## _cr15301 - 2015. The industrial, construction and services sectors are adjusting to the decline in private

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### Macroeconomic context and outlook
- Growth projections:
  - Real gross domestic product: 3.5 (2015), 3.5 (2016).
  - Oil sector real growth: 6.8 (2015), 3.9 (2016).
  - Non-oil sector real growth: 2.1 (2015), 3.4 (2016).
- Prices and inflation:
  - Inflation: projected to reach close to 14 percent by end-2015 and to slow to 13 percent at end-2016.
  - Consumer prices (annual average): 10.3 percent (2015 projection), 14.2 percent (2016 projection).
  - Consumer prices (end of period): 13.9 percent (2015), 13.0 percent (2016).
- External environment:
  - International oil prices are not expected to recover; risks are on the downside.
  - Angola oil price (average, U.S. dollars per barrel): 53.0 (2015), 53.0 (2016).
  - Brent oil price (average, U.S. dollars per barrel): 53.4 (2015), 53.0 (2016).
  - WEO oil price (average, U.S. dollars per barrel): 51.6 (2015), 50.4 (2016).

### Public finances and debt
- Fiscal balances and composition:
  - 2015 central government deficit projected to fall to 3.5 percent of GDP (staff projection).
  - Revised 2015 budget envisaged an overall fiscal deficit of 7 percent of GDP and assumed an oil price of US$40 per bbl.
  - Staff projects a 2015 deficit of 3.5 percent of GDP assuming an oil price of US$53 per bbl (implying additional oil revenue of 5½ percent of GDP compared to the revised budget).
  - Fiscal composition (selected):
    - Total revenue: 27.4 percent of GDP (2015), 27.6 percent of GDP (2016).
    - Total expenditure: 30.9 percent of GDP (2015), 29.0 percent of GDP (2016).
    - Current expenditure: 24.1 percent of GDP (2015), 21.5 percent of GDP (2016).
    - Capital expenditure: 6.8 percent of GDP (2015), 7.5 percent of GDP (2016).
    - Overall fiscal balance: -3.5 percent of GDP (2015), -1.4 percent of GDP (2016).
    - Non-oil primary fiscal balance: -15.8 percent of GDP (2015), -14.3 percent of GDP (2016).
    - Non-oil primary fiscal balance (Percent of non-oil GDP): -21.2 percent (2015), -19.7 percent (2016).
- Public debt and financing:
  - Public debt: projected to increase to 57.4 percent of GDP by end-2015, of which 14.7 percent of GDP corresponds to Sonangol.
  - Total public sector debt (gross): 57.4 percent of GDP (2015), 53.0 percent of GDP (2016).
  - Authorities secured or are finalizing negotiations on external loans from bilaterals (China, Japan), World Bank, African Development Bank, AfDB, and planned a maiden US$1.5 billion Eurobond.
  - If implemented, sufficient resources should be available to avoid new domestic payments arrears in 2015 and clear 2014 arrears of 1⅓ percent of GDP.
  - Given projected fiscal deficit and exchange rate effects, public debt-to-GDP ratio projected to increase by 15 percentage points, to 57½ percent in 2015 (staff text).

### External sector and reserves
- Current account and reserves:
  - Current account: external current account deficit expected to reach 7.6 percent of GDP in 2015 and -5.6 percent of GDP in 2016.
  - Current account (Millions of U.S. dollars): -7,572 (2009), 7,506 (2010), 13,085 (2011), 13,853 (2012), 8,348 (2013), -1,951 (2014), -7,784 (2015), -5,522 (2016) (Table series preserved).
  - Gross international reserves (end of period, millions of U.S. dollars): 22,275 (2015), 18,618 (2016).
  - Gross international reserves (months of next year's imports): 7.1 months (end-2015), 5.7 months (end-2016).
  - Net international reserves (end of period, millions of U.S. dollars): 22,062 (2015), 18,546 (2016).
- Exchange market imbalances:
  - Wide spread between parallel and primary market exchange rates; spread rose from about 15 percent in September 2014 to around 65 percent in early October 2015.
  - Official exchange rate of the kwanza vis-à-vis the U.S. dollar declined by almost 30 percent since September 2014.
  - BNA used reserves to smooth devaluation and applied a priority list for official FX access.

### Monetary and price developments
- Policy actions:
  - BNA raised its policy rate by 175 bps since September 2014 and increased reserve requirements for kwanza deposits by 12½ percentage points (to 25 percent).
  - BNA raised policy rate to 10.5 percent in October 2015, from 8.75 percent in September 2014 (authorities’ statement).
- Monetary aggregates and liquidity:
  - Excess liquidity in late-September 2015 estimated at ¾ percent of GDP.
  - Broad money (M2) percent change (2009–2016): 30.0 11.0 35.7 7.9 14.2 16.4 14.4 14.6.
  - M2-to-GDP ratio (percent) (2009–2016): 42.5 35.3 37.6 35.0 36.7 40.3 48.0 45.8.
  - Short-term T-bill rates trending up but remain negative in real terms.
- Inflation forecasts and policy guidance:
  - Staff recommends continued exchange rate adjustment supported by tight monetary policy; strengthen role of monetary aggregates; improve inflation forecasting and liquidity management.
  - Consumer prices (annual average): 10.3 percent (2015 projection), 14.2 percent (2016 projection).

### Financial sector and banking
- Soundness indicators and vulnerabilities:
  - Non-performing loans (NPLs) increased to 18 percent of total loans in July 2015, from 12 percent in December 2014.
  - A few banks need additional capital and face liquidity challenges; BNA requested recapitalization plans.
  - Banks channel less than a half of their overall resources available for lending to the private sector.
- Recommendations and reforms:
  - Strengthen bank supervision and resolution frameworks; implement plans to restructure and accelerate recapitalization of weaker banks; increase financial sector resilience.
  - Progress on implementing 2012 FSAP recommendations noted; Financial Institutions Law requires creation of a Deposit Guarantee Fund and the Bank Resolution Fund.
  - Publish Financial Soundness Indicators regularly and reduce lag in Financial Stability Report.

### Structural reforms and diversification
- Priority reforms advised:
  - Make the labor market more flexible.
  - Promote private investment and improve business environment by reducing bureaucracy, streamlining company incorporation, and strengthening rule of law.
  - Improve physical infrastructure and human capital.
  - Strengthen private sector role in rebuilding infrastructure through concessions and public-private partnerships.
- Revenue and subsidy reforms:
  - Mobilize additional non-oil taxes; reform revenue administration; streamline tax incentives.
  - Continue reducing fuel subsidies while mitigating impact on the poor through well-targeted social assistance.
  - Consider careful implementation of a VAT to provide a more stable source of fiscal revenue.
  - Adopt an improved medium-term fiscal framework focusing on spending rules and a properly designed fiscal stabilization fund.

### Box 1 — Fuel Subsidy Reform in Angola (overview and impacts)
- Fiscal impact:
  - Fuel subsidies amounted to 5.9 percent of GDP in 2013 and are projected at 2 percent of GDP in 2015, with about 40 percent of this decline explained by higher domestic fuel prices.
  - Subsidies eliminated: asphalt, light and heavy fuel oil, and gasoline.
  - Subsidies remaining at much lower levels: diesel, LPG, and kerosene.
- Consumption effects:
  - Gasoline consumption dropped 10 percent in Q2 2015 vis-à-vis Q2 2014.
  - Diesel consumption dropped 1 percent in Q2 2015 vis-à-vis Q2 2014.
- Distributional incidence:
  - The richest 40 percent receive 77 percent of fuel subsidies; bottom 40 percent receive 10 percent.
  - Bottom 20 percent received less than 1 percent of gasoline subsidy; for kerosene bottom 20 percent received 51 percent.
  - Eliminating fuel subsidies would represent a 9 percent decline in real incomes of the bottom 20 percent (direct and indirect impact).
- Social protection and measures:
  - Authorities plan to eliminate fuel subsidies by 2020.
  - Cash transfer program Cartão Kikuia: Monthly stipend Kw10,000 (equivalent to US$75); 50,000 households already covered; additional 90,000 cards expected by year-end.
  - World Bank and EU support for targeting, surveys, poverty mapping, and expanded social programs.
- Policy implications:
  - Continue reducing fuel subsidies while improving social assistance, coordinate and merge social programs to cut overhead, protect social spending in annual budget.

### Budget financing, arrears, and 2016 budget guidance
- Financing prospects:
  - Authorities negotiating external loans and a maiden US$1.5 billion Eurobond; negotiations to reduce payments due in 2015 and 2016 with Brazil and China.
  - If implemented, sufficient resources expected to avoid new domestic arrears in 2015 and clear 2014 arrears (1⅓ percent of GDP).
- 2016 budget guidance and measures:
  - Prepare 2016 budget on a cautious oil price assumption and prudent spending while protecting social assistance and critical infrastructure.
  - Keep the wage bill unchanged in nominal terms vis-à-vis 2015 levels in 2016; freeze nominal wages and new hires except priority hires in education and health.
  - Public investment projected to increase to 7½ percent of GDP in 2016; early external borrowing plan important to avoid delays.
  - Staff projects overall fiscal deficit of 1½ percent of GDP in 2016 assuming an oil price of US$53 per bbl.
    - Oil revenue expected to reach 15½ percent of GDP in 2016.
    - Non-oil revenue expected to remain constant as a share of non-oil GDP.
    - Public spending projected to decline by 2 percent of GDP in 2016 (reflecting fall in public wage bill share).

