of ARA metric (floating): baseline 2024 = 127.7; downside 2024 = 109.3.
- Revenue (percent of GDP): baseline 2024 = 18.1; downside 2024 = 14.8.
- o/w Oil Revenue (percent of GDP): baseline 2024 = 10.7; downside 2024 = 7.3.
- Expenditure (percent of GDP): baseline 2024 = 16.7; downside 2024 = 17.1.
- Overall Balance (percent of GDP): baseline 2024 = 1.3; downside 2024 = -2.4.
- Public Debt (percent of GDP): baseline 2024 = 58.5; downside 2024 = 88.5.
- Gross Financing Need (percent of GDP): baseline 2024 = 6.5; downside 2024 = 10.7.
- Obligations to IMF relative to Gross international reserves (percent): baseline 2024 = 3.4; downside 2024 = 4.3.
- External debt service (percent relative to reserves/external metrics): peak impacts noted in 2026 under the scenario.

### Authorities’ contingency plans and views if adverse scenario materializes
- Would limit expenditures, focusing on rationalizing capital spending while protecting social expenditures.
- Steps to mobilize domestic revenues and bolster non-oil activity should help mitigate impacts.
- BNA confirmed commitment to price stability and stands ready to contain inflationary pressures; working to enhance policy tools.
- Authorities reaffirmed commitment to a floating exchange rate regime and to limiting FX intervention while exercising caution in reserve accumulation to avoid creating excess kwanza liquidity.

### Staff appraisal: key conclusions and recommendations
- Recovery from the 2023 shock is underway; baseline outlook favorable but risks remain tilted to the downside.
- Angola was hit by decline in oil production and increase in external debt payments in 2023; exchange rate depreciation helped preserve external buffers but contributed to inflationary pressures and reduced non-oil growth.
- Angola’s capacity to repay the Fund is adequate with manageable risks; projected repayments peak in 2026. Under a severe shock, capacity-to-repay indicators weaken but remain manageable.
- Crucial mitigation steps: allow exchange rate to function as shock absorber, continue fuel subsidy reform, rationalize spending.
- Sustained fiscal adjustment required:
  - rationalize spending in near-term;
  - continue fuel subsidy reform with mitigation measures for vulnerable and proactive communication;
  - build additional buffers via tax policy measures to mobilize non-oil domestic revenues;
  - progress fiscal structural agenda including public financial management and public investment management reforms.
- Monetary policy framework enhancements needed:
  - maintain tighter bias in the short-term;
  - improve interbank liquidity management;
  - gradual move toward greater exchange rate flexibility to ease inflation and lower borrowing costs.
- Policy coordination between MoF and BNA on money market operations is essential.
- Financial stability actions needed:
  - implement and enforce new frameworks for bank supervision and resolution decisively;
  - prepare for decisive resolution or liquidation of problem banks as necessary while protecting small depositors and minimizing taxpayer costs;
  - expedite efforts to establish fiscal backup funding for the DPF and strengthen legal protection of the BNA.

*Source: IMF staff estimates and projections, and Angolan authorities as presented in the chapter text.*

### 43.      Implementing broad ranging structural reforms is vital to improve business

### Implementing broad ranging structural reforms is vital to improve business environment and maintain growth in the context of a long-term decline of the oil sector.

### Key policy guidance
- Implement the NDP consistent with a medium-term fiscal framework.
- Apply the PIMA recommendations to strengthen public investment management.
- Address governance, gender, and climate change considerations as critical enablers of economic diversification and sustainable growth.

