Public Information Notice: IMF Concludes 2003 Article IV Consultation with Angola

September 10, 2003

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2003 Article IV consultation with Angola is also available.

On July 25 2003, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Angola.1


On April 4, 2002, the Angolan armed forces and the National Union for the Total Independence of Angola (UNITA) signed an agreement to end the 27-year long civil war affecting the country. The months that followed witnessed a rapid demobilization and the beginning of the resettlement of ex-combatants across the country, in the context of a government-led initiative that was supported by various UN agencies and the World Bank.

In 2002, the Angolan economy grew by 15 percent on account of a booming energy sector. The growth of non-oil economy, however, has lagged behind and Angola continues to be dependent on imports and food aid for about half of its cereals requirements. Poverty remains widespread with more than 65 percent of the urban population living below the poverty line. Poverty is reportedly far deeper in rural areas. Inflation showed no sign of abating and 12-month inflation remained above 100 percent throughout the year. The entrenched high inflation was the result of large fiscal and quasi-fiscal imbalances—including sizeable operational deficits of the central bank—which induced large increases in base money. In turn, this led to increased dollarization and rising velocity of money. In real effective terms, the currency appreciated by about 7 percent on top of a cumulative appreciation of 42 percent in 2000-01.The average spread between the official and the parallel market exchange rate was 4 percent. External debt service arrears continued to accumulate and, by end-December 2002, about half of Angola's external debt was arrears.

The general government fiscal deficit (on an accrual basis) more than doubled between 2001 and 2002, reaching the equivalent of 9 percent of GDP, while the non-oil fiscal deficit remained very high at an average of 38 percent of GDP in 2001-02. It was estimated that about 31 percent of total government expenditures was executed outside the regular budgetary system. The financing of the 2002 fiscal deficit depleted almost all balances held in Angola's oil-bonus off-shore accounts, entailed costly borrowing from international commercial banks, and led to an expansion of central bank net credit to the government equivalent to 3.6 percent of GDP.

Monetary developments in 2002 were dominated by the need to accommodate the lax fiscal policy stance. Sizable central bank financing of the fiscal deficit together with the central bank's own operational deficit led to an expansion of reserve money of 110 percent during the year. A prolonged period of high inflation has led commercial banks to place a significant portion of their loanable resources in excess reserves at the BNA and in foreign assets abroad rather than in loans to the economy. By end-2002, only 30 percent of bank deposits had been intermediated to domestic borrowers.

The external current account turned sharply from a surplus of 9 percent of GDP in 2000 to deficits of about 15 percent and 6 percent of GDP in 2001 and 2002. This deterioration reflected a widening of the current account deficit of the oil sector, due to declining oil prices and surging services payments to international oil companies. Foreign direct investments into the oil sector remained buoyant, but the continued built up of official external arrears hampered the public sector's access to external financing on more favorable terms. The lax stance of financial policies caused a further erosion of external reserves, and at end-2002 gross international reserves ($375 million) were less than the equivalent of one month of imports of goods and services.

With policy makers' attention focused on immediate post-conflict issues, structural policy reforms in 2002 were limited. Angola signed the free trade agreement with SADC in March 2003, and continued with reforms of customs administration. Very little progress was made with respect to the privatization of public banks and nonfinancial enterprises.

Executive Board Assessment

Executive Directors welcomed the ending of the 27-year civil war, and commended the authorities for their commitment to reconstructing the economy, restoring financial stability, re-establishing market structures, reducing widespread poverty, and for the progress already achieved, in spite of the difficult economic environment. They noted that the magnitude of the challenges requires a bold and comprehensive approach. They referred in this regard to reducing the fiscal deficit to sustainable levels, with a clear focus on poverty reduction and infrastructure needs, and to phasing out the monetary financing of the budget and reducing the operational deficit of the central bank, which have led to high inflation, a depletion of international reserves, and real exchange rate appreciation.

Directors stressed that greater transparency in the management of public institutions and the oil sector lie at the heart of improving governance and that a strong political commitment to economic and structural reform would help to consolidate the peace process. They added that this would be crucial to reestablishing a constructive dialogue with donors and creditors, particularly in light of the importance of coordinated international support for Angola.

Directors expressed concern over the significant widening of the fiscal deficit, financed mainly by the accumulation of arrears, borrowing from the central bank, costly borrowing from international commercial banks, and the depletion of foreign exchange balances. While acknowledging that the costs related to the peace process—including resettling refugees and demobilizing combatants—are high, they urged the authorities to significantly narrow the fiscal deficit in 2003, through revenue increases and spending cuts. They emphasized the importance of strengthening tax revenues, especially the non-oil component, and improving the administration of oil revenues. They underscored the need to allocate more resources to health, education, and other social services; to rebuild essential infrastructure, such as power, water supply, and transport; and, to phase out consumer price subsidies.