### Risks, vulnerabilities, and stress tests
- Key downside risks:
  - Lower oil prices; disorderly implementation of spending cuts; prolonged FX market imbalances; delays in bank recapitalization; slippages in structural reforms.
- Debt sustainability and stress testing:
  - Gross public debt-to-GDP ratio rose by 6 percentage points to 42 percent at end-2014; projected to increase to 57½ percent in 2015.
  - Medium-term path: projected to decline to 38½ percent by 2020 under improvements in fiscal balances and growth.
  - Stress-test assumptions:
    - Real exchange rate shock: 30 percent.
    - Interest rate shock: interest rate increases by 200 basis points.
    - Real GDP growth shock: growth reduced by one-half standard deviation for 2 consecutive years.
    - Oil price shock: 50 percent drop in projected oil price in 2016 (price under this shock US$26.5 per barrel).
  - Under a 50 percent oil price shock debt ratios jump in 2016 and remain above baseline but gradually decline.
- Reserve adequacy:
  - IMF reserve adequacy metric for Angola: equivalent to US$16 billion (5 months of imports) in 2015 and US$17 billion (5 months of imports) in 2016.
  - IMF metric values projected to decline: 176 percent at end-2012 (peak), 134 percent at end-2015 (projected), 111 percent at end-2016 (projected).

### Executive Board assessment and staff recommendations (selected)
- Commendations and emphasis:
  - Commended timely policy actions in response to the decline in oil prices.
  - Emphasized need for continued commitment to sound policies and ambitious structural reforms to safeguard macro stability and debt sustainability, address FX imbalances, and promote inclusive growth.
- Fiscal policy guidance:
  - Implement an orderly fiscal adjustment to avoid domestic payments arrears and better balance current vs capital spending rationalization.
  - Gradually restore fiscal buffers; pursue over time a structural fiscal surplus and save part of oil wealth under transparent governance.
  - Emphasize expenditure rationalization and increasing non-oil revenue; contain wage bill growth; improve public investment quality; eliminate fuel subsidies while expanding well-targeted social assistance.
- Monetary and exchange rate guidance:
  - Rebalance FX market through exchange rate flexibility and tighter liquidity conditions; further steps encouraged to address remaining FX imbalances.
  - A clear monetary policy anchor supported by improved inflation forecasting and liquidity management recommended.

### Data, technical assistance, and IMF–World Bank collaboration
- Statistical and data notes:
  - Data broadly adequate for surveillance; progress at BNA and INE; gaps remain in high-frequency indicators and timely fiscal accounts.
  - Key data reporting table entries with latest observation dates preserved (e.g., Exchange Rates 09/30/15; International Reserve Assets 08/15).
- Technical assistance and IMF presence:
  - Resident Representative since May 2015: Mr. Max Alier.
  - Technical assistance delivered across MCM, FAD, STA, ICD (selected missions and years listed in source).
- Joint IMF–World Bank actions and timing:
  - Fiscal Management Programmatic DPF I — June 30, 2015 (Board discussion).
  - Smallholder Agriculture Development and Commercialization Project — December 2015 (Board discussion).
  - Fiscal Management Programmatic DPF II — 2016.
  - Ongoing collaboration on cash transfer scheme implementation and macro framework.

### Appendix I — External Balance Assessment (selected)
- REER assessment:
  - REER estimated overvalued by 10 percent to 30 percent.
  - CGER external sustainability approach: REER needs to depreciate around 21 percent by 2020.
  - CGER equilibrium REER approach: needs to depreciate by 10 percent by 2020.
  - CGER macroeconomic balance approach: needs to depreciate by around 31 percent.
  - Current account panel regression (EBA-lite):
    - Overvaluation under current oil price assumption (US$53): 46 percent in 2015.
    - Overvaluation under structural oil price assumption (US$74): 21 percent.
- Non-price competitiveness:
  - World Bank Doing Business rankings: 2015 ranking 181; 2014 ranking 180.
  - Selected component rankings (2015 vs 2014) preserved in source (e.g., Starting business: 2015 rank 174; 2014 rank 172).
- External sustainability and projections:
  - Gross international reserves (end of period, billions of U.S. dollars) (2009–2020): 13.7 19.7 27.5 32.2 32.2 27.8 22.3 18.6 18.9 20.3 21.1 21.3.
  - Baseline external debt increases slightly from about 25½ percent of GDP in 2014 to 28½ percent of GDP in 2020.

*Source: ANGOLA — STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION (October 14, 2015).*

### 2015. The industrial, construction and services sectors are adjusting to the decline in private

### _cr15301 - 2015. The industrial, construction and services sectors are adjusting to the decline in private

### Macroeconomic context and outlook
- Growth is projected to slow to 3.5 percent in 2015 and remain at 3.5 percent in 2016.
- Oil sector growth: projected 6.8 percent in 2015 and about 3.9 percent in 2016.
- Non-oil sector growth: 2.1 percent in 2015 and 3.4 percent year-on-year in 2016; non-oil sector expected to show a small improvement driven mainly by a stronger recovery in agriculture.
- Inflation: projected to reach close to 14 percent by end-2015 (exceeding the National Bank of Angola (BNA)’s 7-9 percent objective) and to slow to 13 percent at end-2016.
- External environment: international oil prices are not expected to recover; risks are on the downside.

### Public finances and debt
- 2015 budget: central government deficit projected to fall to 3.5 percent of GDP (compared to 6.4 percent last year).
- Revised 2015 budget approved by the National Assembly envisaged an overall fiscal deficit of 7 percent of GDP and assumed an oil price of US$40 per bbl.
- Staff projects a 2015 deficit of 3.5 percent of GDP assuming an oil price of US$53 per bbl (implying additional oil revenue of 5½ percent of GDP compared to the revised budget).
- Public debt: projected to increase to 57.4 percent of GDP by end-2015, of which 14.7 percent of GDP corresponds to the state-owned oil company Sonangol.
- Fiscal composition and execution: revised budget cuts goods and services, fuel subsidies, and public investment by 14½ percent of GDP, while wages and salaries increase by 2½ percent of GDP due to hiring in education and health.
- Fiscal indicators from table (selected):
  - Total revenue: 27.4 percent of GDP (2015), 27.6 percent of GDP (2016).
  - Total expenditure: 30.9 percent of GDP (2015), 29.0 percent of GDP (2016).
  - Current expenditure: 24.1 percent of GDP (2015), 21.5 percent of GDP (2016).
  - Capital expenditure: 6.8 percent of GDP (2015), 7.5 percent of GDP (2016).
  - Overall fiscal balance: -3.5 percent of GDP (2015), -1.4 percent of GDP (2016).
  - Non-oil primary fiscal balance: -15.8 percent of GDP (2015), -14.3 percent of GDP (2016).
  - Non-oil primary fiscal balance (Percent of non-oil GDP): -21.2 percent (2015), -19.7 percent (2016).

### External sector and reserves
- Current account: external current account deficit expected to reach 7.6 percent of GDP in 2015 and -5.6 percent of GDP in 2016 (table shows -7.6 for 2015, -5.6 for 2016).
- Gross international reserves: projected drop to US$22,275 million by end-2015 (about 7 months of 2016 imports) and to US$18,618 million by end-2016.
- Gross international reserves (months of next year's imports): 7.1 months (end-2015), 5.7 months (end-2016).
- Net international reserves (end of period, millions of U.S. dollars): 22,062 (2015), 18,546 (2016).
- A wide spread emerged between the parallel and primary market exchange rates, indicating an imbalance in the foreign exchange market.

### Monetary and price developments
- Consumer prices (annual average): 10.3 percent (2015 projection), 14.2 percent (2016 projection).
- Consumer prices (end of period): 13.9 percent (2015), 13.0 percent (2016).
- Monetary tightening: recent measures include increasing the central bank’s policy rate and banks’ mandatory reserve requirements; staff expects the effect of these measures to be felt more clearly in the second half of 2016.
- Policy recommendation emphasis: continue adjusting the exchange rate supported by tight monetary policy; strengthen the role of monetary aggregates; improve inflation forecasting and liquidity management.

### Financial sector and banking
- Directors welcomed progress on implementing 2012 FSAP recommendations, including steps to foster financial deepening and inclusion.
- Recommendations: strengthen bank supervision and resolution frameworks; implement plans to restructure and accelerate recapitalization of weaker banks; increase financial sector resilience.

### Structural reforms and diversification
- Priority reforms advised:
  - Make the labor market more flexible.
  - Promote private investment and improve the business environment by reducing bureaucracy, streamlining company incorporation, and strengthening the rule of law.
  - Improve physical infrastructure and human capital.
  - Promote economic diversification and competitiveness; strengthen private sector role in rebuilding infrastructure through concessions and public-private partnerships.
- Revenue and subsidy reforms:
  - Mobilize additional non-oil taxes, reform revenue administration, streamline tax incentives.
  - Continue reducing fuel subsidies while mitigating impact on the poor through well-targeted social assistance.
  - Consider careful implementation of a VAT to provide a more stable source of fiscal revenue.
  - Adopt an improved medium-term fiscal framework focusing on spending rules and a properly designed fiscal stabilization fund.