### Growth and inflation: recent developments and projections
- Real gross domestic product: -4.0; 2.1; 4.2; 0.9; 2.4; 2.8; 3.3; 3.3; 3.4; 3.4 (series as presented).
- Oil sector growth: -6.7; -11.5; 0.5; -2.4; 0.8; 1.1; 0.0; 0.0; 0.0; 0.0.
- Non-oil sector growth: -3.5; 4.7; 4.9; 1.5; 2.7; 3.1; 3.8; 3.8; 3.8; 3.8.
- Consumer prices (annual average): 22.3; 25.8; 21.4; 13.6; 25.7; 16.3; 12.4; 10.0; 10.0; 10.0.
- Consumer prices (end of period): 25.1; 27.0; 13.8; 20.0; 22.1; 15.4; 10.0; 10.0; 10.0; 10.0.
- Note: Growth weakness since 2022Q4, with oil production showing signs of recovery driven by an improvement in oil production since early 2023.

### Fiscal developments and public finances
- Total revenue (percent of GDP): 18.3; 20.7; 20.1; 17.4; 18.1; 17.2; 16.3; 15.5; 14.9; 13.7.
- Of which: Oil-related (percent of GDP): 9.4; 12.4; 11.7; 10.3; 10.7; 9.7; 8.9; 8.0; 7.4; 6.4.
- Non-oil tax (percent of GDP): 7.8; 7.0; 6.8; 6.1; 6.3; 6.4; 6.5; 6.6; 6.6; 6.4.
- Total expenditure (percent of GDP): 20.0; 17.3; 19.5; 19.3; 16.7; 15.9; 15.7; 14.9; 14.7; 14.6.
- Overall fiscal balance (percent of GDP): -1.7; 3.4; 0.6; -1.9; 1.3; 1.2; 0.7; 0.5; 0.3; -0.9.
- Overall primary balance (percent of GDP): 4.3; 8.0; 4.1; 3.6; 6.0; 6.0; 5.3; 4.5; 4.1; 2.9.
- Non-oil primary fiscal balance: -4.9; -4.2; -7.3; -6.4; -4.4; -3.4; -3.3; -3.2; -3.1; -3.3.
- Table 2a (billions of kwanzas) highlights revenue and expenditure trajectories: Revenue 7,053; 11,017; 13,183; 13,053; 17,559; 19,787; 21,731; 23,433; 25,928; 27,240. Expenditure 7,691; 9,207; 12,800; 14,463; 16,282; 18,374; 20,849; 22,654; 25,479; 29,029.

### Monetary sector and banking indicators
- Broad money (M2) (percent change): 24.3; -9.3; -1.4; 37.8; 21.2; 18.6; 15.4; 14.0; 14.4; 14.8.
- Credit to the private sector (annual percent change): -7.7; 5.6; -4.8; 28.8; 20.3; 12.5; 23.1; 11.3; 11.3; 10.4.
- Liquidity tightened as the MoF’s FX selling removed part of the excess liquidity; BNA raised its policy rate amid inflationary pressures.
- Foreign currency deposits (share of total deposits): 55.8; 50.5; 40.1; 43.5; 42.0; 40.5; 39.0; 37.5; 35.9; 34.4.
- At end-2023, banking sector’s total assets amounted to 35 percent of GDP (note provided in Table 7).

### External sector and reserves
- Current account balance (percent of GDP): 1.3; 10.0; 8.3; 3.8; 3.4; 2.2; 1.5; 0.3; 0.6; 0.5.
- Trade balance (percent of GDP): 17.1; 25.8; 23.1; 19.9; 18.8; 17.5; 16.0; 13.9; 13.2; 12.4.
- Exports of goods, f.o.b. (percent of GDP): 31.5; 39.8; 35.3; 33.7; 32.7; 31.1; 29.4; 26.8; 25.3; 23.9.
- Crude oil (share of GDP): 27.5; 33.0; 28.4; 28.7; 27.2; 25.2; 23.5; 21.2; 19.7; 18.4.
- Gross international reserves (excluding pledged repo securities, millions of U.S. dollars): 10,978; 14,375; 14,661; 14,727; 15,135; 15,501; 15,887; 16,043; 16,179; 16,298.
- Months of next year's imports covered by reserves: 7.0; 6.0; 7.4; 7.2; 7.2; 7.1; 7.1; 7.2; 7.2; 7.0.

