Angola: The Road to Economic Reform

IMF News, June 11, 2018

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The IMF completed its annual health check of the Angolan economy and found that, under a new administration, Angola has made strides in setting a reform agenda geared towards macroeconomic stability and growth that benefits all its people.
The new administration is committed to restoring macroeconomic stability and implementing reforms, including dismissing officials linked to the previous administration, launching investigations into possible misappropriation of funds at several public entities, and creating a specialized anti-corruption unit.

Angola is the sub-Saharan region’s second largest oil exporter and was hard hit by the decline in oil prices that started in mid-2014; the shock substantially reduced tax revenues and exports, halted growth, and accelerated inflation.
Policies in the run-up to the August 2017 elections—fiscal expansion and a pegged exchange rate—led to a further erosion of fiscal and external buffers.
Key headline indicators reported for 2017:
- Overall fiscal deficit worsened to 6 percent of GDP.
- Public debt, including that of the state-owned oil company Sonangol, reached 64 percent of GDP in 2017.
- Gross international reserves declined to $17¾ billion—equivalent to 6 months of imports.
- The spread between the parallel and official exchange rate was 150 percent in 2017.

The authorities undertook steps to mitigate the impact of the oil price shock, including:
- A significant—17½ percent of GDP—improvement in the non-oil primary fiscal balance over 2015–16, mainly through spending cuts that included the removal of subsidies.
- Devaluing the kwanza against the U.S. dollar by over 40 percent between September 2014 and April 2016. The exchange rate was re-pegged to the U.S. dollar in April 2016.
The government launched a macroeconomic stabilization program (MSP) in early January 2018 which envisages:
- Upfront fiscal consolidation.
- Greater exchange rate flexibility.
- Reducing the public debt-to-GDP ratio to 60 percent over the medium term.
- Improving the profile of debt through a liability management operation.
- Settling domestic payments arrears.
- Ensuring effective implementation of anti-money laundering legislation.
Budgetary and monetary measures implemented in 2018:
- The National Assembly approved a prudent budget for 2018 that targets a 2 percent of GDP improvement in the non-oil primary fiscal balance.
- In January, the central bank exited from the peg to the U.S. dollar and has increasingly sold more foreign exchange in regular auctions as opposed to direct sales.
- The central bank is revamping its monetary policy framework to include base money targeting.

Structural reforms are focused on fostering growth in the private sector and improving the business environment.
Legislative and policy actions:
- The National Assembly approved a Law on Competition to support competition in domestic markets and address monopolistic practices in key sectors, such as telecommunications and cement production.
- A Private Investment Law was approved that removes entry barriers to foreign direct investment.
- The government launched a program for diversifying exports and substituting imports.

Angola’s social gaps are large and widespread, including higher poverty incidence than predicted by income levels and higher mortality rates than regional peers.
Public spending is insufficient in critical areas like education.
The IMF highlights the need to create room in the budget to close social gaps and suggests that a well-designed conditional cash transfer program could help alleviate poverty and other social problems.

Source: Angola: The Road to Economic Reform (IMF, June 11, 2018).