### Executive Board assessment and staff recommendations (selected)
- Commended timely policy actions in response to the decline in oil prices.
- Emphasized need for continued commitment to sound policies and ambitious structural reforms to safeguard macroeconomic stability and debt sustainability, address foreign exchange market imbalances, and promote strong and inclusive growth.
- Fiscal policy guidance:
  - Implement an orderly fiscal adjustment to avoid domestic payments arrears while striking a better balance between current and capital spending rationalization.
  - Gradually restore fiscal buffers and ensure part of Angola’s oil wealth is saved for future generations under a sound and transparent governance structure by pursuing over time a structural fiscal surplus.
  - Prepare the 2016 budget based on a cautious oil price assumption and a prudent level of spending while protecting social assistance and critical infrastructure outlays.
  - Emphasize expenditure rationalization and increasing non-oil revenue; contain wage bill growth; improve the quality of public investment; eliminate fuel subsidies while expanding well-targeted social assistance.
- Monetary and exchange rate guidance:
  - Rebalance the foreign exchange market through exchange rate flexibility and tighter liquidity conditions; further steps encouraged to address remaining foreign exchange imbalances.
  - A clear monetary policy anchor supported by improved inflation forecasting and liquidity management would be helpful.

### Key quantitative indicators (selected, preserved exactly as in source)
- Real gross domestic product: 3.5 (2015), 3.5 (2016).
- Oil sector real growth: 6.8 (2015), 3.9 (2016).
- Non-oil sector real growth: 2.1 (2015), 3.4 (2016).
- Nominal gross domestic product: -3.8 (2015), 19.9 (2016).
- GDP (billions of U.S. dollars): 102.0 (2015), 98.8 (2016).
- Gross domestic product per capita (U.S. dollars): 4,062 (2015), 3,820 (2016).
- Total public sector debt (gross): 57.4 percent of GDP (2015), 53.0 percent of GDP (2016).
- Oil production (millions of barrels per day): 1.785 (2015), 1.850 (2016).
- Angola oil price (average, U.S. dollars per barrel): 53.0 (2015), 53.0 (2016).
- Brent oil price (average, U.S. dollars per barrel): 53.4 (2015), 53.0 (2016).
- WEO oil price (average, U.S. dollars per barrel): 51.6 (2015), 50.4 (2016).

*Source: ANGOLA — STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION (October 14, 2015).*

### 6.      Budget financing under staff’s fiscal projections appears achievable. The authorities

### _cr15301 - 6.      Budget financing under staff’s fiscal projections appears achievable. The authorities

### Budget financing and public debt
- Authorities have secured or are finalizing negotiations on external loans from bilaterals (China, Japan) and international organizations (World Bank, African Development Bank, AfDB), and are planning to place a maiden US$1.5 billion Eurobond this year.
- Negotiations underway to reduce payments due in 2015 and 2016 via bilateral loan terms with Brazil and China.
- If implemented, sufficient resources should be available to:
  - avoid the accumulation of new domestic payments arrears in 2015; and
  - clear arrears accumulated in 2014 that had not been settled by end-June 2015 (1⅓ percent of GDP).
- Given the projected fiscal deficit, a more depreciated exchange rate, and the expected decline in nominal GDP due to lower oil prices, Angola’s public debt-to-GDP ratio is projected to increase by 15 percentage points, to 57½ percent in 2015.
- Public debt-to-GDP ratio is expected to decline to 53 percent in 2016.

### Fiscal outcomes and key fiscal numbers (2014 and 2015 Original and Revised Budgets; figures in percent of GDP unless otherwise noted)
- Revenue: 34.6 (2014 Prel.), 31.0 (2015 Original), 23.4 (2015 Revised), 27.4 (IMF Staff Prel.), 11.9 (H1 2015)
- Oil: 23.4; 18.9; 9.0; 14.6; 6.0
- Non-oil: 8.9; 10.5; 12.5; 10.4; 4.7
- Total expenditure: 41.1; 38.7; 30.3; 30.9; 11.0
- Current expenditure: 28.8; 28.5; 24.9; 24.4; 9.9
- Compensation of employees: 10.4; 11.6; 12.9; 12.2; 5.2
- Use of goods and services: 9.8; 10.2; 6.0; 5.8; 1.5
- Subsidies: 5.3; 2.8; 1.3; 2.1; 1.0
- Capital expenditure: 12.2; 10.1; 5.5; 6.8; 1.1
- Overall fiscal balance: -6.4; -7.6; -7.0; -3.5; 0.9
- Angolan oil price (Average, U.S. dollars per barrel): 100.78; 81.04; 40.05; 53.05; 55.0
- Inflation rate (percent): 7.5; 7.0; 9.0; 13.9; 9.6
- Average exchange rate (AOA/US$): 98.3; 99.1; 112.5; ...; 115.8
- Real GDP Growth rate (percent change): 4.8; 9.7; 6.6; 3.5; ...
  - Oil sector: -2.6; 10.7; 9.8; 6.8; ...
  - Non-oil sector: 8.2; 9.2; 5.3; 2.1; ...
- 2015 Budget: figures presented above are in percent of GDP unless otherwise noted.

### Exchange rate, foreign exchange market imbalances, and reserves
- Official exchange rate of the kwanza vis-à-vis the U.S. dollar has declined by almost 30 percent since September 2014.
- BNA used international reserves at a measured pace to smooth the devaluation and adopted a priority list for access to foreign exchange at the official rate: higher priority for imports of food, medicine, inputs for agriculture and industry, and the oil sector.
- Foreign exchange market remains in disequilibrium:
  - Spread between the parallel and official exchange rates rose from about 15 percent in September 2014 to around 65 percent in early October 2015.
- International reserves are gradually declining but projected to remain at relatively comfortable levels.

### Monetary policy, liquidity, and banking sector soundness
- BNA monetary actions:
  - Raised its policy rate by 175 bps since September 2014.
  - Increased reserve requirements for kwanza deposits by 12½ percentage points (to 25 percent).
- Despite tightening, excess liquidity in late-September 2015 is estimated at ¾ percent of GDP.
- Short-term interest rates on kwanza denominated T-bills, although trending upward, remain negative in real terms.
- Financial soundness indicators deteriorating:
  - Non-performing loans (NPLs) increased to 18 percent of total loans in July 2015, from 12 percent in December 2014.
  - A few banks need additional capital and face liquidity challenges; BNA requested recapitalization plans and is closely monitoring implementation.
- Linkages:
  - Real-sector to financial-sector linkages significant (economic slowdown contributed to higher NPLs).
  - Financial-sector to real-sector linkages limited due to low credit to the private sector (banks channeling less than a half of their overall resources available for lending).
  - As growth slows, banks tightening lending standards may delay recovery at the margin.

### Outlook and projections
- 2016 outlook (assumptions and projections):
  - External environment likely to remain challenging with international oil prices not expected to recover; risks on the downside.
  - Growth projected to remain stable at 3½ percent in 2016.
  - Oil sector growth: about 4 percent in 2016.
  - Non-oil sector growth: 3½ percent in 2016, driven mainly by agriculture.
  - Inflation projected to slow to 13 percent at end-2016.
  - Assuming an oil price of US$53 per bbl, staff projects an overall fiscal deficit of 1½ percent of GDP in 2016.
    - Oil revenue expected to reach 15½ percent of GDP (implying a 1 percent of GDP increase compared to 2015 projections).
    - Non-oil revenue expected to remain constant as a share of non-oil GDP.
    - Public spending projected to decline by 2 percent of GDP in 2016, mostly due to a fall in the public wage bill as a share of GDP, reflecting a freeze in nominal wages and new hires.
  - Public investment projected to increase to 7½ percent of GDP; an early external borrowing plan important to avoid delays.
  - Medium-term: non-oil GDP growth expected to accelerate to 7 percent in 2020; oil production expected to level off at 1.85 million bbl per day.
  - External accounts weakening due to sharp decline in oil exports, but imports beginning to adjust.

### Risks and vulnerabilities
- Debt sustainability: public debt remains sustainable but sensitive to shocks (international oil price, real GDP growth, exchange rate).
- Downside risks include:
  - lower oil prices;
  - disorderly implementation of spending cuts;
  - continued imbalances in the foreign exchange market;
  - delays in recapitalization of weaker banks;
  - slippages in structural reforms.
- Short-term policy to meet lower oil prices: increased exchange rate flexibility and tighter monetary policy.
- Mitigating medium-term risks requires improvements to the fiscal framework and economic diversification.
- Spillovers:
  - Significant spillovers to Angola from the world economy via oil prices.
  - Angola’s spillovers to the world or regional economy are relatively small.

