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

_IMF News, September 10, 2003_

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## Bibliographic details
- Published: September 10, 2003

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### 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).*

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## References

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