Public Information Notice: IMF Concludes 2003 Article IV Consultation with Angola
IMF News, September 10, 2003
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- Published: September 10, 2003
Background
- Civil war ended on April 4, 2002, with agreement between Angolan armed forces and UNITA after 27 years of conflict.
- Rapid demobilization and resettlement of ex-combatants followed, supported by government-led initiatives and various UN agencies and the World Bank.
- 2002 economic context:
- Economy grew by 15 percent driven by a booming energy sector.
- Non-oil economy lagged; Angola reliant on imports and food aid for about half of its cereals requirements.
- Poverty: more than 65 percent of the urban population living below the poverty line; poverty reportedly far deeper in rural areas.
- Inflation: 12-month inflation remained above 100 percent throughout 2002.
- Currency: real effective appreciation of about 7 percent in 2002 on top of cumulative appreciation of 42 percent in 2000-01.
- Exchange market spread: average spread between official and parallel market exchange rate was 4 percent.
- External debt: by end-December 2002, about half of Angola's external debt was arrears.
Fiscal and monetary developments
- Fiscal deficits and quasi-fiscal operations:
- General government fiscal deficit (accrual basis) more than doubled between 2001 and 2002, reaching the equivalent of 9 percent of GDP.
- Non-oil fiscal deficit averaged 38 percent of GDP in 2001-02.
- Estimated 31 percent of total government expenditures executed outside the regular budgetary system.
- Financing of the 2002 fiscal deficit depleted oil-bonus off-shore account balances, led to costly borrowing from international commercial banks, and expanded central bank net credit to the government by 3.6 percent of GDP.
- Monetary expansion and banking intermediation:
- Reserve money expanded by 110 percent during 2002 due to central bank financing of the fiscal deficit and the central bank's operational deficit.
- High inflation led commercial banks to hold excess reserves at the BNA and foreign assets rather than lend domestically.
- By end-2002, only 30 percent of bank deposits had been intermediated to domestic borrowers.
External sector and reserves
- Current account:
- Turned 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, respectively.
- Deterioration due to widening current account deficit of the oil sector from declining oil prices and surging services payments to international oil companies.
- Foreign direct investment and access to financing:
- Foreign direct investments into the oil sector remained buoyant.
- Built-up official external arrears hampered public sector access to external financing on favorable terms.
- Reserves:
- Gross international reserves at end-2002 amounted to $375 million, less than the equivalent of one month of imports of goods and services.
Structural reforms and governance
- Limited structural reforms in 2002; notable actions include:
- Angola signed the free trade agreement with SADC in March 2003.
- Continued reforms of customs administration.
- Very little progress on privatization of public banks and nonfinancial enterprises.
- Governance and transparency issues highlighted as central to improving outcomes, especially in public institutions and the oil sector.
Executive Board assessment — findings and recommendations
- Commendations and overall view:
- Directors welcomed the end of the civil war and commended authorities for commitment to reconstruction, restoring financial stability, re-establishing market structures, and reducing widespread poverty.
- Noted that the magnitude of challenges requires a bold and comprehensive approach.
- Fiscal policy and public expenditure:
- Urged authorities to significantly narrow the fiscal deficit in 2003 through revenue increases and spending cuts.
- Emphasized strengthening tax revenues, especially the non-oil component, and improving administration of oil revenues.
- Recommended allocating more resources to health, education, and other social services, rebuilding infrastructure (power, water supply, transport), and phasing out consumer price subsidies.
- Endorsed authorities' proposed 2003 budget revisions to consolidate quasi-fiscal operations of Sonangol and other extrabudgetary expenditure into central government operations.
- Encouraged implementation of public expenditure management reforms following World Bank and Fund technical assistance to ensure spending consistency with the legislated budget.
- Debt and borrowing:
- Urged a more prudent foreign borrowing policy to avoid worsening external debt burden, much of which is in arrears.
- Emphasized phasing out foreign commercial borrowing, including loans collateralized by future oil revenues.
- Stressed need to develop a medium-term debt strategy supported by Fund technical assistance.
- Monetary and exchange-rate policy:
- Fiscal consolidation needed to facilitate prudent monetary policies, rebuild foreign reserves, and reduce risk of further real exchange rate appreciation.
- Called to remove divergence between official and parallel market exchange rates and to phase out exchange rate controls and restrictions.
- Advised abiding by central bank law restricting lending to the government and full implementation of the protocol regulating central bank–treasury relations to increase autonomy and transparency.
- Transparency, oil sector, and governance:
- Emphasized enhancing transparency in oil industry; commended decisions to disclose oil-related financial information, audit Sonangol, and publish executive summary of private-sector oil study; encouraged publication of full oil industry report.