### Policy recommendations and reforms
- Restore fiscal sustainability by 2020 and achieve long-term structural fiscal surpluses of about 1½ percent of GDP through:
  - Rationalizing the public wage bill:
    - Keep the wage bill unchanged in nominal terms vis-à-vis 2015 levels in 2016.
    - Over the medium term, adopt cost-of-living wage adjustments based on projected inflation; align real wage increases with productivity gains and performance indicators.
  - Increasing non-oil tax revenue:
    - Strengthen non-oil taxation via enlarging the tax base; creating a single revenue administration agency; strengthening tax inspections; better enforcing real estate taxation.
    - Consider introducing a VAT in the medium term to provide a more stable revenue source.
  - Improving public investment management (PIM):
    - Enhance compliance with existing legislation; prioritize and monitor execution; conduct ex-ante and ex-post evaluations; improve technical capacity for appraisal, selection, and monitoring.
  - Reducing fuel subsidies while improving targeted social assistance:
    - Domestic fuel prices raised three times since September 2014, resulting in full elimination of gasoline, asphalt, and heavy and light fuel oil subsidies.
    - Introduce an automatic fuel pricing mechanism after subsidy elimination.
    - Step up development of well-targeted social assistance programs in line with World Bank DPF commitments.
  - Formulating an improved medium-term fiscal framework (MTFF) and adopting fiscal rules and a fiscal stabilization fund:
    - Focus on spending rules and a well-designed stabilization fund with flexible deposit and withdrawal rules.
    - Consider suspending further transfers to existing oil funds (Fundo Petrolífero and Fundo do Diferencial do Preço do Petróleo) in case of an overall fiscal deficit.

### Authorities’ views and actions
- Authorities broadly agreed with staff’s assessment but project slightly stronger growth.
- Steps and views highlighted by authorities:
  - Preparations for the Eurobond placement were advanced; aware of advantages of collective action clauses.
  - Importance of avoiding a general wage increase in the 2016 budget, while noting need for new hires in education and health; potential accommodation through elimination of “ghost” workers via biometric census and higher non-oil taxes.
  - Recognize urgency to restructure and recapitalize weaker banks; steps are being taken.
  - High priority attached to addressing foreign exchange market imbalances; BNA resumed devaluing the kwanza after July/August interruption.
  - Emphasize separating legitimate from speculative FX demand and view the priority list for FX access as helpful for food security and social peace.
  - Agree with the need for fiscal consolidation over the medium term; stressed distinction between central government debt and state-owned enterprises’ debt, notably Sonangol’s debt which is not guaranteed by the central government.

*Sources: Angolan authorities and IMF staff projections; IMF staff analysis in the provided chapter.*

### Box 1. Angola: Fuel Subsidy Reform in Angola

### Box 1. Angola: Fuel Subsidy Reform in Angola

### Reform overview and fiscal impact
- Fuel subsidies amounted to 5.9 percent of GDP in 2013 and are projected at 2 percent of GDP in 2015, with about 40 percent of this decline explained by higher domestic fuel prices.
- Since September 2014 the government has implemented subsidy reform combined with three increases in domestic fuel prices and the effect of lower international oil prices.
- Subsidies eliminated: asphalt, light and heavy fuel oil, and gasoline.
- Subsidies remaining (but at much lower levels than in the recent past): diesel, LPG, and kerosene.
- Cumulative increases in the price at the pump for gasoline and diesel are beginning to improve efficiency of use.

### Consumption and behavioral effects
- Gasoline consumption dropped 10 percent in the second quarter of 2015 vis-à-vis the same period of last year.
- Diesel consumption dropped 1 percent in the second quarter of 2015 vis-à-vis the same period of last year.

### Distributional incidence and poverty impact
- The richest 40 percent of households receive 77 percent of fuel subsidies while only 10 percent accrue to the bottom 40 percent.
- For gasoline specifically, the bottom 20 percent received less than 1 percent of the subsidy.
- For kerosene, the bottom 20 percent received 51 percent of the subsidy.
- Eliminating fuel subsidies would represent a 9 percent decline in the real incomes (direct and indirect impact) of the bottom 20 percent.

### Authorities’ reform strategy and social protection measures
- Authorities plan to eliminate fuel subsidies by 2020 in line with Fund technical assistance recommendations.
- The government is expanding its unconditional cash transfer program (Cartão Kikuia) for the poor to a sixth province with World Bank technical assistance.
- Program details:
  - Monthly stipend: Kw10,000 (equivalent to US$75) to purchase food products, agricultural inputs, and other basic goods at Kikuia shops or other registered shops.
  - Households already covered: 50,000 have received Kikuia cards.
  - Planned expansion: an additional 90,000 Kikuia cards expected to be distributed by the end of the year.
- World Bank support:
  - Implementation of the national household budget, income and employment survey to assess targeting outcomes in 2016.
  - Preparation of a detailed poverty map.
  - Assistance to centralize all social programs in a single register to facilitate monitoring and evaluation.
- EU assistance: support to improve protection for the most vulnerable, including allowances to families with children below 5 years of age, and planned expansion to include pensions for the elderly and disabled.

### Policy implications and complementary reforms
- Continue reducing fuel subsidies while improving social assistance to protect the poor from welfare losses.
- Careful coordination and eventual merging of different social programs to avoid overlap, cut overhead costs, and increase synergies among programs.
- Protect social spending in the forthcoming annual budget to shield the poor from the effects of the oil price shock.
- Broader fiscal and structural measures referenced in the surrounding text include: improving efficiency of public investment, reforming subsidies including on electricity, creation of a fiscal stabilization fund with legislation to suspend transfers into existing oil funds in case of an overall fiscal deficit, and measures to rebalance the foreign exchange market and strengthen monetary policy.

*Source: Box 1. Angola: Fuel Subsidy Reform in Angola (IMF document).*

### 36.      Risks to the near term outlook are on the downside. There is considerable downside risk

### Risks to the near term outlook are on the downside. There is considerable downside risk

### Near-term risks and outlook
- Considerable downside risk to growth from the effects of lower oil prices.
- Additional downside risks include:
  - Disorderly implementation of spending cuts.
  - Protracted imbalances in the foreign exchange market.
  - Delays in the recapitalization of weaker banks.
  - Slippages in the implementation of structural reforms.
- These risks could prolong and disrupt the transition of the economy from high to low oil prices.

### Fiscal outlook, debt, and 2016 budget guidance
- The government’s revision of the 2015 budget will allow the central government deficit to fall to 3½ percent of GDP, compared to 6½ percent of GDP last year.
- Public debt is projected to increase significantly to around 57½ percent of GDP by end-2015, of which 14¾ percent of GDP corresponds to Sonangol.
- Domestic payments arrears have re-emerged; clearing arrears and reversing the sharp debt increase will be critical.
- 2016 budget recommendations:
  - Be predicated on a conservative oil price assumption.
  - Aim to protect expenditures on social assistance and critical infrastructure.
  - Preserve fiscal discipline given that a recovery in oil prices in the near term is unlikely.
  - Keep the wage bill in 2016 unchanged in nominal terms vis-à-vis 2015 levels.

### Expenditure rationalization and revenue measures
- With more limited oil revenue, essential measures include expenditure rationalization and improved non-oil revenue.
- Fiscal strategy:
  - Gradually reduce fiscal deficits.
  - Pursue over time structural fiscal surpluses of about 1½ percent of GDP per year to restore policy buffers and save part of Angola’s oil wealth for future generations.
- Specific measures to achieve this:
  - Contain the growth of the wage bill.
  - Reform revenue administration.
  - Streamline tax incentives.
  - Improve the quality of public investment.
  - Eliminate fuel subsidies while expanding well-targeted social assistance for the poor.
  - Implement a VAT going forward.

### Monetary and exchange rate policy recommendations
- Monetary and exchange rate policies should play a central role in rebalancing the foreign exchange market.
- Actions taken:
  - BNA increased its policy rate and banks’ mandatory reserve requirements to tighten liquidity conditions.
  - Interventions in the foreign exchange market have allowed for a gradual depreciation of the kwanza.
- Remaining problems:
  - A volatile and wide spread between the parallel and primary market exchange rates indicates a persistent market imbalance.
  - If unaddressed, this could undermine the official exchange rate as the basis for price formation and inflation expectations, and lead to misallocation of resources.
- Recommended approach:
  - Further depreciation of the kwanza.
  - Moderate use of international reserves to smooth out the depreciation.
  - Tighter monetary policy supported by fiscal adjustment to contain the effects of the weaker currency on inflation.

### Banking sector stability
- Preserving the health of the banking sector is essential for recovery from the slowdown.
- BNA has focused on strengthening bank supervision.
- Further actions needed:
  - Ensure all banks meet regulatory requirements, especially regarding capitalization and liquidity.
  - Accelerate implementation of plans to restructure and recapitalize weaker banks by their owners.

### Economic diversification and structural reforms
- Economic diversification is crucial as the economy adjusts from sustained high oil prices.
- After enjoying international oil prices above US$90 per barrel for almost four consecutive years, adjustment to lower prices will take time.
- Authorities’ reform agenda addresses constraints to diversification by:
  - Improving the labor market.
  - Promoting private investment.
  - Reducing bureaucracy and streamlining the companies’ incorporation process.
  - Reducing the time to obtain a work visa.
  - Improving infrastructure, in particular in transportation and the electricity sector.
- Successful implementation will be critical to improve competitiveness and make growth more inclusive.

