IMF Staff Completes 2016 Article IV Consultation to Angola

IMF News, November 16, 2016

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An International Monetary Fund (IMF) team led by Ricardo Velloso visited Luanda from November 3-16, 2016, to conduct discussions for the 2016 Article IV consultation.
End-of-Mission press releases convey preliminary findings; the views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
The IMF Executive Board is expected to discuss the 2016 Article IV consultation in January 2017.

In 2017, output growth is projected to pick up to 1.25 percent, compared to no growth this year.
Annual inflation is projected to reach 45 percent by year-end before declining to 20 percent next year.
Over the medium term, the outlook is for a gradual recovery in economic activity, with risks including a further decline in oil prices and delays in implementing structural reforms.

The overall fiscal deficit is expected to reach about 4 percent of GDP in 2016.
Public debt is projected to exceed 70 percent of GDP by end-2016, reflecting the depreciation of the exchange rate in addition to the fiscal deficit.
The IMF view: the government should target an overall fiscal deficit of no more than 2.25 percent of GDP in 2017.
Over the medium term, fiscal policy should offset permanently lower oil revenues through:
- expenditure rationalization;
- higher non-oil revenues;
- strengthened fiscal institutions to manage oil revenue volatility.

Strengthen efforts to enlarge the tax base, including by introducing a VAT in 2019.
Continue to reduce the burden of the public sector wage bill by streamlining and refocusing the administration on efficient provision of public goods.
Prevent fuel subsidies from re-emerging by regularly adjusting prices to reflect fluctuations in international prices and the exchange rate.
Improve the quality of public investment by strengthening processes to evaluate, select, and monitor projects.

The National Bank of Angola (BNA) has tightened liquidity conditions since last June; monthly inflation is starting to subside.
Larger sales of foreign exchange by the BNA have eased some pressures on the foreign exchange market.
Persistent issues:
- wide and volatile spread between the parallel and primary market exchange rates;
- backlog of foreign exchange buying orders in commercial banks.
Recommendation: address the imbalance through greater exchange rate flexibility with supportive macroeconomic policies to maintain the official exchange rate as the basis for price formation and inflation expectations, prevent misallocation of resources, and accelerate growth.

The banking system needs to be strengthened to help with economic recovery and foster inclusive growth.
The BNA’s efforts to strengthen bank regulation and supervision are welcome.
Initial steps to restructure and recapitalize the state-owned BPC bank are positive.
The BNA should maintain efforts to mitigate drivers and risks from the loss of correspondent banking relations by:
- enhancing dialogue with home regulators of foreign correspondent banks;
- strengthening the framework, and its implementation, to combat money laundering;
- developing contingency plans, in coordination with stakeholders, to prepare for potential loss of correspondent banking relations.

Implementation of structural reforms is critical to diversify the economy, boost growth, and reduce poverty.
Objectives require:
- reducing costs in the non-oil sector;
- dealing with physical and human capital bottlenecks;
- more forcefully addressing severe impediments to doing business.
The private sector should have a larger role in the economy, including in infrastructure development through a robust system of public-private partnerships and concessions.

The mission met with Vice-President Manuel Vicente; Finance Minister Archer Mangueira; Planning and Territorial Development Minister Job Graça; Economy Minister Abrahão Gourgel; Construction Minister Artur Fortunato; Petroleum Minister Botelho Vasconcelos; Energy and Water Minister João Baptista Borges; Commerce Minister Fiel Domingos Constantino; BNA Governor Valter Filipe Duarte da Silva; other senior officials; members of the Economic and Finance Commission of the National Assembly; representatives from Sonangol, the financial sector, the non-financial private sector, non-governmental organizations, and the diplomatic community.
Together with the BNA, the mission hosted a roundtable with representatives of the banking sector on the issue of correspondent banking relations.
“We thank the authorities for their hospitality and constructive dialogue.”

IMF Communications Department, Press Release No. 16/510, November 16, 2016.