Directors endorsed the authorities' proposed revisions to the 2003 budget that would consolidate with central government operations the quasi-fiscal operations of the state oil company, Sonangol, and other extrabudgetary expenditure. They were encouraged by the authorities' intentions to implement public expenditure management reforms, following the recommendations of World Bank and Fund technical assistance, which importantly would ensure consistency of spending with the legislated budget.

Directors urged the authorities to pursue a more prudent foreign borrowing policy to avoid worsening the external debt burden, a large part of which is in arrears. While recognizing the serious financing constraints of the government and the need to reduce reliance on central bank financing, they emphasized the importance of phasing out foreign borrowing on commercial terms, including loans collateralized by future oil revenues. They stressed the need to develop a medium-term debt strategy supported by technical assistance from the Fund.

Directors emphasized that fiscal consolidation would facilitate the adoption of prudent monetary policies, which would enable the authorities to build foreign reserves and would lessen the risk of further real appreciation of the exchange rate, which threatens to undermine growth in the non-oil economy. They also called on the authorities to remove the divergence between official and parallel market exchange rates and to phase out exchange rate controls and restrictions.

In order to increase the autonomy and transparency of central bank operations, Directors advised the authorities to abide by the central bank law that restricts its lending to the government, and to implement fully the protocol that regulates the relationship between the central bank and the treasury.

Directors emphasized the need to enhance transparency in the oil industry, the economy's growth engine. They commended the authorities' decisions to disclose relevant oil-related financial information, audit the operations of Sonangol, and publish the executive summary of an initial private-sector study on the oil industry. They encouraged the authorities to publish the full oil industry report.

Directors viewed tackling corruption in an appropriate legal framework as essential to enhancing the economy's growth potential, and noted that decisive structural reforms beyond the oil industry are essential to fostering economic diversification, creating employment opportunities, and increasing productivity in the non-oil economy. They welcomed the Tribunal of Account's (Tribunal de Contas) more proactive stance with respect to reviewing and auditing public expenditure allocations. Directors also focused on the need to promote the agricultural sector and restore critical infrastructure, and welcomed the passage of legislation on private investment.

Directors supported the authorities' intention to strengthen the banking system by improving supervisory and regulatory frameworks, and privatizing state-owned banks. They encouraged the authorities to speed up the pace of privatizing public enterprises and to reduce the government's role in the marketing of diamonds to improve production incentives. They acknowledged the progress in customs reform, and emphasized the importance of phasing out export duties and reducing import duties, consistent with Angola's international trade obligations.

In order to enable a full accounting and monitoring of fiscal operations and promote sound policy analysis and formulation, Directors highlighted the importance of completing the compilation of all basic macroeconomic statistics—particularly external debt statistics. They stressed that an appropriate medium-term macroeconomic framework, supported by transparent and comprehensive statistical data, was essential to providing a basis for normalizing Angola's relationship with the international financial community, including the Paris Club. They encouraged the authorities to initiate discussions with creditors to resolve the external debt arrears problem, which would facilitate access to grant and longer-term concessional financing. They welcomed the authorities' progress in developing a Poverty Reduction Strategy Paper (PRSP), and looked forward to the development of a full program using a broad participatory approach, supported by a medium-term framework.

Directors welcomed the Angolan authorities' willingness to continue the policy dialogue with the Fund staff, and to pave a clear path toward a new staff-monitored program (SMP). They stressed the importance of strengthened governance and transparency, the full implementation of the protocol on fiscal and monetary policies, and improved fiscal and external debt data as the most important steps toward an SMP. Successful completion of an SMP could be the basis for an eventual Fund-supported program.

Angola: Selected Economic Indicators, 1999-2002







(Annual percentage change)

National accounts and prices


Real GDP





Oil sector





Non-oil sector





Consumer prices (end of period)





Real effective exchange Rate 1/






Money and credit


Broad money





Interest rate 2/






(In percent of GDP, unless otherwise indicated)

Fiscal accounts


Total revenue





Of which: oil





Total expenditure





Overall balance 3/






External sector


Current account balance (including transfers)





Public debt service-to-exports ratio 4/






(In millions of U.S. dollars, unless otherwise indicated)

Gross domestic product (current prices)





Gross national income per person (U.S. dollars)





Oil production (thousands of barrels per day)





Price of Angola's oil (U.S. dollars per barrel)





Gross international reserves (end of period)





Equivalent in months of imports





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

1/ End of period. A positive sign denotes appreciation.

2/ For three-month time deposits.

3/ On a commitment basis, excluding grants

4/ Medium- and long-term debt service due in percent of exports of goods and services.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


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