### Data and statistical coverage
- Angola’s macroeconomic data are broadly adequate for surveillance.
- Progress has been made in improving the compilation and dissemination of statistics.
- Remaining gaps to address:
  - Production of high-frequency indicators of economic activity.
  - Detailed and timely fiscal accounts.
  - Timeliness and coverage of the balance of payments.

*Source: _cr15301 - 36.*

### 43.      Staff recommends that the next Article IV consultation with Angola be held on the

### _cr15301 - 43.      Staff recommends that the next Article IV consultation with Angola be held on the standard 12-month consultation cycle.

### Article IV timing recommendation
- Staff recommends that the next Article IV consultation with Angola be held on the standard 12-month consultation cycle.

### Fiscal developments and outlook (Figures, Tables, and text)
- Oil production has recovered following the completion of maintenance work in 2014.
  - Oil production (Millions of barrels per day): historical series shown (see figures and Table 1).
- Oil exports and revenue are expected to drop considerably in 2015-16 due to lower oil prices.
  - Oil exports and revenue shown in Billions of U.S. dollars (Oil revenue; Oil exports) in Figure 4 and Table 1.
- ... leading to sharp spending cuts.
  - Expenditure split shown as Percent of GDP (Capital expenditure; Current expenditure).
- Therefore, the fiscal deficit and NOPB are expected to improve.
  - Overall balance and Non-oil primary balance shown (Percent of GDP and percent of non-oil GDP, respectively).
- Key central government fiscal figures (Table 1, Table 2b):
  - Total revenue: 34.6 43.5 48.8 45.9 40.5 34.6 27.4 27.6 (2009–2016)
  - Of which: Oil-related: 24.2 33.0 39.0 37.3 30.3 23.4 14.6 15.6 (2009–2016)
  - Of which: Non-oil tax: 9.0 7.8 7.3 6.6 8.1 8.9 10.4 10.1 (2009–2016)
  - Total expenditure: 41.9 40.0 40.2 41.3 40.8 41.1 30.9 29.0 (2009–2016)
  - Current expenditure: 29.5 28.6 30.0 29.0 28.7 28.8 24.1 21.5 (2009–2016)
  - Capital expenditure: 12.4 11.4 10.4 12.3 12.1 12.2 6.8 7.5 (2009–2016)
  - Overall fiscal balance: -7.4 3.4 8.7 4.6 -0.3 -6.4 -3.5 -1.4 (2009–2016)
  - Non-oil primary fiscal balance: -29.8 -26.2 -26.9 -29.2 -28.4 -27.5 -15.8 -14.3 (2009–2016)
  - Non-oil primary fiscal balance (Percent of non-oil GDP): -53.7 -47.4 -51.1 -53.7 -47.7 -42.8 -21.2 -19.7 (2009–2016)
- Table 2a (billions of local currency) highlights revenue and expenditure levels and net borrowing:
  - Revenue (2009–2016): 2,070 3,295 4,776 5,054 4,849 4,403 3,354 4,044
  - Expenditure (2009–2016): 2,510 3,034 3,928 4,549 4,889 5,222 3,782 4,249
  - Net lending (+)/ borrowing (-) (2009–2016): -440 261 849 505 -40 -819 -428 -205

### Monetary developments (Figure 5, Table 3)
- Foreign exchange reserves and monetary aggregates:
  - Foreign exchange reserves are expected to gradually decline to smooth currency depreciation (Figure 6 notes).
  - Broad money (M2) percent change (2009–2016): 30.0 11.0 35.7 7.9 14.2 16.4 14.4 14.6
  - M2-to-GDP ratio (percent) (2009–2016): 42.5 35.3 37.6 35.0 36.7 40.3 48.0 45.8
  - Reserve money (percent change) (2009–2016): 75.5 14.3 23.2 1.8 15.2 6.7 14.4 14.6
  - Credit to the private sector (12-month percent change) (2009–2016): 60.5 19.2 28.8 24.2 15.0 14.4 3.9 17.4

### External sector developments (Figure 6, Table 4)
- Reserves and external balances:
  - Gross international reserves (end of period, millions of U.S. dollars) (2009–2016): 13,679 19,679 27,517 32,156 32,231 27,795 22,275 18,618
  - Reserves to next year's months of imports (2009–2016): 4.6 5.4 7.2 7.8 7.5 8.6 7.1 5.7
- Balance of payments (Table 4, Millions of U.S. dollars):
  - Current account (2009–2016): -7,572 7,506 13,085 13,853 8,348 -1,951 -7,784 -5,522
  - Trade balance (2009–2016): 18,168 33,928 47,082 47,376 41,903 30,582 16,005 17,340
  - Exports, f.o.b. (2009–2016): 40,828 50,595 67,310 71,093 68,247 59,169 36,983 38,526
  - Crude oil exports (2009–2016): 39,271 48,629 64,539 68,871 65,611 56,332 34,527 35,891
  - Imports, f.o.b. (2009–2016): -22,660 -16,667 -20,228 -23,717 -26,344 -28,587 -20,978 -21,187
  - Overall balance (2009–2016): -4,607 5,626 7,560 4,505 -1,256 -3,937 -5,174 -3,516

### Risk Assessment Matrix (June 2015) — main risks and policy responses (Figure 7)
- Potential deviations from baseline and policy responses (selected entries):
  - Persistent foreign exchange market imbalance, with demand significantly outstripping supply.
    - Relative Likelihood: Medium
    - Time Horizon: Short term
    - Impact on Angola: High
    - Policy response: Increase exchange rate flexibility and tighten monetary policy together with moderate use of international reserves to smooth out the depreciation. Conduct stress tests on banks under appropriately adverse risk scenarios and prepare contingency plans for possible bank failures.
  - Difficulties to fully implement the approved budget for 2015.
    - Relative Likelihood: Medium
    - Time Horizon: Short term
    - Impact on Angola: High
    - Policy response: Carefully monitor budget implementation to avoid recurrence of new domestic payments arrears accumulation. Increase exchange rate flexibility and tighten monetary policy.
  - Interruption of oil revenue flow reconciliation process, leading to delays in oil tax transfers from Sonangol to the Treasury.
    - Relative Likelihood: Medium
    - Time Horizon: Short term
    - Impact on Angola: Medium
    - Policy response: Ensure prompt transfer of oil taxes from Sonangol to the Treasury, with timely publication of corresponding reconciliation reports.
  - Tighter or more volatile global financial conditions; Persistent dollar strength; Euro area bond market contagion.
    - Relative Likelihood: High (for first two items), Medium (for contagion)
    - Time Horizon: Short term
    - Policy responses include postponing the planned maiden Eurobond issuance until international capital markets stabilize; allow greater exchange rate flexibility; boost non-oil tax revenues; improve efficiency in fiscal spending.
  - Risks to energy prices: Increased volatility and persistently low prices.
    - Relative Likelihood: Medium
    - Time Horizon: Short term and Medium term
  - Unduly delay in the resolution of problem banks.
    - Relative Likelihood: Medium
    - Time Horizon: Medium term
    - Impact on Angola: High
    - Policy response: Accelerate plans to recapitalize and restructure banks; manage public guarantees transparently; strengthen banking supervision and resolution mechanisms and tighten prudential regulations.

### Main recommendations from the 2014 Article IV Consultation and status (Figure 8)
- Fiscal area (selected advice and status):
  - Mobilize additional non-oil tax revenue — Ongoing. Authorities strengthened non-oil taxation efforts including enlarging tax base; creating a single revenue administration agency; strengthening tax inspections; better enforcing real estate taxation.
  - Improve public financial management systems, including enhancing efficiency of public investment — Ongoing. Actions include integrating databases SIGFE and SIPIP; publishing a manual for project evaluation; issuing decree for monitoring physical execution of projects; evaluating pipeline projects for legal compliance.
  - Reduce fuel subsidies while mitigating impact on the poor — Ongoing. Domestic fuel prices raised three times since last September; full elimination of subsidies on gasoline, heavy and light fuel oil, and asphalt; diesel subsidies reduced from 60 percent to 20 percent. Government expanding unconditional cash transfer program (Cartão Kikuia) to a sixth province with World Bank assistance.
  - Adopt an improved medium-term fiscal framework (MTFF) — Ongoing. Fund technical assistance helping authorities to develop capacities for MTFF and fiscal responsibility legislation.
  - Develop a coherent asset-liability management framework, including a well-designed stabilization fund — Not implemented.
  - Avoid recurrence of domestic payments arrears — Not implemented. Domestic payments arrears re-emerged in late 2014.
- Monetary and financial area (selected advice and status):
  - Enhance the central bank's capacity to collect and analyze high-frequency economic data — Ongoing. BNA strengthening analytical capacity and publishing Quarterly Inflation Reports; capacity remains weak for an inflation-targeting regime. IMF provided technical assistance on inflationary forecasting framework.
  - Add exchange rate flexibility to the near-term policy mix if oil output does not recover — Achieved. Kwanza depreciated by around 30 percent since September 2014; foreign exchange market imbalance remains high.
  - Continue the de-dollarization process — Ongoing. Decline in foreign currency-denominated deposits and loans; BNA raised reserve requirement on kwanza-denominated deposits above that on foreign currency deposits.
  - Further strengthen the financial system — Ongoing. Progress on FSAP recommendations (bank resolution mechanism and deposit insurance), but unmet steps remain in crisis prevention.
  - Address deficiencies in the AML/CFT regime — Ongoing. Legal and institutional steps taken; country remained grey-listed under FATF monitoring process.
  - Acceptance of the obligations under Article VIII, Section 2(a), 3, and 4 — Not implemented.
- Diversification:
  - Improve business climate — Ongoing. Angola Invest Program and recent legislation: Simplified Companies Incorporation Process Law; Private Investment Law; new General Labor Law; government reviewing Electricity Law.