- Viewed tackling corruption within an appropriate legal framework as essential to enhancing growth potential.
- Welcomed Tribunal of Contas' more proactive auditing of public expenditure.
- Structural reforms and private sector:
- Stressed decisive structural reforms beyond oil to foster economic diversification, employment creation, and productivity in non-oil economy.
- Promoted agriculture and restoration of critical infrastructure; welcomed passage of private investment legislation.
- Supported strengthening banking system via improved supervisory and regulatory frameworks and privatization of state-owned banks.
- Encouraged speeding up privatization of public enterprises and reducing government role in diamond marketing.
- Acknowledged customs reform progress and emphasized phasing out export duties and reducing import duties consistent with international trade obligations.
- Data, statistics, and external relations:
- Highlighted importance of completing compilation of basic macroeconomic statistics, particularly external debt statistics.
- Stressed that transparent and comprehensive statistical data and a medium-term macroeconomic framework are essential for normalizing relations with international financial community, including the Paris Club.
- Encouraged initiation of discussions with creditors to resolve external debt arrears to facilitate access to grants and longer-term concessional financing.
- Welcomed progress on a Poverty Reduction Strategy Paper (PRSP) and looked forward to development of a full program using a broad participatory approach supported by a medium-term framework.
- Path toward engagement with the IMF:
- Welcomed authorities' willingness to continue policy dialogue and to prepare a path toward a new staff-monitored program (SMP).
- Stressed that strengthened governance, transparency, full implementation of fiscal–monetary protocol, and improved fiscal and external debt data are most important steps toward an SMP.
- Noted that successful completion of an SMP could be the basis for an eventual Fund-supported program.
Selected economic indicators (1999–2002)
- Real GDP (annual percentage change):
- 1999: 3.3
- 2000: 3.0
- 2001: 3.2
- 2002: 15.3
- Oil sector (annual percentage change):
- 1999: 1.0
- 2000: 0.4
- 2001: -1.0
- 2002: 22.1
- Non-oil sector (annual percentage change):
- 1999: 4.8
- 2000: 6.8
- 2001: 9.6
- 2002: 7.6
- Consumer prices (end of period, annual percentage change):
- 1999: 329
- 2000: 268
- 2001: 116
- 2002: 106
- Real effective exchange Rate (end of period, 1/; positive denotes appreciation):
- 1999: -50
- 2000: 29
- 2001: 13
- 2002: 7
- Broad money (annual percentage change):
- 1999: 533
- 2000: 304
- 2001: 163
- 2002: 158
- Interest rate (for three-month time deposits, annual percent):
- 1999: 36
- 2000: 46
- 2001: 56
- 2002: 41
- Fiscal accounts (percent of GDP):
- Total revenue:
- 1999: 46.8
- 2000: 51.8
- 2001: 42.6
- 2002: 39.0
- Of which: oil:
- 1999: 41.1
- 2000: 46.2
- 2001: 33.9
- 2002: 29.9
- Total expenditure:
- 1999: 82.4
- 2000: 60.4
- 2001: 46.3
- 2002: 48.0
- Overall balance (on a commitment basis, excluding grants):
- 1999: -35.5
- 2000: -8.6
- 2001: -3.7
- 2002: -9.0
- External sector:
- Current account balance (including transfers, percent of GDP):
- 1999: -28.1
- 2000: 9.0
- 2001: -15.1
- 2002: -5.8
- Public debt service-to-exports ratio:
- 1999: 44.4
- 2000: 36.3
- 2001: 41.2
- 2002: 26.4
- Levels (in millions of U.S. dollars, unless otherwise indicated):
- Gross domestic product (current prices):
- 1999: 6,088
- 2000: 8,864
- 2001: 9,472
- 2002: 11,204
- Gross national income per person (U.S. dollars):
- 1999: 364
- 2000: 538
- 2001: 576
- 2002: 685
- Oil production (thousands of barrels per day):
- 1999: 746
- 2000: 748
- 2001: 740
- 2002: 903
- Price of Angola's oil (U.S. dollars per barrel):
- 1999: 17.6
- 2000: 27.2
- 2001: 24.2
- 2002: 24.3
- Gross international reserves (end of period):
- 1999: 496
- 2000: 1,198
- 2001: 732
- 2002: 375
- Equivalent in months of imports:
- 1999: 2.1
- 2000: 1.1
- 2001: 0.5
- 2002: (not listed)
Public Information Notice: IMF Concludes 2003 Article IV Consultation with Angola (September 10, 2003).