### Public debt, financing needs, and contingent items
- Public sector debt (gross, percent of GDP) (Table 1 / Table 2a memo): entries indicate elevated public debt levels; refer to Table 2a / Table 5 for full series.
- Fiscal financing needs and sources (Table 6, Billions of U.S. dollars):
  - Financing Needs (A) for 2023–2029: 13.7; 7.9; 6.7; 7.8; 8.2; 10.6; 11.5.
  - Financing Sources (B) for 2023–2029: 13.0; 7.9; 6.7; 7.8; 8.2; 10.6; 11.5.
  - Financing Gap (A-B): 0.7; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0.
  - Memorandum items: Total usable cash balances (Billions of U.S. dollars): 0.7; 1.4; 1.9; 2.2; 2.5; 2.8; 3.0. Total usable cash balances (in months of expenditure): 1.1; 2.1; 2.7; 2.9; 3.5; 3.7; 3.8.
  - External debt rollover rate (in percent): 52; 65; 27; 35; 34; 54; 55.
  - Domestic debt rollover rate (in percent): 74; 35; 82; 68; 76; 89; 112.

### External financing and balance of payments dynamics
- Balance of payments (Table 4a, Millions of U.S. dollars): Current account and trade balances reflect oil-driven export volatility; exports, f.o.b. (levels shown) and imports, f.o.b. (levels shown) drive trade surplus and small current account surplus in projections.
- Financial account (percent of GDP): 3.6; 6.4; 5.5; 3.5; 2.8; 1.4; 0.6; -0.3; 0.0; 0.0.
- Direct investment (percent of GDP): 2.9; 3.9; 4.7; 1.9; 1.6; 1.1; 0.8; 0.8; 0.7; 0.4.

### Risks and transmission
- Oil sector weakness poses a long-term drag on revenue and external balances; modest recovery in oil production is expected in 2024.
- Inflationary pressures have picked up, reflecting lags in exchange rate depreciation effects despite exchange rate stability since June-2023.
- Bond yields narrowed amid an improved oil price outlook, while exchange rate has been stable since June-2023.

*Sources: Angolan authorities; Organization of the Petroleum Exporting Countries; and IMF staff estimates and projections.*

### Annex I. Global Risk Assessment Matrix (February 7, 2024)

### Annex I. Global Risk Assessment Matrix (February 7, 2024)

### Overview
- The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path.
- The relative likelihood is staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent).
- The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities.
- Non-mutually exclusive risks may interact and materialize jointly.
- The conjunctural shocks and scenarios highlight risks that may materialize over a shorter horizon (between 12 to 18 months) given the current baseline.
- Structural risks are those that are likely to remain salient over a longer horizon.

### Commodity price volatility
- Likelihood: High
- Potential Impact: High
- Key findings:
  - A succession of supply disruptions (e.g., due to conflicts, export restrictions, and OPEC+ decisions) and demand fluctuations causes recurrent commodity price volatility, external and fiscal pressures in EMDEs, cross-border spillovers, and social and economic instability.
  - As an oil-rich economy, lower than expected oil prices poses risks to the economy.
  - Higher food prices could amplify the food insecurity in Angola and add to the already heightened fiscal and inflationary pressures.
  - External and fiscal pressures in EMDE’s also risk contagion to Angola, adversely affecting on the prospects of its market access.
- Mitigation measures:
  - Streamlining administrative procedures to attract investment to the oil sector.
  - Mobilizing additional non-oil fiscal revenues.
  - Compressing expenditure where possible to free up fiscal space for social spending on the most vulnerable.
  - Continuing active debt management operations to smooth medium-term external debt service.
  - Allowing the exchange rate to act as a shock absorber where necessary to preserve external buffers.
  - Accelerating reforms to diversify the economy.