### Illustrative medium-term scenario and projections (Table 5, selected figures)
- Real GDP (percent change) projections (2009–2020): 2.4 3.4 3.9 5.2 6.8 4.8 3.5 3.5 3.8 4.2 4.7 5.2
- Nominal GDP (billions of U.S. dollars) (2009–2020): 75.5 82.5 104.1 115.3 124.2 129.3 102.0 98.8 105.4 112.5 119.4 127.2
- Oil production (millions of barrels per day) (2009–2020): 1.809 1.758 1.660 1.730 1.716 1.672 1.785 1.850 1.850 1.850 1.850 1.850
- Angola oil price (average, U.S. dollars per barrel) (2009–2020): 60.8 76.5 108.7 110.9 107.3 100.7 53.0 57.6 61.4 62.9 64.0 65.7
- Gross international reserves (end of period, billions of U.S. dollars) (2009–2020): 13.7 19.7 27.5 32.2 32.2 27.8 22.3 18.6 18.9 20.3 21.1 21.3
- Overall fiscal balance (percent of GDP) (2009–2020): -7.4 3.4 8.7 4.6 -0.3 -6.4 -3.5 -1.4 -2.0 -0.7 0.0 0.5
- Non-oil primary fiscal balance (percent of GDP) (2009–2020): -29.8 -26.2 -26.9 -29.2 -28.4 -27.5 -15.8 -14.3 -15.2 -13.9 -12.5 -11.6

### Financial stability indicators (Table 6, selected)
- Regulatory capital/Risk-weighted assets (Dec-11 to Jul-15): 18.5 19.2 18.7 18.7 18.3 18.6 18.0 18.0 19.5 22.5 22.0 21.0 19.9 21.2 19.7 19.4
- Nonperforming loans to gross loans (selected points): 2.4 2.5 5.5 6.9 6.8 5.5 6.3 6.1 9.7 5.4 6.1 7.0 11.7 13.0 13.8 18.2
- Foreign Currency Credit/Total Credit (Dec-11 to Jul-15): 50.9 50.5 47.5 44.7 42.7 41.4 41.3 40.6 37.8 36.9 34.9 31.6 27.4 27.7 31.0 31.2

### Debt and external/public debt structure (Table 7, selected)
- Total public debt (Billions of U.S. dollars) (2009–2016): 37.7 32.0 32.7 33.1 45.0 54.6 58.5 52.4
- Total public debt (Percent of GDP) (2009–2016): 49.9 38.8 31.4 28.7 36.2 42.2 57.4 50.0
- External medium and long-term debt (Billions of U.S. dollars) (2009–2016): 15.0 16.9 20.2 21.6 29.4 32.9 38.9 36.0
- Of which: Sonangol (Billions of U.S. dollars) (2009–2016): 5.3 7.5 9.7 8.9 13.4 12.7 15.0 13.8

*Source: Angola — IMF staff report content as provided in the supplied document excerpts.*

### Appendix I. Angola: External Balance Assessment Update

### Appendix I. Angola: External Balance Assessment Update

### Current account and exchange rate assessment
- The current account balance fell into deficit in 2014 and is projected to stay in deficit over the medium term, but is expected to gradually improve supported by fiscal adjustment and gradual progress in economic diversification.
- Financing of the current account deficit would come mainly from residents’ repatriation of their foreign assets and external financing of the budget.
- The real effective exchange rate (REER) is estimated to be overvalued by 10 percent to 30 percent.
- Different assessment approaches point toward REER overvaluation:
  - The external sustainability (ES) approach under the CGER suggests the REER is overvalued and would need to depreciate by around 21 percent by 2020 to close the projected gap with the norm.
  - The equilibrium REER approach under the CGER suggests the REER is overvalued and would need to depreciate by 10 percent in order for the gap between the norm and the projected CAB to close by 2020.
  - The macroeconomic balance (MB) approach under the CGER estimates the REER is overvalued and would need to depreciate by around 31 percent.
  - The current account panel regression under the EBA-lite methodology shows the REER is overvalued but the degree is highly sensitive to the oil price assumption:
    - Overvaluation under the current oil price assumption (US$53 per barrel) is 46 percent in 2015.
    - Overvaluation drops to 21 percent under the structural oil price assumption (US$74 per barrel), using a five-year moving average of the actual oil price in the past two years, a mix of actual and projected oil prices for the current year, and oil price projections for the next two years.
- Confidence intervals are large and undervaluation cannot be ruled out.

### International reserve adequacy assessment
- International reserves are projected to stay above the lower bound of the IMF metric adequacy range in both 2015 and 2016.
- The central bank’s continuous provision of foreign exchange to the market in amounts in excess of what it is expected to receive from the government and the oil sector would lead to lower international reserves in 2015 and 2016.
- The international reserve cover, as measured by the IMF metric, is expected to decline as follows:
  - 176 percent at end-2012 (peak)
  - 134 percent at end-2015 (projected)
  - 111 percent at end-2016 (projected)
- Given Angola’s highly dollarized financial system, the country would likely need to rebuild its international reserve buffer over the medium term to enable the central bank to provide foreign exchange liquidity directly to the financial system in case of shocks.
- IMF reserve adequacy metric definition and Angola equivalents for 2015–2016:
  - The IMF reserve adequacy metric is equal to 10 percent of exports plus 10 percent of broad money plus 30 percent of short-term debt plus 20 percent of other liabilities.
  - For Angola, this would be the equivalent to US$ 16 billion (5 months of imports) in 2015 and US$17 billion (5 months of imports) in 2016.

### Non-price competitiveness assessment
- Angola’s relative competitiveness has deteriorated according to non-price competitiveness indicators.
- World Bank Doing Business rankings for Angola:
  - 2015 ranking: 181
  - 2014 ranking: 180
  - Change in rank: -1
- Selected component rankings (2015 vs 2014 and change):
  - Starting business: 2015 rank 174; 2014 rank 172; Change -2
  - Dealing with construction permits: 2015 rank 67; 2014 rank 66; Change -1
  - Getting electricity: 2015 rank 157; 2014 rank 155; Change -2
  - Registering property: 2015 rank 164; 2014 rank 164; Change 0
  - Getting credit: 2015 rank 180; 2014 rank 178; Change -2
  - Protecting minority investors: 2015 rank 94; 2014 rank 91; Change -3
  - Paying taxes: 2015 rank 144; 2014 rank 143; Change -1
  - Trading across borders: 2015 rank 167; 2014 rank 167; Change 0
  - Enforcing contracts: 2015 rank 187; 2014 rank 187; Change 0
  - Resolving insolvency: 2015 rank 189; 2014 rank 189; Change 0
- The Doing Business 2015 table shows Angola ranked behind Botswana, Chile, Namibia, Nigeria, and South Africa on component ease-of-doing-business measures presented.

*Source: Appendix I. Angola: External Balance Assessment Update (IMF).*

### 0.015 stamp tax on foreign exchange operations. In 2015, Angola introduced new exchange

### _cr15301 - 0.015 stamp tax on foreign exchange operations. In 2015, Angola introduced new exchange

### Exchange measures and Article VIII/Article IV
- Angola introduced a 0.015 stamp tax on foreign exchange operations and other new exchange measures in 2015, including:
  - a priority list for access to U.S. dollars at the official exchange rate;
  - a special tax on transfers to non-residents under contracts for foreign technical assistance or management services.
- IMF staff is assessing the consistency of these measures, and the high spread between the parallel and official exchange rates, with Angola’s obligations under Article VIII.
- Article IV Consultation:
  - Angola is on the standard 12-month cycle.
  - The next Article IV Consultation is scheduled to be completed by November 2016.

