IMF Staff Completes 2018 Article IV Consultation Mission to Angola

IMF News, March 16, 2018

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Mission period: March 1-15, 2018.
"The Angolan economy is experiencing a mild economic recovery."
2018 output growth projection: 2¼ percent, compared to 1 percent in 2017.
Drivers of 2018 growth: a more efficient foreign exchange allocation system; additional availability of foreign exchange due to higher oil prices; LNG production inching up to full capacity; and improved business sentiment.
Annual inflation projection for end-2018: 24¾ percent, reflecting, inter alia, the effect of the kwanza depreciation.
Medium-term outlook: continued gradual recovery in economic activity, with risks including a decline in oil prices and slippages in structural reform implementation.
IMF Executive Board expected discussion: May 2018.

2017 overall fiscal deficit widened to about 6 percent of GDP.
Public debt (including the debt of Sonangol and TAAG) reached 64 percent of GDP in 2017.
2018 budget aims to reduce the deficit to 3½ percent of GDP under a conservative oil price assumption.
Guidance if oil prices exceed budget assumption: revenue windfall should be used to clear domestic payments arrears faster and/or retire public debt.
Gross financing needs in 2018: characterized as substantial but appear manageable in the current favorable external environment.
Fiscal anchor: authorities’ objective of lowering public debt to under 60 percent of GDP over the medium term.
Required consolidation: non-oil primary fiscal consolidation path averaging ¾ percent of GDP annually until 2023.
Fiscal measures recommended:
- Enlarge the tax base, including introducing a VAT on January 1, 2019, as planned.
- Rationalize public spending.
- Contain contingent liability risks.
- Improve the quality of public investment.
- Adjust domestic fuel prices to reflect changes in international fuel prices and the exchange rate.
- Expand well-targeted social programs to protect the most vulnerable and reduce poverty.
- Implement a medium-term fiscal framework, focusing on a well-designed fiscal stabilization fund to reduce procyclicality of spending.

Recommendation to downsize the public corporate sector to reduce their burden on the Treasury and increase economic efficiency.
Insolvent state-owned enterprises should be closed.
Economically viable but inefficient SOEs should be restructured and/or privatized.
Sonangol’s restructuring should make it leaner, more efficient, and focused on its core businesses.

The National Bank of Angola (BNA) has tightened monetary policy to support the new exchange rate regime.
So far, pass-through of the depreciation to inflation appears to have been contained.
The parallel-official exchange rate spread has been significantly reduced, but remains wide, reflecting short-term pressures as a backlog of foreign exchange purchase orders is gradually eliminated.
Completing the transition to a fully functioning foreign exchange market requires further reforms to the foreign exchange allocation mechanism, including phasing out direct sales.

Banks’ balance sheets need to be strengthened to help economic recovery and foster inclusive growth.
Central objective: raise the efficiency of the state-owned banks by fully implementing their restructuring plans.
Specific on BPC: restructuring efforts should be accelerated, and further recapitalization should be made conditional on demonstrable actions that the restructuring plan approved in early 2017 is on track.

"Implementation of structural reforms is critical to tackle impediments to economic diversification and growth."
Key issues to address:
- Weak insolvency processes, protection of minority shareholders, and contract enforcement.
- Still limited access to finance.
- Large footprint of the State in the economy.
- Governance issues.
Legislative steps: The Law on Competition and the Private Investment Law under consideration in the National Assembly are welcomed as steps to improve the business climate and foster the private sector.

Mission led by Ricardo Velloso.
Meetings: Minister of State for Economic and Social Development Manuel Nunes Júnior; Finance Minister Archer Mangueira; Economy and Planning Minister Pedro da Fonseca; Commerce Minister Joffre Van-Dúnem Júnior; Public Administration and Social Security Minister Jesus Faria Maiato; National Bank of Angola Governor José Massano; other senior executive branch officials; Economic and Finance Committee of the National Assembly; representatives from the financial sector, the non-financial private sector, Sonangol, the sovereign wealth fund, the diplomatic and IFI community, and non-governmental organizations.
Closing remark from mission: "We thank the authorities for their hospitality and constructive dialogue."

IMF staff press release, March 16, 2018.