### Abrupt global slowdown
- Likelihood: Medium
- Potential Impact: High
- Key findings:
  - Global and idiosyncratic risk factors cause a synchronized sharp growth downturn, with recessions in some countries, adverse spillovers through trade and financial channels, and market fragmentation triggering sudden stops in EMDEs.
- Mitigation measures:
  - Mobilizing additional non-oil fiscal revenues.
  - Compressing expenditure if necessary while preserving social spending on the most vulnerable.
  - Continuing active debt management operations to smooth medium-term external debt service.
  - Allowing the exchange rate to act as a shock absorber while maintaining tightening bias and managing inflation expectations.
  - Accelerating reforms to diversify the economy.

### Sovereign debt distress
- Likelihood: Medium
- Potential Impact: High
- Key findings:
  - Domino effects of higher global interest rates, a growth slowdown in AEs, and/or disorderly debt events in some EMDEs spillover to other highly indebted countries, resulting in capital outflows, an increase in risk premia, and loss of market access.
- Mitigation measures:
  - Frontloading the fiscal adjustment while protecting social spending.
  - Adjusting the debt issuance plan with limiting reliance on international markets.
  - Raising additional financing from international financial institutions (IFIs) and the donor community.

### Systemic financial instability
- Likelihood: Medium
- Potential Impact: High
- Key findings:
  - Sharp swings in real interest rates and risk premia, and asset repricing amid economic slowdowns and policy shifts trigger insolvencies in countries with weak banks or non-bank financial institutions, causing market dislocations and adverse cross-border spillovers.
- Mitigation measures:
  - Accelerating reforms to strengthen resolution mechanism.
  - Allowing exchange rate flexibility while maintaining monetary policy tightening bias.
  - If necessary, pursuing growth-friendly fiscal consolidation while protecting social spending and critical public investments.
  - Raising additional financing from international financial institutions (IFIs) and the donor community.

### Extreme climate events
- Likelihood: Medium
- Potential Impact: Medium
- Key findings:
  - Extreme climate events driven by rising temperatures cause loss of human lives, severe damage to infrastructure, supply disruptions, lower growth, and financial instability.
- Mitigation measures:
  - Advancing diversification reforms and structural policies to increase investments in the agriculture sector and boost its resilience, including in the areas of infrastructure, business environment, and human capital.
  - Scaling up the cash transfer programs (such as the Kwenda program) to cushion the most vulnerable from shocks.

### Intensification of regional conflict(s)
- Likelihood: High
- Potential Impact: Low
- Key findings:
  - Escalation of Russia’s war in Ukraine or other regional conflicts and resulting economic sanctions disrupt trade (e.g., energy, food, tourism, and/or critical supply chain components), remittances, FDI and financial flows, and payment systems, and lead to refugee flows.
- Mitigation measures:
  - Accelerating diversification efforts and structural reforms to increase investments in the agriculture sector (which is sensitive to fertilizer supply shocks).
  - Intensifying measures for developing infrastructure, business environment, and human capital.
  - Scaling up the cash transfer programs (such as the Kwenda program) to cushion the most vulnerable from shocks.

### Social discontent
- Likelihood: Medium
- Potential Impact: Medium
- Key findings:
  - High inflation, real income loss, spillovers from conflicts (including migration), worsening inequality, and disputed elections cause social unrest and detrimental populist policies. This exacerbates imbalances, slows growth, and leads to policy uncertainty and market repricing.
- Mitigation measures:
  - Engaging with key stakeholders (including civil society) to build support for fiscal consolidation and the SADC-supported national reforms process.
  - Enhancing targeted social policies and strengthen social safety nets, including Kwenda program.
  - Maintaining fiscal discipline.
  - Improving governance, transparency, and accountability and reduce corruption.

*Annex I. Global Risk Assessment Matrix (February 7, 2024).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1agoea2024003-print-pdf.pdf_