### Technical assistance and IMF presence
- Resident Representative:
  - Since May 2015 the IMF has a new Resident Representative for Angola (Mr. Max Alier).
- Technical Assistance activities (selected, by department and year of delivery):
  - Monetary and Capital Markets (MCM)
    - AFRITAC South: Liquidity Management 2015
    - AFRITAC South: Inflation Forecasting Framework (various missions) 2015
    - Technical Assistance Needs Assessment 2013
    - Technical Assistance Following the FSAP 2013
    - AFRITAC South: Risk-Based Supervision Framework 2013
  - Fiscal Affairs Department (FAD)
    - Public Investment Management 2015
    - Designing Fiscal Rules to Manage Oil Revenues and Strengthen the Medium Term Fiscal Framework 2015
    - Subsidy Reform 2014
    - AFRITAC South: Medium-Term Fiscal Framework (various missions) 2013, 2014
    - AFRITAC South: Expenditure control and arrears (various missions) 2013, 2014
    - AFRITAC South: Fiscal Responsibility Law and Fiscal Rules 2014
    - AFRITAC South: Workshop on MTFF in Resource Rich Countries 2012
  - Statistics Department (STA)
    - AFRITAC South: National Accounts 2015
    - Monetary and Financial Statistics 2014
    - AFRITAC South: National Accounts 2012
    - Migration to GFSM 2001 2012
    - AFRITAC South: Consumer Price Index 2012
  - Institute for Capacity Development (ICD)
    - Financial Programming and Policies for Angolan Officials 2014

### Joint IMF–World Bank management action plan (selected timing)
- Bank products/timing (selected entries):
  - Fiscal Management Programmatic DPF I — June 30, 2015 (Board discussion)
  - Smallholder Agriculture Development and Commercialization Project — December 2015 (Board discussion)
  - Fiscal Management Programmatic DPF II — 2016
  - Third and fourth Angola Economic Update — September 2016 (Board discussion)
- IMF work program (selected entries):
  - Staff Visit — February 2016
  - 2016 Article IV Mission — August 2016
- Collaboration items:
  - Regular briefings on implementation of DPL conditionality, particularly the cash transfer scheme — Ongoing
  - Collaboration on providing full set of macroeconomic framework and tables — Ongoing
  - Continuous dialogue on economic forecasting and macroeconomic modeling issues — Continuous

### Statistical issues — data adequacy and dissemination
- General assessment:
  - Data provision has shortcomings but is broadly adequate for surveillance; concerns remain about data quality and timeliness.
  - Progress strongest at the BNA and recently at the National Institute of Statistics (INE); Ministry of Finance data delivery and publication could be significantly improved.
- National Accounts:
  - INE released national accounts for 2002-13 (first issuance) including annual GDP at constant 2002 prices.
  - Quarterly GDP series in production and scheduled to be published in 2015.
  - INE completed a national census in 2014 — first census in four decades.
- Price statistics:
  - INE publishes monthly consumer and wholesale price indices; CPI expanded to all 18 provinces.
- Government finance statistics:
  - Timeliness and quality need substantial improvement.
  - Revenues and expenditures recorded on accrual basis but reconciliation between above- and below-the-line operations persists as an issue.
  - Recommendation: publish consolidated quarterly fiscal data in electronic (spreadsheet) format, in nominal values, and migrate comprehensively toward GFSM 2001.
- Monetary and financial statistics:
  - Depository corporation survey and BNA balance sheet revised with STA assistance; BNA delivers timely data and publishes monthly.
  - Recommendation: publish Financial Soundness Indicators regularly (e.g., 30 or 60 days after quarter end); reduce lag in Financial Stability Report.
- External sector statistics:
  - Balance of payments and IIP compiled in line with BPM5 recommendations; compiled annually with a lag of nine months.
  - Coverage, timeliness, and staffing remain shortcomings; inconsistencies in classification (arrears and SDRs) and IIP vs. BOP.
  - A follow-up STA technical assistance mission scheduled for November 2015.
- Angola participates in the GDDS since January 29, 2004.

### Key data reporting table (selected entries, dates preserved)
- Exchange Rates: Date of latest observation 09/30/15; Date received 09/30/15; Frequency of Data/Reporting/Publication: D / D / D
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation 08/15; Date received 09/15; Frequency: M / M / M
- Reserve/Base Money: 08/15; 09/15; M / M / M
- Broad Money: 08/15; 09/15; M / M / M
- Central Bank Balance Sheet: 08/15; 09/15; M / M / M
- Consolidated Balance Sheet of the Banking System: 08/15; 09/15; M / M / M
- Interest Rates: 08/15; 08/15; M / M / M
- Consumer Price Index: 08/15; 09/15; M / M / M
- Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of latest observation 06/15; Date received 08/15; Frequency: Q / Q / Q
- Stocks of Central Government and Central Government-Guaranteed Debt: 12/14; 08/15; A / A / A
- External Current Account Balance: 12/2014 (est.); 08/15; A / A / A
- GDP/GNP: 12/2014 (est.); 08/15; A / A / A
- International Investment Position: 12/2014; 07/15; A / I / A

### Public debt and debt sustainability — main findings and projections
- Current position and near-term projection:
  - Gross public debt-to-GDP ratio rose by 6 percentage points over the past year, to 42 percent at end-2014.
  - Gross public debt is projected to increase to 57½ percent of GDP in 2015, driven by:
    - a projected fiscal deficit of 3½ percent of GDP for 2015;
    - the effect of a more depreciated exchange rate on foreign currency denominated and indexed debt stocks.
  - Net public debt (gross debt excluding central government deposits at the BNA) stood at 32¾ percent of GDP at end-2014.
- Medium-term path:
  - Starting in 2016, gross public debt-to-GDP ratio is projected to gradually decline, reaching 38½ percent by 2020, mainly due to projected improvements in fiscal balances and an acceleration of real GDP growth.
  - Angola’s gross external debt is projected to reach 28½ percent of GDP in 2020, from 25½ percent of GDP at end-2014.
- Fiscal and market context:
  - Interest costs expected to rise in 2015 and beyond as reliance on market financing increases and international markets potentially tighten.
  - Credit rating actions cited:
    - February 2015: S&P downgraded Angola’s sovereign credit ratings to 'B+/B' from 'BB-/B' and in August 2015 revised the outlook to negative.
    - March 2015: Moody’s revised Angola’s outlook to negative.
    - September 2015: Fitch Ratings downgraded Angola's long-term foreign and local currency IDRs to 'B+' from 'BB-'; affirmed short-term IDR at 'B'; lowered country ceiling to 'B+'; changed outlook to stable from negative.
- Staff recommendation and adjustment priorities:
  - Fiscal consolidation to continue, focusing on:
    - additional efforts to raise non-oil taxation;
    - expenditure savings via reducing fuel subsidies;
    - improving quality of capital investment (allowing reduction in public spending);
    - containing the growth of the wage bill.
  - With improved primary balances and solid growth, gross public debt-to-GDP ratio expected to decline to 38½ percent by 2020.
- Projections and modeled indicators (selected extracted figures from the DSA table, as of September 28, 2015):
  - Nominal gross public debt (percent of GDP): 2013: 32.2; 2014: 36.2; 2015: 42.2; 2016: 57.4; 2017: 53.0; 2018: 50.0; 2019: 46.1; 2020: 42.3; (table also shows 38.4 in a column header context).
  - Public gross financing needs (percent of GDP): 2013: 1.0; 2014: 2.0; 2015: 8.8; 2016: 8.6; 2017: 11.1; 2018: 9.8; 2019: 9.0; 2020: 8.0; 2013-2020 series continue in the table.
  - Real GDP growth (in percent): 2013: 11.2; 2014: 6.8; 2015: 4.8; 2016: 3.5; 2017: 3.5; 2018: 3.8; 2019: 4.2; 2020: 4.7; 2020 further shown as 5.2 in projection column.
  - Inflation (GDP deflator, in percent): 2013: 17.6; 2014: 1.9; 2015: 1.2; 2016: -7.1; 2017: 15.8; 2018: 13.9; 2019: 12.1; 2020: 9.8; 2020 further shown as 8.6 in projection column.
  - Effective interest rate (in percent): 2013: 6.8; 2014: 3.1; 2015: 3.4; 2016: 3.5; 2017: 4.1; 2018: 4.2; 2019: 4.5; 2020: 5.0; 2020 further shown as 5.1.
  - Change in gross public sector debt (cumulative, percent of GDP): 2013-2020 row shows cumulative -3.9 at end of series (table values preserved).
- Notes on drivers:
  - Identified debt-creating flows and automatic debt dynamics play roles in projected changes; residuals include projected exchange rate depreciation of the kwanza.
  - The DSA indicates use of central government deposits at the BNA (which include oil funds) could be used under strict conditions with presidential approval.

### Stress tests and vulnerabilities
- Baseline sensitivity:
  - Staff notes that while the projected path is sustainable, it is sensitive to shocks on real GDP growth, the exchange rate, and the international price of oil.
- Specific shock assumptions used in stress testing (preserve wording/values):
  - Real exchange rate shock assumed for Angola is 30 percent.
  - Interest rate shock: interest rate increases by 200 basis points under the interest rate shock (note: this is used rather than the maximum real interest rate over the last 10 years).
  - Real GDP growth shock: real GDP growth is reduced by one-half standard deviation for 2 consecutive years.
  - Oil price shock considered: a 50 percent drop in the projected price of the Angolan oil basket in 2016; under this scenario the price is US$26.5 per barrel.
- Stress-test outcomes (summary):
  - A sharp decline in international oil prices would trigger an economic slowdown as government cuts public spending; under a 50 percent oil price shock debt ratios jump in 2016 and gradually come down but remain above the baseline path.
  - Of the standard shocks to external debt, the most significant is a current account shock; the second most significant is the combined shock, followed by real depreciation; interest rate and real GDP growth shocks have less pronounced effects.
- Additional stress-test indicators and thresholds:
  - Debt burden benchmark cited: 70 percent (heat-map logic: green if below, yellow if between, red if above).
  - Gross financing needs benchmark: 15 percent of GDP.
  - Market perception indicators referenced: EMBIG (bp), external financing requirement (percent of GDP), annual change in short-term public debt, public debt in foreign currency, public debt held by non-residents.
  - EMBIG example value in table: 396 (bp) under a specific column; other EMBIG notes reference averages.

### External debt sustainability (summary)
- Finding: Angola’s external debt is sustainable under the baseline.
- Projection:
  - External debt increases slightly from about 25½ percent of GDP in 2014 to 28½ percent of GDP in 2020.
- Caveats:
  - No available data on private sector debt; EDSA is based solely on public sector external debt including Sonangol and TAAG.
- Key DSA table highlights (selected figures preserved):
  - Baseline external debt-to-GDP (percent): 2014: 25.5; 2015: 38.3 (table shows a sequence, full table preserved in source).
  - Debt-stabilizing non-interest current account: -2.6 (as shown in table).
  - Gross external financing need (in billions of US dollars) series shows: -5.8, -11.5, -12.0, -6.2, 5.0, 8.8, 8.1, 7.5, 6.4, 6.6, 7.1 (table entries preserved).
  - Key macro assumptions under baseline (selected):
    - Real GDP growth (in percent) series: 2010-2020 entries include 3.4, 3.9, 5.2, 6.8, 4.8, 10.2, 7.9, 3.5, 3.5, 3.8, 4.2, 4.7, 5.2 (preserve table ordering/values as given).
    - GDP deflator in US dollars (change in percent) includes values such as 5.6, 21.5, 5.4, 0.8, -0.6, 10.5, 12.4, -23.8, -6.4, 2.8, 2.4, 1.4, 1.2 (table entries preserved).

### Authorities’ statement (selected points)
- Angola’s authorities emphasize:
  - Substantial improvements in socio-economic conditions over the past five years despite downside risks from commodity price shocks and weaker global demand.
  - The long-term challenge is to use oil resources to build productive capacity, strengthen institutions, and promote human capital.
  - Commitment to advance reform agenda for economic transformation, diversification, resilience, and stronger institutions.
- Recent developments (selected figures preserved):
  - Oil production accounted on average for roughly 50 percent of GDP, about 90 percent of export earnings, and nearly 75 percent of fiscal revenues over the last five years.
  - Growth projections for 2015 revised downward to 3.5 percent from initial forecast of 4.5 percent.
  - Growth in the oil sector expected to reach 6.8 percent in 2015 (recovery from -2.6 percent in 2014); non-oil growth projected to decelerate to 2.1 percent in 2015 from 8.2 percent in 2014.
  - Average inflation projected to reach 14 percent in 2015, exceeding BNA target of 7-9 percent.
  - Imports represent about 21.0 percent of GDP.
  - BNA raised policy rate to 10.5 percent in October 2015, from 8.75 percent in September 2014.
  - 2015 revised budget envisaged an overall fiscal deficit of 7.0 percent of GDP; total revenue revised to 23.4 percent of GDP in the revised budget, down 8.4 percentage points relative to the initial budget, using a conservative oil price assumption of US$ 40 per barrel.

*Prepared by the staff of the International Monetary Fund. October 14, 2015.*

### 18.9 to 9.0 percent of GDP, despite the slight increase in the non-oil revenue from to 10.5 to

### _cr15301 - 18.9 to 9.0 percent of GDP, despite the slight increase in the non-oil revenue from to 10.5 to

### Fiscal outcomes and composition (2015)
- Overall fiscal adjustment in 2015 resulted in cuts to capital expenditure:
  - Capital expenditure reached 5.5 percent of GDP, from 10.1 percent of GDP in the initial budget.
- Current expenditure was revised downward:
  - Current expenditure revised to 24.9 percent of GDP, from 28.5 percent of GDP in the initial budget.
- Non-oil revenue phrasing in source: "slight increase in the non-oil revenue from to 10.5 to 12.5 of GDP."
- Initial fragment in source: "18.9 to 9.0 percent of GDP" (preserved as in source).

### External sector and reserves (2015)
- Current account deficit projection:
  - Projected to widen to 7.6 of GDP in 2015, from 1.5 percent of GDP in 2014.
- Export decline:
  - Decline in exports of oil and gas products projected to reach 34.7 percent of GDP by end-2015, less 10 percentage points relative to 2014.
- Gross international reserves:
  - Projected to decline to US$ 20.0 billion in 2015, equivalent to 6 months of import cover, from 27.7 million in 2014 (8.1 months of import cover).

### Medium-term outlook and risks
- Overall outlook and risk tilt:
  - Medium term outlook remains benign although the balance of risks is tilted to downside.
  - Risks include persistent negative oil price shocks and slower growth in emerging markets.
- Growth projections:
  - Growth projected to remain at 3.5 percent in 2016.
  - Oil sector growth projected at 3.9 percent in 2016, a slight decline from 6.8 percent expected for 2015.
  - Non-oil sector growth projected to accelerate from 2.1 percent in 2015 to 3.4 percent in 2016, and to reach 4.2 percent over the period 2017-2018.
  - Drivers: strong recovery in agriculture and improved supply of infrastructure.
- Inflation:
  - Average inflation forecast at 14.2 percent in 2016, given the gradual pass-through of depreciation pressures into domestic prices.
  - Inflation expectations expected to remain contained in subsequent years in response to tightening in monetary policy.

### Fiscal policy (medium term)
- Medium-term fiscal strategy objectives:
  - Achieve fiscal consolidation while deepening fiscal structural reforms to broaden tax base, diversify revenue sources, and improve public spending efficiency.
- Revenue and spending projections for 2016:
  - Total revenue projected at 27.6 percent of GDP in 2016.
    - Oil revenue projected at 15.6 percent of GDP.
    - Non-oil revenues projected at 10.1 percent of GDP.
  - Public spending expected to remain on average at 29 percent of GDP in 2016.
  - Overall fiscal deficit expected to improve to 1.4 percent of GDP in 2016, from 3.5 percent of GDP in 2015.
    - Improvement mostly reflecting scaling back of capital spending and containment on recurrent spending, particularly wage bill and goods and services.
- Ongoing and planned fiscal measures:
  - Diversify sources of non-oil revenues and accelerate preparation towards introduction of VAT.
  - Streamline public expenditure.
  - Enhance institutional capacity on investment planning, implementation and monitoring.
  - Strengthen financial oversight of state owned enterprises.
  - Improve the medium-term fiscal framework and adoption of fiscal (phrase preserved as in source).

### Monetary and exchange rate policy
- Policy stance and objectives:
  - Anchor inflation expectations and smoothen exchange rate volatility.
- Inflation path:
  - Average inflation projected to reach 14.2 percent in 2016, and to decline gradually to 11.4 percent in 2018.
- Central bank actions:
  - BNA will fine tune policy instruments to anchor inflation expectations and allow exchange rate flexibility to prevent further losses in international reserves.
  - BNA will enhance institutional capacity to improve monetary policy effectiveness through efforts to improve inflation forecasting and liquidity management tools with Fund support.

### Financial sector policy
- Strategic priorities:
  - Build a robust financial system, foster financial deepening and inclusion to support diversification and transformation.
- Key actions taken:
  - Reinvigorated implementation of the 2012 Financial Sector Assessment Program (FSAP).
  - Approval of Financial Institutions Law requiring creation of a Deposit Guarantee Fund and the Bank Resolution Fund.
  - Launch of Angola’s Securities Exchange to upgrade capital markets.
- Risk management and regulatory measures:
  - Speed up implementation of the Financial Institutions Law.
  - Strengthen macro-prudential regulations and financial oversight in response to rising NPLs and falling capital adequacy ratios.
  - Strengthen AML/CFT framework through institutional capacity development for implementation of the Law on Criminalization of Money Laundering Predicate Offences.

### Structural policies and diversification
- National Development Plan (2013-2017) priorities:
  - Foster economic diversification and transformation.
  - Increase fiscal space for transformative infrastructure projects in energy, transport and communications, agriculture and manufacturing, and human capital development.
- Business climate and regulatory reforms:
  - Remove economic bottlenecks, improve business climate, ease bureaucracy, streamline investment incentives, and create labor market flexibility.
  - Laws enacted include:
    - Simplified Companies Incorporation Law.
    - Private Investment Law.
    - General Labor Law.
  - Electricity Law under review to address efficiency constraints and open sector to private participation in generation and distribution.
- SME development measures:
  - Facilitate SMEs’ access to credit through the Venture Public Capital Fund.
  - Revamp measures to simplify starting small businesses and simplify incentive structures to accelerate import-substitution.

### Concluding remarks
- Assessment of authorities’ actions:
  - Authorities made commendable efforts to mitigate short-term vulnerabilities from cyclical shocks while creating conditions to address structural constraints to competitiveness.
- Remaining challenges and policy focus:
  - Challenges remain from downside risks induced by commodity price and terms of trade shocks and weaker global demand.
  - Policy priorities: gradually remove bottlenecks to economic competitiveness and productivity; advance structural reform agenda to foster economic transformation and diversification.

*Source: _cr15301 (excerpt).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15301.pdf_